Office of the Assistant Secretary for Public and Indian Housing; Public/Private Partnerships for the Mixed-Finance Development of Public Housing Units
Federal RegisterMay 2, 1996
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SUMMARY: This interim rule adds a new subpart F to the public housing
development program at 24 CFR part 941, which authorizes a public
housing authority to use a combination of private financing and public
housing development funds to develop public housing units. HUD is
issuing this interim rule as a result of its determination that public
housing development funds may be provided to a PHA, even though the PHA
will provide those funds to a non-PHA entity so that it can develop and
own the resulting public housing units. This interim rule also sets
forth the requirements that must be met by the owner entity before HUD
will approve a proposal to use mixed-finance strategies under subpart
F, and sets forth continuing requirements that apply throughout the
development and operation of the public housing units by the owner
entity. In addition, this interim rule clarifies that replacement
public housing units for public housing units that have been demolished
may be built on the original public housing site, or in the same
neighborhood, if the number of such replacement units is significantly
fewer than the number of units demolished.
DATES: Effective date: July 1, 1996, except for Secs. 941.606 and
941.610, which contain information collection requirements, and are not
effective until approved by the Office of Management and Budget. When
approval is obtained, HUD will publish notice of the effective date.
See the Paperwork Reduction Act Statement below under the heading, ``V.
OTHER MATTERS.''
Comments due date: Comments must be submitted by July 1, 1996.
ADDRESSES: Interested persons are invited to submit comments regarding
this interim rule to the Office of the General Counsel, Rules Docket
Clerk, room 10276, Department of Housing and Urban Development, 451
Seventh Street, S.W., Washington, D.C. 20410-0500. Comments should
refer to the above docket number and title. A copy of each
communication submitted will be available for public inspection and
copying during regular business hours (weekdays 7:30 a.m. to 5:30 p.m.
Eastern time) at the above address. Facsimile (FAX) comments are not
acceptable. A copy of any comment concerning the information
collections contained in the interim rule also should be sent to the
Office of Management and Budget, Office of Information and Regulatory
Affairs, Attention: Desk Officer for HUD, Washington, D.C. 20503.
FOR FURTHER INFORMATION CONTACT: Bill Flood, Office of Capital
Improvements, Office of Public and Indian Housing, Department of
Housing and Urban Development, 451 Seventh Street, S.W., Washington,
D.C. 20410. Telephone number (voice): (202) 708-1640, ext. 4185; (TTY):
(202) 708-9300 or 1-800-877-8339. (Except for the ``800'' telephone
number, these are not toll-free numbers.)
SUPPLEMENTARY INFORMATION:
I. Background
This interim rule adds a new subpart F to the public housing
development program at 24 CFR part 941, which authorizes a PHA to use a
combination of private financing and public housing development funds
to develop public housing units. HUD is issuing this interim rule as a
result of its determination that a PHA may receive public housing
development funds under section 5 of the United States Housing Act of
1937, notwithstanding the fact that the PHA will provide those funds to
a non-PHA entity to develop and own the resulting public housing units.
Under this subpart, a PHA and its partner(s) may structure
transactions that make use of private and/or public sources of
financing (including public housing development funds) for the purpose
of developing public housing units. The resulting development(s)
(referred to as a ``mixed-finance'' development(s) for purposes of this
interim rule), may consist of 100 percent public housing units, or may
consist of both public housing and non-public housing units. Through
Fiscal Year 1997, transactions approved under this subpart will not
involve more than $94 million in mortgage financing insured by the
Federal Housing Administration. Additionally, at the end of the 1997
fiscal year, HUD will undertake an analysis to determine the costs and
benefits of the transactions approved under this subpart and will
reconsider the policy of using FHA mortgage insurance in connection
with this development method.
Many potential scenarios for ownership and transaction structures
exist, ranging from the PHA or its partner(s) holding no ownership
interest, a partial ownership interest, or l00 percent ownership
interest in the public housing units that are to be developed. PHAs
and/or their partner(s) may choose to enter into a partnership or other
contractual arrangement with a third-party entity for the mixed-finance
development and/or ownership of public housing units. If this entity
has primary responsibility along with the PHA for the development of
these units, it is referred to for purposes of this interim rule as the
PHA's partner. The entity that ultimately owns the public housing
units, whether the PHA retains an ownership interest or not, is
referred to as the ``owner entity.''
Subpart F also sets forth the requirements that must be met by the
PHA before HUD can approve a proposal involving mixed-finance
strategies, and sets forth continuing requirements that apply
throughout the development and operation of the public housing units by
the owner entity. HUD notes that, in developments where the proposed
public housing units are not specifically designated units, the
development requirements set forth in subpart F (including Davis-Bacon
and procurement requirements) are applicable to all units that may, at
any time, be used as the public housing units. Federal requirements
applicable to the operation of public housing units must also be
satisfied with respect to the percentage of public housing units
approved by HUD for construction within the development.
HUD believes that the establishment of this new subpart will expand
greatly opportunities for private sector investment in the development
of public housing units. The Department believes further that the
increased development of such public housing units will aid local
efforts in providing affordable housing for low income families. HUD
expects that the increased flexibility of using public housing funds
for mixed-finance developments will expand considerably the
opportunities for low income families to become more economically and
socially integrated within the broader community. HUD specifically
requests comments from the public on how the interim rule can provide
for further expansion of such opportunities.
Furthermore, in HUD's continuing efforts to devolve responsibility
and avoid micromanagement, it has
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attempted to establish in this interim rule the minimal process
necessary to ensure that public housing development funds are used for
program purposes and not subject to waste, fraud or abuse. The
Department specifically requests comments from the public as to how the
process may be further streamlined, particularly in light of any
existing safe harbors that may permit an abbreviated Departmental
review. HUD will consider all comments that it receives in developing
the final rule implementing subpart F.
II. Implementation
The Department's primary consideration in approving proposals under
this new subpart is to ensure the financial viability of the proposed
mixed-finance development, since HUD wants to ensure that the public
housing units remain available to eligible families for the maximum
term of any low-income use restrictions. HUD also wants to ensure that
the Federal investment of funds in the development is protected.
The mixed-finance strategies established in subpart F are
independent of the normal requirements governing public housing
development, as set forth in existing subparts A through E of part 941.
To the extent that certain requirements contained in subparts A through
E also apply to mixed-finance development, HUD has included in subpart
F explicit cross-references to such requirements.
The Department intends to model procedures and requirements under
subpart F as closely as possible to the Urban Development Action Grant
(UDAG) program. Just as UDAG provided grant assistance to local
governments for use with other sources of public and private funds
(frequently for implementation through partnerships with other
entities), so subpart F is intended to allow PHAs to combine their
funds with other sources and enter into partnerships for the
development and/or ownership of the funded property. Of course, the
public housing funding sources that may be used in a mixed-finance
development strategy operate under statutory provisions different from
those of the UDAG program. The requirements applicable to the use of
public housing development funds are set forth in this subpart.
The Department notes that currently it is in the process of
overhauling the public housing development program set forth in 24 CFR
subparts A through E, and expects to publish shortly an interim rule
that will effect major changes to these subparts. HUD intends to
include in that interim rulemaking a republication of the contents of
today's rulemaking. This will enable HUD to correct in subpart F any
cross-references to provisions that may be revised and reorganized in
subparts A through E of part 941.
A PHA may decide to pursue a mixed-finance development strategy
under subpart F using either public housing development funds, or
modernization funds reserved by HUD for the PHA prior to September 30,
1995 and approved by HUD for conversion to development uses. A PHA may
also propose mixed-finance strategies to HUD under funding rounds for
any appropriate programs in the future, which may be implemented after
HUD establishes the necessary regulatory framework.
A PHA that wants to pursue a mixed-finance strategy is encouraged
to identify as soon as possible the entity(ies) with which it would
like to partner. The PHA must select its partner(s) pursuant to the
requirements set forth in Sec. 941.602(d), in such a manner that it can
certify as to competitive selection pursuant to Sec. 941.606(n)(1)(ii).
Since the roles in development, ownership and management of the
proposed public housing may substantially affect the type of partner
the PHA seeks, PHAs are encouraged to thoroughly consider desired
arrangements before soliciting partner(s).
The Department is authorizing the use of mixed-finance strategies
under this subpart because it allows PHAs to incorporate other
financing sources into the redevelopment of public housing communities.
The PHA and its partner(s), as the primary entities responsible for
developing the proposal, will be responsible for raising non-public
housing capital for the mixed-finance development, as well as
structuring a transaction and ownership structure that accommodates the
requirements of the other financing sources.
For purposes of this interim rule, the term ``participating party''
refers to any public or private individual or organization that: (a)
provides financial or other resources to carry out the proposal, or
specified activities contained in the proposal; or (b) otherwise
participates in the development and/or operation of the public housing
units and will receive HUD funds with respect to such participation.
To be eligible to use mixed-finance strategies under this subpart,
a PHA must prepare its proposal pursuant to Sec. 941.606, and make a
submission directly to Headquarters. Following a technical screening of
the proposal, HUD will carry out a substantive review of the proposal.
This review includes a preliminary assessment of the financing and
other documentation so that HUD can determine, to its own satisfaction,
whether the mixed-finance development is viable and is structured so as
to adequately protect the Federal investment of funds in the
development. In addition, HUD will determine whether the proposal
complies with all program requirements set forth in subpart F, and will
undertake various statutory, regulatory and executive order reviews.
If Headquarters determines that the proposal can be approved, it
will notify the PHA accordingly and send to the PHA for execution an
ACC amendment and/or grant agreement. If the PHA has already executed a
front-end ACC amendment, HUD will send to the PHA another ACC amendment
for the mixed-finance development and/or a grant agreement. After the
PHA executes these document(s), it must return them to HUD for
execution.
Before public housing development funds may be disbursed to the
PHA, it must first submit to HUD evidentiary materials and other forms
of documentation, as described in Secs. 941.610 and 941.612, and
execute the ACC amendment or special mixed-finance amendment to the ACC
(and/or grant agreement). Thereafter, the PHA is responsible for
ensuring that the mixed-finance development is carried out in
accordance with its approved proposal. Requirements governing HUD's
monitoring and review of the development, and the sanctions that HUD
may impose for non-performance, will be set forth in the special mixed-
finance amendment to the ACC (and/or grant agreement).
III. Justification for Interim Rulemaking
In general, the Department publishes a rule for public comment
before issuing a rule for effect, in accordance with its own
regulations on rulemaking at 24 CFR part 10. However, part 10 does
provide for exceptions from that general rule where the agency finds
good cause to omit advance notice and public participation. The good
cause requirement is satisfied when prior public procedure is
``impracticable, unnecessary, or contrary to the public interest.'' (24
CFR Sec. 10.1.)
The Department finds that good cause exists to publish this interim
rule for effect without first soliciting public comment, in that prior
public procedure is contrary to the public interest. This is
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because 24 CFR part 941, subpart F authorizes a new and creative method
of financing the development of public housing, which will enable
localities to respond to critical shortages in their low income housing
stock. The development of public housing units within a development
will also promote the economic and social integration of low income
families within the broader community, thereby providing greater
opportunities for the upward mobility of such families. In addition,
mixed-finance development will promote public/private development of
public housing units, thereby facilitating the demolition of some of
the nation's most severely distressed, obsolete high-rise public
housing complexes. The Department invites public comment on the interim
rule. The comments received within the 60-day comment period will be
considered during development of a final rule that will supersede this
interim rule.
IV. Description of Provisions
Following is a section-by-section analysis of each of the
provisions included in this interim rulemaking:
Section 941.202--(``Site and Neighborhood Standards'')
This rulemaking adds a new paragraph (c)(3) to HUD's existing site
and neighborhood standards at Sec. 941.202. This provision is
applicable only to mixed-finance proposals submitted under 24 CFR part
941, subpart F. The purpose of this provision is to clarify HUD's
existing authority to approve the building of replacement public
housing units for public housing units that have been demolished on
either the original public housing site, or in the same neighborhood,
if the number of such replacement public housing units is significantly
fewer than the number of public housing units demolished. This
authority was affirmed by the recent passage of section 1002(a)(9) of
Pub.L. 104-19 (approved July 27, 1995) which explicitly authorizes HUD
to approve the building of replacement public housing units under such
circumstances.
The Department notes that, in construing the phrase,
``significantly fewer units,'' it has chosen not to establish a
quantitative standard. Instead, HUD will assess, on a case-by-case
basis, the facts involved in each request. In addition, it will take
into account the evolving interpretation of the phrase, ``significantly
fewer units'' as it develops in the course of HUD's separate rulemaking
on site and neighborhood standards.
Section 941.600--(``Purpose'')
This section indicates that the purpose of 24 CFR part 941, subpart
F, is to authorize PHAs to use a combination of private financing and
public housing development funds. In addition, this provision indicates
that subpart F is intended to authorize a variety of ownership and
transaction structures, in which the PHA or its partner(s) may hold no
ownership interest, a partial ownership interest, or 100 percent
ownership interest. In addition, this section sets forth continuing
requirements that apply throughout the development and operation of the
public housing units in the development.
Section 941.600(b) provides that public housing units built within
a development using mixed-finance strategies must be comparable to non-
public housing units with respect to size, location, external
appearance, and distribution within the development.
Section 941.602--(``Applicability of Other Requirements'')
Paragraph (a) identifies the relationship between subpart F and the
remaining subparts in 24 CFR part 941. Specifically, this paragraph
states that the requirements contained in subpart F apply to the
development and operation of public housing units in a development that
is owned, or that will be owned, by a public/private partnership using
mixed-finance strategies. If the PHA and/or owner entity does not want
to designate specific units in a development as public housing units,
the development of all units that may at any time be considered public
housing units must be carried out in accordance with Federal
requirements (including Davis-Bacon and procurement requirements, as
set forth in this subpart).
This paragraph also provides that other requirements related to
public housing development, as set forth in subparts A through E, do
not apply to subpart F, except as may be required by HUD. Included in
this paragraph is a listing of specific provisions contained in
subparts A through E that are applicable to mixed-finance development
under subpart F, which include: various definitions contained in
Sec. 941.103; PHA eligibility (Sec. 941.201); site and neighborhood
standards (Sec. 941.202); design and construction standards
(Sec. 941.203); cost guidelines (Sec. 941.204); PHA contracts
(Sec. 941.205); eligible properties (Sec. 941.206); relocation and
acquisition (Sec. 941.207); other Federal requirements (Sec. 941.208);
audit (Sec. 941.209); maximum development cost (Sec. 941.406);
construction requirements (Sec. 941.503); acceptance of work and
contract settlement (Sec. 941.504); and completion of development
(Sec. 941.505). (See Sec. 941.602(a) for limitations on applicability.)
Paragraph (b) provides that if HUD determines there is a conflict
between a requirement contained in subpart F and a requirement
contained in any other subpart of part 941, the requirements set forth
in subpart F shall apply, unless HUD otherwise determines in writing.
Paragraph (c) of this section states that all references in
subparts A through F of part 941 to the need for ``HUD'' or ``field
office'' action or approval shall be construed to mean that ``HUD
Headquarters'' shall take such action or provide such approval, unless
the field office is authorized in writing by Headquarters to carry out
a specific function under this part. This is because HUD intends that
its Headquarters office, located in Washington, DC, will be responsible
primarily for taking necessary actions, and providing approvals with
respect to proposals under subpart F.
Paragraph (d) provides that the administrative requirements under
24 CFR part 85, which are applicable to grants to PHAs and certain
subgrantees, are also applicable to grantees and subgrantees that
receive funds under subpart F. However, this paragraph also sets forth
two provisos with respect to the applicability of part 85.
The first proviso states that a PHA may select a partner to
implement its proposal using competitive proposal procedures for
qualifications-based procurement. This method will enable the PHA to
select a partner based on its qualifications, subject to negotiation of
fair and reasonable compensation. Currently, this method (which does
not require a consideration of price as a selection factor) is
authorized in part 85 only with respect to a grantee's procurement of
architectural/engineering professional services (see 24 CFR
Sec. 85.36(d)(3)(v). HUD believes that a qualifications-based
procurement of partners in mixed-finance undertakings is critical to
the success of this new development method. This is because the success
of a public/private partnership hinges upon the creativity, capacity,
and vision of the partner and, in many instances, the scope or cost of
the development may not be known at the time the owner entity seeks to
procure the partner.
Consequently, HUD advocates providing maximum flexibility to the
PHA to select a partner based upon its qualifications to develop a
mixed-
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finance development. In this manner, once selected, the partner will
have the freedom to consider various approaches, sites, and financing
strategies for the development of the public housing units, so long as
the partner can provide the minimum number of units for which public
housing funds were provided, and complies with any total development
cost (TDC) and other statutory and mandatory requirements.
The second proviso relates to the applicability of part 85 to the
owner entity that will develop and operate the public housing units. As
a private entity, the owner entity would not normally be subject to the
requirements of part 85. However, this provision states that the owner
entity will be required to comply with 24 CFR part 85 if HUD determines
that the PHA or PHA instrumentality exercises significant functions
within the owner entity with respect to managing the development of the
proposed units. Even under such circumstances, however, HUD may exempt
the owner entity from complying with part 85 if it finds that the owner
entity has developed an acceptable alternative procurement plan.
Section 941.604--(``Definitions'')
This section of the interim rule defines terms that are applicable
only to mixed-finance development: ``development,'' ``mixed-finance,''
``owner entity,'' ``participating party,'' ``partner,'' ``proposal,''
``public housing agency,'' and ``public housing unit.'' In addition to
these terms, Sec. 941.602(a)(1) identifies those definitions in subpart
A that are also applicable to development carried out pursuant to
subpart F. These definitions include: ``Annual Contributions
Contract,'' ``cooperation agreement,'' ``design documents,''
``reformulation,'' and ``total development cost.''
Section 941.606--Proposal
This section provides that the PHA must submit its proposal for the
mixed-finance development by a deadline to be established by HUD. The
Department has the discretion to determine the scope of a PHA's
submissions under this section. HUD shall exercise its discretion based
upon a consideration of whether the documentation is required for HUD
to carry out statutory or other mandatory reviews, as well as a
consideration of the PHA's past performance in implementing development
projects under part 941, and the PHA's administrative capability, as
demonstrated by its overall score on the PHMAP.
HUD has attempted to limit the scope of the PHA proposal
submissions to those that it believes are necessary for the Department
to comply with mandatory front-end reviews, such as environmental
reviews, section 213 (24 CFR part 791, subpart C) clearance, subsidy
layering, and life cycle analysis.
In addition, HUD is requesting a number of items that it believes
are necessary for a preliminary assessment of the financial viability
of the proposed mixed-finance development, and which would be required
by any private sector lender prior to making available construction or
permanent financing. These submissions include, but are not limited to:
information with respect to the proposed activities to be carried out;
a description of the relationship of the participating parties and of
the proposed financing (including the proposed use of public housing
development funds); a description of the proposed housing; site
information; a market analysis; an estimate of the development
construction cost; information with respect to facilities, displaced
occupants, life cycle analysis, a determination of operating
feasibility, and a copy of the section 213 solicitation letter; and
various certifications and assurances.
Section 941.608--Technical Processing and Approval
After a PHA submits its proposal by the specified deadline, HUD
will perform an initial screening to determine that all required
documentation has been submitted. If there are any deficiencies in the
proposal, HUD will advise the PHA and request that the additional
information be submitted by a specified date.
Once the proposal is determined to be complete, HUD will evaluate
the proposal to determine whether: (1) The PHA has the necessary legal
authority to develop the public housing units pursuant to subpart F;
(2) the proposed sources and uses of funds identified in the proposal
are eligible and reasonable, and whether HUD's preliminary assessment
of the financing and other documentation establishes to HUD's
satisfaction that the mixed-finance development is viable and is
structured so as to adequately protect the Federal investment of funds
in the development; (3) if applicable, whether the public housing units
in the proposed development will be comparable in size, location,
external appearance and distribution within the development to the non-
public housing units; (4) if applicable, if public housing development
funds are to be used to pay for more than the pro rata cost of common
area improvements, whether the proposal complies with the specific
requirements set forth in Sec. 941.608(b)(4) (i) and (ii); (5) the
proposal complies with all program requirements including, if
applicable, any comments received from the unit of general local
government under section 213 (24 CFR part 791, subpart C); and (6) the
proposal is approvable after conducting an environmental review in
accordance with 24 CFR part 50.
If HUD determines that the proposal can be approved, it will send a
notification letter to the PHA indicating that its proposal has been
approved and stating the approved total development cost of the public
housing units in the development. HUD will also send to the PHA for
execution an ACC amendment and/or grant agreement (or, if the PHA has
previously executed a front-end ACC amendment, HUD will send to the PHA
a special mixed-finance amendment to the ACC and/or a grant agreement).
(The special amendment to the ACC (and/or grant agreement) contains
additional requirements pertaining to the development and operation of
the public housing units in the context of a mixed-finance
development.) After the PHA executes these documents, it will return
them to HUD for execution.
Section 941.610--Evidentiary Materials and Other Documents
Before HUD will allow a PHA to draw down development funds pursuant
to its approved proposal, the PHA must submit to HUD, within the
prescribed timeframe, certain evidentiary materials and other
documentation with respect to the proposed development. This
documentation includes, but is not limited to: various certifications
and assurances to ensure that the public housing units will be
developed and operated by the owner entity in accordance with the ACC
and other applicable Federal requirements for the maximum period
required by law; copies of executed development-related contracts;
agreements that are needed to implement the approved proposal; deed
restrictions, covenants running with the land, etc.
Section 941.612--Disbursement of Grant Funds
Paragraph (a) provides that a PHA may obtain front-end assistance
under this subpart, and may use such funds to pay for: (1) The costs of
materials and services related to the development of a proposal; (2)
costs associated with the demolition of existing units on a proposed
site; or (3) other preliminary development work.
[[Page 19712]]
HUD will determine the maximum amount of public housing funds that
may be drawn down by a PHA to pay for preliminary development costs
based upon its review of the nature and scope of activities proposed to
be carried out by the PHA. The Department emphasizes that it will
scrutinize carefully any proposed request by a PHA to use public
housing funds in such a manner as to benefit the non-public housing
units in a development. HUD will not permit public housing development
funds to be used to subsidize non-public housing units, or parts of the
development, that do not meet the specific requirements set forth in
this subpart.
Paragraph (b) provides that HUD will review the evidentiary
materials and other documents submitted pursuant to Sec. 941.610 and,
upon determining that such documents are satisfactory, may approve a
drawdown of development funds, consistent with the following
requirements:
First, a PHA may only draw down public housing development funds in
an approved ratio to other public and private funds, in accordance with
a schedule approved by HUD. The PHA and its partner must certify, in a
form prescribed by HUD, prior to the initial drawdown of public housing
development funds that the PHA will not draw down, and the partner will
not request, more public housing grant funds than necessary to meet the
PHA's pro rata share of the development costs. The PHA may draw down
public housing development funds only when payment is due and after
inspection and acceptance of work covered by the draw. The PHA is
required to release funds promptly to its partner (or other designated
third parties approved by HUD), normally within two working days of
receipt of the funds from HUD. The PHA's partner is also required to
take prompt action to distribute the funds (normally within two working
days of receipt of the funds from the PHA).
Second, the interim rule provides that each drawdown of public
housing development funds constitutes a certification by the PHA that
all the representations and warranties of the PHA, as submitted under
subpart F, continue to be valid, true, and in full force and effect.
The PHA's draw down of funds constitutes a certification that it is in
full compliance with all of the PHA's obligations under this subpart
that are applicable at the time the funds are draw down, and that the
ratio for the draw down of funds is satisfied. Finally, the interim
rule provides that the PHA's drawdown of funds constitutes a
certification that all conditions precedent to the PHA's authority to
draw down the public housing grant funds have been satisfied, and that
the funds to be drawn down will be used only for eligible costs
actually incurred, or that will be incurred, in accordance with the
provisions of this subpart and the approved proposal.
Paragraph (c) of this section clarifies that the standard drawdown
requirements set forth in paragraph (b) (including the requirement that
public housing development funds must be drawn down in an approved
ratio to other public and private funds) do not apply to front-end
assistance that is approved by HUD for drawdown under paragraph (a) of
this section.
Section 941.614--(``HUD Monitoring and Review'')
This section establishes the regulatory authority for HUD's ongoing
monitoring and review of a PHA's approved proposal, and provides that
the special mixed-finance amendment to the ACC (and/or grant agreement)
will set forth specific monitoring and review requirements under this
subpart.
Section 941.616--(``Sanctions'')
This section establishes the regulatory authority for HUD's
imposition of sanctions in the event the public housing units that are
proposed to be developed under this subpart are not developed in
accordance with the projected development schedule, the approved
proposal, or all applicable Federal requirements, or if the units are
not operated in accordance with applicable requirements. In addition,
this section provides that HUD may impose sanctions on the PHA, and/or
seek legal and equitable relief in accordance with requirements
prescribed by HUD in the special mixed-finance amendment to the ACC
and/or the grant agreement.
Section 970.2--(``Applicability'')
HUD is amending 24 CFR Sec. 970.2 to carve out two additional
exceptions to the applicability of 24 CFR part 970 (the Department's
regulations implementing the demolition and disposition requirements of
section 18 of the United States Housing Act of 1937 (``USHA'')). These
exceptions are intended to clarify that a PHA is not required under
certain circumstances to comply with the disposition requirements set
forth in section 18 of the USHA.
The first exception provides that a PHA is not required to comply
with section 18 if the PHA conveys a project to the owner entity
pursuant to an approved proposal under 24 CFR part 941, subpart F,
before the determination of the Actual Development Cost to enable an
owner entity to develop the project using the mixed-finance development
method.
The second exception provides that the requirements of section 18
are inapplicable in the event of a reversion of the public housing
units from the owner entity to the PHA (e.g., at the end of the low-
income housing tax credit term).
However, section 18 does apply whenever the owner entity seeks to
dispose of public housing units developed under subpart F to a non-PHA
entity, or to demolish the units, or to operate the units in a manner
inconsistent with public housing occupancy requirements. Section 18
also applies to any disposition by the PHA of public housing units once
the Actual Development Cost of the units is determined. Thus, a PHA
that wants to convey existing public housing units to an owner entity
for rehabilitation would have to comply with requirements set forth in
section 18.
V. Other Matters
National Environmental Policy Act
A Finding of No Significant Impact with respect to the environment
has been made in accordance with HUD regulations at 24 CFR part 50
implementing section 102(2)(C) of the National Environmental Policy Act
of 1969, 42 U.S.C. 4332. The Finding of No Significant Impact is
available for public inspection and copying between 7:30 a.m. and 5:30
p.m. weekdays at the Office of Rules Docket Clerk, 451 Seventh Street,
S.W., room 10276, Washington, D.C. 20410-0500.
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed this interim rule before publication and
by approving it certifies that the interim rule will not have a
significant impact on a substantial number of small entities.
Executive Order 12866
This interim rule was reviewed by the Office of Management and
Budget under Executive Order 12866 as a significant regulatory action.
Any changes made in this interim rule as a result of that review are
clearly identified in the docket file, which is available for public
inspection in the Office of HUD's Rules Docket Clerk, room 10276, 451
7th Street, S.W., Washington, D.C.
Pursuant to Executive Order 12866, each Federal agency must provide
a cost/benefit analysis with respect to
[[Page 19713]]
each rule that is determined to be a significant regulatory action.
Accordingly, HUD sets forth the following cost/benefit analysis for
this interim rulemaking:
Mixed finance development is a new development method whereby
existing public housing development funds can be used with other public
and private funding sources. This interim rule will not result in any
additional cost to the taxpayer, since it enables PHAs to combine their
funding with private and other public sources, and to enter into
partnerships with other entities for the development, ownership and/or
management of public housing units. This financing mechanism will
enable PHAs to locate public housing units in developments that may
consist of public housing and non-public housing units.
This interim rule provides that public housing units located within
a development must be comparable to the non-public housing units with
respect to size, location, external appearance and distribution within
the development. In developments consisting solely of public housing
units, the additional capital made available through other sources is
expected to provide higher quality living environments than would be
possible if the PHA used only public housing development funds to
construct the development.
Examples of this method of development under the HOPE VI Urban
Revitalization Demonstration program are underway. Estimated private
investment in these transactions range from one-half to twice the level
of the public housing funds involved.
Additional benefits to the public include ending the isolation and
stigmatization of public housing residents. Moreover, the interim rule
will enhance the ability of PHAs to collaborate substantially with
other local institutions in the large-scale revitalization of
neighborhoods containing public housing. Public housing created as part
of mixed-finance transactions is subject to market forces, particularly
when integrated with non-public housing units in a development.
Finally, the interim rule provides for flexibility in transaction
structures as well as development, ownership and management strategies
for PHAs to craft the most advantageous proposal for their particular
communities.
Executive Order 12606, the Family
The General Counsel, as the Designated Official under Executive
Order 12606, The Family, has determined that the provisions of this
interim rule will not have a significant impact on family formation,
maintenance or well-being, except to the extent that the program
authorized by the interim rule will provide increased opportunities for
low-income families to live in public housing developments. The
Department believes that these opportunities will increase the
likelihood that low-income families will become more economically and
racially integrated within the broader community, thereby providing
positive benefits for families.
Executive Order 12611, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12611, Federalism, has determined that the policies
contained in this interim rule will not have substantial direct effects
on States or their political subdivisions, or on the relationship
between the Federal government and the States, or on the distribution
of power and responsibilities among the various levels of government.
Catalog of Federal Domestic Assistance.
The Catalog of Federal Domestic Assistance number for this
program is 14.850.
Paperwork Reduction Act Statement
The information collection requirements contained in Secs. 941.606
and 941.610 of this interim rule have been submitted to the Office of
Management and Budget (OMB) for review under the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501-3520). An agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless the collection displays a valid control number. The
OMB control number, when assigned, will be announced by separate notice
in the Federal Register.
The public reporting burden for each of these collections of
information 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 herein. Send comments regarding this
burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to Kay Weaver, Reports
Management Officer, Department of Housing and Urban Development, 45l
Seventh Street, S.W., Room 10276, Washington, D.C. 20410; and to the
Office of Management and Budget, Attention: Desk Officer for HUD,
Washington, D.C. 20503.
Information on the estimated public reporting burden is provided,
as follows:
Annual Reporting Burden for Information Collection
[FR-3919]
----------------------------------------------------------------------------------------------------------------
Number of Frequency of Hours per
Section respondents x responses x response = Burden hours
----------------------------------------------------------------------------------------------------------------
941.606...................... 35 1 48 1,680
941.610...................... 20 1 64 1,280
----------------
Total Reporting Burden. ............... ... ............... ... ............... ... 2,960
----------------------------------------------------------------------------------------------------------------
List of Subjects
24 CFR Part 941
Grant programs--housing and community development, Loan programs--
housing and community development, Public housing, Reporting and
recordkeeping requirements.
24 CFR Part 970
Grant programs--housing and community development, Public housing,
Reporting and recordkeeping requirements.
In accordance with the reasons set forth in the preamble, 24 CFR
part 941 and part 970 are amended as follows:
PART 941--PUBLIC HOUSING DEVELOPMENT
1. The authority citation for 24 CFR part 941 continues to read as
follows:
Authority: 42 U.S.C. 1437b, 1437c, 1437g, and 3535(d).
[[Page 19714]]
2. Section 941.202 is amended by adding a new paragraph (c)(3), to
read as follows:
Sec. 941.202 Site and neighborhood standards.
* * * * *
(c) * * *
(3) Notwithstanding any other provision of this part, and for
purposes only of subpart F of this part, replacement public housing
units for public housing units demolished may be built on the original
public housing site, or in the same neighborhood, if the number of such
replacement public housing units is significantly fewer than the number
of public housing units demolished.
* * * * *
3. A new subpart F is added to read as follows:
Subpart F--Public/Private Partnerships for the Mixed Finance
Development of Public Housing Units
Sec.
941.600 Purpose.
941.602 Applicability of other requirements.
941.604 Definitions.
941.606 Proposal.
941.608 Technical processing and approval.
941.610 Evidentiary materials and other documents.
941.612 Disbursement of grant funds.
941.614 HUD monitoring and review.
941.616 Sanctions.
Subpart F--Public/Private Partnerships for the Mixed Finance
Development of Public Housing Units
Sec. 941.600 Purpose.
(a)(1) This subpart authorizes a PHA to use a combination of
private financing and public housing development funds to develop
public housing units, and is designed to enable PHAs and their partners
to structure transactions that make use of private and/or public
sources of financing. Many potential scenarios for ownership and
transaction structures exist, ranging from the PHA or its partner(s)
holding no ownership interest, a partial ownership interest, or 100
percent of the ownership interest of the public housing units that are
to be developed. PHAs and/or their partner(s) may choose to enter into
a partnership or other contractual arrangement with a third-party
entity for the mixed-finance development and/or ownership of public
housing units. If this entity has primary responsibility along with the
PHA for the development of these units, it is referred to for purposes
of this subpart as the PHA's ``partner.'' The entity that ultimately
owns the public housing units, whether or not the PHA retains an
ownership interest, is referred to as the ``owner entity.'' The
resulting ``mixed-finance'' developments may consist of 100 percent
public housing units, or may consist of public housing and non-public
housing units.
(2) This subpart sets forth the requirements that must be met by
the PHA and its partner(s) before HUD can approve a proposal for mixed-
finance development, and also sets forth continuing requirements that
apply throughout the development and operation of the development by
the owner entity.
(b) Under this subpart, public housing units that are built in a
mixed-finance development must be comparable in size, location,
external appearance, and distribution to the non-public housing units
within the development.
Sec. 941.602 Applicability of other requirements.
(a) Relationship of this subpart to other requirements in this
part. The requirements contained in this subpart apply only to the
development of public housing units using mixed-finance development
methods under this subpart and to the operation of public housing units
that are owned, or that will be owned, by an owner entity under this
subpart. Other requirements for the development of public housing, as
set forth in subparts A through E of this part, shall not apply to the
development of public housing units pursuant to this subpart, except as
may be required by HUD. Applicable requirements include, but shall not
be limited to, the following:
(1) Section 941.103 (``Definitions'') (definitions of the following
terms only shall apply to this subpart: ``Annual Contributions Contract
(ACC),'' ``cooperation agreement,'' ``design documents,''
``reformulation,'' and ``Total Development Cost (TDC).''
(2) Section 941.201 (``PHA eligibility'') (except that specific
requirements governing the cooperation agreement, as set forth in
Sec. 941.201(c), shall be determined in accordance with this subpart);
(3) Section 941.202 (``Site and neighborhood standards'');
(4) Section 941.203 (``Design and construction standards'');
(5) Section 941.204 (``Cost guidelines'');
(6) Section 941.205 (``PHA contracts'') (except that the reference
to ``development related contracts entered into by the PHA'' shall be
construed to mean ``development related contracts entered into by the
PHA or the owner entity'');
(7) Section 941.206 (``Eligible properties'');
(8) Section 941.207 (``Relocation and acquisition'');
(9) Section 941.208 (``Other Federal requirements'');
(10) Section 941.209 (``Audit'');
(11) Section 941.406 (``Maximum development cost and advances'')
(except that paragraph (b) of that section, dealing with ``development
advances,'' is not applicable to this subpart);
(12) Section 941.503 (``Construction requirements'');
(13) Section 941.504 (``Acceptance of work and contract
settlement''); and
(14) Section 941.505 (``Completion of development'').
(b) Procedure in the event of a conflict between requirements. In
the event of a conflict between a requirement contained in this subpart
and an applicable requirement set forth in subparts A through E of this
part, the requirements of this subpart shall apply, unless HUD
otherwise so determines in writing.
(c) HUD approval. For purposes of this subpart only, any action or
approval that is required to be taken or provided by HUD or by the HUD
field office, pursuant to a requirement set forth in subparts A through
F of this part, shall be construed to mean that HUD Headquarters shall
take such action or provide such approval, unless the field office is
authorized in writing by Headquarters to carry out a specific function
under this subpart.
(d) Applicability of requirements pursuant to 24 CFR part 85. The
requirements of 24 CFR part 85 are applicable to this subpart, subject
to the following two provisos:
(1) A PHA may select a partner using competitive proposal
procedures for qualifications-based procurement (subject to negotiation
of fair and reasonable compensation, including TDC and other applicable
cost limitations);
(2) An owner entity (which, as a private entity, would normally not
be subject to part 24 CFR part 85) shall be required to comply with 24
CFR part 85 if HUD determines that the PHA or PHA instrumentality
exercises significant functions within the owner entity with respect to
managing the development of the proposed units. HUD may, on a case-by-
case basis, exempt such an owner entity from the need to comply with 24
CFR part 85 if it determines that the owner entity has developed an
acceptable alternative procurement plan.
[[Page 19715]]
Sec. 941.604 Definitions.
In addition to the definitions set forth in Sec. 941.602(a)(1), the
following definitions are applicable to this subpart:
Development. A housing facility consisting of public housing units,
and that may also consist of non-public housing units, that has been
developed, or that will be developed, using mixed-finance strategies
under this subpart.
Mixed-finance. The combined use of publicly and privately financed
sources of funds for the development of public housing units under this
subpart.
Owner Entity. The entity that will own the public housing units, if
the PHA holds less than one hundred percent of the ownership interest;
or the lessee under a ground lease from the PHA. The owner entity may
be a partnership that includes the PHA.
Participating party. Any person, firm, corporation, or public or
private entity that:
(1) Agrees to provide financial or other resources to carry out the
approved proposal, or specified activities contained in the proposal;
or
(2) Otherwise participates in the development and/or operation of
the public housing units and will receive funds derived from HUD with
respect to such participation. The term ``participating party''
includes an owner entity or partner.
Partner. A third party entity with whom the PHA has entered into a
partnership or other contractual arrangement to provide for the mixed-
finance development of public housing units pursuant to this subpart,
and that has primary responsibility with the PHA for the development of
the housing units under the terms of the approved proposal.
Proposal. For purposes of this subpart only, the term ``proposal''
means a detailed PHA submission of information under Sec. 941.606.
Public Housing Agency (PHA). Any State, county, municipality, or
other governmental entity or public body (or agency or instrumentality
thereof) which is authorized to engage in or assist in the development
or operation of low-income housing under this part. For purposes of
this subpart, the term ``PHA'' also encompasses any agency or
instrumentality of the PHA.
Public housing unit. A unit that is eligible to receive operating
subsidy pursuant to section 9 of the Act (42 U.S.C. 1437g).
Sec. 941.606 Proposal.
Each proposal shall be prepared in the form prescribed by HUD and
shall include some or all of the following documentation, as deemed
necessary by HUD. In determining the amount of information to be
submitted by the PHA under this section, HUD shall consider whether the
documentation is required for HUD to carry out mandatory statutory or
executive order reviews, the quality of the PHA's past performance in
implementing development projects under this part, and the PHA's
demonstrated administrative capability, as demonstrated by its overall
score on the PHMAP. The proposal includes:
(a) Activities; relationship of participating parties. An
identification of the participating parties and a description of the
activities to be undertaken by each of the participating parties and
the PHA, and the legal and business relationships between the PHA and
each of the participating parties.
(b) Financing. A detailed description of all financing (including
public housing development funds) necessary for the implementation of
the proposal, specifying the sources (with respect to each of the
proposed categorical uses of all such financing), together with a ten-
year operating pro forma for the development (including all underlying
assumptions). In addition, the PHA may be required to submit to HUD,
for such review and approval as HUD deems necessary, all documents
(including applications for financing) relating to the financing of the
proposal, including, but not limited to, any loan agreements, notes,
mortgages or deeds of trust, use restrictions, operating pro formas
relating to the viability of the development, and other agreements or
documents pertaining to the financing of the proposal.
(c) Methodology. If the PHA proposes to provide public housing
operating subsidy for the public housing units, it must submit a
methodology acceptable to HUD for the distribution of a portion of its
operating subsidy to such units;
(d) Development description. A description of the housing,
including the number and type (with bedroom count) of public housing
units and, if applicable, the number and type of non-public housing
units (with bedroom count) to be developed; schematic drawings and
designs of the proposed building and unit plans; outline
specifications; and the types and amounts of non-dwelling space to be
provided.
(e) Site information. An identification and description of the
proposed site, site plan, and neighborhood.
(f) Market analysis. An analysis of the projected market for the
proposed development.
(g) Development construction cost estimate. A preliminary
development construction cost estimate based on the schematic drawings
and outline specifications and current construction costs prevailing in
the area. In addition, a copy of the PHA development schedule,
including the architect or contractor estimate of the time required to
complete each major development stage.
(h) Facilities. A statement addressing the adequacy of existing or
proposed facilities and services for the prospective occupants of the
development.
(i) Relocation. Information concerning any displacement of site
occupants, including identification of each displacee, the distribution
plan for notices, and the anticipated cost and source of funding for
relocation benefits.
(j) Operating feasibility. A demonstration of the operating
feasibility of the development, which shall be accomplished by the
PHA's showing that the estimated operating expenses of the development
will not exceed its estimated operating income.
(k) Life cycle analysis. For new construction and substantial
rehabilitation, the criteria to be used in equipping the proposed
development with heating and cooling systems, which shall include a
life-cycle cost analysis of the installation, maintenance and operating
costs of such systems pursuant to section 13 of the Act (42 U.S.C.
1437k).
(l) Section 213 clearance. To expedite processing of the proposal,
a PHA may solicit, on behalf of HUD, comments under section 213 (24 CFR
part 791, subpart C) from the chief executive officer (CEO) (or his or
her designee) of the unit of general local government. In such case,
the solicitation letter must state that comments should be sent
directly to HUD within 30 calendar days of HUD's estimated date of
receipt of the PHA's proposal. The local government's response must
state that the comments are to be considered its only response under 24
CFR part 791, subpart C. A copy of the solicitation letter must be
included in the PHA's proposal.
(m) New construction. If a proposal involves new construction, the
PHA must comply with section 6(h) of the Act (42 U.S.C. 1437d). This
may be accomplished by the PHA's submission of a comparison of the cost
of new construction in the neighborhood where the housing is proposed
to be constructed and the cost of acquisition of existing housing (with
or without rehabilitation) in the same neighborhood (including
estimated costs of lead-based paint testing and abatement).
Alternatively, the PHA may submit a certification, accompanied by
[[Page 19716]]
supporting documentation, that there is insufficient existing housing
in the neighborhood to develop public housing through acquisition.
(n)(1) Certifications and assurances. The PHA shall submit, as part
of its proposal, certifications and assurances warranting that it:
(i) Has the legal authority under State and local law to develop
public housing units through the establishment or selection of an owner
entity, and to enter into all agreements and provide all assurances
required under this subpart. In addition, the PHA shall warrant that it
has the legal authority necessary to enter into any proposed
partnership and to fulfill its obligations as a partner thereunder, and
that it has obtained all necessary approvals for this purpose;
(ii) Will use an open and competitive process to select the partner
and/or the owner entity and shall ensure that there is no conflict of
interest involved in the PHA's selection of the partner and/or owner
entity to develop and operate the proposed public housing units. In
addition, the PHA shall ensure that:
(A) Any selected partner and/or owner entity complies with all
applicable State and local procurement and conflict of interest
requirements with respect to its selection of entities to assist in the
development, and uses a competitive process consistent with the
requirements set forth in this subpart; and
(B) If the partner and/or owner entity (or any other entity with an
identity of interests with such parties) wants to serve as the general
contractor for the project or development, it may award itself the
construction contract only if it can demonstrate to HUD's satisfaction
that its bid is the lowest bid submitted in response to a public
request for bids;
(iii) Will be responsible to HUD for ensuring that the public
housing units are developed and operated in accordance with all
applicable public housing requirements, including the ACC, and all
pertinent statutory, regulatory, and executive order requirements, as
those requirements may be amended from time to time. The PHA must also
warrant that it will provide for a mechanism to assure, to HUD's
satisfaction, that the public housing units will remain available for
use by low-income families for the maximum period required by law. In
addition, the PHA must warrant that any agreement providing for the
management of the public housing units by an entity other than the PHA
shall require that the units be operated in accordance with all
applicable requirements under this subpart for the full term of any
low-income use restrictions.
(2) The PHA shall submit a certification of previous participation
in accordance with procedures set forth in 24 CFR part 200, subpart H,
and shall ensure that a similar certification is submitted to HUD by
the participating parties.
Sec. 941.608 Technical processing and approval.
(a) Initial screening. HUD shall perform an initial screening to
determine that all documentation required as part of the proposal under
Sec. 941.606 has been submitted. HUD will advise the PHA of any
deficiencies in the proposal and indicate that additional information
will be accepted if it is received by a specified date.
(b) Technical processing. Upon determining that a proposal is
acceptable for technical processing, HUD will evaluate the proposal to
determine:
(1) Whether the PHA has the legal authority necessary to develop
public housing units through the establishment of an owner entity and
the use of mixed-finance strategies in accordance with this subpart;
(2) Whether the proposed sources and uses of funds set forth in the
proposal are eligible and reasonable, and whether HUD's preliminary
assessment of the financing and other documentation establishes to
HUD's satisfaction that the mixed-finance development is viable and is
structured so as to adequately protect the Federal investment of funds
in the development. For this purpose, HUD will consider (among other
factors) the PHA's proposed methodology for allocating operating
subsidies on behalf of the public housing units; the projected revenues
to be generated by any non-public housing units in a mixed-finance
development; and the l0-year operating pro forma and other information
contained in the proposal;
(3) If applicable, whether the public housing units in the proposed
development will be comparable in size, location, external appearance
and distribution within the development to the non-public housing
units;
(4) If public housing development funds are to be used to pay for
more than the pro rata cost of common area improvements, whether the
proposal ensures that:
(i) On a per unit basis (taking into consideration the number of
public housing units for which funds have been reserved) the PHA will
not exceed TDC limits; and
(ii) Any common area improvements will benefit all residents of the
development;
(5) Whether the proposal complies with all program requirements
including, if applicable, any comments received from the unit of
general local government pursuant to section 213 of the Housing and
Community Development Act of 1974 (42 U.S.C. 1439) (see 24 CFR part
791, subpart C); and
(6) Whether the proposal is approvable following completion by HUD
of an environmental review in accordance with the requirements of 24
CFR part 50.
(c) Proposal approval. HUD shall send a notification letter to the
PHA stating that the proposal has been approved or disapproved. For
approved proposals, the letter shall indicate the approved total
development cost of the public housing units in the development. HUD
will also send to the PHA for execution an ACC amendment and/or a grant
agreement. If the PHA has already executed a front-end ACC amendment,
HUD will send to the PHA for execution a special ACC amendment for the
mixed-finance development (and/or a grant agreement). The PHA shall
execute these documents and return them to HUD for execution.
Sec. 941.610 Evidentiary materials and other documents.
(a) Submission of documents. As a condition of the release of grant
funds under Sec. 941.612, the PHA shall submit to HUD, within the
timeframe prescribed by HUD, evidentiary materials and other
documentation, as more fully set forth in the special mixed-finance
amendment to the ACC (and/or grant agreement). Such materials and
documentation shall include, but shall not be limited to:
(1) A copy of executed development-related contracts entered into
by the PHA or owner entity with respect to the development, and the
PHA-executed ACC amendment or special mixed-finance amendment to the
ACC (and/or grant agreement);
(2) Agreements that are necessary to implement the proposal and to
ensure that all requirements of this subpart are satisfied. Such
agreements must be submitted to HUD for review and approval and shall
include, but shall not be limited to:
(i) A deed restriction, covenant running with the land, ground
lease, or other arrangement of public record, that will assure to HUD's
satisfaction that the public housing units will be available for use by
eligible low-income families in accordance with all
[[Page 19717]]
applicable public housing requirements for the maximum period required
by law;
(ii) A regulatory or operating agreement between the PHA and the
owner entity that provides binding assurances that the operation of the
public housing units will be in accordance with all applicable public
housing requirements;
(iii) An agreement between the PHA and the owner entity with
respect to the provision of operating subsidy by the PHA in accordance
with this subpart;
(iv) A partnership agreement, development agreement, or other
agreement entered into between the PHA and its partner, or any other
participating party, that establishes the relationships between the
parties with respect to the implementation of the proposal, including
all rights and liabilities (financial and otherwise) of the parties, a
development schedule, and the respective commitments of the parties
with respect to the development of the public housing units. For
developments involving public and non-public housing units only, the
PHA shall also provide for an allocation with the owner entity of
expenses and risks (e.g., fire, exhaustion of, or failure to receive,
syndication funds, etc.) associated with the development and operation
of the development. The allocation of expenses and risks shall be based
upon a ratio that reflects the proposed bedroom mix of the public
housing units as compared to the bedroom mix and unit count of the non-
public housing units in the development, or as otherwise approved by
HUD;
(v) Any agreement relating to the management of the public housing
units by an entity other than the PHA;
(vi) For developments consisting of public housing and non-public
housing units, and in lieu of the standard cooperation agreement
required under Sec. 941.201(c), the PHA shall submit a cooperation
agreement with the applicable locality concerning PILOT payments, local
tax exemption and local government services on behalf of the proposed
public housing units. Such payments, exemption and services must be
based upon a ratio reflecting the proposed bedroom mix of the public
housing units as compared to the bedroom mix of the non-public housing
units in the development, or as otherwise approved by HUD. For
developments consisting only of public housing units, the PHA shall
submit the standard cooperation agreement required under
Sec. 941.201(c);
(3) All private or public financing documents evidencing the
availability of the participating party(ies)'s financing, the amount
and source of financing committed to the proposal by the participating
party(ies), and the irrevocability of those funds. HUD may require in
lieu of, or in addition to the submission of these documents, an
opinion of the PHA's and the owner entity's counsel (or other party
designated by HUD) attesting that counsel has examined the availability
of the participating party(ies)'s financing, and the amount and source
of financing committed to the proposal by the participating party(ies),
and has determined that such financing has been irrevocably committed
by the participating party(ies) for use in carrying out the proposal,
and that such commitment is in the amount required under the terms of
the proposal;
(4) The organizational documents of the owner entity, which shall
be reviewed by HUD (together with all financing documents) to ensure
that they do not provide equity investors, creditors, and any other
parties, with rights that would be inconsistent with, or that could
interfere with, HUD's interest in the proposed development;
(5) Evidence that all necessary actions have been taken by the PHA
and other participating parties to confer such legally enforceable
rights as will enable HUD to protect its investment in the property and
to ensure the availability of the public housing units for low-income
persons for the maximum permissible period;
(6) Evidence of control of the site by the PHA, partner, or owner
entity following proposal submission, for such period of time as may be
required by HUD;
(7) Evidence that construction or rehabilitation is permitted by
current zoning ordinances or regulations, or evidence to indicate that
needed rezoning is likely and will not delay construction of the
development;
(8) In addition, the PHA shall submit the following certifications
warranting that:
(i) For PHAs receiving operating assistance, that:
(A) There shall be no disposition of the public housing units
without the prior written approval of HUD during and for ten years
after the end of the period in which the public housing units receiving
operating subsidy from the PHA; and
(B) During a 40-year period (which may be extended for 10 years
after the end of the period in which the public housing units receive
operating subsidy from the PHA, or as may be otherwise required by
law), the public housing units shall be maintained and operated in
accordance with all applicable public housing requirements (including
the ACC), as those requirements may be amended from time to time;
(ii) The PHA will develop at least the same number of public
housing units as were approved by HUD as part of the PHA's proposal.
Where the PHA proposes to pay for more than its pro rata share of the
cost of common area improvements, the PHA must also certify that:
(A) It will develop the same number of public housing units as were
approved by HUD as part of the PHA's proposal, and will do so within
the TDC limits; and
(B) The common area improvements will benefit all residents of the
development. If the PHA's proposal provides that public housing units
within a development will not be specifically designated as public
housing units, but shall instead constitute a fixed percentage of the
housing units and number of bedrooms developed under the proposal, the
PHA must provide additional binding assurances that the percentage of
public housing units and number of bedrooms, as approved by HUD, will
be maintained as public housing by the owner entity, and that all of
the requirements of this subpart will be satisfied with respect to
those units;
(iii) It will ensure that the requirements of this subpart are
binding upon the owner entity and any partner of the PHA and, to the
extent determined necessary by HUD, upon any other participating party.
In addition, in the event of any noncompliance with the requirements of
this subpart by any participating party, the PHA agrees to take all
necessary enforcement action to ensure such compliance or,
alternatively, to pursue any legal or equitable remedies that HUD deems
appropriate;
(iv) It will include in all agreements or contracts with the
partner, owner entity, or any other participating parties receiving
development funds under this subpart, an acknowledgement that a
transfer of the development funds by the PHA to the partner, the owner
entity, or other participating party, shall not be deemed to be an
assignment of development grant funds and that, accordingly, the
partner, the owner entity or other participating party shall not
succeed to any rights to benefits of the PHA under the ACC, or ACC
amendment, nor shall it attain any privileges, authorities, interests,
or rights in or under the ACC or ACC amendment;
(v) It will include, or cause to be included, in all its agreements
or
[[Page 19718]]
contracts with the partner, the owner entity, or other participating
parties, and in all contracts with any other party involving the use of
development grant funds under this subpart, a provision stating that
nothing in the ACC or ACC amendments providing such funds, nor any
agreement or contract between the party(ies) shall be deemed to create
a relationship of third-party beneficiary, principal and agent, limited
or general partnership, joint venture, or any association or
relationship involving HUD;
(vi) It will ensure that the development of the public housing
units will be in compliance with labor standards applicable to the
development of public housing including, but not limited to, wage rates
under the Davis-Bacon Act (40 U.S.C. 276a et seq.). If the proposed
development will include public housing units that are not specifically
designated units, the PHA shall ensure that such labor requirements are
met with respect to the development of all units that may, at any time,
be used as the public housing units;
(vii) It will take all steps necessary to ensure that, in the event
of a foreclosure or other adverse action brought against the owner
entity with respect to the housing units (including, but not limited
to, the public housing units), the operation of the public housing
units developed under this subpart shall not be adversely affected.
(9) Such additional documentation as may be required by HUD.
(b) Subsidy layering analysis. After the PHA submits the
documentation required under paragraph (a) of this section, HUD (or its
designee) shall carry out a subsidy layering analysis pursuant to
section 102(d) of the Department of Housing and Urban Development
Reform Act of 1989 (42 U.S.C. 3545) (see 24 CFR part 4) to determine
whether the amount of assistance being provided for the development is
more than necessary to make the assisted activity feasible after taking
into account the other governmental assistance.
Sec. 941.612 Disbursement of grant funds.
(a) Front-end drawdowns. A PHA may request front-end assistance for
both scattered or non-scattered site development in accordance with the
following requirements:
(1) Front-end assistance may be used to pay for materials and
services related to proposal development, and may also be used to pay
for costs related to the demolition of existing units on a proposed
site or for preliminary development work;
(2) HUD shall determine on a case-by-case basis the maximum amount
that may be drawn down by a PHA to pay for preliminary development
costs, based upon a consideration of the nature and scope of activities
proposed to be carried out by the PHA;
(3) Before a request for front-end assistance may be approved, the
PHA must provide HUD with such information and documentation as HUD
deems appropriate from the list set forth at Sec. 941.606. In
determining the extent of the PHA's submissions under this paragraph
(a), HUD shall ensure that it has adequate information or documentation
to enable it to carry out any statutory, executive order, or other
mandatory upfront reviews under this subpart. These reviews shall
include, but shall not be limited to, environmental reviews (including
NEPA and historic preservation), intergovernmental review, section 213
clearance (24 CFR part 791, subpart C), and subsidy layering. If, upon
completing these reviews, HUD determines that the proposed development
is approvable, it may execute with the PHA a front-end ACC amendment
and the special mixed-finance amendment to the ACC (and/or grant
agreement) to provide advances for the purposes, and in the amounts,
approved by HUD.
(b) Standard drawdown requirements. HUD will review the evidentiary
materials and other documents submitted pursuant to Sec. 941.610, and,
upon determining that such documents are satisfactory, may approve a
drawdown of development funds, consistent with the following
requirements:
(1) A PHA may only draw down public housing development funds in an
approved ratio to other public and private funds, in accordance with a
draw schedule prepared by the PHA and approved by HUD. The PHA and its
partner shall certify, in a form prescribed by HUD, prior to the
initial drawdown of public housing development funds that the PHA will
not draw down and the partner will not request more public housing
grant funds than necessary to meet the PHA's pro rata share of the
development costs. The PHA shall draw down public housing development
funds only when payment is due and after inspection and acceptance of
work covered by the draw. The PHA shall release funds to its partner
promptly, normally within two working days of receipt of the funds from
HUD, and only in accordance with the ratio approved by HUD. The PHA's
partner shall take prompt action to distribute the funds, normally
within two working days of receipt of the funds from the PHA;
(2) Each drawdown of public housing development funds constitutes a
certification by the PHA that:
(i) All the representations and warranties of the PHA, as submitted
in accordance with this subpart, continue to be valid, true, and in
full force and effect;
(ii) The PHA is in full compliance with all of the PHA's
obligations pursuant to this part which, by their terms, are applicable
at the time of the drawdown of the public housing development funds,
and that to the best of the PHA's knowledge, it is not in default under
the ACC, as amended;
(iii) All conditions precedent to the PHA's authority to draw down
the public housing grant funds have been satisfied;
(iv) The public housing grant funds to be drawn down will be used
for eligible costs actually incurred or to be incurred in accordance
with the provisions of this subpart and the approved proposal; and
(v) The ratio for the draw down of funds is satisfied.
(c) The standard drawdown requirements set forth in paragraph (b)
of this section (including the requirement that public housing
development funds must be drawn down in an approved ratio to other
public and private funds) do not apply to front-end assistance approved
by HUD pursuant to paragraph (a) of this section.
Sec. 941.614 HUD monitoring and review.
HUD shall monitor and review the implementation of the PHA's
approved proposal in accordance with requirements prescribed by HUD in
a special mixed-finance amendment to the ACC (and/or grant agreement).
Sec. 941.616 Sanctions.
In the event the public housing units that are proposed to be
developed under this subpart are not developed in accordance with the
projected development schedule, the approved proposal, and all
applicable Federal requirements, or if the units are not operated in
accordance with applicable requirements, HUD may impose sanctions on
the PHA, and/or seek legal and equitable relief, in accordance with
requirements prescribed by HUD in the special mixed-finance amendment
to the ACC (and/or grant agreement).
[[Page 19719]]
PART 970--PUBLIC HOUSING PROGRAM--DEMOLITION OR DISPOSITION OF
PUBLIC HOUSING PROJECTS
5. Section 970.2 is amended by removing the word ``and'' at the end
of paragraph (a)(9); by removing the period at the end of paragraph
(a)10); and by adding new paragraphs (a)(11) and (a)(12), to read as
follows:
Sec. 970.2 Applicability.
(a) * * *
(11) A public housing development that is conveyed by a PHA to an
owner entity pursuant to an approved proposal under 24 CFR part 941,
subpart F and prior to the determination of the Actual Development Cost
to enable an owner entity to develop the project using the mixed-
finance development method; and
(12) Public housing units that are developed pursuant to the mixed-
finance development method at 24 CFR part 941, subpart F, and that are
reconveyed by the owner entity to the PHA.
* * * * *
Dated: January 16, 1996.
Kevin Emanuel Marchman,
Acting Assistant Secretary for Public and Indian Housing.
[FR Doc. 96-10445 Filed 5-1-96; 8:45 am]
BILLING CODE 4210-33-P
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