Renewal of Expiring Annual Contributions Contracts in the Tenant- Based Section 8 Program; Formula for Allocation of Housing Assistance

SUMMARY: This rule specifies the method HUD will use in allocating

housing assistance available to renew expiring contracts with public

housing agencies (PHAs) for Section 8 tenant-based housing assistance.

As required by statute, this rule is the product of a negotiated

rulemaking, following implementation, as further required by statute,

of a HUD notice on this subject.

EFFECTIVE DATE: November 22, 1999.

FOR FURTHER INFORMATION CONTACT: Robert Dalzell, Office of Public and

Indian Housing, Department of Housing and Urban Development, 451

Seventh Street, SW, Room 4204, Washington, DC 20410; telephone (202)

708-1380. (This is not a toll-free number.) Persons with hearing or

speech impairments may access that number via TTY by calling the

Federal Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

The statutory provision that provides the foundation for this rule

is section 8(dd) of the United States Housing Act of 1937 (the 1937

Housing Act)(42 U.S.C. 1437(dd)), as added by section 556(a) of the

Quality Housing and Work Responsibility Act of 1998 (Pub. L. 105-276,

112 Stat. 2461, approved October 21, 1998) (``Public Housing Reform

Act''). The new section 8(dd) directs HUD to establish an allocation

baseline amount of assistance (budget authority) to cover the renewals,

and to apply an inflation factor (based on local or regional factors)

to the baseline. The new provision states as follows:

(dd) Tenant-Based Contract Renewals.--Subject to amounts

provided in appropriation Acts, starting in fiscal year 1999, the

Secretary shall renew all expiring tenant-based annual contribution

contracts under this section by applying an inflation factor based

on local or regional factors to an allocation baseline. The

allocation baseline shall be calculated by including, at a minimum,

amounts sufficient to ensure continued assistance for the actual

number of families assisted as of October 1, 1997, with appropriate

upward adjustments for incremental assistance and additional

families authorized subsequent to that date.

Section 556(b) of the Public Housing Reform Act required the

Department to implement section 8(dd) of the 1937 Housing Act through

notice not later than December 31, 1998, and to issue final regulations

on the allocation of tenant-based Section 8 annual contributions

contract renewal funding that are developed through the negotiated

rulemaking process no later than October 21, 1999.

On December 30, 1998, the Department issued HUD Notice 98-65 to

implement the provision, satisfying the requirement of section 556(b)

to implement the new provision through Notice not later than December

31, 1998. The Department published a notice in the Federal Register on

February 18, 1999, advising the public of the provisions of HUD Notice

98-65. The Department has developed this final rule implementing the

requirements of section 8(dd) of the 1937 Housing Act through a

negotiated rulemaking process, in accordance with the statutory

requirements of section 556.

II. Negotiated Rulemaking

HUD convened a negotiated rulemaking advisory committee to assist

in developing this final rule--the Section 8 Housing Certificate Fund

Negotiated Rulemaking Committee. (See publication of notice of

establishment of the Committee on April 26, 1999, 64 FR 20232.) The

charter for the Committee stated: ``The purpose of the Committee is to

discuss and negotiate a rule that would change the current method of

distributing funds to public housing agencies (PHAs) for purposes of

renewing assistance contracts in the tenant-based Section 8 program.

The committee will consist of persons representing stakeholder

interests in the outcome of the rule.'' Records of the advisory

committee's deliberations can be found at http://www.hud.gov/pih/

pih.html.

The members of the advisory committee were as follows:

Housing Agencies

Massachusetts Department of Housing and Community Development,

Boston, MA

New Jersey Department of Community Affairs, Trenton, NJ

Southeastern Minnesota Multi-County Housing and Redevelopment

Authority, Wabasha, MN

Oklahoma Housing Finance Agency, Oklahoma City, OK

Fort Worth Housing Authority, Fort Worth TX

Minneapolis Metropolitan Council Housing and Redevelopment Agency,

Saint Paul, MN

Santa Cruz County Housing Authority, Santa Cruz, CA

Burlington Housing Authority, Burlington, VT

Michigan State Housing Development Authority, Lansing, MI

New York City Housing Authority, NY, NY

Atlanta Housing Authority, Atlanta, GA

Cincinnati Metropolitan Housing Authority, Cincinnati, OH

Housing Authority of the City of Los Angeles, Los Angeles, CA

Stillwater Housing Authority, Stillwater, OK

Spokane Housing Authority, Spokane, WA

Jacksonville Housing Authority, Jacksonville, FL

Panama City Housing Authority, Bay County, FL

Alameda County Housing Authority, Hayward, CA

Housing Authority of New Orleans, New Orleans, LA

Stustman County Housing Authority, Stustman County, ND

Public Interest Groups

Center on Budget and Policy Priorities, Washington, DC

New Community Corporation, Newark, NJ

Disability Rights Action Coalition for Housing

Section 8 Resident Council of New Orleans, Inc., New Orleans, LA

Independent Accounting and Consulting Firms

Fenton, Ewald & Associates, PC

IMRglobal--Orion Consulting, Inc.

National/Regional PHA Associations

National Leased Housing Association (NLHA)

National Association of Housing and Redevelopment Officials (NAHRO)

Council of Large Public Housing Authorities (CLPHA)

Public Housing Authority Directors Association (PHADA)

(Note that 1. Fenton, Ewald & Associates, PC was made an alternate

due to its representative's time constraints and that the Southeast

Regional Section Eight Housing Association (SERSHA) was added as a

member of the Committee)

Federal Government

U.S. Department of Housing and Urban Development

The Committee met in Washington, DC, on April 27 and 28, 1999, on

June 2 and 3, 1999, on June 21 and 22, 1999, on July 19 and 20, 1999,

on August 19 and 20, 1999 and on September 28 and 29th, 1999. (See

notices of meetings: 64 FR 26923, May 18, 1999 and 64 FR 30450, June 8,

1999.) These Committee meetings were led by Larry Susskind and David

Fairman of the Consensus Building Institute (``CBI''), as facilitators/

mediators. Tom Fee and Michael Lewis, also of CBI, assisted in the

facilitation/mediation. Kelly

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Davenport of CBI provided further assistance, taking minutes of the

meetings.

HUD appreciates the active participation in this negotiated

rulemaking process by such knowledgeable groups. The participants spent

many days reviewing materials, working with others in small groups to

prepare draft position papers, attended meetings of the Committee, and

participated in teleconferences. Ultimately, the members reached

consensus on the content of this rule. During the course of their

deliberations, they provided valuable advice to the Department on

broader issues, not reflected in this rule.

III. Discussion of Comments

A. General

This section provides a brief overview of the most important issues

discussed in the meetings of the Committee over the course of its

deliberations. This overview of the issues is not a detailed recitation

of the more than 12 days of meetings or the multiple additional work

group meetings/conference calls that took place during the term of the

Committee's charter but rather highlights the significant issues

considered by the Committee. In addition to providing HUD with

recommendations related to this regulation on the methodology for

allocating Section 8 renewal funding, the Committee also provided

recommendations on related issues (including policy on ACC reserves)

that HUD intends to implement through a Federal Register Notice. This

overview of the discussion of the Committee focuses only on the issues

related to the regulation itself and not on the issues discussed in

conjunction with developing separate Notice(s).

B. Establishing the Baseline

To initiate discussion of housing assistance allocation methods,

HUD staff provided background information to the Committee regarding

the various methods used over time to calculate renewals. An

explanation of the current renewal funding Notice, PIH 98-65 (HA),

including the process for setting the baseline and awarding renewal

funding for Fiscal Year 1998, was reviewed by HUD staff.

Issue. The Committee discussed specific details regarding

accounting rules and anomalies of the current method of calculating the

allocation of renewal funding. Several members expressed concern that

there was the possibility of discrepancies between historical

documented unit counts and the unit counts in HUD's data systems.

Members questioned whether a crosscheck of the data in the HUDCAPS

system against their own data was possible. Some members felt that the

October 1, 1997 baseline data were somewhat arbitrary and could

adversely impact agencies. Members suggested alternative ways to

setting the baseline units, such as choosing dates other that October

1, 1997. Concerns about using October 1, 1997 included that this date

``freezes'' many inequities among PHAs (e.g., rewarding those who

continued leasing during the 90-day freeze period declared by HUD). A

suggestion was made to use October 1, 1998 as the baseline date,

because at this time all PHAs would have had time to adjust to HUD

interim rules and guidelines on baseline accounting and renewal

funding.

Response. HUD noted that it had confidence that data discrepancies

in HUDCAPS are minor, and that most of the discrepancies between

HUDCAPS and PHA data would be attributable to data entry problems, or

differences in interpretations of unit or project classifications. HUD

representatives stated that they would check the kinds of information

that could be shared and how this information could be shared. HUD

representatives stated that they had revised the baseline determination

method to ensure that each PHA would receive the higher of the number

contracted or the number leased on October 1, 1997. HUD indicated that

the statute required a focus on the state of housing authorities as of

October 1, 1997 and that using other dates would not satisfy the

statutory mandate.

Conclusion: The Committee reached consensus that the baseline

number of units should be the higher of the number of units leased as

of October 1, 1997 or the number of units reserved by HUD as of October

1, 1997. The Department has added approximately 19,000 units to its

previously reserved number of units as a result of the comparison. This

increase in the number of units as well as transactions that have taken

place since October 1, 1997 will be reflected in the baseline

established as of December 31, 1999, in accordance with the rule. In

response to the Committee's recommendation, HUD will establish a

mechanism for PHAs to request an adjustment of the baseline unit number

assigned to them if they can demonstrate that the number in HUD's

system is inaccurate.

C. Unit-Based vs. Dollar Based Funding Allocation

Issue. The Committee discussed moving from the current ``unit-

based'' funding system (using units multiplied by an adjusted per unit

cost as the basis for determining annual funding amounts) to a

``dollar-based'' system: A dollar-based system would fund PHAs by

adjusting their previous year's dollar grant amount to account for

changes in local rental costs, without considering how many units were

rented through the program in the previous year. Initially there

appeared to be a preference for a dollar-based system, for reasons of

administrative simplicity and ability to serve more households if costs

are contained. Some Committee members raised concerns regarding

switching to a dollar-based system, because it might lead to

significant swings in the number of families assisted year-to-year.

The Committee extensively explored possible adjustment factors that

would be applied to PHA's previous year grant amount in a dollar-based

system. The Committee reviewed data analysis from Andersen Consulting

Corporation that compared the accuracy of different adjustment factors

against the actual experience of approximately 400 housing authorities

over the course of 3 years (1995-1997) for which reliable historical

data was available. The most reliable predictor of future costs proved

to be changes in a housing authority's most recent year's actual costs

in HUDCAPS. The analysis uncovered significant problems in using MTCS

data for the purpose of calculating renewals at this time.

Response. HUD indicated that it is cognizant of its obligation to

protect existing assisted families from losing their assistance due to

a shortfall in funding. In addition a number of the reasons why per

unit costs might vary would not be related to the PHA's discretionary

actions (e.g., the need to meet new income targeting requirements).

Conclusion: After much discussion, the Committee and HUD reached

consensus that the Department should have authority to use the current

unit-based method for the next several years. Given the limitations of

current data systems and adjustment factors, the unit-based system has

the best potential to predict fluctuations in per unit costs and to

ensure reasonably adequate funding to support the reserved number of

units in a housing authority's inventory.

Issue. Some members of the Committee, including HUD, expressed

concern that the current method creates a disincentive for PHAs to

contain per-unit costs, because the higher a PHA's per-unit costs, the

higher its funding for the next year. Additionally, the current

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system creates a disincentive for PHAs to lease more than their

contracted number of units, because their funding allocations are

determined based on the number of reserved units, not the leased number

of units.

Other members of the Committee asserted that costs are largely

outside of the control of a PHA. Rents are set by the local market and

the size of the family. The PHA does not control the local rental

market and has little control over the family size, because it has to

follow the waiting list. Tenant contributions are affected for the most

part by tenant incomes. Again, this factor is largely controlled by

residents themselves, as well as the local job market. However, in some

important instances, a PHA can influence the per-unit cost. These

instances include, but are not limited to, rent reasonableness, subsidy

standards, and payment standards. (For this purpose, ``subsidy

standards'' refer to a PHA's policy for determining the appropriate

unit size for a particular household.)

Committee members also made the point that PHAs themselves do not

benefit from an increase in the grant amount for renewals, because

their administrative fee is not tied to the grant amount used to

subsidize families. The administrative fee formula actually provides an

incentive for cost containment, because a PHA would benefit from being

able to lease more units--which could only be accomplished by lower

per-unit costs.

Members of the Committee also emphasized how difficult it would be

to isolate how much of a change in per-unit costs was attributable to

actions taken by a PHA as opposed to market/demographic changes totally

outside the control of the PHA.

Response. HUD is concerned that the regulation's methodology not

create an incentive or bias toward higher per-unit costs as a result of

PHA policies that can affect per-unit costs. Such a bias can result

both from the current rule's characteristic of adapting to higher costs

over time without penalty and from its subtraction of funding to

support additional units that a PHA is able to put under lease because

of cost saving measures. HUD acknowledged that there are very

significant difficulties administratively in isolating the effects of

PHA policies on cost per unit. HUD proposed that the rule give it

flexibility to put in place checks and balances that would offset the

impact of PHA policies on per-unit costs and ultimately the allocation

amount.

Conclusion: HUD's proposed mechanism for addressing cost

containment is embodied in paragraph (g) of the rule. Paragraph (g)(1)

permits HUD to put in place mechanisms to step in to prevent a PHA from

becoming overextended and exceeding its allocated funding. Paragraph

(g)(2) gives HUD the ability to act on either a case-by-case or a

systemic basis. If the Department's analysis of the program costs and

related factors determines that systemic adjustments, including cost

containment and other cost adjustments, to the program are necessary

because of threats to the future availability of funding, HUD has

agreed that it would consult with PHA representatives and other

relevant stakeholders before putting such a policy in place. HUD

further indicated that any such cost adjustment would be consistent

with the legitimate program goals. These goals are:

(1) Deconcentration of poverty and expanding housing opportunities;

(2) Not imposing unreasonable rent burdens on residents;

(3) Compliance with the income targeting requirements of the Public

Housing Reform Act;

(4) Consistency with applicable consolidated plan(s);

(5) Assuring rent reasonableness;

(6) Maintaining program efficiency and economy;

(7) Providing service to additional households within budgetary

limitations; and

(8) Providing service to the adjusted baseline number of families.

Paragraph (g)(3) gives HUD the flexibility to keep PHAs with

declining per unit costs from losing funding under the regulation and

to allow additional households to be served if costs are contained.

Many factors are intersecting to influence per unit costs at this time

(including the merger of the certificate and voucher program, the

requirement for income targeting, the requirement that payment

standards not impose unreasonable rent burdens, the flexibility of

housing authorities to set payment standards between 90% and 110% of

FMR on their own as well as the continued implementation of this rule's

methodology that indexes funding closely to per unit costs). HUD will

gain program experience as it monitors program costs and analyzes the

reasons for fluctuations in costs.

D. Inflation Factors

Issue: The Committee considered other more up-to-date measurement

of rents, or weighting the Annual Adjustment Factor so that the most

recent inflation data count for more than older data. Additionally, the

Committee recommended that inflation factors be more closely attuned to

individual PHAs' housing markets: examples included local rents, and

the use of local government or real estate agency data on rents.

Response: Based on its program experience, HUD staff advised that

some of these options could work, but that the smaller the sample area,

the higher the cost to obtain statistically valid data on costs.

Sometimes the more accurate the Annual Adjustment Factors (AAFs) could

produce lower rather than higher inflation factors for some PHAs. A

review and comparison of the Annual Adjustment Factor and the National

Inflation Factor were presented.

Conclusion: The Committee agreed to keep the AAF as it exists in

the rule for the time being. HUD will examine whether it can get better

data and more predictable information in the future. At the Committee's

request, HUD added a provision that will allow it to consider requests

from PHAs on a case-by-case basis in instances where because of special

circumstances the AAF is not accurately predicting per unit cost.

IV. Renewal Funding Level Consideration

The renewal formula included in this regulation assumes

continuation of the current system, in which the Department allocates

sufficient funds to renew 100 percent of the units reserved for a PHA,

even though many PHAs do not use all of the allocated funds. The

Department subsequently recaptures funds that PHAs do not use after the

end of their fiscal years. This system of initially overfunding on a

national basis and then recapturing, has the advantage of assuring that

each PHA will have the necessary renewal funds, but it also has created

some confusion in Congress and elsewhere.

At the end of the fiscal year 2000 appropriations process, the

Senate Appropriations Committee raised substantial concerns about the

tenant-based assistance program that appear to be partly related to

this system. The Administration is exploring the feasibility and

desirability of an approach that would minimize overfunding and

subsequent recapture, while still meeting the basic requirement that

each PHA have the necessary funding for timely renewals. The evaluation

and any Administration proposals will be mindful of the consensus

reached by the negotiated rulemaking committee.

V. Explanation of Rule Text

Renewal Units

This rule revises part 982, governing tenant-based assistance. It

adds a new

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defined term, ``renewal units'' to the definitions found at Sec. 982.4.

This rule also adds a new Sec. 982.102 to outline a multi-step process

for calculating the number of units that constitute ``renewal units.''

The total number of renewal units will be assigned to one or more (if

applicable) of a housing agency's funding increments. Ultimately, the

Department will multiply the number of renewal units times the adjusted

per unit cost to calculate the amount of funding a housing agency will

receive to renew a given funding increment.

Applicability

This rule will apply to the renewal of funding increments that

expire in calendar year 2000 and thereafter (the initial increments

covered by the regulation would be those that expire on January 31,

2000). The Department adjusted to a calendar year basis for allocating

renewal funding in the first quarter of 1999. The Department adjusted

to a calendar year basis to ensure that it would have adequate time to

process renewal funding in advance of expirations even if

appropriations are not finalized until late in a given fiscal year or

early in a subsequent fiscal year. The regulation also makes it clear

that it applies to units that a housing agency project bases pursuant

to regulatory flexibility to project base up to 15% of the tenant-based

units that are reserved for it.

Renewal Methodology

The new Sec. 982.102 outlines the method for calculating renewal

funding. The Department does have the ability to adjust the amounts

allocated if the Department's appropriation is not sufficient to fully

fund all housing agencies pursuant to the regulation.

Determining the Amount of Budget Authority Allocated for Renewal of an

Expiring Funding Increment

The basic calculation the Department performs to determine the

renewal funding for an expiring increment is multiplication of the

number of renewal units assigned to the increment by the adjusted per

unit cost.

For example, the Department calculated the adjusted baseline number

of units for the Main Street Housing Authority to be 115 for the year

2000. It then multiplied the adjusted baseline number of units (115) by

the final per unit cost ($4979) to calculate the gross amount of

renewal funding for the housing authority, $572,585.

Determining the Number of Renewal Units

The Department will determine the number of renewal units for each

calendar year as of the last day of the previous calendar year through

a 3-step process.

Step 1--The Department will calculate the initial baseline. It will

be set at the reserved number of units (the number of units awarded to

the housing agency during the history of the program) as of December

31, 1999. The statute requires that the Department ensure, at a

minimum, sufficient funding for the number of families assisted as of

October 1, 1997. The Department has already compared the number of

reserved units as of October 1, 1997 with the number of program

families assisted as of that date. In instances in which the number of

program families exceeded the reserved units as of October 1, 1997, the

Department reserved additional units to account for the difference.

These additional units were awarded to housing agencies in or before

September of 1999. Because of the actions the Department has taken to

account for the October 1, 1997 statutory minimum, it believes the

number of reserved units will already have taken into account the

statutory October 1, 1997 requirement when it sets the initial baseline

as of December 31, 1999. In the event the Department has made an error

in its analysis to ensure adherence to the statutory minimum, the

Department has the ability to correct for such an error in

982.102(d)(3).

For example, on December 31, 1999, the Department's records

indicated that it had reserved 110 units for the housing authority. The

Department would set the initial baseline at 110 units.

Step 2--Each calendar year, the Department will review all of the

transactions that have altered the number of reserved units since it

set the initial baseline. The Department will make adjustments to add

to the initial baseline any additional units awarded to the housing

authority by the Department supported from additional funding reserved

since setting of the initial baseline. Adjustments to the baseline

number of units will include units supported by incremental funding as

well as other funding such as that awarded to provide continued

assistance to assisted families pursuant to the conversion of project

based assistance to tenant-based assistance. The Department also will

include adjustments for budget authority reallocated from one housing

authority to others. In this case, the adjusted baseline of the PHA

whose budget authority is being reallocated would decrease, reflecting

the decrease in budget authority, and the adjusted baseline of PHAs to

which the budget authority is being reallocated would increase.

For example, in calendar year 2000, the Main Street Housing

Authority received 10 incremental units in the Family Unification

Program. In 2000, the authority also had 10 units added to its

inventory as a result of the conversion of a property from project

based to tenant-based assistance. All 20 of these additional units

would be added to the initial baseline to calculate the adjusted

baseline number of units, 130 for the year 2001.

Step 3--In its final step in determining the number of renewal

units that will be used to calculate renewal funding, the Department

will further adjust the baseline number by subtracting the number of

units supported by contracts that are not scheduled to expire until

after the end of the calendar year. The baseline number of units

includes such non-expiring units; however, the Department has

previously allocated sufficient budget authority to support such units

beyond the time period for which it is allocating renewal funding.

For example, the Department's records indicate that the Main Street

Housing Authority has 15 units in its Initial Baseline number of units

that are not scheduled to expire until 2002. The Department would then

subtract 15 units from the Main Street Housing Authority's 130 units to

revise the Adjusted Baseline Number of Units to 115. Similarly, in the

event that the Department awarded budget authority for 50 incremental

units for Welfare to Work in 2000 that would not expire until 2001, the

Department would subtract the 50 units from the baseline in 2000

because they would not expire during that year.

Determining the Adjusted per Unit Cost

The Department will derive an annual actual per unit cost using a 3

step process.

Step 1--The Department will extract the total expenditures for all

of the housing authority's Section 8 tenant-based assistance programs

and the unit months leased information from the most recent approved

year end statement (Form HUD-52681) that each housing authority has

filed with the Department. The Department will divide the total

expenditures for all of the housing authority's Section 8 tenant-based

assistance programs by the unit

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months leased to derive an average monthly per unit cost.

Step 2--The Department will multiply the monthly per unit cost by

12 (months) to obtain an annual per unit cost.

Step 3--The Department will then multiply the result of step 2

above by the Section 8 Housing Assistance Payments Program Contract

Rent Annual Adjustment Factors (table 1 amount with the highest cost

utility included) for the applicable intervening Federal Fiscal Years

between the time of the last year end statement and the time of the

renewal to generate an adjusted annual per unit cost.

For example, the Main Street Housing Authority's 1998 Year End

Statement (the most recent one approved) indicated that it expended

$120,000 in its tenant-based Section 8 assistance programs and that it

achieved 300 unit months leased. The Department would take the total

expenditure ($120,000) and divide it by the unit months leased (300) to

calculate the monthly per unit cost ($400) and then multiply the result

by 12 months to obtain an actual annual per unit cost ($4,800).

To continue the example, the Annual Adjustment Factors for the Main

Street Housing Authority were 1.5% in 1999 and 2.2% for 2000. The

Department would take the original annual per unit cost ($4,800) and

adjust it by 1.5% ($4,872) and then again by 2.2% to obtain the

resulting adjusted per unit cost ($4,979).

Many housing agencies have jurisdictions that cover multiple rental

markets with separate AAFs. In such instances, the Department will use

the highest AAF that applies to a portion of the housing agency's units

and use it as the adjustment factor.

For example, the Main Street Housing Authority is a regional agency

that covers a metropolitan area with an AAF for 1999 set at 2.1% and

for 2000 set at 1.9%. The housing authority's jurisdiction also covers

several non-metropolitan counties outside of the metropolitan area

assigned an AAF for 1999 of 1.5% and for 2000 set at 2.0%. In this

instance, the Department will use the higher metropolitan area AAF for

1999 (2.1%) and the higher non-metropolitan area AAF for 2000 (2.0%).

CACC Amendment To Add Renewal Funding

The Department intends to process renewal funding if possible at

least a month before a given funding increment is due to expire. A

normal renewal will extend the expiration date for one year.

Modification of Allocation of Budget Authority

The regulation permits HUD to address the issue of cost containment

through this provision. Paragraph (g)(1) permits HUD to put in place

mechanisms to step in to prevent a PHA from becoming overextended and

exceeding its allocated funding. Paragraph (g)(2) gives HUD the ability

to act on either a case-by-case or a systemic basis. If the

Department's analysis of the program costs and related factors

determines that systemic adjustments to the program, including cost

containment and other cost adjustments, are necessary because of

threats to the future availability of funding, HUD has agreed that it

would consult with PHA representatives and other relevant stakeholders

before putting such a policy in place. Paragraph (g)(3) gives HUD the

flexibility to keep PHAs with declining per unit costs from losing

funding under the regulation and to allow additional households to be

served if costs are contained.

Ability To Prorate and Synchronize Contract Funding Increments

Notwithstanding the formula amount that HUD derives pursuant to the

regulation, the Department is permitted to prorate the renewal of units

that expire on different dates throughout the year in order to have

their expiration date match the expiration of other units within the

housing authority's inventory and/or a given point in time in relation

to the housing authority's fiscal year. The Department will consider

using this flexibility in order to merge the multiple sets of units for

the purpose of allocating renewal funding in the future. The Department

desires to consolidate increments as much as possible in order to

reduce the tracking required for thousands of separate increments. The

Department will endeavor to synchronize and/or merge all increments so

as to expire 6 months after the housing agency's fiscal year. Such a

schedule would permit the Department to use a year end statement that

is less than a year old to calculate current per unit costs at the time

of the renewal.

For example, the Main Street Housing Authority has 115 units that

require renewal on April 1, 2000 and also has 20 units that were

awarded to it on August 1, 1999 that would require renewal on August 1,

2000. If the Department decided to merge the two sets of units for

future renewals, it would have the ability to prorate the renewal of

the 20 units so that they would expire on April 1, 2001, simultaneously

with the expiration of the other 115 units. The Department would be

able to merge the two sets of units into one set of 135 units for the

purpose of calculating future renewal funding.

Reallocation of Renewal Units

This provision gives HUD the ability by Federal Register notice to

permanently de-reserve units and their associated budget authority from

a PHA with performances deficiencies (particularly underleasing) and to

reallocate the budget authority to other PHAs. The reallocation would

not preclude a PHA from being awarded new units in the future.

VI. Findings and Certifications

Impact on Small Entities

The Regulatory Flexibility Act, 5 U.S.C. 601-612, requires that an

agency analyze the impact of a rule on small entities whenever it

determines that the rule is likely to have a significant impact on a

substantial number of small entities. Most small PHAs do not qualify as

``small governmental entities'' under the Act. However, this rule,

developed in consultation with a negotiated rulemaking committee

including representatives of small PHAs, will not be likely to have a

significant impact on a substantial number of small PHAs or on the few

of them that qualify as ``small governmental entities.'' Therefore, no

further analysis is required under the Act.

Environmental Impact

This final rule does not direct, provide for assistance or loan and

mortgage insurance for, or otherwise govern or regulate, real property

acquisition, disposition, leasing (other than tenant-based rental

assistance), rehabilitation, alteration, demolition, or new

construction. This rule also does not establish, revise or provide for

standards for construction or construction materials, manufactured

housing, or occupancy. Accordingly, under HUD regulations (24 CFR

50.19(c)(1)), this rule is categorically excluded from the requirements

of the National Environmental Policy Act of 1969 (42 U.S.C. 4321) and

is not subject to environmental review under related laws and

authorities (24 CFR 50.4).

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 will not have substantial direct effects on

states or their political

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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.

Unfunded Mandates

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532)

establishes requirements for Federal agencies to assess the effects of

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

the private sector. This proposed rule does not impose a Federal

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

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

or more in any one year.

Regulatory Review

The Office of Management and Budget (OMB) has reviewed this

proposed rule under Executive Order 12866, Regulatory Planning and

Review, issued by the President on September 30, 1993. Any changes made

in this proposed rule after its submission to OMB are identified in the

docket file, which is available for public inspection during regular

business hours in the Regulations Division, Office of General Counsel,

Room 10276, U.S. Department of Housing and Urban Development, 451

Seventh Street, SW, Washington, DC 20410.

Catalog

The Catalog of Federal Domestic Assistance numbers for these

programs are 14.855 and 14.857.

List of Subjects in 24 CFR Part 982

Grant programs--housing and community development, Housing, Rent

subsidies.

Accordingly, HUD amends part 982 of title 24 of the Code of Federal

Regulations as follows:

PART 982--SECTION 8 TENANT-BASED ASSISTANCE: HOUSING CHOICE VOUCHER

PROGRAM

1. The authority citation for part 982 continues to read as

follows:

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

2. Amend Sec. 982.4(b) by adding the definition of Renewal units,

in alphabetical order, to read as follows:

Sec. 982.4 Definitions.

* * * * *

(b) * * *

Renewal units. The number of units, as determined by HUD, for which

funding is reserved on HUD books for a PHA's program. This number is

used is calculating renewal budget authority in accordance with

Sec. 982.102.

* * * * *

Secs. 982.102 and 982.103 [Redesignated as Secs. 982.103 and 982.104]

3. Redesignate Secs. 982.102 and 982.103 as Secs. 982.103 and

982.104, respectively.

4. Add a new Sec. 982.102 to read as follows:

Sec. 982.102 Allocation of budget authority for renewal of expiring

CACC funding increments.

(a) Applicability. This section applies to the renewal of CACC

funding increments in the program (as described in Sec. 982.151(a)(2))

that expire after December 31, 1999 (including any assistance that the

PHA has attached to units for project based assistance under part 983

of this title). This section implements section 8(dd) of the 1937 Act

(42 U.S.C. 1437f(dd)),

(b) Renewal Methodology. HUD will use the following methodology to

determine the amount of budget authority to be allocated to a PHA for

the renewal of expiring CACC funding increments in the program, subject

to the availability of appropriated funds. If the amount of

appropriated funds is not sufficient to provide the full amount of

renewal funding for PHAs, as calculated in accordance with this

section, HUD may establish a procedure to adjust allocations for the

shortfall in funding.

(c) Determining the amount of budget authority allocated for

renewal of an expiring funding increment. Subject to availability of

appropriated funds, as determined by HUD, the amount of budget

authority allocated by HUD to a PHA for renewal of each program funding

increment that expires during a calendar year will be equal to:

(1) Number of renewal units. The number of renewal units assigned

to the funding increment (as determined by HUD pursuant to paragraph

(d) of this section); multiplied by

(2) Adjusted annual per unit cost. The adjusted annual per unit

cost (as determined by HUD pursuant to paragraph (e) of this section).

(d) Determining the number of renewal units.--(1) Number of renewal

units. HUD will determine the total number of renewal units for a PHA's

program as of the last day of the calendar year previous to the

calendar year for which renewal funding is calculated. The number of

renewal units for a PHA's program will be determined as follows:

(i) Step 1: Establishing the initial baseline. HUD will establish a

baseline number of units (``baseline'') for each PHA program. The

initial baseline equals the number of units reserved by HUD for the PHA

program as of December 31, 1999.

(ii) Step 2: Establishing the adjusted baseline. The adjusted

baseline equals the initial baseline with the following adjustments

from the initial baseline as of the last day of the calendar year

previous to the calendar year for which renewal funding is calculated:

(A) Additional units. HUD will add to the initial baseline any

additional units reserved for the PHA after December 31, 1999.

(B) Units removed. HUD will subtract from the initial baseline any

units de-reserved by HUD from the PHA program after December 31, 1999.

(iii) Step 3: Determining the number of renewal units. The number

of renewal units equals the adjusted baseline minus the number of units

supported by contract funding increments that expire after the end of

the calendar year.

(2) Funding increments. HUD will assign all units reserved for a

PHA program to one or more funding increment(s).

(3) Correction of errors. HUD may adjust the number of renewal

units to correct errors.

(e) Determining the adjusted per unit cost. HUD will determine the

PHA's adjusted per unit cost when HUD processes the allocation of

renewal funding for an expiring contract funding increment. The

adjusted per unit cost calculated will be determined as follows:

(1) Step 1: Determining monthly program expenditure.--(i) Use of

most recent HUD-approved year end statement. HUD will determine the

PHA's monthly per unit program expenditure for the PHA certificate and

voucher programs (including project-based assistance under such

programs) under the CACC with HUD using data from the PHA's most recent

HUD-approved year end statement.

(ii) Monthly program expenditure. The monthly program expenditure

equals:

(A) Total program expenditure. The PHA's total program expenditure

(the total of housing assistance payments and administrative costs) for

the PHA fiscal year covered by the approved year end statement; divided

by

(B) Total unit months leased. The total of unit months leased for

the PHA fiscal year covered by the approved year end statement.

(2) Step 2: Determining annual per unit cost. HUD will determine

the PHA's annual per unit cost. The annual per unit cost equals the

monthly program expenditures (as determined

[[Page 56888]]

under paragraph (e)(1)(ii) of this section) multiplied by 12.

(3) Step 3: Determining adjusted annual per unit cost. (i) HUD will

determine the PHA's adjusted annual per unit cost. The adjusted annual

per unit cost equals the annual per unit cost (as determined under

paragraph (e)(2) of this section) multiplied cumulatively by the

applicable published Section 8 housing assistance payments program

annual adjustment factors in effect during the period from the end of

the PHA fiscal year covered by the approved year end statement to the

time when HUD processes the allocation of renewal funding.

(ii) Use of annual adjustment factor applicable to PHA

jurisdiction. For this purpose, HUD will use the annual adjustment

factor from the notice published annually in the Federal Register

pursuant to part 888 that is applicable to the jurisdiction of the PHA.

For a PHA whose jurisdiction spans multiple annual adjustment factor

areas, HUD will use the highest applicable annual adjustment factor.

(iii) Use of annual adjustment factors in effect subsequent to most

recent Year End Statement. HUD will use the Annual Adjustment Factors

in effect during the time period subsequent to the time covered by the

most recent HUD approved Year End Statement and the time of the

processing of the contract funding increment to be renewed.

(iii) Special circumstances. At its discretion, HUD may modify the

adjusted annual per unit cost based on receipt of a modification

request from a PHA. The modification request must demonstrate that

because of special circumstances application of the annual adjustment

factor will not provide an accurate adjusted annual per unit cost.

(4) Correction of errors. HUD may correct for errors in the

adjusted per unit cost.

(f) CACC amendment to add renewal funding. HUD will reserve

allocated renewal funding available to the PHA within a reasonable time

prior to the expiration of the funding increment to be renewed and

establish a new expiration date one-year from the date of such

expiration.

(g) Modification of allocation of budget authority.--(1) HUD

authority to conform PHA program costs with PHA program finances

through Federal Register notice. In the event that a PHA's costs

incurred threaten to exceed budget authority and allowable reserves,

HUD reserves the right, through Federal Register notice, to bring PHA

program costs and the number of families served, in line with PHA

program finances.

(2) HUD authority to limit increases of per unit cost through

Federal Register notice. HUD may, by Federal Register notice, limit the

amount or percentage of increases in the adjusted annual per unit cost

to be used in calculating the allocation of budget authority.

(3) HUD authority to limit decreases to per unit costs through

Federal Register notice. HUD may, by Federal Register notice, limit the

amount or percentage of decreases in the adjusted annual per unit cost

to be used in calculating the allocation of budget authority.

(4) Contents of Federal Register notice. If HUD publishes a Federal

Register notice pursuant to paragraphs (g)(1), (g)(2) or (g)(3) of this

section, it will describe the rationale, circumstances and procedures

under which such modifications are implemented. Such circumstances and

procedures shall, be consistent with the objective of enabling PHAs and

HUD to meet program goals and requirements including but not limited

to:

(i) Deconcentration of poverty and expanding housing opportunities;

(ii) Reasonable rent burden;

(iii) Income targeting;

(iv) Consistency with applicable consolidated plan(s);

(v) Rent reasonableness;

(vi) Program efficiency and economy;

(vii) Service to additional households within budgetary

limitations; and

(viii) Service to the adjusted baseline number of families.

(5) Public consultation before issuance of Federal Register notice.

HUD will design and undertake informal public consultation prior to

issuing Federal Register notices pursuant to paragraphs (g)(1) or

(g)(2) of this section.

(h) Ability to prorate and synchronize contract funding increments.

Notwithstanding paragraphs (c) through (g) of this section, HUD may

prorate the amount of budget authority allocated for the renewal of

funding increments that expire on different dates throughout the

calendar year. HUD may use such proration to synchronize the expiration

dates of funding increments under the PHA's CACC.

(i) Reallocation of budget authority. If a PHA has performance

deficiencies, such as a failure to adequately lease units, HUD may

reallocate some of its budget authority to other PHAs. If HUD

determines to reallocate budget authority, it will reduce the number of

units reserved by HUD for the PHA program of the PHA whose budget

authority is being reallocated and increase the number of units

reserved by HUD for the PHAs whose programs are receiving the benefit

of the reallocation, so that such PHAs can issue vouchers. HUD will

publish a notice in the Federal Register that will describe the

circumstances and procedures for reallocating budget authority pursuant

to this paragraph.

Dated: October 15, 1999.

Deborah Vincent,

General Deputy Assistant, Secretary for Public and Indian Housing.

[FR Doc. 99-27445 Filed 10-20-99; 8:45 am]

BILLING CODE 4210-33-P