[Federal Register Volume 59, Number 112 (Monday, June 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14281]


[[Page Unknown]]

[Federal Register: June 13, 1994]


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Part V





Department of Housing and Urban Development





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Office of the Assistant Secretary for Public and Indian Housing



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24 CFR Part 968




Vacancy Reduction Program; Final Rule and Notice
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Public and Indian Housing

24 CFR Part 968

[Docket No. R-94-1659; FR-3398-F-02]
RIN 2577-AB26

 
Vacancy Reduction Program

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Final rule.

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SUMMARY: The Department is issuing regulations to implement the Vacancy 
Reduction Program. The Notice of Funding Availability (NOFA) for the 
program is published elsewhere in today's Federal Register. Under this 
program, certain Public Housing Agencies (PHAs) are required to develop 
and submit a plan regarding vacancies in units owned or operated by the 
PHA. Each plan will be required to include the elements specified in 
the statute and this rule. In addition, assessment teams have conducted 
on-site assessments of the vacancy situations of known eligible PHAs 
and may provide assistance to PHAs in developing their plans. The 
assistance available under this program is intended to supplement other 
initiatives of the PHA that will reduce the rate of addressable 
vacancies in a PHA's inventory.

EFFECTIVE DATE: July 13, 1994.

FOR FURTHER INFORMATION CONTACT: MaryAnn Russ, Director, Office of 
Assisted Housing, Public and Indian Housing, room 4204, U.S. Department 
of Housing and Urban Development, 451 Seventh Street SW., Washington DC 
20410, telephone (202) 708-1380. Individuals with hearing or speech 
impairments may call HUD's TDD number: (202) 708-0850. (These telephone 
numbers are not toll-free.)

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Statement

    The information collection requirements contained in this final 
rule have been approved by the Office of Management and Budget, under 
section 3504(h) of the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-
3520), and assigned OMB control number 2577-0181.

Background

    On May 21, 1993, the Department published a proposed rule to 
implement the Vacancy Reduction Program (program). The program was 
authorized when section 510 of the Cranston-Gonzales National 
Affordable Housing Act added a new section 14(p) to the United States 
Housing Act of 1937 (42 U.S.C. 14371) (1937 Act). Recently section 
14(p) was amended by section 115 of the Housing and Community 
Development Act of 1992 (Pub. L. 102-550, approved October 28, 1992) 
(1992 Act), and funding was made available for the first time for the 
program.
    Section 14(p) requires any public housing agency (PHA) to 
participate in the program if the PHA has a vacancy rate that exceeds 
twice the national average, is designated as troubled under section 
6(j) of the 1937 Act, or has been placed under a receiver pursuant to 
section 6(j)(3) of the 1937 Act. Each PHA participating in the program 
will be required to develop a vacancy reduction plan that identifies 
vacant dwelling units in its inventory and the reasons for the 
vacancies, and describes actions to be taken by the PHA for the 
following five years to eliminate the vacancies.
    In addition, the vacancy situations of every participating PHA will 
be reviewed on-site by assessment teams consisting of representatives 
of the Department, independent experts knowledgeable about vacancy 
problems and management issues relating to public housing, and PHA 
officials. The assessment teams will submit recommendations to HUD and 
the PHA, and, at the request of the PHA, may assist the PHA in 
preparing its vacancy reduction plan.
    The plans will be the basis for selecting those PHAs that will 
receive assistance under the program. For troubled PHAs, funding of 
vacancy reduction activities will be contingent upon the PHA either 
making or providing reasonable assurances of substantial progress in 
remedying any management deficiencies.

Use of Survey to Determine FY 1993 NOFA Threshold Factors

    As discussed in the proposed rule, all PHAs where existing data 
indicated the PHA met the statutory criteria for mandatory 
participation in the program were surveyed. The results of the survey 
have been used to define the threshold factors for the NOFA published 
elsewhere in today's Federal Register and are discussed in greater 
detail in that NOFA. In addition, the Department has conducted 
assessments at PHAs that the Department believes meet the threshold 
factors for the NOFA that is published elsewhere in today's Federal 
Register. As explained in the NOFA, any PHA that meets the threshold 
factors and has not already been assessed should immediately request an 
assessment by contacting the Department.

Comments on Proposed Rule

    Six sets of comments were submitted to the Department on the 
proposed rule: two from public housing authority (PHA) industry groups 
and four from local housing authorities. Comments were received from 
the:

--Council of Large Public Housing Authorities (CLPHA);
--Public Housing Authorities Directors Association (PHADA);
--Chicago Housing Authority (CHA);
--Morgan County (Illinois) Housing Authority (MCHA);
--Los Angeles County Housing Authority (LACHA); and
--Atlanta (Georgia) Housing Authority (AHA).

    Discussion of the comments is organized according to the following 
topics: Eligibility requirements; development of the vacancy reduction 
plan; assessments; funding of vacancy reduction activities; sanctions; 
use of NOFAs to convey significant program information; the 
relationship of the Vacancy Reduction Program to other HUD programs; 
and miscellaneous comments.

Eligibility Requirements

    (1) The rule states that a PHA must participate in the program if a 
receiver has been appointed for the PHA. The term ``receiver'' should 
be clarified, in that HUD has taken actions against PHAs that have 
resulted in takeovers of programs or operations from PHAs without 
necessarily having a court-appointed receiver. (CLPHA)
    Response: The term is statutory and refers to a receiver appointed 
by a Federal or State court under section 6(j)(3) of the United States 
Housing Act of 1937; the term does not include other arrangements.
    (2) Benefits of the program should be available to a PHA that does 
not have a vacancy rate of twice the national average only if the PHA 
fails the Public Housing Management Assessment Program (PHMAP) standard 
for vacancies (see 24 CFR part 901). (PHADA) Similarly, program 
participation should be optional for troubled authorities that do not 
have a vacancy rate twice the national average. (CHA)
    Response: As the commenter noted, using the PHMAP standard would 
require congressional action because the current statute requires 
participation by PHAs that are troubled or for which receivers have 
been appointed.
    (3) In defining the term ``vacant unit'', reference is made to an 
effective lease, which is defined in terms of an eligible family being 
charged rent. However, because of utility allowances or zero income, 
many residents do not pay rent for the units they occupy. (CLPHA)
    Response: The definition requires that the family have a right to 
possession of the unit, in addition to being charged rent. The 
calculation of the rent to be charged by a PHA takes into account 
income and any utility allowance. As noted by the commenter, as a 
result of this calculation of rent, the PHA might not actually collect 
any money from the family having the right to possess a unit (e.g., 
when the utility allowance equals or exceeds the total tenant payment). 
However, the lease still obligates the tenant and includes a rental 
charge that, at least in part, is based on income. Therefore, the 
elements of the definition are met, even though the actual amount 
collected by the PHA from the tenant is $0.
    (4) A PHA is required to participate in the program if it has a 
vacancy rate that is twice the national average, regardless of the 
number of units in the PHA's inventory. Because the vacancy problems of 
small PHAs, especially, may be due to lack of demand, participation in 
the program should be optional for PHAs with less than 250 units. 
(PHADA) For the first year, program participation should be limited to 
PHAs with 500 or more units. (CHA)
    Response: The statute does not discriminate among the causes of 
vacancies in establishing the participation requirements. However, the 
extent of participation may be limited to providing documentation of 
lack of demand or proposals to deprogram units. In awarding funding, 
the Department will concentrate on PHAs where there is a demand for 
housing, as reflected in the terms of the NOFA published elsewhere in 
today's Federal Register. Furthermore, because smaller PHAs dependent 
on CIAP funding often have fewer resources to solve a vacancy problem, 
these PHAs could realize substantial improvement of their vacancy 
statistics with a minimal increment of funding. Thus, their selection 
for funding would serve the statutory purposes of the program, and 
their exclusion from the initial round of funding could not be 
justified.
    (5) Program participation should be available to any PHA that needs 
help in addressing its vacancy situation. (MCHA, CHA)
    Response: Because current program funding is limited, the 
Department is concentrating on PHAs that are required to participate.
    (6) In the definition of ``vacant unit,'' the proposed rule does 
not specify a timeframe for determining the existence of a vacancy. 
Similarly, in calculating a PHA's vacancy rate for purposes of 
determining program eligibility, the proposed rule does not recognize 
any normal turnover time, such as the 20-day transition period allowed 
under PHMAP Indicator 5. (LACHA)
    Response: The Department recognizes that the vacancy rate of a PHA 
is fluid. However, for the purpose of determining eligibility for the 
program, the Department has decided to use a snapshot approach, i.e., 
the number of units vacant at the PHA on the appropriate date.

Development of the Vacancy Reduction Plan

    (1) The proposed rule provides a number of examples of project-
specific activities to eliminate vacancies that a PHA might include in 
its vacancy reduction plan. The number of examples should be expanded 
to include such activities as unit redesign or conversion, site 
reconfiguration, security improvements, and density reductions. These 
additional examples will serve to give a better idea of the range of 
acceptable activities. (CLPHA, CHA) Similarly, examples of specific 
management improvements that should be encouraged include tenant 
screening, evictions, and marketing and leasing efforts. (CHA)
    Response: A number of these examples have been included in 
Sec. 968.407(b)(3)(i) of the final rule.
    (2) If demolition or disposition are selected activities, HUD's 
review and approval process and replacement housing requirements will 
make it very difficult for a PHA to provide the required schedule that 
forecasts when the selected activities would be accomplished. (CLPHA, 
PHADA (similar comment for other HUD actions)) In addition, 
participating PHAs need to be able to change their schedules for 
eliminating vacancies to reflect actual funding. (PHADA)
    Response: Sections 968.407(b)(3)(ii) and 968.407(b)(8) have been 
revised to include language providing that, in developing the required 
schedule, PHAs should specify action within x days from HUD approval or 
other action, when progress is dependent on HUD action. In addition, a 
schedule may be revised to reflect the adequacy of funding for proposed 
activities.
    (3) If a PHA needs help in preparing the vacancy reduction plan, 
the assessment team should be required to assist in the plan 
development, if requested by the PHA. The proposed rule does not make 
this assistance mandatory. (PHADA)
    Response: Section 968.410(d) has been changed to clarify that, if 
requested by the PHA, HUD will assist a PHA in preparing its vacancy 
reduction plan.
    (4) The final rule should clarify that participating PHAs do not 
have to address each single vacant unit separately, but should be 
permitted to group together vacant units by the cause of vacancy. 
(PHADA)
    Response: In accordance with the statutory requirements, each 
vacant dwelling unit must be identified. However, vacant units may be 
grouped together for purposes of explaining the reasons for the 
vacancies and proposed actions for eliminating the vacancies.
    (5) The vacancy reduction plan should include information on 
turnover problems. (PHADA, AHA) The information should include the 
number of units vacated and reoccupied during a defined period and any 
indication of whether the turnover rate is changing. (CHA)
    Response: A new paragraph has been added to Sec. 968.407(b) to 
require that a vacancy reduction plan include certain information on a 
PHA's turnover rate.
    (6) A complete strategy needs to be developed that includes not 
just rehabilitation work, but tenant screening, eviction, property 
management, and security measures, as well. (CHA)
    Response: The Department and the statute contemplate a complete 
strategy. A PHA's vacancy reduction plan should include any action to 
remove the unit from the PHA's inventory of vacant units, including 
management improvements in each of the specific areas mentioned by the 
commenter.

Assessments

    (1) If funding will be on a ``first-come, first served'' basis, the 
sequence of assessment team visits should be by public drawing in order 
to avoid charges of favoritism. (PHADA)
    Response: For the NOFA published today, the Department has decided 
upon an approach that should provide some funding to all PHAs that meet 
the eligibility criteria. Each eligible PHA that is a Comprehensive 
Improvement Assistance Program (CIAP) agency will be funded fully for 
all eligible units and approved activities, because smaller PHAs 
dependent on CIAP funding often have fewer resources to solve a vacancy 
problem. If sufficient funds are available, each PHA that is a 
Comprehensive Grant Program (CGP) agency will be funded fully; however, 
if there are not sufficient funds remaining, each CGP agency will be 
awarded a pro rata share of the available funding. This pro rata share 
will be calculated by a method, to be determined by HUD and announced 
in the NOFA, that will provide funding equitably to those agencies.
    (2) When the PHA already is required under PHMAP to have developed 
a plan to address its vacancy problem, the primary purpose of the 
Vacancy Reduction Program assessment team should be a validation or 
critique of the PHA's existing plan, rather than an independent 
assessment. The intent of the program is to encourage action, not 
further studies. (PHADA)
    Response: The statute requires an on-site assessment of the vacancy 
situation of each participating PHA, and specifies what is to be 
included in the PHA's vacancy reduction plan. To the extent that a PHA 
is able, the Department encourages the PHA to use work that has been 
done in accordance with PHMAP requirements to comply with the 
requirements of this program.
    (3) PHAs that lend a staff person to an assessment team should be 
reimbursed for the staff person's salary and benefits during that 
assignment. (PHADA)
    Response: The Department agrees that the statutory provision 
allowing program funds to be used for travel and administrative 
expenses of assessment teams, extends to PHA staff. Therefore, PHAs 
will be reimbursed for the salary and benefits for any staff person 
that serves on an assessment team. However, this does not apply to 
staff members of the PHA that is being assessed.
    (4) Because the need for these funds is great, the Department 
should speed up the scheduling of assessments. (MCHA, PHADA)
    Response: The Department has assessed all known eligible PHAs.

Funding of Vacancy Reduction Activities

    (1) HUD needs to clarify its position regarding the use of program 
funds for security improvements. (CLPHA)
    Response: Where units are vacant because of security problems, HUD 
will provide funding for physical security improvements, such as 
improved locks, security screens, additional lighting, and site 
improvement. As part of management improvements, HUD also will provide 
funding for security activities over a limited duration, if HUD 
determines that such funding is likely to result in the reoccupancy and 
continued occupancy of vacant units. Examples of security activities 
that could be funded as part of management improvements include:
     Hiring of additional staff to coordinate the provision, by 
local government or other public and private entities, of appropriate 
social services, such as drug education and treatment referral 
programs;
     Hiring of security guards, through individual employment 
contracts, or guard services, using competitive proposal or small 
purchase procurement procedures, or contracting with a local police 
force for security that is in addition to that required under the 
Cooperation Agreement. As a condition of employment, these security 
personnel shall be required to meet all relevant State insurance, 
training, licensing, and other similar requirements;
     Development and implementation of improved screening 
procedures for prospective residents;
     Development of more timely and effective management 
techniques for dealing with disruptive residents and drug-related 
crime;
     Organization and training of unarmed voluntary resident 
patrols to work cooperatively with the local law enforcement agencies;
     Development and implementation of improved communication 
and coordination with local law enforcement agencies; and
     Hiring of investigators to investigate drug-related crime 
in and around the developments or to provide evidence relating to any 
such crime in any administrative or judicial proceedings.
    (2) The minimum housing standards that should be imposed for 
capital improvements funded under this program are the modernization 
standards, not the Housing Quality Standards (HQS). Units renovated to 
the HQS often still need modernization. (CLPHA) In addition, the 
minimum housing standards should be applied only to the inside of units 
improved under the program, rather than to common areas and major 
structural items. (CHA)
    Response: Each work item funded under this program must be 
performed in compliance with modernization standards. However, the 
vacancy reduction program is an occupancy program, and HQS is a minimum 
occupancy standard. The goal of the individual work items (performed to 
modernization standards) is to bring the vacant units into an 
occupiable condition. Section 968.435 of this rule requires 
certification that affected vacant units will be brought into 
compliance with the HQS. As applied in Section I.F(1)(b) of today's 
NOFA, only aspects of the HQS that pertain to the vacant unit directly 
are required.
    (3) The decision on how to target the initial funding available 
under this program should be based on the survey responses only and not 
on any existing data mentioned in the preamble of the proposed rule. 
(PHADA)
    Response: The survey responses were used to determine which PHAs 
surveyed have vacancy problems and the nature of their problems. 
Eligibility and final decisions on funding will be based on submitted 
applications, including the vacancy reduction plans, the number of 
eligible units, and the assessments.
    (4) Funding should not be on a ``first-come, first-served'' basis, 
which rewards those able to act the quickest, but should be awarded 
using a more traditional competitive approach. Criteria that should be 
used to make awards include: PHA capacity and ability to use the funds 
effectively and likelihood that additional funds will improve vacancy 
situation. Severely distressed properties should not be a priority, and 
funding should be targeted for entire developments, rather than 
scattered units. (PHADA)
    Response: Because the Department would like to fund all PHAs that 
meet the requirements of the NOFA, it has decided not to include the 
first-come, first-served limitation. The immediate goal of the 
Department is to promote the occupancy of the greatest number of units; 
the problems of severely distressed developments are targeted more 
directly through other programs and are not priorities of the vacancy 
reduction program. Similarly, because of funding limitations, the 
Department believes the program purposes will be promoted best by 
targeting the elimination of vacant units, rather than the upgrading of 
entire developments that include occupied units.
    (5) Under some circumstances, a PHA may be made eligible for 
program funds, but restricted in spending the funds until an assessment 
is performed. If this assessment is not done within 45 days of the fund 
award, then the PHA should be allowed to expend the funds. (PHADA, CHA)
    Response: The Department has already conducted assessments of known 
eligible PHAs and will complete all assessments in advance of funding 
decisions. In order to ensure fairness, in the NOFA published elsewhere 
in today's Federal Register, the Department has provided that a PHA for 
which an assessment has not been conducted but that considers itself 
eligible under the NOFA, should notify the Department within 15 days of 
its request for an immediate assessment. In addition, when an 
approvable plan submitted in response to the NOFA needs improvement or 
supplementation, the Department will assist the PHA in revising its 
plan prior to the execution of the amendment to the Annual 
Contributions Contract (ACC). Because very few, if any, eligible PHAs 
will not have had assessments by today's publication of the NOFA, the 
Department believes that all assessments will be completed on a timely 
basis in this funding cycle.
    (6) Activities that will decrease unit turnover in occupied units 
(e.g., replacement of appliances) also should be considered eligible 
for funding under this program. (CHA)
    Response: Although the Department recognizes the relationship 
between turnover and vacancy rates and is sympathetic to this 
reasonable suggestion, current funding for the vacancy reduction 
program is limited. Therefore, the Department intends to target funding 
of unit improvements for currently vacant units or units to become 
vacant for reconfiguration purposes, where reconfiguration is necessary 
to reduce the current number of vacancies.
    (7) Funding should be guaranteed for a minimum of a three-year 
period following HUD approval of a five-year vacancy reduction plan, 
subject to the PHA's continued progress on and adherence to its vacancy 
reduction plan. (CHA, MCHA)
    Response: The Department cannot guarantee funds that have not been 
appropriated by Congress. Therefore, a PHA's five-year plan should 
reflect a realistic projection of the actions that can be taken with 
available or potential resources.
    (8) If funded activities require compliance with Housing Quality 
Standards, the amount of funds may not be sufficient to address 
problems in areas outside the unit (e.g., hallways, stairways, fire 
protection systems). HQS standards should apply only to unit interiors. 
(CHA)
    Response: The Department recognizes that current funding available 
under the Vacancy Reduction Program will not be sufficient to address 
all problems areas relating to excess vacancies, and it expects to be 
guided in its funding decisions by the assessment team reports. The 
vacancy reduction plans and the recommendations of the assessment teams 
should include all work inside the units, in the hallways, in common 
areas, on the site, and to the exterior of the buildings necessary to 
make the units marketable; providing plans and funding for only the 
interiors of vacant units may not make those units marketable. 
Individual work items funded under this program must comply with 
modernization standards and must result in the targeted unit meeting 
the HQS.
    (9) Program funds should not be directed at PHAs that have vacancy 
problems due primarily to marketing problems or lack of demand. (CHA)
    Response: The Department agrees that the limited program funds 
should be focused on those PHAs whose vacancy situations can actually 
be improved by additional funding. This factor is accounted for in 
Sec. 968.413(d)(2) of the rule (``extent to which the proposed 
activities will improve the PHA's vacancy problem'') and in the 
definition of ``eligible unit'' set out in the NOFA published elsewhere 
in today's Federal Register.

Sanctions

    In the proposed rule, the Department reported that, at this time, 
it does not intend to implement section 14(p)(3) of the statute, which 
provides sanctions for the failure to make progress under a plan. 
However, commenters were invited to submit suggestions on how this 
portion of the statute could be implemented in the future. Several 
commenters submitted remarks on this aspect of the current statutory 
program, as follows: (1) If a withholding action seems likely after 18 
months, an assessment team should be sent to the PHA to perform a 
review and prepare a report. (PHADA) (2) If there is withholding, 
consideration should be given to forcing a receiver to be used so that 
the funds can be used. (PHADA, CHA) (3) Withholding of subsidy because 
of a failure to make progress is contrary to the approach of rewarding 
PHAs for solving problems. (MCHA)
    Response: This final rule does not include provisions implementing 
the sanctions mandated by section 14(p)(3) of the 1937 Act. However, 
the Department is continuing to work on those provisions, and will take 
into consideration the remarks provided by commenters in response to 
the proposed rule. The Department will comply with the requirements 
within the applicable statutory timeframe.

Use of NOFAs

    (1) HUD is proposing to use NOFAs as the vehicle to convey 
significant program information to interested PHAs, which defeats the 
intent of notice-and-comment rulemaking. The proposed rule does not 
provide sufficient detail on how program funds will be targeted, the 
format of the vacancy reduction plans, and criteria for determining a 
PHA's capacity to implement the plan in a timely and effective manner. 
Use of NOFAs will lead PHAs to try to second-guess HUD on selection 
criteria and lead to a hit or miss approach on solving the vacancy 
problem. (CLPHA)
    Response: The Department disagrees with this comment. The rule 
provides the framework for the program and meets or exceeds the 
requirements of the Administrative Procedure Act and the Department's 
regulations. The preamble to the proposed rule elaborates on the 
Department's expectations for targeting funds made available for the 
program.
    The Department views the program as a dynamic tool in the effort to 
reduce unnecessary vacancies in public housing. Experience with the 
program and elimination of certain root causes of vacancies will guide 
the Department in selecting the optimal criteria for any subsequent 
targeting of program funds. This targeting would be done in compliance 
with the statutory parameters of the program.
    The Department intends to undertake the vacancy reduction effort by 
providing funding for those vacant units most likely to be turned 
around quickly, targeting the majority of the funding for units 
averaging a cost of $8,000 or less, with some funds targeted for units 
for which a CGP agency can provide the additional funding necessary.
    Furthermore, the report of the assessment team is expected to 
address the capacity of a PHA to implement vacancy reduction activities 
in a timely and efficient manner. The Department reiterates that the 
intent of the requirement that participating PHAs submit vacancy 
reduction plans is to assist in the development of a comprehensive 
approach to vacancy reduction. As demonstrated by its efforts to 
solicit the input of industry and PHA representatives during the 
development of the proposed rule and the initial NOFA, the Department 
is committed to implementing this program in a constructive way that 
responds to the needs of PHAs with remediable vacancy problems.
    (2) Before the NOFA is published, there should be a meeting with 
industry groups. The meeting should be used to share survey results and 
exchange viewpoints. (PHADA)
    Response: The Department solicited the input of representatives of 
the industry, PHAs, and resident organizations during the development 
of the proposed rule and the initial NOFA. Meetings were held with 
these representatives on January 28 and July 9, 1993. The Department 
believes these meetings have been valuable in helping to develop the 
program, but does not believe that it is necessary to schedule any 
additional meetings at this time. The discussions at the previous 
meetings, along with the written comments received in response to the 
proposed rule, have provided the Department with a foundation for the 
policy decisions it has made regarding how to operate this program 
within the parameters established by Congress. Furthermore, in the NOFA 
published elsewhere in today's Federal Register, the Department 
discusses the results of the survey, in the context of both general 
results and specific implications for the program decisionmaking 
process.
    (3) The proposed rule seems to imply that more than one NOFA might 
be published in a single fiscal year. Only one NOFA should be issued 
and it should coincide with the Comprehensive Grant Program planning 
process. (PHADA, CHA)
    Response: The language that referred to ``periodic'' NOFAs in the 
proposed rule was intended simply to verify that separate NOFAs would 
be published for any money that is appropriated for the program in 
subsequent years. This is the common practice of the Department, as 
established in the HUD Reform Act, but the actual timing of a 
subsequent NOFA in any fiscal year cannot be predicted. The Department 
appreciates the commenters' point about the coordination of capital 
planning programs.

Relationship of the Vacancy Reduction Program to Other HUD Programs

    (1) HUD should integrate the approach of the Vacancy Reduction 
Program into an overall effort to draft a new vacancy rule. The Vacancy 
Reduction Program itself is insufficient to address problems faced by 
PHAs with expired Comprehensive Occupancy Plans (COPs); these PHAs 
still need operating funds to keep vacant units in shape until money is 
available to make necessary improvements. (CLPHA)
    Response: Any new vacancy rule would require substantial time for 
development and implementation. Meanwhile, the Department is committed 
to providing assistance currently available under the vacancy reduction 
program to PHAs with vacancy problems. Changes to the determination of 
operating subsidy eligibility as proposed by the commentor are outside 
the scope of this rule.
    (2) The Vacancy Reduction Program may duplicate planning 
requirements of other programs, such as PHMAP and the Comprehensive 
Grant Program, that also address vacancy problems. (PHADA, CHA)
    Response: As noted above, the Department appreciates the 
commenters' point about the coordination of capital planning programs 
and will endeavor to integrate the vacancy reduction program with other 
related programs.
    (3) The same format used for the vacancy reduction plan should be 
used for developing an Improvement Plan under PHMAP if the PHA fails 
the PHMAP vacancy standard. (PHADA)
    Response: The Department intends to coordinate the formats of these 
plans, to the extent possible.
    (4) The restrictions placed on assistance to troubled authorities 
(see Sec. 968.413(b)) should be made consistent with the language of 
HOPE VI. (PHADA)
    Response: The restrictions are prescribed by the authorizing 
statute for the program. However, in recognition of the comments 
requesting coordination of the Department's capital planning programs, 
the final rule includes new language that cross-references PHMAP 
indicators and clarifies the evaluation of the progress of troubled 
PHAs.
    (5) If a PHA presents a vacancy reduction plan that HUD approves, 
the PHA should receive operating subsidy based on its actual occupancy 
rate, rather than on the current formula rate. (CHA, AHA) How does the 
Department view this program in the context of the Performance Funding 
System (PFS) funding of vacant units? (PHADA)
    Response: The vacancy reduction program is not intended as a 
substitute for the vacancy rule or to provide relief for PHAs that do 
not meet established goals under COPs. However, the vacancy reduction 
program should improve the revenue situations of participating PHAs in 
two ways: First, through direct funding of portions of the plans; 
second, through the increased operating subsidies and rent collections 
that will result from reoccupancy of those vacant units.

Miscellaneous

    (1) The survey results and data developed from analyzing the 
vacancy reduction plans should be released publicly. (PHADA)
    Response: The Department is releasing data from the survey as part 
of the NOFA published elsewhere in today's Federal Register. In 
addition, the Department intends to develop a report based on data and 
information provided by the assessment teams in their reports.
    (2) The Vacancy Reduction Program should be separately funded, 
instead of using amounts set aside from regular modernization funding. 
(PHADA, CHA)
    Response: As recognized by the commenters, Congress has authority 
over the mechanism used for funding the program.
    (3) Funding decisions under the program should recognize when a PHA 
has used existing resources to address its vacancy problem. For 
example, although a commitment to use a large portion of CGP funds to 
address vacancies will reduce the need for additional vacancy reduction 
funds, those CGP funds could have been used to fund other substantial 
needs of the PHA. (AHA)
    Response: When PHAs have other modernization needs that cannot be 
met by current funding, Vacancy Reduction Program funds may be used 
instead of CGP funding committed but not yet under contract for vacancy 
reduction.

Section-by-Section Analysis

    The Department is establishing the Vacancy Reduction Program as new 
subpart D in 24 CFR part 968, with conforming amendments made as 
necessary in other sections of title 24 of the Code of Federal 
Regulations. The following discussion is a section-by-section 
description of the rule.
    Section 968.103 addresses the allocation of funds under section 14 
of the 1937 Act. The Department is amending paragraph (c) to account 
for the new set-aside for the Vacancy Reduction Program. The new 
language repeats the statutory scheme for setting aside four percent of 
the section 14 funds remaining after deducting amounts for emergencies 
and natural and other disasters. Paragraph (c)(1) provides that 20 
percent of these funds will be available for activities under section 
6(j) of the 1937 Act, while the remaining 80 percent will be available 
for the Vacancy Reduction Program, as implemented by this rule. Section 
968.103 also is amended to clarify that the Vacancy Reduction Program 
does not apply to Indian Housing Authorities (IHAs).
    Subpart D of part 968, encompassing Secs. 968.401-968.425, is added 
to implement the Vacancy Reduction Program.
    Section 968.401 states the policy of the Department with respect to 
achieving high occupancy rates in public housing, in order to ensure 
maximum use of available housing resources.
    Section 968.403 repeats the statutory definition of PHAs to which 
the Vacancy Reduction Program is applicable, but clarifies that units 
not eligible for funding under section 14 of the 1937 Act are excluded 
from this set-aside program, as well.
    Section 968.405 defines terms that are used in subpart D to the 
extent these terms are not applicable to the remainder of part 968.
    Section 968.407 establishes the requirement that eligible PHAs 
submit a five-year vacancy reduction plan, and specifies the contents 
of the plan. For purposes of identifying components of a plan that may 
be identified as eligible for funding, within the limits of 
appropriated amounts, each submitted plan must be organized in a manner 
that facilitates review by the Department. For each action proposed to 
eliminate vacancies, the plan must include a schedule that shows the 
number of vacancies that the PHA expects to eliminate by the end of 
each 12-month period during the five years of the plan.
    When components of a plan involve capital improvements to dwelling 
units, the PHA must ensure that, after the improvements, the units 
themselves would meet or exceed the Housing Quality Standards set forth 
in 24 CFR 882.109, as amended by regulatory requirements concerning 
lead-based paint hazards.
    Section 968.410 explains the requirement for an on-site assessment 
of a participating PHA's vacancy situation, including the composition 
and responsibilities of the assessment teams and the purpose of the 
assessments.
    Section 968.413 establishes eligible uses and limitations on the 
use of funds available for the Vacancy Reduction Program. Paragraphs 
(a), (b), and (c) echo the statute establishing the program, but 
paragraph (b) includes clarifying language that cross-references PHMAP 
indicators in measuring the progress required under the statute for 
troubled PHAs. Paragraph (d) establishes that funding decisions would 
be through a publicly announced process, on the basis of priorities to 
be established by the Department.
    Section 968.416 provides that the PHA must comply with HUD 
requirements in requesting funds against the approved modernization 
budget.
    Section 968.419 requires the grantee to be responsible for assuring 
the quality of work performed using program funds.
    Section 968.422 establishes periodic reporting requirements for 
grantees until activities funded under the vacancy reduction program 
are completed. This section also specifies a schedule for completion of 
funded activities.
    Section 968.425 details the process for notifying a PHA of any 
deficiencies in its compliance with program requirements and specifies 
the nature of the changes and sanctions that may be pursued by HUD.
    Section 968.428 establishes requirements to be applied in auditing 
the grantee's use of funds upon completion of activities funded under 
the program.
    Section 968.435 lists program requirements that apply to the 
Vacancy Reduction Program in addition to the requirements specified in 
other sections of subpart D and Sec. 968.110.

Other Matters

Environmental Review

    At the time of publication of the proposed rule, a finding of no 
significant impact with respect to the environment was made in 
accordance with HUD regulations in 24 CFR part 50 that implement 
section 102(2)(C) of the National Environmental Policy Act of 1969 (42 
U.S.C. 4332). The proposed rule is adopted by this final rule without 
significant change. Accordingly, the initial finding of no significant 
impact remains applicable, and is available for public inspection 
between 7:30 a.m. and 5:30 p.m. weekdays in the office of the Rules 
Docket Clerk at the above address.

Executive Order 12866

    This rule has been reviewed by the Office of Management and Budget 
under Executive Order 12866. Any changes made in the rule as a result 
of this review are identified in the docket file of the rule maintained 
by the Department and available for review at the above address.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this rule before publication and by 
approving it certifies that this rule does not have a significant 
economic impact on a substantial number of small entities. The rule 
implements a statutory program that provides funding to PHAs for 
limited activities designed to reduce the number of vacant dwelling 
units in their inventories.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this rule do not have substantial direct effects on States 
or their political subdivisions, or the relationship between the 
Federal Government and the States, or on the distribution of power and 
responsibilities among the various levels of government. As a result, 
the rule is not subject to review under the Order. The rule merely 
implements a statutory program that provides funding to PHAs for 
limited activities designed to reduce the number of vacant dwelling 
units in their inventories.

Executive Order 12606, the Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this rule does not have 
potential for significant impact on family formation, maintenance, and 
general well-being, and, thus, is not subject to review under the 
Order. No significant change in existing HUD policies or programs 
result from promulgation of this rule, as those policies and programs 
relate to family concerns.

Regulatory Agenda

    This rule was listed as Item 1688 in the Department's Semiannual 
Agenda of Regulations published on April 25, 1994 (59 FR 20424, 20470), 
in accordance with Executive Order 12866 and the Regulatory Flexibility 
Act.

List of Subjects in 24 CFR Part 968

    Grant programs--housing and community development, Indians, Loan 
programs--housing and community development, Public housing, Reporting 
and recordkeeping requirements.

    For the reasons set out in the preamble, part 968 of title 24 of 
the Code of Federal Regulations is amended as follows.

PART 968--PUBLIC HOUSING MODERNIZATION

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

    Authority: 42 U.S.C. 1437d, 14371 and 3535(d).

    2. Section 968.103 is amended by revising paragraph (c) to read as 
follows:


Sec. 968.103  Allocation of funds under section 14.

* * * * *
    (c) Set-asides. After deducting amounts for the reserve for natural 
and other disasters and for emergencies under paragraph (b) of this 
section, HUD shall set aside from the funds remaining:
    (1) Regarding vacancy reduction, an amount equal to 4 percent of 
those funds, to be further allocated as follows:
    (i) Twenty percent of this four percent shall be available only for 
carrying out activities under section (6)(j) of the United States 
Housing Act of 1937; and
    (ii) Eighty percent of this four percent shall be available under 
the vacancy reduction program (see subpart D of 24 CFR part 968).
    (2) Regarding the comprehensive grant program, no more than five 
percent for the purpose of providing credits to PHAs that were formerly 
designated as mod troubled agencies under the Public Housing Management 
Assessment Program (PHMAP) (see 24 CFR part 901). The purpose of this 
set-aside is to compensate these PHAs for amounts not allocated by HUD 
because of a PHA's prior designation as a mod troubled agency.
    (3) Nonapplicability to IHAs. The Vacancy Reduction Program in 
subpart D of this part does not apply to IHAs. In addition, because the 
PHMAP performance indicators under 24 CFR part 901 do not apply to 
IHAs, these agencies cannot be deemed ``mod troubled'' for purposes of 
the CGP and are not eligible for funding under paragraph (c)(1)(i) of 
this section. Hence, IHAs are not subject to any reduction in funding 
under section 14(k)(5)(A) of the Act, and IHAs do not participate in 
the set-aside credits established under paragraph (c)(2) of this 
section.
* * * * *
    3. A new subpart D, consisting of Secs. 968.401 through 968.425, is 
added to read as follows:

Subpart D--Vacancy Reduction Program

Sec.
968.401  Purpose.
968.403  Applicability.
968.405  Definitions.
968.407  Vacancy reduction plan.
968.410  Assessments.
968.413  Funding.
968.416  Fund requisitions.
968.419  Grantee's oversight responsibilities.
968.422  Progress reports and completion schedule.
968.425  HUD review of grantee performance.
968.428  Program closeout.
968.425  Other program requirements.


Sec. 968.401  Purpose.

    Section 14(p) of the United States Housing Act of 1937 establishes 
the Vacancy Reduction Program, in conjunction with statutory provisions 
on public and Indian housing modernization. It is the policy of the 
Department that public housing agencies should maximize the use of 
housing resources, using every reasonable means to achieve and maintain 
high levels of occupancy by eligible families in PHA-owned or -operated 
housing.


Sec. 968.403  Applicability.

    (a) Participation. A PHA shall participate in the vacancy reduction 
program under this subpart if:
    (1) The PHA has a vacancy rate among dwelling units owned or 
operated by the PHA that exceeds twice the average vacancy rate among 
all public housing agencies;
    (2) The PHA is designated as a troubled or mod troubled agency 
under section 6(j) of the Act; or
    (3) A receiver has been appointed for the PHA pursuant to section 
6(j)(3) of the Act.
    (b) Exclusions. Units owned or operated by a PHA that are not 
eligible for funding under section 14 of the Act are excluded from 
coverage under this subpart and shall not be used to calculate the 
eligibility of a PHA under this subpart.
    (c) Examples of eligibility. The following are specific examples of 
eligibility under this program:
    (1) All units in the Federal Low-Rent Public Housing Program are 
eligible;
    (2) In the Section 23 program, only those units that are in 
projects that are bond-financed and for which the PHA would receive 
clear title at the end of the lease term will be eligible; and
    (3) Section 8 projects are not eligible.


Sec. 968.405  Definitions.

    In addition to the definitions applicable under Sec. 968.105, the 
following definitions apply to this subpart:
    Average vacancy rate means the average vacancy rate for all public 
housing agencies.
    NOFA means Notice of Funding Availability. NOFAs announcing 
available funding under the program will be published in the Federal 
Register, and will set out the application requirements and applicable 
selection criteria.
    Operating subsidy means the annual contribution for operating 
subsidy made to the PHA by HUD, which is determined in accordance with 
part 990 of this chapter.
    PHA means public housing agency. For purposes of this subpart, the 
term excludes Indian Housing Authorities.
    PHMAP means the Public Housing Management Assessment Program, 
authorized in 42 U.S.C. 1437d(j) and implemented in 24 CFR part 901, 
which is designed to allow HUD and the PHA to identify PHA management 
capabilities and deficiencies and to lead to better overall management 
of the public housing.
    Receiver means a person or entity appointed by a court pursuant to 
section 6(j)(3) of the United States Housing Act of 1937 to be 
responsible for the day-to-day operation of a PHA.
    Troubled PHA means a public housing agency that has been designated 
as a troubled agency (including mod troubled) under section 6(j) of the 
United States Housing Act of 1937.
    Vacancy or vacant unit means a dwelling unit that is not under an 
effective lease to an eligible family. An effective lease is a lease 
under which an eligible family has a right to possession of the unit 
and is being charged rent, even if the amount of any utility allowance 
equals or exceeds the amount of a total tenant payment that is based on 
income and, as a result, the amount paid by the family to the PHA is 
zero.
    Vacancy reduction plan means a plan developed and submitted by a 
PHA to HUD, regarding vacancies in units owned or operated by the PHA. 
The plan must meet the criteria established in Sec. 968.407.


Sec. 968.407  Vacancy Reduction Plan.

    (a) Submission of plan. Each PHA to which this subpart applies, in 
accordance with Sec. 968.403, shall submit a vacancy reduction plan. 
The plan shall contain the elements identified in paragraph (b) of this 
section, and shall be organized so that each of the elements can be 
identified, reviewed, and funded separately.
    (b) Contents of plan. The format of a plan submitted for funding 
under this program will be defined in NOFAs to be published 
periodically in the Federal Register. Each vacancy reduction plan 
submitted by a PHA under paragraph (a) of this section shall include 
statements:
    (1) Identifying all vacant dwelling units administered by the PHA, 
including unmarketable units, and explaining the reasons for the 
vacancies. Units may be grouped together when explaining the reasons 
for the vacancies;
    (2) A description of the turnover rate of units for the past two 
years, including the number of units vacated and reoccupied per 
development per year and the average number of days required to return 
a unit to occupancy. If the turnover rate is increasing, the plan 
should identify each cause of the increase.
    (3) Describing the actions to be taken by the PHA during the 
following five years to eliminate the vacancies. The PHA shall:
    (i) State project-specific actions that it is taking or intends to 
take that will eliminate vacancies, such as modernization, demolition, 
unit redesign or conversion, density reduction, disposition, 
modification of occupancy policies, site and security improvements, and 
other physical or management improvements; and
    (ii) For each project identified, set out a schedule for completing 
the actions identified in paragraph (b)(3)(i) of this section and 
removing the dwelling units from the PHA's inventory of vacant units. 
If the timing of any action is dependent upon a HUD approval or 
decisionmaking process, the schedule for the PHA action may be 
presented in terms of a specified time period following completion of 
the HUD process. For each action, the schedule shall include the number 
of vacancies that will be eliminated by the end of each 12-month period 
after the PHA begins to receive assistance under this subpart.
    (iii) When the PHA has been unable to return units vacated during 
the last two years to occupancy within an average of 30 days, the plan 
shall describe actions that the PHA will undertake to achieve at least 
a 30-day turnover rate.
    (4) Identifying any impediments that will prevent elimination of 
the vacancies within the five-year period;
    (5) Identifying any vacant units funded for modernization, major 
reconstruction, demolition, or disposition activities;
    (6) Identifying any vacant dwelling units that are eligible for 
modernization, major reconstruction, demolition, or disposition, but 
have not been funded or approved for these activities and are not 
likely to be funded or approved for at least three years. The statement 
shall include an estimate of the amount of assistance necessary to 
complete the modernization, major reconstruction, demolition, or 
disposition of these units;
    (7) Identifying any vacant units not identified under paragraphs 
(b)(5) and (b)(6) of this section. The statement shall include a 
description of any appropriate activities relating to elimination of 
the vacancies in these units and an estimate of the amount of 
assistance necessary to carry out the activities identified under this 
paragraph (b)(7);
    (8) Setting forth an agenda for implementation of management 
improvements during the first fiscal year beginning after submission of 
the plan. If the timing of any improvement is dependent upon a HUD 
approval or decisionmaking process, the schedule for the improvement 
may be presented in terms of a specified time period following 
completion of the HUD process. The agenda should include any management 
improvements recommended by the assessment team pursuant to 
Sec. 968.410 and an estimate of the amount of assistance necessary to 
implement the management improvements; and
    (9) Of any other information that the Secretary shall deem 
appropriate, as provided in the applicable NOFA. Such information may 
include budget documents, in the case of any PHA that is applying for 
funds under a NOFA.
    (c) Housing standards. To the extent that a plan involves 
modernization, reconstruction, or rehabilitation activities that have 
not been funded or approved previously and are not planned to be 
undertaken using Comprehensive Grant Program funds, the plan must 
reflect cost estimates that, at a minimum, are based on:
    (1) For individual work items funded under the program, compliance 
with modernization standards, as set forth in HUD Handbook 7485.2, as 
revised; and
    (2) For each vacant unit on which funds are expended, compliance of 
the unit with the Housing Quality Standards, as set forth in 24 CFR 
882.109 and as amended by the regulations concerning lead-based paint 
in public housing in 24 CFR part 35.

(Approved by the Office of Management and Budget under control 
number 2577-0181)


Sec. 968.410  Assessments.

    (a) Requirement. Each PHA participating in the program under this 
subpart shall cooperate with an onsite assessment of the vacancy 
situation of the PHA by an assessment team, whose members will be 
selected by the Secretary in accordance with paragraph (b) of this 
section. The Secretary will schedule assessments in a priority order, 
based on:
    (1) The nature and extent of each PHA's vacancy problem, and HUD's 
goal of achieving maximum reoccupancy using the funds available; and
    (2) The availability of assessment teams and the expected level of 
complexity of the assessments to be scheduled.
    (b) Composition of assessment team. The assessment team shall 
include representatives of HUD, an equal number of independent experts 
knowledgeable with respect to vacancy problems and management issues 
relating to public housing, and officials of the PHA.
    (c) Scope of assessment. The assessment team shall assess the 
vacancy situation of the PHA to determine the causes of the vacancies, 
including any management deficiencies or modernization activities. At 
least one member of the assessment team shall consult with residents of 
the PHA's units regarding the vacancy situation of the PHA. The 
assessment team shall also examine indicators of the management 
performance of the PHA relating to vacancy, which shall include 
consideration of the performance of the PHA as measured by the 
indicators under paragraphs (A) and (E) of section 6(j)(1) of the Act 
(implemented by 24 CFR 901.10(b)(1) and 901.10(b)(5)).
    (d) Report of assessment team. The assessment team shall submit to 
the PHA and the Secretary written recommendations for management 
improvements to eliminate or alleviate management deficiencies and for 
strategies to deal with vacant units. If requested by the PHA, HUD will 
assist the PHA in preparing the vacancy reduction plan under 
Sec. 968.407, including determining appropriate actions to eliminate 
vacancies.


Sec. 968.413  Funding.

    (a) Eligible activities. Except as provided in paragraph (b) of 
this section, assistance may be provided under this subpart to PHAs 
submitting vacancy reduction plans for reasonable costs of the 
following activities:
    (1) Implementing management improvements;
    (2) Rehabilitating vacant dwelling units identified in the plan in 
accordance with Sec. 968.407; and
    (3) Carrying out vacancy reduction activities described in the plan 
in accordance with Sec. 968.407.
    (b) Assistance to troubled PHAs. Assistance may be provided to a 
troubled PHA only if the PHA meets either of the conditions described 
in paragraphs (b)(1) and (2) of this section:
    (1) The PHA has demonstrated substantial progress on the following 
vacancy related Public Housing Management Assessment Plan (PHMAP) 
indicators: 2 (Modernization), 5 (Unit Turnaround), 6 (Outstanding Work 
Orders), or 7 (Annual Inspection and Condition of Units and Systems), 
as demonstrated by a PHMAP score of ``C'' or better. If the PHA does 
not have a score of ``C'' or better on these indicators, substantial 
progress may be demonstrated as follows:
    (i) The PHA, based on current data would qualify for a score of 
``C'' or better on the indicators.
    (ii) A statement of alternative arrangements that have been made to 
assure effective administration of the function covered by the 
indicator, i.e. rehabilitation and modernization activities (in regard 
to the units for which funding is requested) and the PHA-wide 
administration of unit turnaround, work orders, and preventive 
maintenance.
    (2) The PHA has provided reasonable assurances that substantial 
progress will be made to remedy any management deficiencies identified 
by the assessment team or any vacancy-related deficiencies identified 
in HUD reviews and audits, through activities that have already begun 
or will be initiated.
    (c) Costs of assessment teams. The Secretary may use amounts 
appropriated for activities under this subpart for any travel, 
administrative, and other necessary expenses of assessment teams under 
Sec. 968.410.
    (d) Determination of assistance amounts. (1) Whether a PHA is to 
receive assistance, and the amount of any assistance, under this 
subpart will be determined through a process to be described in detail 
for each round of funding in Notices of Funding Availability to be 
published in the Federal Register. A portion of a PHA's plan, rather 
than the entire plan, may be funded, and the Secretary may establish 
reasonable limits on the funding that will be available under a NOFA 
for any category of eligible activities or for any PHA.
    (2) Prior to determining the amount of any assistance to be awarded 
to a PHA, HUD will review the PHA's plan and the extent to which it is 
consistent with the assessment of the PHA, and any other factors that 
the Secretary finds to be appropriate.
    (e) Revisions. Funding is expected to be spent to carry out the 
vacancy reduction activities funded under this program. Should a change 
in circumstances make a revision necessary, HUD approval is required. 
The grantee must submit a report that substantiates a need for the 
revision, along with an account of how the revision affects the funded 
plan.


Sec. 968.416  Fund requisitions.

    To request funds against the total approved vacancy reduction 
program budget, a PHA must submit a request to HUD in accordance with 
HUD requirements.


Sec. 968.419  Grantee's oversight responsibilities.

    Each grantee shall provide, by contract or otherwise, adequate and 
competent supervisory and inspection personnel to assure work quality 
and progress during modernization, whether work is performed by 
contract or force account labor and with or without the services of an 
architect/engineer.


Sec. 968.422  Progress reports and completion schedule.

    (a) Reports required. Until completion of the activities funded 
under the vacancy reduction program, the grantee shall submit to HUD, 
in a form and at a time prescribed by HUD, the following:
    (1) A report on modernization fund expenditures;
    (2) A narrative report that includes an accounting of the grantee's 
progress against the milestones established in its vacancy reduction 
plan. The report shall include the number of both funded and regular 
turn-over units that have been made ready for occupancy; and
    (3) Any additional information as HUD may require.
    (b) Completion schedule. HUD expects that most work items funded 
under this program will be completed within one year. Work items must 
be completed within two years from the date of funding, or by some 
other time as may be specified in the Notice of Funding Availability, 
unless prior approval is obtained from HUD.

(Approved by the Office of Management and Budget under control number 
2577-0181)


Sec. 968.425  HUD review of grantee performance.

    (a) Performance reviews. HUD shall carry out such reviews of the 
performance of each funded PHA as may be necessary or appropriate to 
determine compliance with the PHA's vacancy reduction plan and related 
HUD requirements. In these reviews HUD will determine whether the PHA 
has:
    (1) Carried out its vacancy reduction activities in a timely manner 
and in accordance with its vacancy reduction plan;
    (2) Completed, or made reasonable progress toward completing, the 
physical items funded under the vacancy reduction plan, and whether the 
work items being carried out conform with the modernization and energy 
standards in Sec. 968.115 of this chapter;
    (3) Implemented, or made reasonable progress toward implementing, 
the management improvements funded under the vacancy reduction program; 
and
    (4) Made reasonable progress in meeting the goals established in 
its vacancy reduction plan.
    (b) Notice of deficiency. If HUD finds any deficiency in a review 
of a grantee's performance under this part, HUD may issue to the 
grantee a notice of deficiency stating the specific program 
requirements that the grantee has violated and requesting the grantee 
to take corrective action.
    (c) Corrective action order. (1) Issuance. If HUD finds any of the 
deficiencies listed in paragraph (c)(3) of this section in its review 
of the grantee's performance, HUD may issue to the grantee a corrective 
action order, whether or not a notice of deficiency has previously been 
issued on the specific deficiency. The corrective action order shall 
notify the grantee of the specific program requirements that the 
grantee has violated and shall specify the corrective action.
    (2) Consultation with grantee. Before ordering corrective action, 
HUD will give the grantee an opportunity to consult with HUD regarding 
the proposed action.
    (3) Bases for corrective action. HUD may order a grantee to take 
corrective action only if HUD determines:
    (i) The grantee has not submitted a performance report as required 
by HUD;
    (ii) The grantee has not carried out activities under its vacancy 
reduction program in a timely manner and in accordance with HUD 
requirements;
    (iii) The grantee does not have continuing capacity to carry out 
activities in its vacancy reduction plan; or
    (iv) An audit conducted in accordance with 24 CFR part 44, or 
pursuant to other HUD reviews, reveals deficiencies that HUD reasonably 
believes require corrective action.
    (d) Nature of corrective action. (1) HUD shall design corrective 
action to prevent a continuation or recurrence of the same or a similar 
deficiency or to mitigate to the greatest extent feasible any adverse 
effects of the deficiency.
    (2) HUD may order a grantee to take the corrective action that HUD 
determines appropriate for carrying out the elements of the vacancy 
reduction plan. Corrective action may include, but is not limited to, 
suspension of grantee's authority to incur costs against the vacancy 
reduction funding and reimbursement, from sources other than HUD funds, 
of any amount spent improperly.
    (e) Failure to take corrective action. In cases where HUD has 
ordered corrective action and the grantee has failed to take the 
required action within a reasonable time, as specified by HUD, HUD may 
take one or more of the following steps:
    (1) Withhold vacancy reduction funds from the grantee;
    (2) Declare a breach of the ACC by the grantee; and
    (3) Any other sanctions authorized by law or regulation.


Sec. 968.428  Program closeout.

    (a) Requirements for grantees. Upon completion of the activities 
funded in accordance with this part, the grantee shall submit to HUD, 
and in a form prescribed by HUD, the actual modernization cost 
certificate for HUD's review, audit verification, and approval. The 
grantee shall immediately remit any excess funds provided by HUD. If 
the audited modernization cost certificate discloses unauthorized 
expenditures, the grantee shall take such corrective actions as HUD may 
direct.
    (b) Audit. The audit shall follow the guidelines prescribed in 24 
CFR part 44, Non-Federal Government Audit Requirements.

(Approved by the Office of Management and Budget under control 
number 2577-0181)


Sec. 968.435  Other program requirements.

    In addition to the program requirements applicable to this subpart 
under Sec. 968.110, each PHA participating in the vacancy reduction 
program under this subpart shall:
    (a) Certify that any modernization, reconstruction, or 
rehabilitation activities that are funded under this subpart will be 
undertaken in accordance with modernization standards, as set forth in 
HUD Handbook 7485.2, as revised;
    (b) Certify that activities undertaken within vacant units will 
bring the affected vacant units into compliance with the Housing 
Quality Standards, as set forth in 24 CFR 882.109 and amended by the 
regulations concerning lead-based paint in public housing at 24 CFR 
part 35; and
    (c) Provide for resident involvement, in a manner to be determined 
by the Secretary, in the process of applying for any funding available 
under this part.

    Dated: June 6, 1994.
Joseph Shuldiner,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 94-14281 Filed 6-10-94; 8:45 am]
BILLING CODE 4210-33-P