Allocation of Funds under the Capital Fund; Capital Fund Formula; Proposed Rule

SUMMARY: This proposed rule would implement, as required by statute, a

new formula system for allocation of funds to public housing agencies

for their capital needs. As also required by statute, this proposed

rule was developed through negotiated rulemaking procedures.

DATES: Comments Due Date. October 14, 1999.

ADDRESSES: Interested persons are invited to submit comments regarding

this proposed rule to the Rules Docket Clerk, Room 10276, Office of

General Counsel, Department of Housing and Urban Development, 451

Seventh Street, SW, Washington, DC 20410-0500. Comments should refer to

the above docket number and title. A copy of each comment submitted

will be available for public inspection and copying during regular

business hours at the above address. Facsimile (FAX) comments are not

acceptable.

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

Capital Improvements, Public and Indian Housing, Room 4134, Department

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

DC 20410-0500; telephone (202) 708-1640 ext. 4185 (this telephone

number is not toll-free). Hearing or speech-impaired individuals may

access this number via TTY by calling the toll-free federal Information

Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

Section 519 of the Quality Housing and Work Responsibility Act of

1998 (Pub.L. 105-276, approved October 21, 1998) (referred to as the

``Public Housing Reform Act'') amends section 9 of the U.S. Housing Act

of 1937 to provide a ``Capital Fund,'' to be established by HUD for the

purpose of making assistance available to public housing agencies

(PHAs) to carry out capital and management activities. Amended section

9 requires HUD to develop a formula for determining the amount of

assistance provided to PHAs from the Capital Fund for a Federal fiscal

year, and the formula is to include a mechanism to reward performance.

The statute also requires that the Capital Fund formula is to be

developed through negotiated rulemaking procedures.

On March 19, 1999 (64 FR 13533), HUD published a notice of its

intent to establish a negotiated rulemaking committee for the Capital

Fund, and in this notice identified a list of possible interested

individuals and organizations to serve on the negotiated rulemaking

committee. The list of possible interested individuals and

organizations included public housing agencies, national organizations

representing public housing agencies, residents organizations,

advocates for low-income housing, and other housing experts.

On April 26, 1999 (64 FR 20234), HUD published the list of members

of the negotiated rulemaking committee and announced its first set of

meetings. The members participating in the negotiated rulemaking

procedure for the Capital Fund formula are:

National Housing Associations

Council of Large Public Housing Authorities (CLPHA)

National Association of Housing and Redevelopment Officials (NAHRO)

Public Housing Authorities Directors Association (PHADA)

National Organization of African Americans in Housing (NOAAH)

National Low Income Housing Coalition

Housing Authorities

Philadelphia Housing Authority, Philadelphia, PA

Chicago Housing Authority, Chicago, IL

Dallas Housing Authority, Dallas, TX

Puerto Rico Public Housing Administration, San Juan, PR

Seattle Housing Authority, Seattle, WA

New York City Housing Authority, New York, NY

Dayton Metropolitan Housing Authority, Dayton, OH

Jersey City Housing Authority, Jersey City, NJ

San Diego Housing Commission, San Diego, CA

Macon Housing Authority, Macon, GA

Sanford Housing Authority, Sanford, ME

Housing Authority of the City of San Benito, San Benito, TX

City of La Junta Housing Authority, La Junta, CO

Housing Authority of the Town of Laurinburg, Laurinburg, NC

Madison Housing Authority, Madison, NJ

Tenant and Community Organizations

Guinotte Manor Tenant Association, Kansas City, MO

Center for Community Change, Washington, DC

Hillside Family Resource Center, Milwaukee, WI

Mount Pleasant Estates Tenant Association, Newark, NJ

Other Groups

National Housing Conference

Fannie Mae

Federal Government

U.S. Department of Housing and Urban Development

The negotiated rulemaking committee (``the committee'') first

convened on April 28 and 29, 1999. Additional committee meetings were

held on May 11-12, May 25-26, June 17-18, June 23-24, July 8-9, July

26-27, and August 3-4, 1999.

As part of its deliberation of formula models and formula

components, the committee considered at length a study conducted on

capital needs in public housing by a consulting firm. The study

included physical inspections of public housing at 219 PHAs throughout

the country including 684 developments containing 229,973 units. The

study found that the existing modernization needs of public housing

remain well over twenty billion dollars.

The formula proposed by the committee in this rule is based, in

part, on this study. The study, however, contained some limitations in

scope, required inspector judgment regarding the necessity of modest

upgrades, was not designed to cover some aspects of modernization such

as the reconfiguration of units where needed, necessarily had to

estimate future needs based on experience with respect to other housing

stock rather than direct observations, and could not, in itself, answer

the question how the formula should address differences in needs among

individual housing authorities. Given the limitations of the study, the

committee decided to limit any funding reductions in going from the old

to the new formula to six percent of a PHA's Federal Fiscal Year 1999

formula share for comparable units.

The Capital Fund formula proposed in this rule fulfills the

statute's mandate of including a mechanism to reward performance. The

proposed formula also provides for a replacement housing factor, in

recognition that funding for this purpose will facilitate demolition of

obsolete housing and allow some of the remaining housing needs in the

affected communities to be addressed.

[[Page 49925]]

In its development of the proposed formula, the committee discussed

at substantial length the importance of resident participation to the

success of public housing, including a PHA's capital programs. The

committee noted that the Public Housing Reform Act places value on

resident participation by requiring at least one resident on the PHA

Board of Commissioners, resident involvement in the PHA Plan process

(through Resident Advisory Boards) and additional involvement as

reflected in HUD's resident participation regulations (24 CFR part

964). Accordingly, measures to promote more effective resident

participation will be categorized as eligible Capital Fund management

improvement expenses, and also will be categorized as eligible public

housing operating expenses under the appropriate regulations. Examples

of eligible capital fund management improvement expenses include but

are not limited to reasonable: staff support, outreach, training,

meeting and office space, childcare, transportation, access to

computers, provided all such expenses are directly related to Capital

Fund activities. HUD may provide more specifics in further regulations

or notices.

The Committee went further and recommended the need for additional

standards for resident participation which can be enforced by HUD.

Additional standards need to be adopted through a separate rule. HUD

has committed to undertake a rulemaking process regarding additional

standards for resident participation and promulgate any necessary rules

during the coming fiscal year. To further promote effective public

housing programs including resident participation, HUD will: conduct

training for resident organizations and housing authorities on the new

Public Housing Reform Act; and clarify in the PHA Plan regulation that

reasonable resources for the Resident Advisory Boards must provide

reasonable means for them to become informed on programs covered by the

PHA Plan, to communicate in writing and by telephone with assisted

families and hold meetings with those families, and to access

information regarding covered programs on the internet, taking into

account the size and resources of the PHA.

II. Overview of the Capital Fund Formula

The following provides an overview of the key components of the

Capital Fund Formula.

(1) The proposed Capital Fund formula contains a provision for

emergency funding, as did the formula for allocation of funds under

section 14 of the U.S. Housing Act of 1937 (USHA) (section 14 funds).

Section 519(k) of the Public Housing Reform Act (section 9(k) of the

USHA) provides for a set-aside of up to two percent of the available

Capital Fund and Operating Fund dollars for emergencies, other

disasters, and housing needs related to the settlement of litigation,

and additional funds that the Secretary may reserve for purposes

specified in section 9(k). (See Sec. 905.10(b) of proposed rule.)

(2) The proposed rule also provides for formula allocation based on

relative need, similar to that provided by the formula for allocation

of section 14 funds. (See Sec. 905.10(c) of proposed rule.)

(3) The formula for allocation of section 14 funds included

allocation for ``backlog needs.'' The proposed Capital Fund formula

contains an allocation for ``existing modernization needs.'' (See

Sec. 905.10(d) of proposed rule.)

(4) The proposed Capital Fund formula contains an allocation for

``accrual needs,'' which is modeled on the ``accrual needs'' provision

of the section 14 formula. (See Sec. 905.10(e) of proposed rule.)

(5) The proposed Capital Fund formula provides for calculation of

the number of units, as did the prior formula for allocation of section

14 funds. (See Sec. 905.10(f) of the proposed rule.)

(6) The proposed Capital Fund formula sets out the method for

computation of formula shares under the CFF. (See Sec. 905.10(g) of the

proposed rule.)

(7) The proposed Capital Fund formula provides for a limit or

``cap'' on the amount of capital funding that a PHA may lose as a

result of the transition to the new CFF from the former formula for

section 14 funds. The proposed rule provides that for comparable units,

no PHA can lose more than 6% of its formula share in going from the old

to the new formula. (See Sec. 905.10(h) of the proposed rule.)

(8) The proposed Capital Fund formula also provides a replacement

housing factor. The proposed rule provides that for units that are lost

from the formula system because of demolition, disposition or

conversion, these units will be funded only for purposes of replacement

housing for 5 years and then for another 5 years if the planning,

leveraging, obligation and expenditure requirements are met. The

proposed rule provides that as a prior condition of a PHA's receipt of

additional funds for replacement housing, provided for the second 5-

year period or any portion of the second 5-year period, the PHA must

obtain a firm commitment of substantial additional funds other than

public housing funds for replacement housing. (See Sec. 905.10(i) of

the proposed rule.)

The proposed rule provides that PHAs are required to obligate

assistance received for replacement housing within: (1) 24 months from

the date that funds become available to the PHA; or (2) with specific

HUD approval, 24 months from the date that the PHA accumulates adequate

funds to undertake replacement housing. The proposed rule also provides

that to the extent the PHA has not obligated any funds provided as a

result of the replacement housing factor within the times specified by

the rule or expended such funds within a reasonable time, the amount of

funds to be provided to the PHA as a result of the application of the

second 5 years of the replacement housing factor shall be reduced. (See

Sec. 905.10(i)(7) of the proposed rule.)

(9) Under the proposed CFF, the results of the new formula (the

CFF) and the old formula (the formula for section 14 funds), the

capping, and the replacement housing factor yield a base formula

amount. The base formula for each PHA is then adjusted depending on

whether the PHA is a high performer. The proposed rule includes a

performance reward factor that provides PHAs that are designated high

performers under the Public Housing Assessment System (PHAS) will

receive 3% above their base formula amount in the first five years

these performance rewards are given, and 5% above their base formula

amount in future years. This methodology anticipates that any new

performance measurement system will mature over time. This increase

above the base formula amount is subject to the condition that for each

year a performance reward increase is provided, non-high performers

lose no more than 5% of their base formula amount in the redistribution

of formula funds from non-high performers to high performers. (See

Sec. 905.10(j) of the proposed rule.)

III. Justification for Reduced Public Comment Period

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

public comment period on all proposed rules. The Department, however,

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

proposed rule. The Public Housing Reform Act contemplates that the new

Capital Fund formula will be effective Federal Fiscal

[[Page 49926]]

Year 2000. In an effort to have a final formula in place as close to

beginning of that fiscal year as possible, and given that the formula

was developed through the negotiated rulemaking process, in which

representatives of all affected parties participated, the Department

believes that a 30-day public comment period is justified under these

circumstances.

IV. Findings and Certifications

Environmental Impact

A Finding of No Significant Impact with respect to the environment

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

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

Act of 1969 (42 U.S.C. 4223). The Finding of No Significant Impact is

available for public inspection between the hours of 7:30 a.m. and 5:30

p.m. weekdays in the Office of the Rules Docket Clerk, Office of

General Counsel, Room 10276, Department of Housing and Urban

Development, 451 Seventh Street, SW, Washington, DC.

Regulatory Planning and Review

The Office of Management and Budget has reviewed this proposed rule

under Executive Order 12866 (captioned ``Regulatory Planning and

Review'') and determined that this rule is a ``significant regulatory

action'' as defined in section 3(f) of the Order (although not an

economically significant regulatory action under the Order). Any

changes made to this rule as a result of that review are identified in

the docket file, which is available for public inspection during

regular business hours (7:30 a.m. to 5:30 p.m.) at the Office of the

General Counsel, Rules Docket Clerk, Room 10276, U.S. Department of

Housing and Urban Development, 451 Seventh Street, SW, Washington, DC

20410-0500.

Regulatory Flexibility Act

The Secretary has reviewed this proposed rule before publication

and by approving it certifies, in accordance with the Regulatory

Flexibility Act (5 U.S.C. 605(b)), that this proposed rule would not

have a significant economic impact on a substantial number of small

entities. The proposed rule would implement a new system for formula

allocation of funds to PHAs for their capital needs. The new system is

established to provide minimum impact on all PHAs, small and large. The

new formula provides that no PHA can lose more than 6% of its formula

share for comparable units in going from the old to the new formula.

Accordingly, the formula will not have a significant economic impact on

any PHA. Notwithstanding HUD's determination that this proposed rule

would not have a significant economic impact on small entities, HUD

specifically invites comments regarding alternatives to this proposed

rule that would meet HUD's objectives as described in this preamble.

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 proposed rule would not have substantial direct

effects on States or their political subdivisions, on the relationship

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

of power and responsibilities among the various levels of government.

This proposed rule would provide a new system of formula allocation of

assistance to PHAs for their capital needs. As a result, the proposed

rule is not subject to review under the Order.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.

1531-1538) (UMRA) requires Federal agencies to assess the effects of

their regulatory actions on State, local, and tribal governments and on

the private sector. This proposed rule does not impose, within the

meaning of the UMRA, any Federal mandates on any State, local, or

tribal governments or on the private sector.

List of Subjects in 24 CFR Part 905

Grant programs--housing and community development, Modernization,

Public housing, Reporting and recordkeeping requirements.

For the reasons discussed in the preamble, part 905 is proposed to

be added to title 24 of the Code of Federal Regulations as follows:

PART 905--THE PUBLIC HOUSING CAPITAL FUND PROGRAM

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

Sec. 905.10 Capital Fund formula (CFF).

(a) General. This section describes the formula for allocation of

capital funds to PHAs. The formula is referred to as the Capital Fund

formula (CFF).

(b) Emergency reserve and use of amounts. (1) In each Federal

fiscal year after Federal Fiscal Year (FFY) 1999, from amounts approved

in the appropriation act for funding under this part, HUD shall reserve

an amount not to exceed that authorized by 42 U.S.C. 1437g(k), for use

for assistance in connection with emergencies and other disasters, and

housing needs resulting from any settlement of litigation, and may

reserve such other amounts for other purposes authorized by 42 U.S.C.

1437g(k).

(2) Amounts set aside under paragraph (b) of this section may be

used for assistance for any eligible use under the Capital Fund,

Operating Fund, or tenant-based assistance in accordance with section 8

of the U.S. Housing Act of 1937 (42 U.S.C. 1437f).

(3) The use of any amounts as provided under paragraph (b) of this

section relating to emergencies (other than disasters and housing needs

resulting from settlement of litigation) shall be announced through

Federal Register notice.

(c) Formula allocation based on relative needs. After determining

the amounts to be reserved under paragraph (b) of this section, HUD

shall allocate the amount remaining in accordance with the CFF. The CFF

measures the existing modernization needs and accrual needs of PHAs.

(d) Allocation for existing modernization needs under the CFF. HUD

shall allocate half of the available Capital Fund amount based on the

relative existing modernization needs of PHAs, determined in accordance

with this paragraph (d) of this section.

(1) Determination of existing modernization need. (i) Statistically

reliable data are available. Where HUD determines that statistically

reliable data concerning the existing modernization need identified in

paragraph (d) of this section are available for individual PHAs, HUD

will base its allocation of the Capital Fund amount on direct estimates

of the existing modernization need, based on the most recently

available, statistically reliable data. The PHAs of the cities of New

York City and Chicago are covered by paragraph (d)(1)(i) of this

section.

(ii) Statistically reliable data are unavailable. Where HUD

determines that statistically reliable data concerning the existing

modernization need identified in paragraph (d) of this section are not

available for individual PHAs, HUD will base its allocation on

estimates of the existing modernization need using the factors

described in paragraph (d)(2) of this section.

(2) For PHAs greater than or equal to 250 or more units in FFY

1999, estimates of the existing modernization need will be based on the

following:

(i) Objective measurable data concerning the following PHA,

community and development

[[Page 49927]]

characteristics applied to each development:

(A) The average number of bedrooms in the units in a development.

(Equation co-efficient: 4604.7);

(B) The total number of units in a development as of FFY 1999.

(Equation co-efficient: 10.17);

(C) The proportion of units in a development in buildings completed

in 1978 or earlier. In the case of acquired developments, HUD will use

the Date of Full Availability (DOFA) date unless the PHA provides HUD

with the actual date of construction. When provided with the actual

date of construction, HUD will use this date (or, for scattered sites,

the average dates of construction of all the buildings), subject to a

50-year cap. (Equation co-efficient: 4965.4);

(D) The rolling three-year average of the cost index of

rehabilitating property in the area. (Equation co-efficient: -10608);

(E) The extent to which the units of a development were in a non-

metropolitan area as defined by the Census Bureau during FFY 1996.

(Equation co-efficient: 2703.9);

(F) The PHA is located in the southern census region, as defined by

the Census Bureau. (Equation co-efficient: -269.4);

(G) The PHA is located in the western census region, as defined by

the Census Bureau. (Equation co-efficient: -1709.5);

(H) The PHA is located in the midwest census region as defined by

the Census Bureau. (Equation co-efficient: 246.2)

(ii) An equation constant of 13851.

(A) Newly constructed units. Units with a DOFA date of October 1,

1999, or thereafter, will be considered to have a zero existing

modernization need.

(B) Acquired developments. Developments acquired by a PHA with a

DOFA date of October 1, 1999, or thereafter, will be considered by HUD

to have a zero existing modernization need.

(3) For PHAs with less than 250 units in FFY 1999, estimates of the

existing modernization need will be based on the following:

(i) Objective measurable data concerning the following PHA,

community and development characteristics applied to each development:

(A) The average number of bedrooms in the units in a development.

(Equation co-efficient: 1427.1);

(B) The total number of units in a development as of FFY 1999.

(Equation co-efficient: 24.3);

(C) The proportion of units in a development in buildings completed

in 1978 or earlier. In the case of acquired developments, HUD will use

the DOFA date unless the PHA provides HUD with the actual date of

construction, in which case HUD will use the actual date of

construction (or, for scattered sites, the average dates of

construction of all the buildings), subject to a 50-year cap. (Equation

co-efficient: -1389.7);

(D) The rolling three-year average of the cost index of

rehabilitating property in the area. (Equation co-efficient: -20163);

(E) The extent to which the units of a development were in a non-

metropolitan area as defined by the Census Bureau during FFY 1996.

(Equation co-efficient: 6157.7);

(F) The PHA is located in the southern census region, as defined by

the Census Bureau. (Equation co-efficient: 4379.2);

(G) The PHA is located in the western census region, as defined by

the Census Bureau. (Equation co-efficient: 3747.7);

(H) The PHA is located in the midwest census region as defined by

the Census Bureau. (Equation co-efficient: -2073.5)

(ii) An equation constant of 24762.

(A) Newly constructed units. Units with a DOFA date of October 1,

1999, or thereafter, will be considered to have a zero existing

modernization need.

(B) Acquired developments. Developments acquired by a PHA with a

DOFA date of October 1, 1999, or thereafter, will be considered by HUD

to have a zero existing modernization need.

(4) Calibration of existing modernization need for the rolling

three-year average of the cost index of rehabilitating property in the

area. The estimated existing modernization need, as determined under

paragraphs (d)(1) (d)(2) or (d)(3) of this section, shall be adjusted

by the values of the rolling three-year average of the cost index of

rehabilitating property in the area.

(e) Allocation for accrual needs under the CFF. HUD shall allocate

the other half remaining under the Capital Fund based upon the relative

accrual needs of PHAs, determined in accordance with paragraph (e) of

this section.

(1) Determination of accrual need. (i) Statistically reliable data

are available. Where HUD determines that statistically reliable data

concerning accrual need identified in paragraph (e) of this section are

available for individual PHAs, HUD will base its allocation of the

Capital Fund amount on direct estimates of accrual need, based on the

most recently available, statistically reliable data. The PHAs of the

cities of New York City and Chicago are covered by paragraph (e)(1)(i)

of this section.

(ii) Statistically reliable data are unavailable. Where HUD

determines that statistically reliable data concerning accrual need

identified in paragraph (e) of this section are not available for

individual PHAs, HUD will base its allocation on estimates of accrual

need using the factors described in paragraph (e)(2) of this section.

(2) For PHAs greater than or equal to 250 or more units, estimates

of the accrual need will be based on the following:

(i) Objective measurable data concerning the following PHA,

community and development characteristics applied to each development:

(A) The average number of bedrooms in the units in a development.

(Equation co-efficient: 324.0);

(B) The extent to which the buildings in a development average

fewer than 5 units. (Equation co-efficient: 93.3);

(C) The age of a development as of FFY 1998, as determined by the

DOFA date (date of full availability). In the case of acquired

developments, HUD will use the DOFA date unless the PHA provides HUD

with the actual date of construction, in which case HUD will use the

actual date of construction (or, for scattered sites, the average dates

of construction of all the buildings), subject to a 50-year cap.

(Equation co-efficient: -7.8);

(D) Whether the development is a family development. (Equation co-

efficient: 184.5);

(E) The rolling three-year average of the cost index of

rehabilitating property in the area. (Equation co-efficient: -252.8);

(F) The extent to which the units of a development were in a non-

metropolitan area as defined by the Census Bureau during FFY 1996.

(Equation co-efficient: -121.3);

(G) PHA size of 6600 or more units in FFY 1999. (Equation co-

efficient:-150.7);

(H) The PHA is located in the southern census region, as defined by

the Census Bureau. (Equation co-efficient: 28.4);

(I) The PHA is located in the western census region, as defined by

the Census Bureau. (Equation co-efficient: -116.9);

(J) The PHA is located in the midwest census region as defined by

the Census Bureau. (Equation co-efficient: 60.7)

(ii) An equation constant of 1371.9,

(3) For PHAs with less than 250 units, estimates of the accrual

need will be based on the following:

(i) Objective measurable data concerning the following PHA,

community and development

[[Page 49928]]

characteristics applied to each development:

(A) The average number of bedrooms in the units in a development.

(Equation co-efficient: 325.5);

(B) The extent to which the buildings in a development average

fewer than 5 units. (Equation co-efficient: 179.8);

(C) The age of a development as of FFY 1998, as determined by the

DOFA date (date of full availability). In the case of acquired

developments, HUD will use the DOFA date unless the PHA provides HUD

with the actual date of construction. When provided with the actual

date of construction, HUD will use this date (or, for scattered sites,

the average dates of construction of all the buildings), subject to a

50-year cap. (Equation co-efficient: -9.0);

(D) Whether the development is a family development. (Equation co-

efficient: 59.3);

(E) The rolling three-year average of the cost index of

rehabilitating property in the area. (Equation co-efficient: -1570.5);

(F) The extent to which the units of a development were in a non-

metropolitan area as defined by the Census Bureau during FFY 1996.

(Equation co-efficient: -122.9);

(G) The PHA is located in the southern census region, as defined by

the Census Bureau. (Equation co-efficient: -564.0);

(H) The PHA is located in the western census region, as defined by

the Census Bureau. (Equation co-efficient: -29.6);

(I) The PHA is located in the midwest census region as defined by

the Census Bureau. (Equation co-efficient: -418.3)

(ii) An equation constant of 3193.6.

(4) Calibration of accrual need for the rolling three year average

of the cost index of rehabilitating property in the area. The estimated

accrual need, as determined under either paragraph (e)(2) or (e)(3) of

this section, shall be adjusted by the values of the rolling three-year

average of the cost index of rehabilitation.

(f) Calculation of number of units. (1) General. For purposes of

determining the number of a PHA's public housing units, and the

relative modernization needs of PHAs, HUD shall count as one unit each

public housing and section 23 bond-financed unit under the ACC, except

that it shall count as one-fourth of a unit each existing unit under

Turnkey III program. In addition, HUD shall count as one unit each

existing unit under the Mutual Help program. Units that are added to an

PHA's inventory will be added to the overall unit count so long as the

units are under ACC amendment and have reached DOFA by the date HUD

establishes for the Federal Fiscal Year in which the CFF is being run

(hereafter called the ``reporting date''). Any such increase in units

shall result in an adjustment upwards in the number of units under the

CFF. New units reaching DOFA after the reporting date will be counted

for CFF purposes as of the following Federal Fiscal Year.

(2) Conversion of units. (i) Increases in the number of units

resulting from the conversion of existing units will be added to the

overall unit count so long as the units are under ACC amendment by the

reporting date;

(ii) For purposes of calculating the number of converted units, HUD

shall regard the converted size of the unit as the appropriate unit

count (e.g., a unit that originally was counted as one unit under

paragraph (f)(1) of this section, but which later was converted into

two units, shall be counted as two units under the ACC);

(iii) For purposes of calculating the number of converted units,

HUD shall make no adjustments prior to the first 10 units lost or

gained as a result of conversion in a development.

(3) Reduction of units. For developments losing units as a result

of demolition, disposition or conversion, the number of units on which

capital funding is based will be the number of units reported as

eligible for capital funding as of the reporting date. Units are

eligible for funding until they are removed due to demolition,

disposition or conversion in accordance with a schedule approved by

HUD.

(g) Computation of formula shares under the CFF. (1) Total

estimated existing modernization need. The total estimated existing

modernization need of a PHA under the CFF is the result of multiplying

for each development the PHA's total number of formula units by its

estimated existing modernization need per unit, as determined by

paragraph (d) of this section, and calculating the sum of these

estimated development needs.

(2) Total accrual need. The total accrual need of a PHA under the

CFF is the result of multiplying for each development the PHA's total

number of formula units by its estimated accrual need per unit, as

determined by paragraph (e) of this section, and calculating the sum of

these estimated accrual needs.

(3) PHA's formula share of existing modernization need. A PHA's

formula share of existing modernization need under the CFF is the PHA's

total estimated existing modernization need divided by the total

existing modernization need of all PHAs.

(4) PHA's formula share of accrual need. A PHA's formula share of

accrual need under the CFF is the PHA's total estimated accrual need

divided by the total existing accrual need of all PHAs.

(5) PHA's formula share of capital need. A PHA's formula share of

capital need under the CFF is the average of the PHA's share of

existing modernization need and its share of accrual need (by which

method each share is weighted 50%).

(h) CFF capping. (1) For units that are eligible for funding under

the CFF (including replacement housing units discussed below) a PHA's

CFF share will be its share of capital need, as determined under the

CFF, subject to the condition that no PHA's CFF share for units funded

under CFF can be less than 94% of its formula share had the FFY 1999

formula system been applied to these CFF eligible units. The FFY 1999

formula system is based upon the FFY 1999 Comprehensive Grant formula

system for PHAs that were 250 or more units in FFY 1999 and upon the

FFY 1999 Comprehensive Improvement Assistance Program (CIAP) formula

system for PHAs that were less than 250 units in FFY 1999.

(2) For a Moving to Work PHA whose agreement provides that its

capital formula share is to be calculated in accordance with the

previously existing formula, the PHA's CFF share, during the term of

the agreement, may be the formula share that the PHA would have

received had the FFY 1999 formula funding system been applied to the

CFF eligible units.

(i) Replacement housing factor to reflect formula need for

developments with demolition, disposition, or conversion occurring on

or after October 1, 1998. (1) Replacement housing factor generally.

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 CFF

calculations qualify for application of a replacement housing factor,

subject to satisfaction of criteria stated in paragraph (i)(5) of this

section.

(2) When applied. The replacement housing factor will be added,

where applicable, for the first 5 years after the reduction in units

described in paragraph (i)(1) of this section, and will be added for an

additional 5 years if the planning, leveraging, obligation and

expenditure requirements are met. As a prior condition of a PHA's

receipt of additional funds for replacement housing, provided for the

second 5-year period or any portion thereof, a PHA must obtain a firm

commitment of

[[Page 49929]]

substantial additional funds other than public housing funds for

replacement housing, as determined by HUD.

(3) Computation of replacement housing factor. The replacement

housing factor consists of the difference between the CFF share without

the CFF share reduction of units attributable to demolition,

disposition or conversion, and the CFF share that resulted after the

reduction of units attributable to demolition, disposition or

conversion.

(4) Replacement housing funding in FFY 1998 and 1999. Units that

received replacement housing funding in FFY 1998 will be treated as if

they had received two years of replacement housing funding by FFY 2000.

Units that received replacement housing funding in FFY 1999 will be

treated as if they had received one year of replacement housing funding

as of FFY 2000.

(5) PHA eligibility for replacement housing factor. A PHA is

eligible for application of this factor only if the PHA satisfies the

following criteria:

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

(ii) The PHA will use the funding in question only for replacement

housing;

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

replacement factor is used to provide replacement housing in accordance

with the PHA's five-year PHA plan, as approved by HUD in accordance

with part 903 of this chapter;

(iv) The PHA has not received funding for public housing units that

will replace the lost units under the public housing development, Major

Reconstruction of Obsolete Public Housing, HOPE VI programs, or

programs that otherwise provide for replacement with public housing

units;

(v) A PHA that has been determined by HUD to be troubled that is

not already under the direction of HUD or a court-appointed receiver,

in accordance with part 902 of this chapter, must use an Alternative

Management Entity as defined in part 902 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

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

in accordance with applicable HUD requirements and regulations.

(6) Failure to provide replacement housing in a timely fashion. If

the PHA does not use the restored funding that results from the use of

the replacement housing factor to provide replacement housing in a

timely fashion, as outlined in paragraph (i)(7)(i) of this section and

in accordance with applicable HUD requirements and regulations, and

make reasonable progress on such use of the funding, in accordance with

HUD requirements and regulations, HUD will require appropriate

corrective action under these regulations; may recapture and reallocate

the funds; or may take other appropriate action.

(7) Requirement to obligate and expend replacement housing factor

funds within specified period. (i) In addition to the requirements

otherwise applicable to obligation and expenditure of funds, PHAs are

required to obligate assistance received as a result of the replacement

housing factor within:

(A) 24 months from the date that funds become available to the PHA;

or

(B) With specific HUD approval, 24 months from the date that the

PHA accumulates adequate funds to undertake replacement housing.

(ii) To the extent the PHA has not obligated any funds provided as

a result of the replacement housing factor within the times required by

this paragraph, or expended such funds within a reasonable time, the

amount of funds to be provided to the PHA as a result of the

application of the second 5 years of the replacement housing factor

shall be reduced.

(j) Performance reward factor. PHAs that are determined as high

performers under the Public Housing Assessment System (PHAS) for their

most recent fiscal year can receive 3% in the first five years these

awards are given (for any year in this 5-year period in which the

performance reward is earned), and 5% above their base formula amount

in future years (for any year in which the performance reward is

earned), subject only to the condition each year that no PHA will lose

more than 5% of its base formula amount as a result of the

redistribution of funding from non-high performers to high performers.

The first performance awards will be given based upon PHAS scores for

PHA fiscal years ending December 31, 1999, March 31, 2000, June 30,

2000, and September 30, 2000, with PHAs typically having received those

PHAS scores within approximately 3 months after the end of those fiscal

years.

Dated: September 8, 1999.

Deborah Vincent,

General Deputy Assistant Secretary for Public and Indian Housing.

[FR Doc. 99-23699 Filed 9-13-99; 8:45 am]

BILLING CODE 4210-33-P