Replacement Housing Factor in Modernization Funding

SUMMARY: This rule revises the regulations that govern the formula

allocation of modernization funding under the Comprehensive Grant

Program (CGP) to add to the formula a replacement housing factor that

would maintain, for five years, a portion of funding that otherwise

would be lost by a CGP housing agency when the number of its public

housing units are reduced as a result of demolition, disposition, or

conversion. The preserved funding must be used for accelerated

renovation and reoccupancy of vacant, viable units, or for construction

or acquisition of replacement housing units--to the extent that the

funds are authorized for such use. The rule takes effect in Federal

Fiscal Year (FY) 1998, based on demolition, disposition and conversion

of units between October 1, 1996 and September 30, 1997.

This rule is needed to encourage public housing agencies (PHAs) to

demolish, dispose of, or convert units that are not providing decent,

safe, and sanitary housing and either develop replacement units or

accelerate renovation of the existing units.

DATES: Effective date. September 28, 1998.

FOR FURTHER INFORMATION CONTACT: William Flood, Director, Office of

Capital Improvements, Office of Public Housing Investments, Room 4134,

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

Washington, DC 20410, telephone number (202) 708-1640, extension 4185.

(This telephone number is not toll-free.) For hearing-and speech-

impaired persons, this number may be accessed via text telephone by

dialing the Federal Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Changes From Proposed Rule

The proposed rule in this proceeding was published on September 10,

1997 (62 FR 47740). This final rule includes several changes from the

proposed rule. Most are being made in response to public comments, as

discussed in greater detail below. Changes made in response to comments

are to clarify that a PHA must request application of the replacement

housing factor in order for it to be applied; to clarify that

replacement housing must be produced in accordance with the

Department's development regulations (24 CFR part 941); and to specify

additional procedures applicable to PHAs that are troubled or mod-

troubled that want to have this factor applied--either to rehabilitate

vacant but viable units or to develop new replacement units. In

addition, the rule clarifies that replacement housing may be undertaken

with funding from fiscal years in which it is an authorized use of

modernization funds. Also, the rule provides that use of replacement

reserve is not required for emergencies if the amount that otherwise

would be used from that reserve is an accumulation from application of

the replacement housing factor that is necessary so that replacement

housing can be provided efficiently and effectively.

II. Discussion of Public Comments

There were seven public comments received on the proposed rule.

Three of the comments were from organizations representing PHAs and

four were from PHAs. Two of the three organizations were opposed to the

rule, while all four PHAs were supportive.

A. Need for the Rule

1. Comments on Who Benefits

Some commenters believed the rule is very much needed to help PHAs

cope with the sudden losses in funding they would otherwise experience

when demolishing large numbers of units. One organization stated that

it is ``an important first step in addressing the lack of resources

available for much-needed replacement housing.'' However, a few

commenters stated that the change is not justified and that the rule

does not promote equity and fairness in the CGP distribution but favors

large city PHAs, including those who have already benefited from

special funding under HOPE VI and MROP. One organization also

challenged HUD's statement that ``replacement vouchers do not meet some

local needs as well as hard replacement units do.'' It argued that HUD

has touted the relative value of tenant-based over project-based

assistance.

According to one PHA, the replacement housing factor will

disproportionately benefit a relatively few, large housing authorities,

which already have received yearly CGP allocations based on large

numbers of units that have not been housing anyone. An organization

stated that the Department has not demonstrated that ``central cities

have tight housing markets.'' It contended that the National Housing

Survey ``consistently demonstrates that the highest vacancy rates and

lowest rents are in the central cities.'' It stated that the rule will

result in less funding for housing in areas outside the central cities,

and stated that this is not justified.

This same organization also criticized the rule as continuing to

``reward failure'' by giving additional funding to agencies regardless

of their capacity to use the funds well. It claimed that of the 40

agencies that would benefit from the factor, the majority are either

troubled or mod-troubled and that the rule provides no measures to

assure adequate performance. The recommendation made was that HUD

should consider adding a replacement factor only for those agencies

that are neither troubled nor mod-troubled.

2. HUD Response

With respect to the creation of ``hard replacement units'' as

opposed to tenant based assistance, the Department believes both

approaches should be used to replace demolished public housing. The

approach taken in this rule provides funding for replacement of about

20 percent of the units. The Department also is asking for additional

funding for the HOPE VI program, which will provide more hard units,

and for new Section 8 certificates and vouchers to support tenant-based

assistance for many families.

The reference to ``tight housing markets'' in the proposed rule was

found only in the introductory summary at the beginning of the rule.

The Department does not place primary reliance on the existence of a

tight housing market in any particular city for this factor to be

applicable. A primary purpose of the rule is to provide an incentive to

PHAs that have units in extremely poor condition to demolish or dispose

of or convert the units, supporting revitalization activity in the

areas where such housing is now a blight. In fact, to the extent that

the rule increases demolition, there may be an overall decrease in

units in a particular market, since there is insufficient funding for

100 percent replacement of the reduced number of public housing units.

In view of the large proportion of eligible low income households not

living in affordable housing, virtually all communities can use either

vacancy renovation funds or the relatively small amount of replacement

housing made

[[Page 46105]]

possible by this rule to provide more housing opportunities.

It is true that this rule benefits primarily large cities, although

all city housing agencies with at least 250 units that are demolishing

or disposing of public housing are eligible. That result is

appropriate, because that is where there is the largest number of units

to be demolished and replaced. This rule does not affect the

modernization rule that governs small PHAs--those with fewer than 250

units--generally in smaller localities, which are subject to the

Comprehensive Improvement Assistance Program instead of the CGP. Some

of the PHAs that will benefit from this rule have received HOPE VI and

MROP funding, but not all of them. In any case, such funds are offset

before this rule is applied, so that there is no double benefit.

With respect to receipt of funds by a troubled or mod-troubled PHA

that is not already under the direction of HUD or a court-appointed

receiver, the Department is requiring (in Secs. 968.103 (e)(3)(ii)(D)

and (f)(4)(ii)(D)) that such a PHA use an Alternative Management Entity

(as described in 24 CFR 901.5) for oversight of replacement housing

development. In addition, in all efforts to carry out activities funded

by the replacement housing factor, including accelerated renovation of

vacant and viable units, a troubled or mod-troubled PHA is required to

comply with the Memorandum of Agreement (MOA) that was executed with

HUD in connection with the finding that it is troubled, under the

Public Housing Management Assessment Program (24 CFR 901.135), and any

corrective actions required by HUD in accordance with this part's

performance review section (Sec. 968.335).

3. Comment on How to Calculate the Benefit

One PHA stated an example of how it thought the changes to the

formula to account for additional backlog need and accrual need would

apply to its circumstances, based on the example given in the preamble

of the proposed rule, and asked whether its estimate was accurate.

4. HUD Response

The estimate was not accurate, but when the rule is implemented,

HUD will provide each authority with a description of the method and

its application to the data of that housing authority. In the meantime,

a PHA may develop its own estimate by starting with the number of units

subject to the replacement factor formula in a year, and multiplying

that number by the average funding received per comprehensive grant

unit in the most current year. (To obtain this average, divide total

funding for the Comprehensive Grant program by the total units funded

under the program.) In the first year, one-third of the product will be

the replacement factor funding. In the second year, two-thirds of the

product will be the replacement factor funding. In years three through

five, the entire product will be the replacement factor funding.

Thereafter, the units will have no replacement factor funding. Of

course, the process is a rolling one, so that additional units may be

demolished, converted, or disposed of in more than one year of a five-

year period, adding to the backlog and accrual needs in later years.

B. Adequacy and Timing of Funding

1. Comments on Timing

Among those who supported the idea of providing a replacement

housing factor, a recommendation was made that HUD permit one of three

options to facilitate financing of replacement housing: (a) permit the

PHA to ``bank'' the funds until all replacement housing factor funds

are received; (b) advance the five years of funding in the first year;

or (c) allow the PHA to use other resources in the early years and

repay itself for its contribution as the replacement housing factor

funds are received. These options would respond to a concern about the

difficulty of funding replacement construction with funding that would

not be fully available for five years.

The length of time over which the replacement housing factor would

apply also was an issue. Some commenters felt the period was too short,

while others felt that it was too long. One commenter stated that

because the phase-out is most drastic after the fifth year, there would

be an outcry for slower decreases after that year, extending the factor

even longer. Another PHA stated that the period should be longer, so

that the effect felt would be more gradual.

2. HUD Response

Large PHAs may be able to phase construction in such a way as to

have adequate funding available in any given year. Of the three options

specified by one commenter and outlined above, the first and third are

acceptable, under appropriate circumstances.

If a PHA wants to build up reserves in a particular year to spend

in a following year for replacement housing, it could establish a

reserve under the current Sec. 968.112(f)(1)(ii) for such a purpose if

its annual replacement housing funding would be inadequate to cover its

replacement housing needs in an efficient and effective manner. The

rule is being modified to assure that this policy can be carried out.

Ordinarily, under Sec. 968.112(f)(4), the PHA would be required to

use the funds in the replacement reserve to cover emergency

modernization needs--to the extent that adequate funds otherwise were

not available--if the PHA had an emergency need during the period when

it is building up the replacement reserve. (The CGP is flexible enough

to permit a PHA to reorder its priorities when it encounters an

emergency modernization need, so that the PHA could then use funds

otherwise earmarked for a particular modernization use for the

emergency and fund the original priority in a later year.) The

availability of the replacement reserve for replacement housing is

central to the purposes of this rule: to encourage demolition,

disposition, and conversion of units that are not viable and to provide

an additional resource for replacement housing and for the accelerated

renovation of units that can be renovated and reoccupied. Therefore, to

assure that an emergency modernization would not undermine these

purposes, this rule adds a sentence to Sec. 968.112(f) to provide that

use of the replacement reserve is not required for emergencies if the

amount that otherwise would be used from that reserve is an

accumulation from application of the replacement housing factor.

With respect to a loan repayment option, HUD has no authority to

advance the five years of funding made available under the application

of this factor in the first year.

When considering what year's funding to use for various purposes,

PHAs must be conscious of permissible uses under the appropriation act

for the various years. For example, FY 1997 and FY 1996 Comp Grant

funds may be used for replacement housing purposes. Fiscal Year 1998

funds are not yet authorized for such use, although they may be used

for accelerated renovation and reoccupancy of vacant, viable units. A

reference to this variation in authority for different years' funds is

added to Secs. 968.103(e)(3)(ii)(B) and (f)(4)(ii)(B).

HUD will not consider changing the period over which this

replacement housing factor is used. Five years was chosen because it is

a short enough time so that PHAs that are not significantly decreasing

their number of units would see increases in their allocations within a

reasonable period, but PHAs that are significantly decreasing their

number of units would see enough of an impact from the factor to be

motivated to

[[Page 46106]]

pursue the much-needed demolition and replacement of those units and

would have a significant additional resource for this purpose.

3. Comments on Other Funding for Replacement Housing

An organization stated that section 202 of the Omnibus Consolidated

Rescissions and Appropriations Act of 1996 required PHAs to identify

certain distressed public housing developments to be removed from the

public housing inventory within five years, after relocation of the

tenants with tenant-based or project-based assistance. The rule

provides that the replacement housing factor applies only if ``the

reduced units are not otherwise receiving funding for replacement

housing or vacancy renovation.'' The organization asked whether

``funding for replacement housing'' includes existing vouchers, new

vouchers, or relocation to other public housing.

4. HUD Response

PHAs that have received tenant-based assistance or have relocated

households to other public housing are eligible for application of the

replacement housing factor. If a PHA already has received vouchers, it

remains eligible for this factor. If a PHA has not received vouchers

and it applies for application of this factor first, then it will not

be eligible for vouchers to replace the units involved. Relocation of

tenants to other public housing does not disqualify a PHA from

application of this factor to replace those hard units. The units

renovated or replaced with funds received under the replacement housing

factor may not have received funding, however, under the public housing

development program, Major Reconstruction of Obsolete Public Housing

(MROP), or HOPE VI program for the purpose of replacement housing or

accelerated renovation. They may not receive future HOPE VI funds for

this purpose, either.

5. Comments on Amount of Funding

One PHA expressed reservations about the adequacy of the funding

resulting from the replacement housing factor as described to support

replacement of twenty percent of the units demolished, disposed of, or

converted. It proposed an alternative for determining the amount of

funding to be preserved: not using the amount that a particular PHA

would have received if it had not reduced its number of units, but on

the aggregate amount of funding that is subject to reduction as a

result of demolition, disposition, or conversion--allocated among only

the PHAs that do propose replacement housing. This PHA also stated that

it is unclear whether the funds resulting from the current three-year

phase-out will continue to be received in addition to the replacement

housing factor funds, or whether the current phase-out funds become the

replacement housing factor funds (at least in part).

Concerned about adequate funding levels for construction of

replacement housing, one organization suggested that HUD continue to

seek other sources of funding, as well. A PHA recommended that HUD

consider funding for a higher percentage of replacement units for PHAs

with a high demand for housing that are located in cities with tight

affordable housing markets.

6. HUD Response

It is not the intent of this rule to provide an increase above the

amount of modernization funding to which the PHA would have been

entitled if there had been no demolition, disposition, or conversion.

If a community does not need the funds that would be restored by the

replacement housing factor, they should remain available for general

distribution under the formula. With respect to the adequacy of

funding, that issue is discussed above in section A2.

The funding now available under the three-year phase-out will not

become a portion of the replacement housing factor funds but instead

will continue to be available for all modernization needs.

C. Procedures

1. Comments on Universal Applicability

In the preamble to the proposed rule, it was stated that a PHA must

request use of the replacement housing factor when updating its annual

formula characteristics report. The rule text, at Sec. 968.103(e)(3)

and (f)(4), did not repeat the requirement that a PHA request use of

the factor. Commenters differed on the preferred resolution of this

difference. One PHA preferred that the replacement housing factor only

be applied to those PHAs that specifically request it, while an

organization recommended that the factor be applied automatically to

every PHA that would be eligible.

This element is particularly important to the first year of its

applicability, since some PHAs may already have returned the

information for the period ending on September 30, 1997, and therefore

may not have requested use of the factor for which they will be

eligible under a final rule.

2. HUD Response

The rule text has been revised to correspond to what was described

in the preamble of the proposed rule (see Secs. 968.103(e)(3)(ii)(C)

and (f)(4)(ii)(C)). Since the time has already passed for PHAs to

indicate whether they wanted this factor applied for the demolitions,

dispositions, and conversions that took place between October 1, 1996

and September 30, 1997, the Department has asked all qualified PHAs

whether they want to have the factor applied in the letter transmitting

the annual formula amount which is already calculated using the formula

characteristics for the same period of time. For the purpose of funding

such requests, the Department has held back a very limited amount of

funds during the current funding cycle. In future years, such a request

may be handled in a different fashion.

3. Comments on Determination of Units Covered

PHAs asked what procedures are to be used when disclosing the units

that are the subject of demolition, disposition, or conversion. They

also asked which happens first--approval of a demolition, disposition,

or conversion application, or identification in the Formula

Characteristics Report of units to be demolished, disposed of, or

converted.

4. HUD Response

The approval process is that HUD approves an application for

demolition, disposition, or conversion in order for the housing

authority to be eligible for the replacement housing factor. In the

case of developments that are the subject of mandatory conversion

(under Section 202 of the Omnibus Consolidated Rescissions and

Appropriations Act of 1996), HUD approves a conversion plan before the

PHA is eligible.

In the annual letter transmitting to PHAs the annual formula amount

for the period from October 1, 1996 through September 30, 1997, the

Department has already asked PHAs that had demolitions, dispositions,

and conversions during that period whether they want to have the factor

applied. The data used to determine the applicability of the factor to

a particular PHA is found in HUD's own systems, including information

garnered from plans for demolition, disposition, and conversion

approved by HUD and validated by the PHA.

D. Additional constraints

1. Comments

Improvements suggested to the proposed rule were to require a

feasible, reasonably specific replacement plan that includes milestones

to be met to avoid recapture of the funds, and to

[[Page 46107]]

limit the funds made available under the factor so that the primary

purpose of modernization funds can still be realized.

2. HUD Response

As clarified in this final rule (Secs. 968.103(e)(3)(ii)(E) and

(f)(4)(ii)(E)), the replacement units must be constructed in accordance

with the Public Housing Development regulations, 24 CFR 941 (including

the sanctions under Sec. 941.501), which require submission of a

project development schedule. The appropriateness of the amount of

funds subject to this rule has been discussed above.

E. Additional flexibility

1. Comments

If a PHA is state-wide, it may prefer the flexibility of being able

to provide replacement units in a different community within its

jurisdiction than the one in which units are being demolished, disposed

of, or converted. Suggesting that this be permitted, the PHA asked what

area's Total Development Cost (TDC) limit would be used to establish

the replacement housing factor funding level.

2. HUD Response

HUD agrees that a multi-jurisdictional PHA should be able to

replace housing where it is most needed within its territory, using the

TDC for the area where the replacement housing is being built.

III. Findings and Certifications

A. Public Reporting Burden

This final rule contains no new information collection requirements

that would require review by the Office of Management and Budget under

the Paperwork Reduction Act of 1995 (42 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.

B. Impact on Small Entities

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

U.S.C. 605(b)), has reviewed and approved this final rule, and in so

doing certifies that this rule will not have a significant economic

impact on a substantial number of small entities. This final rule only

affects PHAs with 250 or more units, eligible for formula funding under

the CGP and primarily affects larger PHAs, which have experienced the

greatest unit reduction.

C. Environmental Impact

A Finding of No Significant Impact with respect to the environment

was made in connection with development of a proposed rule on this

subject, in accordance with HUD regulations at 24 CFR part 50 that

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

1969 (42 U.S.C. 4332). That Finding of No Significant Impact is

applicable to this final rule as well, and it is available for public

inspection and copying during regular business hours (7:30 a.m. to 5:30

p.m.) in the Regulations Division of the Office of General Counsel,

Room 10276, 451 Seventh Street, SW, Washington, DC 20410-0500.

D. Federalism Impact

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 do not have significant impact on States or

their political subdivisions, or the relationship between the Federal

Government and State and local governments, 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

merely preserves funding that otherwise would be lost to local housing

agencies that have experienced significant loss of units.

E. Unfunded Mandates Reform Act

The Secretary, in accordance with the Unfunded Mandates Reform Act

of 1995, 2 U.S.C. 1532, has reviewed this rule before publication and

by approving it certifies that this rule does not impose a Federal

mandate that will result in the expenditure by State, local, and tribal

governments, in the aggregate, or by the private sector, of $100

million or more in any one year.

F. Regulatory Review

The Office of Management and Budget (OMB) reviewed this rule under

Executive Order 12866, Regulatory Planning and Review. OMB determined

that this rule is a ``significant regulatory action,'' as defined in

section 3(f) of the Order. Any changes made to this rule as a result of

that review are clearly identified in the docket file. The docket file

is available for public inspection between 7:30 a.m. and 5:30 p.m. in

the Regulations Division of the Office of General Counsel, Room 10276,

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

Washington, DC 20410-0500.

G. Catalog

The Catalog of Federal Domestic Assistance number for the program

affected by this final rule is 14.850.

List of Subjects in 24 CFR 968

Grant programs--housing and community development, Indians, Loan

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

and recordkeeping requirements.

Accordingly, part 968 of title 24 of the Code of Federal

Regulations is amended as follows:

PART 968--PUBLIC HOUSING MODERNIZATION

The authority citation for part 968 continues to read as follows:

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

Section 968.103 is amended as follows:

a. Paragraphs (e)(3) and (e)(4) are redesignated as paragraphs

(e)(4) and (e)(5), respectively;

b. New paragraphs (e)(3) and (f)(4) are added, to read as follows:

Sec. 968.103 Allocation of funds under section 14.

* * * * *

(e) * * *

(3) Replacement factor to reflect backlog need for developments

with demolition, disposition, or conversion occurring on or after

October 1, 1996.

(i) PHAs that have a reduction in units attributable to demolition,

disposition, or conversion of units during the period (reflected in

data maintained by HUD) that lowers the formula unit count for the

Comprehensive Grant formula calculations qualify for application of a

replacement housing factor, subject to satisfaction of criteria stated

in paragraph (e)(3)(ii) of this section. The factor will be added,

where applicable, for the first five years after such reduction, and

consists of 50 percent of the published Total Development Cost for a

two-bedroom unit in a walkup type structure for the period April 3,

1996 through April 30, 1997, multiplied times the number of units to be

demolished, disposed of, or converted. The total relative backlog need

of the PHA resulting from application of this replacement factor cannot

exceed the share it would have had if the demolition, disposition, or

conversion had not taken place.

(ii) A PHA is eligible for application of this factor only if the

PHA satisfies the following criteria:

(A) The PHA requests the application of the replacement factor;

[[Page 46108]]

(B) The restored funding that results from the use of the

replacement factor is used to provide replacement housing (in any year

in which replacement housing is an eligible activity) or accelerated

renovation of vacant but viable units, in accordance with the PHA's

five-year action plan, approved by HUD (see Sec. 968.315);

(C) The PHA does not receive funding under the public housing

development; Major Reconstruction of Obsolete Public Housing, or HOPE

VI programs for the units developed or modernized with funds received

under this replacement housing factor;

(D) A PHA that has been determined by HUD to be troubled or mod-

troubled that is not already under the direction of HUD or a court-

appointed receiver, in accordance with part 901 of this chapter, must

use an Alternative Management Entity as defined in Sec. 901.5 of this

chapter for development of replacement housing and must comply with any

applicable provisions of its Memorandum of Agreement executed with HUD

under that part; and

(E) Any development of replacement housing by any PHA must be done

in accordance with part 941 of this chapter.

(iii) If the PHA does not use the restored funding that results

from the use of the replacement factor to provide replacement housing

or renovate vacant units in a timely fashion, in accordance with

Sec. 968.125 and Sec. 941.501 of this chapter, and make reasonable

progress on such use of the funding, in accordance with

Sec. 968.335(a)(3) and Sec. 941.501, HUD may require appropriate

corrective action under Sec. 968.335 and Sec. 941.501; may recapture

and reallocate the funds; or may use other remedies available to HUD.

* * * * *

(f) * * *

(4) Replacement factor to reflect accrual need for developments

with demolition, disposition, or conversion occurring on or after

October 1, 1996. (i) PHAs that have a reduction in units attributable

to demolition, disposition, or conversion of units during the period

(reflected in data maintained by HUD) that lowers the formula unit

count for the Comprehensive Grant formula calculations qualify for

application of a replacement housing factor, subject to satisfaction of

criteria stated in paragraph (f)(4)(ii) of this section. The factor

will be added, where applicable, for the first five years after such

reduction, and consists of two percent of the published Total

Development Cost for a two-bedroom unit in a walkup type structure for

the period April 3, 1996 through April 30, 1997, multiplied times the

number of units to be demolished, disposed of, or converted. The total

relative accrual need of the PHA resulting from application of this

replacement factor cannot exceed the share it would have had if the

demolition, disposition, or conversion had not taken place.

(ii) A PHA is eligible for application of this factor only if the

PHA satisfies the following criteria:

(A) The PHA requests the application of the replacement factor;

(B) The restored funding that results from the use of the

replacement factor is used to provide replacement housing (in any year

in which replacement housing is an eligible activity) or accelerated

renovation of vacant but viable units, in accordance with the PHA's

five-year action plan, approved by HUD (see Sec. 968.315);

(C) The PHA does not receive funding under the public housing

development, Major Reconstruction of Obsolete Public Housing, or HOPE

VI programs for the units developed or modernized with funding received

under this replacement housing factor;

(D) A PHA that has been determined by HUD to be troubled or mod-

troubled, in accordance with part 901 of this chapter that is not

already under the direction of HUD or a court-appointed receiver, must

use an Alternative Management Entity as defined in Sec. 901.5 of this

chapter for development of replacement housing and must comply with any

applicable provisions of its Memorandum of Agreement executed with HUD

under that part; and

(E) Any development of replacement housing by any PHA must be done

in accordance with part 941 of this chapter.

(iii) If the PHA does not use the restored funding that results

from the use of the replacement factor to provide replacement housing

or renovate vacant units in a timely fashion, in accordance with

Sec. 968.125 and Sec. 941.501 of this chapter, and make reasonable

progress on such use of the funding, in accordance with

Sec. 968.335(a)(3) and Sec. 941.501, HUD may require appropriate

corrective action under Sec. 968.335 and Sec. 941.501; may recapture

and reallocate the funds; or may use other remedies available to HUD.

* * * * *

3. Section 968.112 is amended by adding a new sentence to the end

of paragraph (f)(4), to read as follows:

Sec. 968.112 Eligible costs.

* * * * *

(f) * * *

(4) * * * Use of the replacement reserve is not required for

emergencies if the amount that otherwise would be used from that

reserve is an accumulation from application of the replacement housing

factor (Sec. 968.103(e) (3) and (f)(4)) that is necessary so that

replacement housing can be provided efficiently and effectively.

* * * * *

Dated: August 25, 1998.

Deborah Vincent,

General Deputy Assistant Secretary for Public and Indian Housing.

[FR Doc. 98-23144 Filed 8-27-98; 8:45 am]

BILLING CODE 4210-33-P