Direct Funding of Public Housing Resident Management Corporations

SUMMARY: This proposed rule revises HUD's regulations regarding

resident participation and resident opportunities in public housing.

Specifically, the rule would make conforming amendments to the HUD

regulations to reflect recent statutory changes made by the Quality

Housing and Work Responsibility Act of 1998. The proposed rule provides

that a resident management corporation (RMC) may receive capital and

operating funds from HUD if the RMC has primary management

responsibility for the public housing project and HUD determines that

the RMC has the capacity to effectively discharge such responsibility.

DATES: Comments Due Date: December 20, 1999.

ADDRESSES: Interested persons are invited to submit comments regarding

this proposed rule to the Regulations Division, Office of General

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

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

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

are not acceptable. A copy of each communication submitted will be

available for public inspection and copying between 7:30 a.m. and 5:30

p.m. weekdays at the above address.

FOR FURTHER INFORMATION CONTACT: Paula Blunt, Director, Customer

Services and Amenities Division, Department of Housing and Urban

Development, Office of Public and Indian Housing, 451 Seventh Street,

SW, Room 4228, Washington, DC 20410; telephone (202) 619-8201 (this is

not a toll-free telephone number). Persons with hearing or speech

disabilities may access this number via TTY by calling the free Federal

Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

Section 20 of the United States Housing Act of 1937 (42 U.S.C. 1437

et seq.) (the ``1937 Act'') encourages resident management of public

housing projects as a means of improving existing living conditions in

public housing. HUD has implemented section 20 of the 1937 Act in its

regulations at 24 CFR part 964 (captioned ``Tenant Participation and

Tenant Opportunities in Public Housing''). Under section 20, and 24 CFR

part 964, an RMC must be a nonprofit corporation organized under the

laws of the State in which the public housing project is located, and

the tenants of the project must be the sole voting members of the RMC.

An eligible RMC enters into a management contract with the public

housing agency (PHA) establishing the respective management rights and

responsibilities of the RMC and the PHA. The contract must be

consistent with the requirements of the 1937 Act and may provide for

the RMC to perform any or all of the management functions for which the

PHA is responsible to HUD. The management contract is treated as a

contracting out of services and is subject to any provision of a

collective bargaining agreement regarding the contracting out of

services to which the PHA is subject. To assist and encourage resident

management of public housing, HUD is developing a sample management

contract for use by RMCs and PHAs. Once completed, the sample contract

will be included as part of a broader HUD notice, which will also

discuss other issues related to public housing management.

The performance of the RMC is subject to periodic review by the PHA

to ensure that the RMC complies with all applicable requirements and

standards of performance.

II. Public Housing Reform

On October 21, 1998, President Clinton signed into law HUD's fiscal

year 1999 Appropriations Act, which includes the Quality Housing and

Work Responsibility Act of 1998 (Pub. L. 105-276; 112 Stat. 2461, 2522)

(the ``Public Housing Reform Act'' or ``Act''). The Public Housing

Reform Act constitutes a substantial overhaul of HUD's public housing

and Section 8 assistance programs. The changes made by the Public

Housing Reform Act are directed at revitalizing and improving HUD's

public housing and Section 8 tenant-based programs. These changes are

also designed to provide for more resident involvement, and to increase

resident participation and awareness in creating and maintaining a

positive living environment.

III. This Proposed Rule

This proposed rule would amend 24 CFR part 964 to reflect recent

statutory changes made to section 20 of the 1937 Act by section 532 of

the Public Housing Reform Act. Section 532 of the Public Housing Reform

Act provides for the direct provision of capital and operating

assistance to an RMC if: (1) The RMC petitions HUD for the release of

the funds; (2) the management contract between the RMC and the PHA

provides for the RMC to assume the primary management responsibilities

of the PHA; and (3) HUD determines that the RMC has the capability to

effectively discharge such responsibilities. In all other cases,

operating and capital funding will be provided to the RMC by the PHA.

The proposed rule provides that HUD will consider this third

requirement to be satisfied if the RMC is designated at least a

``standard performer'' under the Public Housing Assessment System

(PHAS) (see 24 CFR part 902); and the RMC is not in violation of any

financial, accounting, procurement, civil rights, fair housing, or

other program requirements that HUD determines call into question the

capability of the RMC to effectively discharge its responsibilities

under the contract.

The standard that HUD will use to determine RMC eligibility for

direct assistance does not impose any new requirements on RMCs. The

proposed rule reflects existing performance measures and program

requirements that RMCs must already comply with. For example, RMCs are

already subject to the PHAS performance measures described in 24 CFR

part 902. Further, RMCs are currently required to comply with all

applicable program, civil rights, and financial requirements as a

condition of assistance under HUD's public housing programs. HUD

believes that the use of existing measures will allow HUD to accurately

determine RMC management capability, while minimizing the burdens

imposed on RMCs.

The Annual Contributions Contract between HUD and the PHA will

provide for the direct allocation of operating and capital assistance

to RMCs that meet the requirements described above. Any direct capital

or operating assistance provided to the RMC must be used for purposes

of operating the public housing developments of the PHA and for

performing other eligible activities with respect to public housing. If

HUD provides direct funding to an RMC, the PHA is not responsible for

the actions of the RMC.

[[Page 56891]]

In addition to implementing section 532 of the Public Housing

Reform Act, this proposed rule would also make one clarifying change to

24 CFR part 964. Specifically, this rule would revise Sec. 964.225

(entitled ``Resident management requirements'') to clarify that an RMC

must be in compliance with any local licensing requirement, or other

local requirement, governing the qualifications or operations of a

property manager.

IV. Other Changes Made by the Public Housing Reform Act to Public

Housing Resident Requirements

In addition to the changes described above, the Public Housing

Reform Act makes various other amendments to the statutory requirements

regarding resident participation and resident opportunities in public

housing. For example, the Public Housing Reform Act requires the

participation of residents on the governing board of a PHA (section 505

of the Act) and provides for grant funding of services for public

housing residents (section 538 of the Act).

The resident board membership requirements established by section

505 of the Act are being implemented through a separate proposed

rulemaking published on June 23, 1999 (64 FR 33644). The June 23, 1999

proposed rule would create a new subpart E to 24 CFR part 964

describing these requirements. The other changes made by the Public

Housing Reform Act affecting the part 964 requirements will be the

subject of a separate proposed rulemaking. HUD is committed to the

development of this proposed rule with the active participation of

public housing residents (see Section V of this preamble below).

V. HUD's Ongoing Efforts To Promote Effective Resident

Participation

To further promote effective resident participation in public

housing, HUD is taking various steps to promote resident involvement in

creating and maintaining a positive living environment. As discussed

above, HUD is developing a proposed rule that will implement the

resident related amendments made by the Public Housing Reform Act. HUD

is committed to developing this proposed rule with the active

participation of public housing residents. HUD will solicit resident

input through the scheduling of public forums, solicitations for

written comments, and/or other appropriate means.

HUD's goal in undertaking this rulemaking is to develop a set of

easy-to-understand regulations that reflect the meaningful

contributions of public housing residents. Accordingly, the proposed

rule will not only implement statutory amendments made by the Public

Housing Reform Act, but will also streamline and reorganize 24 CFR part

964 to simplify and improve the clarity of HUD's resident participation

requirements.

HUD is taking several other steps to increase resident

participation in public housing. For example, HUD will conduct training

for resident organizations and PHAs on the new Public Housing Reform

Act. HUD will also 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.

VI. 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 Flexibility Act

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

U.S.C. 605(b)) (the RFA), has reviewed and approved this proposed rule

and in so doing certifies that this rule will not have a significant

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

for HUD's determination are as follows:

(1) A Substantial Number of Small Entities Will Not be Affected.

The proposed rule is exclusively concerned with public housing agencies

that contract with RMCs for the management and operation of specific

public housing projects. Specifically, the rule would make various

conforming amendments to 24 CFR part 964 (captioned ``Tenant

Participation and Tenant Opportunities in Public Housing'') to reflect

recent statutory changes made by the Public Housing Reform Act. Under

the definition of ``Small governmental jurisdiction'' in section 601(5)

of the RFA, the provisions of the RFA are applicable only to those few

public housing agencies that are part of a political jurisdiction with

a population of under 50,000 persons. The number of entities

potentially affected by this rule is therefore not substantial.

(2) No Significant Economic Impact. The Public Housing Reform Act

improves and simplifies the way in which PHAs and RMCs are funded.

Specifically, section 519 of the Public Housing Reform replaces funding

under the existing Performance Funding System (PFS) with formula

funding under the new Operating Fund and the Capital Improvement

Assistance Program (CIAP) and the Comprehensive Grant Program with

formula allocations under the new Capital Fund. The implementation of

section 519 is beyond the scope of this proposed rule, and is the

subject of separate negotiated rulemakings that HUD is currently

undertaking. Accordingly, the economic impact of this proposed rule

will not be significant, and it will not affect a substantial number of

small entities.

Notwithstanding HUD's determination that this rule will not have a

significant economic effect on a substantial number of small entities,

HUD specifically invites comments regarding any less burdensome

alternatives to this rule that will meet HUD's objectives as described

in this preamble.

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 would not impose, within the

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

tribal governments or on the private sector.

Executive Order 12612, Federalism

The General Counsel, as the Designated Official for HUD under

section 6(a) of Executive Order 12612, Federalism, has determined that

this rule will not have federalism implications concerning the division

of local, State, and Federal responsibilities. This proposed rule would

revise 24 CFR part 964 to reflect recent statutory changes made to

section 20 of the 1937 Act by section 532 of the Public Housing Act.

The proposed rule would also make several clarifying and technical

changes to the part 964. No

[[Page 56892]]

programmatic or policy change will result from this rule that will

affect the relationship between the Federal government and State and

local governments.

Regulatory Planning and Review

The Office of Management and Budget has reviewed this 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.

List of Subjects in 24 CFR Part 964

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

Reporting and recordkeeping requirements.

Accordingly, for the reasons described in the preamble, HUD

proposes to amend 24 CFR part 964 as follows:

PART 964--TENANT PARTICIPATION AND TENANT OPPORTUNITIES IN PUBLIC

HOUSING

1. The authority citation for part 964 is revised to read as

follows:

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

2. Amend Sec. 964.225 as follows:

a. Redesignate paragraphs (h), (i), (j), and (k) as paragraphs (i),

(j), (k), and (l), respectively;

b. Add new paragraph (h); and

c. Revise newly designated paragraph (j).

The addition and revision to Sec. 964.225 read as follows:

Sec. 964.225 Resident management requirements.

* * * * *

(h) Direct provision of operating and capital assistance to RMC.--

(1) Direct provision of assistance to RMC. The ACC shall provide for

the direct provision of operating and capital assistance by HUD to an

RMC if:

(i) The RMC petitions HUD for the release of funds;

(ii) The contract provides for the RMC to assume the primary

management responsibilities of the PHA;

(iii) The RMC has been designated as at least a ``standard

performer'' under the Public Housing Assessment System (PHAS) (see 24

CFR part 902); and

(iv) The RMC is not in violation of any financial, accounting,

procurement, civil rights, fair housing or other program requirements

that HUD determines call into question the capability of the RMC to

effectively discharge its responsibilities under the contract.

(2) Use of assistance. Any direct capital or operating assistance

provided to the RMC must be used for purposes of performing eligible

activities with respect to public housing as may be provided under the

contract.

(3) Responsibilities of PHA. If HUD provides direct funding to a

RMC under paragraph (h)(1) of this section, the PHA is not responsible

for the actions of the RMC.

* * * * *

(j) Bonding, insurance, and licensing. (1) Bonding and insurance.--

Before assuming any management responsibility under its contract, the

RMC must provide fidelity bonding and insurance, or equivalent

protection that is adequate (as determined by HUD and the PHA) to

protect HUD and the PHA against loss, theft, embezzlement, or

fraudulent acts on the part of the RMC or its employees.

(2) Licensing and other local requirements. An RMC must be in

compliance with any local licensing, or other local requirement,

governing the qualifications or operations of a property manager.

* * * * *

Dated: October 13, 1999.

Deborah Vincent,

General Deputy Assistant Secretary for Public and Indian Housing.

[FR Doc. 99-27303 Filed 10-20-99; 8:45 am]

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