Low-Income Public and Indian HousingVacancy Rule

Federal RegisterFeb 28, 1996

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SUMMARY: This final rule establishes new conditions under which a

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

Resident Management Corporation may include vacant units in its

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

(The term housing authority (HA) is used throughout this final rule

when referring to both PHAs and IHAs.) The final rule gives greater

recognition to units that are vacant for reasons beyond the HA's

control, makes changes in the current treatment of vacant units that

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

has HAs exclude long-term vacant units from their inventory of units

available for occupancy.

DATES: April 1, 1996. Applicability date: Operating subsidy eligibility

will first be determined under the new provisions of this rule by PHAs

and IHAs having fiscal years beginning July 1, 1996.

FOR FURTHER INFORMATION CONTACT: MaryAnn Russ, General Deputy Assistant

Secretary, Public and Assisted Housing Operations, Room 4210, U.S.

Department of Housing and Urban Development, 451 Seventh Street, SW.,

Washington, DC 20410, telephone (202) 708-1380 [this telephone number

is not toll-free]. For hearing- and speech-impaired persons, this

number may be accessed via TDD by calling the Federal Information Relay

Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act Statement

The information collection requirements contained in Secs. 950.725,

950.760, 990.109, and 990.117 of this rule have been approved by the

Office of Management and Budget, in accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3501-3520), and assigned OMB control

number 2577-0066. 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.

Background

On July 19, 1995, the Department published a proposed rule (60 FR

37294) that would establish new conditions under which an HA may use a

Projected Occupancy Percentage of less than 97 percent in computing its

Dwelling Rental Income under the Performance Funding System (PFS). The

proposed rule incorporated the recommendations of a regulatory

negotiation advisory committee composed of persons who represent the

interests affected by the current vacancy rule.

Discussion of Public Comments

The Department received eight public comments in response to the

proposed rule, including comments from five PHAs, two national HA

associations, and one IHA. One of the PHA commenters was a member of

the advisory committee.

The Department received very favorable comments for using a

negotiated rulemaking process to develop the proposed rule. This was

the first use of negotiated rulemaking by the Department and

consideration is being and will be given to using this model for other

rulemaking efforts in the future. The IHA commenter expressed regrets

that there was no IHA representative on the advisory committee. The

Department notes that the National American Indian Housing Council was

invited to join the committee, but declined membership.

The IHA commenter recommended that the definition of ``Units vacant

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

(Sec. 950.102) be expanded to include cultural, social, or religious

circumstances. The commenter notes that ``[i]n many Indian communities

* * * unexpected death, suicide, or violent act'' in a unit may

``affect the re-occupancy of [that] unit.'' The Department appreciates

the comment, but does not believe that this type of circumstance

seriously affects the ability of a significant number of IHAs to

maintain an overall acceptable occupancy level. The Department has

found that IHAs generally have high levels of occupancy and, thus,

would not be adversely affected by the provisions of the vacancy rule.

If such a circumstance did arise that caused the IHA to project an

occupancy percentage of less than 97 percent and to have more than 5

vacant units, a waiver request could be made and considered on the

merits of the case.

One commenter requested that reduced Comprehensive Grant Program

(CGP) funds be added to the list of acceptable ``beyond control''

circumstances. This rule does address the situation of a reduction in

CGP funding which occurs as a result of a rescission of appropriated

funds, although not as a ``beyond control'' circumstance. If such an

action results in an HA not being able to complete all the vacant unit

rehabilitation in its approved Annual Statement, the HA may seek a

waiver to permit full PFS eligibility for those units approved but not

funded. While the advisory committee discussed the need to mitigate the

consequences of a rescission, the only procedural process mentioned to

obtain relief was through a waiver. The specific waiver provision in

the proposed rule is omitted in the final rule, because waiver

authority already exists (see 24 CFR 990.101). Since the objective of

the commenter is being met, the Department does not feel it necessary

to overturn the decision of the committee.

One commenter noted that insufficient funding for otherwise

approvable applications for Comprehensive Improvement Assistance

Program (CIAP) funds was an acceptable ``beyond control'' circumstance

and asked why insufficient CGP funding could not also be an acceptable

reason. This rule does provide that the failure of an HA to fund an

otherwise approvable Resident Management Corporation (RMC) request for

CGP funds from its HA would be treated as an acceptable ``beyond

control'' circumstance that the RMC could use to justify using a

projected occupancy percentage of less than 97 percent. The advisory

committee agreed on this relief because both the HA application to the

Department for CIAP funds and a RMC request for CGP funds from its HA

could be denied because of insufficient funds. The CGP, however, is not

a competition program and the concept of insufficient funds as

described above does not apply. Funds are provided to eligible HAs on a

formula basis, and the HA knows what its resources are at the time it

develops its Annual Statement.

Two commenters addressed that portion of the proposed rule dealing

with vacant units undergoing modernization. One commenter stated that

the requirement that an HA place its vacant units under construction

within two Federal Fiscal Years (FFY) after the FFY in which the funds

are approved was very stringent. Another

[[Page 7587]]

commenter believed that the 2-year requirement should be extended if

HUD approves extensions to the modernization implementation schedule.

The committee had addressed this issue and reached a consensus that the

2-year provision would not be extended.

It should be noted that the 2-year time period does not include the

FFY in which the funds were received. Depending on when the HA received

its modernization funding, it could actually have up to 3 years to

place the vacant units under a construction contract. Also, if an HA

initially fails to place its vacant units under a construction contract

within the 2-year period, the HA would still be able to regain special

treatment at the time it did place the units under a construction

contract, although not retroactively.

The Department was part of the consensus on this issue and

continues to support the committee decision.

The Department received three comments regarding the process for

requesting a waiver. One commenter stated that if there were a

rescission of appropriated funds for the CGP, the HA should not have to

bear the burden of requesting a waiver. The Department appreciates the

comment, but because the impact of a rescission will vary widely, the

Department needs to know on a case-by-case basis what that impact will

be in order to provide relief; that information can only come from the

HA. The same commenter asked that procedures for requesting a waiver be

provided to HAs before the rule becomes final, and another commenter

requested that the rule include the conditions under which a waiver

will be approved. The proposed rule provided general guidance in

Sec. 990.121 (the PHA would have had to document that it has made best

efforts to correct the underlying problems and that it could not

correct the problems in a cost-effective manner), but the specific

documentation that the HA will have to submit cannot be determined in

advance because a waiver by its nature involves a special circumstance.

The final rule has omitted the separate waiver language from this part,

because of the waiver authority already provided in Sec. 999.101;

repetition of this authority is contrary to the Department's ongoing

efforts to streamline its regulations.

One commenter requested that the Department provide a 2-year

extension to any HA, instead of 1 year, if a rescission of appropriated

funds for the CGP occurs that prevents the HA from completing the

modernization of all of the vacant units that were in the HA's approved

Annual Statement. The committee did recognize that relief should be

given to an HA that had to change its approved Annual Statement in

order to reflect a rescission of funds. Because the relief provided

should relate back to the severity of the rescission and that severity

is not known in advance, it was difficult to develop an appropriate

measure of relief. The Department was part of the consensus to provide

this relief and believes that, until there has been some experience

with this type of unusual situation, the 1-year extension is

appropriate.

The Department received one comment on the transition provisions of

the proposed rule. The commenter believed that the rule would eliminate

Comprehensive Occupancy Plans (COPs), even for those HAs that are still

under a HUD-approved COP. This is not the case. An HA with a HUD-

approved COP at the time the final rule becomes effective may continue

to determine its PFS eligibility using the provisions of Sec. 990.118,

as that section exists before this final rule becomes effective. The

Department will not approve new COPs, however, after the effective date

of this rule, and after the time period of the COP has expired, the HA

will determine its projected occupancy percentage using the provisions

of this rule.

One commenter proposed that a lower standard of occupancy--of

between 93 percent to 95 percent, rather than 97 percent--would be more

reasonable for HAs. The appropriateness of the 97 percent occupancy

standard was discussed at length by the committee, and the members

concluded that, given current budget constraints, it was not feasible

to redefine the standard. The provisions of the proposed rule developed

by the committee, therefore, were based on an assumption that the 97

percent standard would remain in place; this final rule also continues

the 97 percent standard.

Other Matters

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 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 rule before publication and by

approving it certifies that this rule will not have a significant

economic impact on a substantial number of small entities. The rule

sets out 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

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 rule will 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 rule is not subject to review under the Order. The rule refines 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 rule does 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

results from promulgation of this rule, as those policies and programs

relate to family concerns. The rule merely involves the amount of

funding that an HA should receive under a refinement of an existing

procedure.

The Catalog of Federal Domestic Assistance Program numbers for this

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, Indians, Individuals with disabilities, Low and

moderate income housing, Public housing, Reporting and recordkeeping

requirements.

[[Page 7588]]

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 amended as follows.

PART 950--INDIAN HOUSING PROGRAMS

1. The authority citation for part 950 continues to read as

follows:

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

3535(d).

2. Section 950.102 is amended by adding in alphabetical order

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. In the case of an IHA development involving the

acquisition of scattered site housing, see also Sec. 950.705(b). 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, small IHAs that are

located in areas experiencing population loss or economic dislocations

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 Management Corporation funding. The failure of an IHA

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. 950.775(a), a vacant unit in a project not considered to be

obsolete (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.

* * * * *

Sec. 950.705 [Amended]

3. Section 950.705(b) is amended by removing the first sentence.

4. Section 950.720 is 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

[[Page 7589]]

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 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.

* * * * *

5. In Sec. 950.725, paragraph (b)(3) is revised and the OMB

approval number is added at the end of the section, 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.

* * * * *

(Approved by the Office of Management and Budget under control

number 2577-0066.)

6. Section 950.760 is 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 July 1, 1996, the IHA shall determine an

[[Page 7590]]

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), 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.

(Approved by the Office of Management and Budget under control

number 2577-0066.)

Sec. 950.770 [Removed and Reserved]

7. Section 950.770, Comprehensive Occupancy Plan (COP)

Requirements, is removed and reserved.

8. A new Sec. 950.775 is added, 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 operating under a

Comprehensive Occupancy Plan (COP) approved by HUD under Sec. 950.770,

as that section existed immediately before April 1, 1996, may, until

the expiration of its COP, continue to determine its PFS eligibility

under the provisions of part 950 as that part existed immediately

before April 1, 1996. 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 COPs.

9. A new Sec. 950.777 is added, to read as follows:

Sec. 950.777 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

10. The authority citation for part 990 continues to read as

follows:

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

11. Section 990.102 is amended by adding in alphabetical order

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 definition for ``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 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. In the case of a PHA development involving the acquisition of

scattered site housing, see also Sec. 990.104(b). 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 plan.

(2) Laws. Federal 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 PHA's control.

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

located in areas experiencing population loss or

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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 a project not considered to be

obsolete (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.

Sec. 990.104 [Amended]

12. Section 990.104(b) is amended by removing the first sentence.

13. Section 990.108 is 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

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 PHA 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 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 PHA 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 PHA 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 PHA 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 PHA 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. 990.107.

* * * * *

14. In Sec. 990.109, paragraph (b)(3) and the parenthetical

statement containing the OMB approval number at the end of the section

are revised to read as follows:

Sec. 990.109 Projected operating income level.

(b) * * *

(3) Projected Occupancy Percentage. The PHA 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 PHA will develop estimates

for its Requested Budget Year (RBY) of: how many units the PHA 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 PHA--No Adjustments Necessary. If the PHA's RBY

Occupancy Percentage, calculated in accordance with Sec. 990.117, is

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

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

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

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

Percentage as its projected occupancy percentage.

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

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

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

exclude vacant units

[[Page 7592]]

undergoing modernization and units that are vacant due to circumstances

and actions beyond the PHA's control. After making this adjustment, the

PHA will recalculate its estimated vacancy percentage for the RBY.

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

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

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

projected occupancy percentage.

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

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

vacant units), the PHA 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 PHA's control.

(iv) Low Occupancy PHA after all adjustments. A PHA 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 PHA's AEL.

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

the PHA 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 PHA's control is 3% or less (or the PHA has five or

fewer vacant units), the PHA 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 PHA 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 PHA's control, the PHA 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 PHA's control. For a

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

RBY, the PHA 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 PHA's projected

occupancy percentage, but the PHA 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

PHA's control.

* * * * *

(Approved by the Office of Management and Budget under control

number 2577-0066. Paragraphs (e) and (f) have been approved by the

Office of Management and Budget under control number 2577-007.)

15. Section 990.117 is revised to read as follows:

Sec. 990.117 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 July 1, 1996, the PHA shall determine an Actual Occupancy

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

The PHA 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 PHA elects to use an

average occupancy under this paragraph (a)(2), the PHA shall maintain a

record of its computation of its Actual Occupancy Percentage.

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