[Federal Register Volume 59, Number 167 (Tuesday, August 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21139]


[[Page Unknown]]

[Federal Register: August 30, 1994]


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Part III





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Assistant Secretary



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24 CFR Parts 905 and 968




Public and Indian Housing Amendments to the Comprehensive Grant 
Program; Final Rule
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Public and Indian Housing

24 CFR Parts 905 and 968

[Docket No. R-94-1700; FR-3517-F-02]
RIN 2577-AB32

 
Public and Indian Housing Amendments to the Comprehensive Grant 
Program

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

ACTION: Final rule.

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SUMMARY: This rule amends the Comprehensive Grant Program (CGP) 
regulations by simplifying and expediting the planning and funding 
process for public housing agencies (PHAs) and Indian housing 
authorities (IHAs) that own or operate 250 or more public or Indian 
housing units.

DATES: Effective date: September 29, 1994.

FOR FURTHER INFORMATION CONTACT: For questions concerning public 
housing agencies contact Janice D. Rattley, Director, Office of 
Construction, Rehabilitation and Maintenance, Public and Indian 
Housing, Room 4138, telephone (202) 708-1800, or (202) 708-0850 (voice/
TDD).
    For questions concerning Indian housing authorities, contact Debbie 
Lalancette, Director, Housing Management Division, Office of Native 
American Programs, Public and Indian Housing, Room 8204 (L'Enfant 
Plaza), telephone (202) 755-0088, or (202) 708-0850 (voice/TDD).
    The address for all the above-listed persons is: Department of 
Housing and Urban Development, 451 Seventh Street SW, Washington, DC 
20410. (The telephone numbers listed above are not toll-free.)

SUPPLEMENTARY INFORMATION:

I. Background

    Section 14 of the United States Housing Act of 1937 (42 U.S.C. 
1437l) (``the Act''), as amended by section 119 of the Housing and 
Community Development Act of 1987 (the ``1987 Act'') and Cranston-
Gonzalez National Affordable Housing Act of 1990 (``NAHA''), 
established the Comprehensive Grant Program (CGP), which was designed 
to govern the modernization needs of PHAs and IHAs that own and operate 
250 or more public or Indian housing units. PHAs and IHAs that own and 
operate fewer than 250 public or Indian housing units are governed by 
the Comprehensive Improvement Assistance Program (CIAP).
    (The reader should note that, hereafter, for ease of discussion, 
the preamble to this final rule uses the terms ``public housing'' to 
refer to both public and Indian housing, and ``HAs'' or ``housing 
agency,'' to refer to both PHAs and IHAs, unless otherwise stated. In 
addition, the term ``development'' is used to refer to ``low-income 
projects,'' as defined at section 3(b)(l) of the Act.)
    The Department promulgated regulations for the CGP and CIAP at 24 
CFR parts 905 and 968, and these regulations have governed the 
modernization of public and Indian housing assisted under the Act. On 
February 14, 1992, the Department published the final rule for the CGP 
at 57 FR 5514. The February 14, 1992 rule amended the CIAP at 24 CFR 
part 968, subpart B, to limit its applicability to HAs that own or 
operate fewer than 500 public housing units (fewer than 250 units 
beginning in Federal Fiscal Year (FFY) 1993); added a new subpart C to 
part 968, which sets forth the new CGP for HAs that own or operate a 
total of 500 or more public housing units (250 or more units beginning 
in FFY 1993); and revised both the CIAP and CGP programs for purposes 
of implementing various technical and substantive program amendments 
contained in sections 509 (b) through (f) of the NAHA.
    On March 15, 1993, the Department published an interim rule for 
CIAP at 58 FR 13916 for HAs with less than 250 units in FFY 1993 and 
minor technical corrections for CGP. The CIAP interim rule was 
published in response to public comment requesting both streamlining 
and simplification and was also based on experience gained through 
program operation.
    On March 8, 1994, the Department published a proposed CGP rule for 
comment at 59 FR 10876 (hereinafter referred to as the ``proposed 
rule''). The proposed rule requested comments on HUD's efforts to 
simplify and expedite the CGP planning and funding process for HAs that 
own or operate 250 or more public or Indian housing units. HUD also 
requested comments on other aspects affecting the operation of the CGP.

II. Summary of Public Comments

    HUD received 35 comments in response to the proposed rule for CGP. 
Comments were received from 23 PHAs, 5 IHAs, one individual and 6 
interest groups including Public Housing Authorities Directors 
Association (PHADA), National Association of Housing and Redevelopment 
Officials (NAHRO), Council of Large Public Housing Authorities (CLPHA), 
National American Indian Housing Council (NAIHC), Association of 
Community Organization for Reform Now (ACORN), and Pacific Southwest 
Region Development and Modernization Coordinators (PSRDMC).
    The comments were overwhelmingly positive and were supportive of 
HUD's efforts to simplify and expedite the CGP. Commenters were pleased 
that HUD had minimized the regulation and provided HAs with more 
flexibility. The aspects of this rule which generated the most comment 
were the proposed full fungibility of work items over a five-year 
period and eligible costs, especially management improvements and 
administrative costs. This summary will outline the comments with HUD's 
response in the regulation order. Comments on the public housing 
regulation (Part 968) and Indian housing regulation (Part 905) have 
been combined except where there are differences in the provisions for 
public and Indian housing. Miscellaneous comments and responses will 
follow the comments on the regulations.

Secs. 905.601 and 968.103--Allocation of Funds Under Section 14.

Set-Aside for Emergencies and Disasters
    Comment: Two commenters responded to the proposed change in 
paragraph (b) of Secs. 905.601 and 968.103 which would allow all HAs 
(including smaller HAs that participate in CIAP) to apply for emergency 
and disaster funds from the $75 million set-aside. Both commenters were 
supportive of this change which provides another avenue for smaller 
agencies to access urgently needed resources; however, one of the 
commenters did not support the maintenance of the set-aside out of 
modernization funds and suggested other fund sources such as National 
Emergency Relief funds.
    Response: Section 14 of the Act authorizes this set-aside from 
modernization funds. The set-aside is part of the formula approach and 
makes up for funding shortfalls to address emergencies or disasters. 
This provision would also allow CIAP HAs to receive funding for 
unanticipated emergencies during the period between when CIAP funds are 
exhausted for the current year and when funds are available for next 
year, as well as for disasters at any time during the year.
    The requirements governing the reserve for disasters and 
emergencies and the procedures by which an HA may request such funds 
are found at Secs. 905.667 (IHAs) and 968.312 (PHAs). HAs (including a 
PHA that has been designated as mod troubled under PHMAP or IHAs that 
are determined to be high risk under Sec. 905.135) may obtain funds at 
any time, for any eligible emergency work item as defined in 
Secs. 905.102 or 968.305 (for HAs participating in CGP, ``CGP HAs'') or 
for any eligible emergency work item (described as emergency 
modernization in Secs. 905.102 or 968.205) (for HAs participating in 
CIAP, ``CIAP HAs''), from the reserve established under 
Secs. 905.601(b) or 968.103(b). However, emergency reserve funds may 
not be provided to a CGP HA that has the necessary funds available from 
any other source, including its annual formula allocation under 
Secs. 905.601 (e) and (f) or 968.103 (e) and (f), other unobligated 
modernization funds, and its replacement reserves under Secs. 905.666 
or 968.310(a)(3). A CGP HA is not required to have an approved 
comprehensive plan under Secs. 905.672 or 968.320 before it can request 
emergency assistance from this reserve.
    Emergency reserve funds may not be provided to a CIAP HA that has 
the necessary funds available from any other source, including 
unobligated CIAP, or if CIAP funding is available. A CIAP HA will not 
be required to repay emergency funds, because it does not have a future 
formula allocation of assistance with which to make this repayment.
    To date, the set-aside has never been depleted in any of the FFYs 
of CGP operation. This final rule adopts the proposed rule's 
provisions. However, the Department is seeking legislation which will 
permit the set-aside to be used for other purposes including activities 
related to the settlement of litigation and desegregation of public 
housing.
Calculation of Number of Units
    Comment: One commenter supported the proposal to include new or 
converted units in formulating the amount to be awarded if they are on-
line when awards are calculated.
    Response: HUD has retained the proposed rule's provisions on 
calculation of number of units. In order to treat each HA fairly, HUD 
will count units that have reached date of full availability (DOFA) and 
are under ACC amendment by the first day in the FFY in which the 
formula is being run. See also discussion under Secs. 905.669 and 
968.315 Allocation of assistance, Formula Characteristics Report (FCR) 
below.
Paid-off Mutual Help Units
    Comment: All of the IHAs which commented provided suggestions on 
the treatment of paid-off units. Two commenters were in favor of 
modernizing paid-off units only if additional funds are made available 
(paid-off units being included in the calculation of units under 
management for formula funding allocation purposes).
    Response: Units which are paid-off, but not conveyed, are included 
in the calculation of units under management and for purposes of 
determining the IHA's formula share until they are conveyed. Upon 
conveyance, units are removed from the count of units under management 
and thereafter are no longer counted in the formula funding 
calculation.
    Comment: An IHA wanted to be able to work on homes that have been 
paid-off if the family that paid-off the home is still in possession of 
the home, or to work on any home that pays off after submission of the 
five-year plan, and recommended that paid-off units should be added to 
the unit count. One IHA suggested grandfathering all units that were 
originally submitted in the five-year plan but have subsequently been 
paid-off. Another IHA indicated that some Mutual Help participants are 
being penalized by the cut-off date, and IHAs should be allowed to work 
on their homes even if they are paid-off when the individual has 
fulfilled all of their obligations by not being delinquent (or who 
makes the maximum house payments) and still occupies the home.
    Response: The Department has decided to remove the regulatory 
prohibition against modernizing Mutual Help units which are paid-off 
but not conveyed. The Department believes that the only regulatory 
restrictions on the modernization of paid-off Mutual Help units should 
be that: title has not been conveyed to the homebuyer; where the 
homebuyer has a delinquency at the end of the amortization period, non-
emergency modernization work shall not be done until all delinquencies 
are repaid; and, the units shall be identified in the Comprehensive 
Plan (including the Physical Needs Assessments and Five-Year Action 
Plan). The prohibition against performing modernization work on 
conveyed units is based on a determination by the Department's Office 
of General Counsel that statutory authority for the expenditure of 
modernization funds is limited to existing public housing units. Once 
title is conveyed and the unit is no longer covered by the ACC, the 
unit is no longer a public housing unit and there is no legal authority 
for the expenditure of modernization funds provided under section 14 of 
the Act. IHAs that wish to modernize conveyed Mutual Help units must 
obtain funding from another source; e.g., proceeds from the sale of 
homeownership units or Bureau of Indian Affairs Housing Improvement 
Program funds.
    With respect to the recommendations provided by the commenters 
concerning whether the unit must be occupied by the homebuyer that paid 
it off, the Department believes that prior to conveyance, the unit 
would be occupied by an eligible subsequent homebuyer and therefore the 
unit itself would be eligible for modernization work, where needed. The 
Department believes that decisions as to whether the IHA plans to 
modernize paid-off but not conveyed Mutual Help units at all, which 
specific units will be modernized and the level of work to be provided, 
should be made at the local level by the IHA.
    The Department also has removed restrictions on the modernization 
of paid-off but not conveyed Turnkey III units to the extent that there 
is statutory authority to do so. The authority to perform comprehensive 
modernization on Mutual Help units provided by the National Affordable 
Housing Act of 1990 does not extend to Turnkey III units. Because the 
eligibility of homeowner-occupied Turnkey III units for modernization 
work is limited, see Sec. 905.666 and Sec. 968.310, the regulations 
have been amended to allow HAs to do work necessary to meet statutory 
or regulatory requirements in Turnkey III units which are paid-off, so 
long as the work is completed prior to conveyance.
Contingency Accounts
    Comment: Although not proposed by HUD, three commenters recommended 
an HA-wide line-item account for contingencies. Such an account could 
be used for cost overruns and contract modifications (change orders). 
The commenters called for money assigned to this account by the HA to 
be considered ``obligated''. One PHA has found that its underruns on 
construction contracts are sufficient to fund most exigencies and act 
as a de facto contingency account. However, HUD restricts the use of 
underruns by requiring that all monies be reprogrammed within the 
funding program's original obligation period. It was noted that a 
contingency line item exists for development funds, and the amount in 
the contingency line item could be limited to a fixed percentage of the 
construction costs and would not require HAs to make numerous revisions 
to their budgets. A single revision could be made annually with the 
contract modifications reflected in the proper line item.
    Response: HUD generally agrees with these comments and has revised 
the regulation to permit HAs to budget for a contingency account for 
cost overruns and contract modifications. HUD notes that Section 504 
accessibility conversion is an eligible expense under HA-wide physical 
improvements. Refer to the next section below for a discussion of HA-
wide items.
    HUD currently permits a contingency account in its Development 
Program and has decided to adopt a similar approach for the CGP. A HA 
may budget up to 8% of its total annual grant for a contingency 
account. (A new account will be established and included on the Annual 
Statement Form). Money budgeted in a contingency account is considered 
unobligated until it is moved to another account and obligated for a 
cost overrun or other work items. The HA will provide the status of its 
contingency account in its annual Performance and Evaluation Report 
(P&E Report). For example, if an HA uses $100,000 from its contingency 
fund for a contract modification in Account 1460, the P&E Report will 
reflect a reduction of $100,000 in the contingency account and an 
increase of $100,000 in Account 1460. The $100,000 will be obligated 
when the contract modification is issued under Account 1460. The 
contingency account will be a fixed account for each annual grant; 
i.e., the HA cannot replenish the account as funds are used from it.
    HUD wishes to clarify that it does not restrict the use of 
underruns by requiring that all monies be reprogrammed within the 
funding program's original obligation period. Under the CGP, a HA may 
extend the target dates for fund obligation in the approved Annual 
Statement without prior HUD approval whenever any delay outside of the 
HA's control occurs, as specified by HUD (e.g., litigation, HUD or 
other institutional delay, extended labor strikes, extended material 
shortages, or need to use leftover funds) and the extension is made in 
a timely manner. The need to reprogram unobligated funds resulting from 
underruns constitutes a valid reason for self-executing a time 
extension.
    Comment: One HA suggested a two pronged approach for implementing 
contingency accounts. First, HUD should remove the two-year obligation 
deadline and allow HAs to obligate monies at any time in the 
modernization process provided that the funds are expended within the 
5-year statutory limit. The second component would permit each HA to 
establish a line-item contingency account equal to 1%-2% of the total 
grant amount in its annual submission. Funds resulting from underruns 
or credit contract modifications would be transferred into the 
contingency account for future use. The account would not be allowed to 
exceed 10% of the outstanding grant balance without prior HUD approval. 
HAs would draw funds to pay for contingencies from the account as 
needed. These funds would be added to contract accounts via budget 
modifications. In general, excess contingency account funds would be 
reprogrammed into additional modernization work. This modernization 
work could come from anywhere in the HA's physical or management needs 
assessment or from eligible management improvements. As the expenditure 
deadline for a particular funding year nears, HAs would begin to use 
the excess funds in that year's contingency account to pay for contract 
work performed in other funding programs. At the end of the fifth year, 
all program funds--including contingency account funds--would be 
expended. HAs would prepare for HUD's review and audit, annual reports 
detailing the use of all contingency funds. In addition, program close-
out reports would provide HUD with a detailed accounting for each 
contract on which program funds were spent. An amendment to 
Secs. 905.666 and 968.310 was also recommended to describe the 
mechanics for operating a contingency account.
    Response: HUD wishes to clarify that there is no statutory two-year 
obligation period, three-year expenditure period, or 5-year statutory 
limit for spending funds approved in a particular FFY. However, HUD 
expects that funds allocated in a FFY, including those designated by 
the HA as contingency funds, will be obligated within two years and 
expended within three years of approval. If an HA can demonstrate that 
a longer implementation schedule is necessary (e.g., size of grant, 
complexity of work), HUD may approve an obligation/expenditure schedule 
that exceeds this National guideline. The HA has responsibility for 
proposing its implementation schedule, as part of each Annual Work 
Statement. Also, as previously noted, the HA may self-execute a time 
extension of the approved implementation schedule for reasons outside 
of its control (e.g., litigation). In all cases, however, timeliness of 
obligation and expenditure of funds will be considered in the 
assessment of a PHA's modernization performance under the PHMAP.
    The HA may initially budget up to 8% of its annual grant for 
contingencies, and HUD believes that this provides sufficient 
flexibility for HAs within each annual grant. When the HA needs to use 
the funds in this contingency account for cost overruns or other work 
within its Five-Year Action Plan, the HA is required to ``move the 
funds'' through internal budgeting to other eligible development 
accounts and then draw down the funds from other line items. After the 
HA has moved the funds from the contingency account into other eligible 
development accounts for purposes of obligation and expenditure, the HA 
may not replenish this account because at program completion, this 
account must be zero. Therefore, HUD has not adopted the suggestion 
that funds resulting from underruns or contract modifications be used 
to replenish this account since funds in the contingency account must 
be moved to other line items for drawdown in a timely fashion to meet 
the HA's approved implementation schedule. Funds resulting from 
underruns or credit contract modifications, as well as funds not needed 
for contingencies shall be reprogrammed for other modernization work in 
the approved Five-Year Action Plan.
HA-Wide Line Items
    Comment: Three commenters recommended a HA-wide line item account 
for relocation services, asbestos testing and abatement, lead-based 
paint abatement and ``on demand'' Section 504 accessibility 
conversions.
    Response: HUD recognizes that HAs occasionally encounter work items 
that are unpredictable, such as lead-based paint abatement when a child 
has been identified as having an elevated blood level or the need to 
modify a unit for physical accessibility. Therefore, HUD wishes to 
clarify that HA-wide line item accounts covering HA-wide activities 
such as lead-based paint, Section 504 compliance, mitigation of 
environmental hazards such as asbestos abatement, and modernization of 
vacant units is consistent with established program requirements and 
procedures and does not require any change to the existing regulation. 
Note: modernization of vacant units is limited to non-routine 
maintenance work items. Routine maintenance is not an eligible 
modernization cost. Funds budgeted in a HA-wide line item should be 
based on historical data. The HA should estimate the amount of funds 
that it anticipates will be needed, annually, on the above items. The 
HA-wide line item would enable the HA to complete these work items at 
any of its developments, and avoid numerous budget revisions because 
the estimated needs at a particular development are under-funded or 
over-funded. However, the HA is required to report in the Performance 
and Evaluation Report on the quantity and cost for each development 
where HA-wide activities were carried out.
    With regard to HA-wide line items, a HA may wish to consider 
utilizing an indefinite quantity architectural/engineering (A/E) 
contract to meet its needs with regard to the above types of work. HAs 
usually hire A/E firms to provide services as specific needs arise. 
Many HAs, however, have the need for a number of A/E services during 
the course of the next one or two years. In these cases, the HA may 
solicit for an indefinite quantity contract where separate orders are 
issued to the selected A/E firm for each service as the need arises. 
Another method similar to this approach is to issue a solicitation for 
several A/E firms to provide services on an as-required basis rather 
than merely one firm. The solicitation would clearly indicate that the 
HA anticipates having the need for several A/E services, identify types 
of services to be provided for that year, and describe how an A/E firm 
would be selected among the groups. As the need arises, the HA would 
execute contracts with A/E firms for specific tasks in accordance with 
the procedures identified in the solicitation. These methods allow the 
HA to quickly contract for critical services in a timely manner rather 
than waiting until the need arises to issue the solicitation and select 
the needed firm. Further information regarding indefinite quantity 
contracts for A/E services is found in paragraph 4-26 of the 
Procurement Handbook.

Secs. 905.601 and 968.310  Eligible costs

Management Improvements
    Comment: Twenty-eight comments were received on the proposal to 
raise the cap on management improvements from 10% to 20% and to permit 
high performers under PHMAP or IHAs determined by the Field Office to 
be high performing and with administrative capacity to exceed the 20% 
limit. To the maximum extent feasible, the Department proposed that HAs 
should use management improvement funds to train residents in carrying 
out activities related to the modernization-funded physical and 
management improvements. Most commenters saw the proposal as a 
significant improvement. Some noted that this proposal will not relieve 
HUD of its responsibility to adequately fund mandates regarding 
resident services (security improvements, training, etc.) and operating 
subsidies. Others opposed the Department for even suggesting that 
modernization improvement funds be utilized for resident training 
activities and preferred that this be left to local discretion. Many 
commenters urged a return to ``true'' management improvement 
activities, rather than recent years' necessity of funding on-going 
operational need in HAs in areas of security, drug prevention and 
enforcement and resident services. It was recommended that CGP funds 
should only be used for incremental improvement to equipment and 
information systems, but not personnel. It was noted that each HA's 
modernization grant is based upon a formula allocation, which is based 
upon that HA's estimated modernization needs. There is nothing in this 
method of allocation which reflects or is based upon a HA's needs for 
funding for security, resident services, or resident initiatives 
programs, nor is the formula allocation process designed to address 
those needs. Other commenters saw the percentage limitation increase 
enabling some HAs to address new and greater problems dealing with 
crime and security as well as family values. One commenter supported 
the proposal because it could result in needed funds for resident 
training required for compliance with Section 3 and other programs such 
as the Family Investment Center Program and Youthbuild.
    Several commenters recommended that HUD should also broaden the 
list of allowable management improvements, especially to include the 
establishment of preventive maintenance systems as an eligible item 
under management improvements, perhaps up to a certain reasonable 
percentage limit (one recommended 6% of most HA's CGP grants). CLPHA 
and NAHRO strongly recommended that management improvement rules allow 
preventive maintenance to be funded. They recommended where a low AEL 
has resulted in seriously declining housing stock with high levels of 
deferred maintenance, the first few years of implementing a Preventive 
Maintenance Program represent a major non-recurring expense in terms of 
both manpower and materials. After the first three years, the cost 
associated with this program was proposed by some commenters to be 
reduced to a level that is supportable within the normal operating 
budget.
    Response: HUD would like to clarify by explicitly adding the 
example to the regulation that the establishment of a preventive 
maintenance system or improvement of an existing system is already an 
eligible management improvement. The Department strongly encourages HAs 
to establish a preventive maintenance system or improve an existing 
system to assure that the modernization-funded physical improvements 
are sustained. A preventive maintenance system must provide for regular 
inspections of building structures, systems and units and determine the 
applicability of work eligible for operating funds (routine 
maintenance) and work eligible for CGP funding (non-routine 
maintenance).
    Comment: Two commenters opposed the increase to 20% because of 
their belief that the majority of modernization funds should go to 
property improvement. They asserted that the CGP was becoming another 
HUD social program and stated there were wastes in the area of 
management improvements.
    Some commenters requested that the Department reconsider and give 
the proposed incentive to all standard and high performing HAs. It was 
also recommended that subparagraph (f)(1)(iii) should clarify that 
there is an exception to the 20% threshold by a cross-reference to 
(m)(1). Clarification was requested whether a HA must be an over-all 
high performer, mod-high performer, both or either.
    Response: In response to the comments, HUD has decided to increase 
the cap on management improvements from 10% to 20% for all HAs and to 
completely remove the cap for PHAs designated as both over-all high 
performers and mod-high performers under the PHMAP. HUD does not agree 
that increasing the allowable management improvement limit moves the 
CGP towards becoming another ``HUD social program''. Many management 
improvements are geared towards improving the efficiency and 
effectiveness of a HA's operations and are necessary to sustain the 
physical improvements. It should be noted that the direct delivery of 
social services is an ineligible CGP expenditure. Experience has shown 
that physical improvements without appropriate management actions often 
are not sustained, thereby wasting federal dollars. HUD will continue 
to strongly suggest that HAs use management improvement funds for 
resident training and has retained this suggestion in 
Sec. 968.310(m)(1).
    Comment: One IHA commented that there is no equality as to how ACA 
reviews are conducted at the HUD level since some reviews are not 
conducted on site, leading to determinations which may not be accurate. 
Two IHAs suggested that the criteria for IHA high performers should be 
stringent enough that only the best managed IHAs be classified as high 
performers, and that all areas of IHA management and operations should 
be evaluated. They suggested the following criteria: (a) The IHA must 
have a final ACA score of 90% or above for two consecutive years, 
including the FFY that funds are being requested, and (b) the IHA must 
be current on all implementation schedules for action CGP and CIAP 
grants. Two commenters suggested that HUD consult with interested 
parties to set guidelines for high performers.
    Response: HUD does not agree with the suggestions that ACA scores 
be used to determine whether an IHA qualifies as a high performer. The 
ACA is to be used to highlight areas where training or technical 
assistance may be needed, identify IHAs with potential problems, and 
determine functional areas where reviews are needed. HUD has decided to 
delay implementation of the incentive for high performing IHAs in order 
to maximize the opportunity for consultation with interested parties. 
HUD will invite public comment on the criteria to be used to determine 
high performers when the revised Indian Housing regulations at 24 CFR 
part 905 are published as a proposed rule.
Administrative Costs
    Comment: HUD limited HAs to no more than 7% of their annual grant 
for administrative costs in account 1410, excluding any costs related 
to in-house lead-based paint or asbestos testing, in-house A/E work, or 
other special administrative costs required by State, Tribal or local 
law, unless specifically approved by HUD. An additional 2% of the 
annual grant may be spent on costs related to travelling to the HA's 
developments for CGP-related business, as specifically approved by HUD. 
Eighteen comments were received on this provision. Most of the comments 
urged HUD to raise the cap to 10%. Most found the current 7% to be 
insufficient to fully administer the modernization program. For 
example, one commenter indicated that in a high cost area, the expenses 
for a construction manager and clerk of the works, with benefits, 
exceed the 7% cap. HUD was advised that even HAs which operate in a 
limited geographical area often require overnight travel and pay a 
premium for administration because of the need to operate over several 
telephone area codes. HAs which have highly active, very organized 
Resident Advisory Councils and Resident Management Corporations have 
higher administrative costs because of increased level of outreach, 
planning, consultations and discussions. Similarly, HAs that operate 
joint ventures with residents also experience increase administrative 
costs. Others noted that the present 7% cap does not reflect the 
spiraling increase in health benefits, workers compensation, and 
unemployment insurance premiums for administrative workers, increase in 
complexity and resulting staff time to comply with HUD's regulations, 
and increase in expenses associated with transitioning from the CIAP 
model to CGP.
    Commenters recommended that the word ``in-house'' be deleted, and 
that any costs related to lead-based paint or asbestos testing be 
excluded from the 7% total. Another commenter emphasized the 
administrative burden that lead-based paint and asbestos abatement 
imposes on HAs. Nearly every rehabilitation and remodeling activity in 
public housing developments now requires the work of environmental 
consultants for lead-based paint and/or asbestos testing and abatement. 
The oversight and administration of these contracts is very time- and 
resource-intensive. Some commenters requested examples of areas where 
the Field Offices could approve higher limits. HUD was asked to clarify 
the issue of administration of force-account labor. It was requested 
that the regulation state that administrative costs associated with 
force account labor used in relationship to resident training programs 
are eligible management improvement costs. NAIHC noted that IHAs with 
force account labor incur additional administrative costs because they 
need more warehouse space to house their materials, more administrative 
staff to process the paperwork, and more financial management staff to 
assure records are up-to-date. In addition, development staff spends 
more time overseeing the entire program. They recommended that the 
administrative cost limit be set at 10%.
    One commenter suggested that like management improvements, standard 
and high performing HAs be allowed to exceed the 7% level without prior 
HUD approval. Retaining the additional 2% for CGP travel-related 
expenses received approval, but it was recommended that it should not 
be limited to commercial vendors because some legitimate overnight 
travel may be conducted by private or PHA-owned automobiles. Some 
commenters suggested that the additional 2% should include some factor 
related to miles traveled in relationship to density of developments.
    Response: The comments clearly demonstrate a need for an increase 
in the administrative cost limit. Accordingly, HUD has raised the 
administrative cost limit to 10% for all HAs. Field Offices may approve 
amounts higher than the 10% limit where there is sufficient 
justification to warrant an increase. Because of the increase in the 
overall administrative cost limit, HUD has deleted the additional 2% 
limit related to travel costs. It should be noted that costs related to 
lead-based paint or asbestos testing (whether conducted by force 
account employees or by a contractor) are excluded from the 10% 
administrative cost total. In response to the request for clarification 
on the issue of administration of force-account labor, it should be 
noted that non-technical oversight costs associated with force account 
work are included in the cost limitations for administrative costs 
(account 1410). The actual force account labor costs including direct 
supervision are charged to the appropriate account for the work being 
performed, e.g., dwelling structures (account 1460). Administrative 
costs related to resident training programs are eligible management 
improvement costs.
Additional Eligible Costs Issues
    Comment: Recommended additions to the list of eligible costs were 
air conditioning, wallpaper, garbage disposals, carpeting in all units, 
lawn sprinkler systems and maintenance vehicles. Two commenters 
requested that eligible items and modernization standards be 
consistent.
    Response: Recently, the Public Housing Development Program, revised 
its cost containment and modest design requirements to provide HAs with 
maximum flexibility regarding work items previously considered 
amenities. Maximum flexibility is hereby being provided in the CGP. The 
Department has modified its policy regarding eligible work items under 
CGP to allow work items that are modest in design and cost, but still 
blend in with the design and architecture of the surrounding 
communities by including amenities, quality materials and design and 
landscaping features that are customary for the locality. The Indian 
Housing Development Program also encourages IHAs to incorporate 
culturally relevant design concepts into their developments. For 
guidance in culturally relevant design considerations, IHAs may refer 
to a publication prepared by the American Indian Council of Architects 
and Engineers, Our Home, Giving Form to Traditional Values. It should 
be noted that there will be no increase in operating subsidy due to 
items added to promote the blend of public housing into the surrounding 
neighborhood. Such items may be included in the modernization of a 
development as long as the provisions for cost reasonableness are met. 
The PHA/IHA Board Resolution approving the Comprehensive Plan/Annual 
Statement, Form HUD-52836, will be modified to include a certification 
that the modernization work will promote Public and Indian housing that 
is modest in design and cost, but still blends in with the surrounding 
community.
    Comment: Additionally, it was asked that HOPE I, HOPE III and 5(h) 
Homeownership activities be listed as eligible items.
    Response: The current rule and this final rule permit the study of 
the feasibility of converting rental to homeownership units, as well as 
the preparation of an application for conversion to homeownership, as 
eligible management improvement costs (see resident homeownership 
costs, Sec. 968.310 (g)(3)).
    Comment: Clarification on the quality of materials to allow for 
higher quality security and plumbing fixtures was requested. This was 
suggested because of the high use factor and increased security needs 
of public housing.
    Response: HUD does not mandate the specific quality of materials 
used. HAs must ensure that the quality of materials used is appropriate 
to meeting the needs of the HA and its residents. In keeping with the 
flexibility mandated under the CGP, the quality of materials used is a 
local decision subject to the provisions relating to cost 
reasonableness.
    Comment: Clarifications were also requested on replacement of old 
maintenance vehicles.
    Response: Purchase of maintenance vehicles that are necessary to 
administer/implement the modernization program are eligible under the 
CGP. However, the HA must indicate in its Management Needs Assessment 
that such purchase is necessary to improve or sustain maintenance 
operations. If the maintenance vehicle is to be used for both the Low-
Rent Public Housing Program and other programs administered by the HA, 
the cost of the purchase shall be prorated among programs. By statute, 
CGP funds are to be used to improve the physical condition of existing 
public housing projects and to upgrade the management and operation of 
such projects. All work items, including the purchase of equipment, 
must be directly related to carrying out the physical and management 
improvements to HA property.


Secs. 905.669 and 968.315  Allocation of Assistance.

Elimination of Presumptive Estimates
    Comment: Most found that the previous system caused unnecessary 
confusion and created HA credibility issues with residents and local 
government. They agreed with HUD's proposal to eliminate the 
presumptive estimates since, in general, they no longer serve a useful 
purpose. This change eliminates the burden of amending the Five-Year 
Action Plan and/or Annual Statement during a FFY because of differences 
between the presumptive estimate and final formula amount.
    Response: As endorsed by the commenters, HUD has adopted the 
proposed rule's provision of providing only one formula amount in the 
FFY.
Formula Characteristics Report (FCR)
    Comment: HAs expressed a need to receive their final formula 
amounts at the earliest possible date. This would allow HAs to base 
proposed work items and budgets on the actual dollars available. 
Commenters also requested HUD to update the formula characteristics 
data in July and August of each year so that the formula 
characteristics information can be finalized in September. If the 
formula characteristics information was ready in September, it could be 
applied at the earliest possible date to the congressionally 
appropriated amount yielding each HA its final funding amount 
significantly ahead of the March 1994 date achieved this year. Access 
to new CGP funds at the earliest possible date is critical to 
obligating and expending CGP funds in a timely manner.
    Response: HUD will transmit the formula characteristics data to HAs 
before the end of the current FFY for review and updating for the next 
year's formula run. However, since the formula calculation is based on 
all units that are under ACC and have reached DOFA by October 1 of the 
FFY in which the formula is being run, it is not feasible for HAs to 
return the FCR until after October 1. Notwithstanding an early review 
and correction of data, HAs should be aware that the exact amount of 
funds available for the CGP may not be known until several months into 
the FFY. This is due to the need to determine the following: (1) Amount 
of funds, if any, carried over from the previous FFY; (2) amount of 
funds authorized for set-asides by the Appropriations Act; and (3) 
shortfalls, if any, in other programs which share the Annual 
Contributions Account with the Modernization Program. Once the adjusted 
total appropriation for the Modernization Program is determined, then 
the Department is able to run the modernization formula, which 
determines the allocation of funds between the CIAP and CGP, as well as 
the formula amounts for CGP HAs. However, HUD still anticipates that 
HAs will have access to their formula amounts earlier in the FFY since 
only one formula amount will be provided.
Basis for Appeals
    Comment: Commenters also indicated a need for a full explanation of 
the calculation of formula amounts announced each year by HUD to 
determine if they have a valid basis for appeal. Currently, HUD issues 
virtually no information on how the amounts are calculated from year to 
year, other than the formula characteristics which HUD uses as input to 
the formula. Commenters requested that HUD provide a simplified 
explanation to all HAs, including such factors as any set-asides HUD is 
making each year off the top of the modernization, the R.S. Means or 
other factors HUD is using to adjust local allocation levels, and any 
deductions HUD is making against the HA's allocation.
    Response: HUD intends to prepare a Notice each FFY that explains 
any modernization set-asides, deductions and carry-over funds and the 
amount of funds allocated to the CIAP and the CGP. HUD will also 
provide information relative to the R.S. Means Index used for that FFY. 
The formula characteristics data used to calculate the formula amount 
will be transmitted to the HA with its formula amount.
Appeals
    Comment: HUD gives HAs 30 days to review and advise HUD of errors 
in the FCR. It does not specify the calculation of the 30 days. It is 
recommended that the regulation be redrafted to state ``30 days from 
the HA's receipt to review and advise HUD of errors'' because of 
previous delays (e.g., up to 15 days before HAs received this year's 
report).
    Currently, the appeal of a HA's annual formula allocation can only 
be based on unique circumstances. HAs suggest that this is 
inappropriate and should be changed, but they realized that this would 
require a statutory amendment. HAs want to be able to appeal their 
allocation if it is based on calculations that inaccurately represent a 
HA's real modernization needs.
    It was also noted that the increase in the amount of time a HA has 
to appeal based upon error from 30 to 60 days equalizes the HUD-HA 
partnership for appeals based both on error and unique circumstances. 
However, if HAs do not file within the time period, they forfeit their 
appeal rights. In the spirit of true partnership, it was suggested that 
if HUD fails to respond to an appeal in either situation within 60 
days, HUD should forfeit its right to reject the appeal. Further, they 
stated that this would only be effective and fair if HUD officials do 
not automatically disapprove an appeal in order to extend the time 
period.
    Response: HUD acknowledges past difficulty in ensuring that HAs had 
a full 30 days to review and return the FCR. It would be difficult to 
track a HA's receipt of the FCR on an individual basis, and there is a 
need for a fixed time for HAs to respond. Because the data changes 
little on an annual basis, HA review time should be minimal. As 
previously noted, HUD will send out the FCR prior to the end of the 
FFY, (e.g., mid-August), and HA responses will not be due until after 
October 1. In addition, HUD has revised the regulation to provide that 
the HA will have at least 30 days to review and correct errors in the 
FCR.
    Although the commenters recognized that a statutory amendment would 
be necessary to allow other bases for appeals of the annual formula 
allocation, HUD would like to point out that the formula is based on 
data collected from a major study of the modernization needs of public 
and Indian housing agencies. This formula is being used because the 
modernization needs study could not provide statistically valid data on 
modernization needs for every HA. The formula by its nature cannot be 
completely accurate in estimating the needs at each HA participating in 
the CGP, but does provide for a reliable source of funds to all 
participating HAs. HAs should also recognize that, because this formula 
funds on the basis of relative needs of HAs, a successful appeal by one 
HA results in the reduction of formula allocations to all other HAs.
    HAs are also advised that the appeals no longer have an extra layer 
of HUD review. The review and approval of appeals on the basis of error 
in data and of the reduced formula because a PHA is mod-troubled have 
been delegated to the Field Offices, and this should facilitate HUD's 
responding to those appeals within the 60-day time frame. The approval 
of appeals on the basis of unique circumstances will be approved at the 
Headquarter's level following review at the Field Office level. The 
review at the Regional Office level has been eliminated. Therefore, HUD 
has not adopted the suggestion that an appeal is considered approved if 
HUD does not approve/disapprove within 60 days.
Reallocation of Funds Withheld From Mod-Troubled HAs
    Comment: One commenter noted that HUD should be more aggressive in 
recapturing CGP and CIAP funding which has not been obligated or 
expended in a timely manner and should also be more aggressive about 
reallocating CGP funding withheld from mod-troubled HAs. It was urged 
that these funds should be reallocated in a timely fashion to HAs who 
have proven that they can obligate and expend the funds in a timely 
fashion. Commenters were concerned that FFY 1995 CGP funding would be 
reduced for all HAs because of the amount of unobligated and unexpended 
funds. Instead, they suggested that HUD add recaptured and reallocated 
funds to new congressional appropriations to put the money where it 
will get utilized. HAs indicated that it was unfair to penalize high 
performing HAs because some HAs have been negligent in obligating and 
expending their funds.
    Response: The commenter should note that section 14 of the Act, as 
amended, provides the methodology and eligibility for the reallocation 
of funds. The Act also establishes a credit system to provide a HA with 
additional funding after the HA is determined to be no longer mod-
troubled, to compensate for amounts not received because of the mod-
troubled designation.
    The Department views the recapture of funds from a HA as a last 
resort since recapture adversely impacts on the residents who have to 
continue to live in housing which needs rehabilitation. HUD staff is 
directed to exhaust all other means of technical assistance, including 
requiring alternative oversight by a third party, to help HAs obligate 
and expend funds. However, where such assistance does not work, HUD 
will recapture funds.
    In response to the concern regarding possible reduction in CGP 
funding, HUD has amended its FY 1995 budget request to increase by $100 
million funding for modernization up to $2.9 billion.
Obligation of Formula Funding
    Comment: Most commenters agreed with the concept of fungibility of 
work items to promote expenditure of oldest funds first and recommended 
various ways that HUD could further speed up the process. First, to 
speed the flow of funds in the modernization pipeline, HUD should 
substantially speed up HUD's own release of the modernization funds 
each year. The commenters believed that most HAs do not get a funding 
reservation until late summer each year. HUD should be able to make 
each year's new funding under CGP available to the HAs by no later than 
March 1. Commenters disagreed that the two-year obligation period 
should begin with the ACC amendment. HAs stated that it can take up to 
15 months to receive the ACC amendment. HUD was asked to improve its 
performance in this area or continue to allow a five-year period. 
Allowing a five-year period would give HAs maximum flexibility in 
scheduling modernization work. It was suggested that HUD's role should 
be limited to monitoring PHA progress through the P&E Report.
    Response: HUD disagrees that it will take up to 15 months for HAs 
to have an executed ACC amendment and receive funds. HUD has 
streamlined the ACC amendment process. As noted in Notice PIH 94-13 
(entitled Expediting Obligation/Expenditure of Modernization Funds in 
the Pipeline, issued April 6, 1994), the ACC amendment is prepared by 
Field Office program staff, reviewed by the HUD Field Counsel and 
forwarded to the HA for signature. Unless required by State or local 
law or the HA by-laws, the Executive Director is permitted to sign and 
return the ACC amendment without a Board Resolution. HAs are encouraged 
to consider amending their by-laws (where permitted under law) so that 
a Board Resolution is not required or, if a Board Meeting is not 
imminent, the HA may consider conducting a telephone Board Meeting to 
authorize the signing of the ACC amendment. After ACC amendment, the 
Field Office should spread the budget line items in the Line of Credit 
Control System/Voice Response System (LOCCS/VRS) as quickly as 
possible. As to the need to speed up the provision of funds to HAs, HUD 
has made significant progress in this regard, and in fact, advised HAs 
of their funding amount in February of this year. It is anticipated 
that additional progress will be made and access to funds will occur 
even earlier in the FFY since HUD will provide only one formula amount 
and the Formula Characteristics Report for the next FFY will be sent 
out for review and validation prior to the end of the current FFY.
    HUD must again emphasize that there is no mandatory two-year 
obligation period, three-year expenditure period, or 5-year statutory 
limit for spending funds approved in a particular FFY. Generally, HUD 
expects that funds allocated in a FFY will be obligated within two 
years and expended within three years of approval unless a longer 
implementation schedule is approved by HUD. The HA has responsibility 
for establishing its implementation schedule, as part of its Annual 
Statement. In instances where it is unreasonable for a HA to meet the 
two year-three year expectation for obligation and expenditure of 
funds, e.g., size of grant, complexity of the work, the HA may propose 
a schedule of longer duration. Also, as previously noted, the HA may 
self-execute a time extension of the approved implementation schedule 
for reasons outside of its control.
    HUD plans to speed up release of modernization funds to the extent 
possible. However, HUD disagrees that this affects the modernization 
pipeline and suggests that addressing the pipeline is a reprogramming 
issue. For additional guidance on the issue of reprogramming, see 
Notice PIH 94-13.
    Comment: Another area commented on as causing delay in the 
obligation of formula funding is the LOCCS/VRS automated draw-down 
mechanism. Problems include systemic problems such as having to draw 
equal monthly amounts as well as persistent problems with errors by 
Field Office staff in placing edits on accounts and not removing them 
in a timely fashion. Reports were received indicating that some Field 
Office staff do not agree with the expedited policies and deliberately 
delay the process.
    Response: This system is new and monitoring its use is essential. 
To the extent that adjustments are needed in its administration, they 
will be made. Other LOCCS/VRS issues are discussed below under the 
heading ``Miscellaneous Issues.''
    Comment: It was recommended that the obligation requirements should 
be made consistent with the annual submission section which allows a HA 
to self-execute an extension when delays are out of its control. HUD 
was cautioned that while on the surface accelerating the program's 
implementation schedule for obligating and expending funds would 
suggest a quicker utilization of these dollars, such an acceleration 
without a transition period or a recognition of the needs of larger HAs 
would likely result in either schedules not being met or those dollars 
being poorly utilized. They noted that HAs are still shifting their 
modernization operations from one based on the CIAP to one based on 
CGP. HUD was urged to review and alter other regulatory standards or 
work practices as the mechanism for accelerating the usage of Federal 
modernization dollars.
    Response: HUD again notes that the obligation time-frame is a 
general rule. If a HA can demonstrate that a longer obligation 
timeframe is warranted, HUD may initially approve a time period longer 
than two years, and subsequently, a HA may extend the approved 
implementation schedule if there are reasons outside of its control, as 
long as the extension is made in a timely manner.
    Comment: One HA noted that HUD's proposal was reasonable except for 
FFY 92 and FFY 93. In those years their plans included making 504 
accessibility improvements, assessment and removal of lead-based paint, 
and capital improvements required as the result of deferred maintenance 
and inadequate previous years funding under their operating budget and 
CIAP. It was recommended that the changes under proposed rule for 
obligating funds not be retroactive to FFYs 92-94.
    Response: This obligation guideline will now appear in the 
regulation and continues to be a guideline. Approved implementation 
schedules for FFYs 92 and 93 are not disturbed and remain in effect 
until amended. In general, HUD expects that funds allocated in a FFY 
will be obligated within two years and expended within three years of 
approval.
    Comment: Another HA asked that changes to the time frames reflect 
the particular needs of HAs with over 10,000 units. For these large 
authorities, it was suggested that the time frames should remain as 
they currently are.
    Response: HUD disagrees that a longer period is needed for larger 
HAs. HUD recognizes the concerns of the New York City Housing Authority 
(NYCHA) and other HAs with over 10,000 units. HUD wants to point out 
that section 14 of the Act does not differentiate between the types of 
submissions to be made by HAs participating in the CGP due to their 
size. Nevertheless, HUD believes that the NYCHA and other large HAs 
will be benefitted, along with all other HAs participating in the CGP, 
as a result of the simplified requirements contained in this final 
rule.
    Comment: HAs also suggested that the way to improve expenditures is 
not to shorten the time but to make changes in HUD regulations 
including procurement, HUD oversight, pre-qualification of vendors, use 
of state and local government purchasing contracts, use of previous 
participation forms which would be valid for 2-3 years, training of HUD 
staff, expediting of Davis-Bacon issuances, and an increase in the 
administrative costs cap.
    Response: HUD will address these issues under the heading 
``Miscellaneous Issues'' below.
PHMAP Scores Relating to Obligation and Expenditure of Modernization 
Funds
    Comment: CLPHA mentioned in its comments that HAs on the average 
nationwide now spend 80% of their modernization funds within 3.25 years 
from the time they receive their ACC amendment. In a large proportion 
of cases, the remaining 20% of the funds are held up for a variety of 
reasons beyond the control of the HA (e.g., unsatisfactory performance 
by contractors, litigation, unforeseen problems with lead-based paint, 
asbestos, other hazardous materials or site problems). CLPHA 
recommended that PHA's PHMAP scores be based on the time it take them 
to obligate or expend 80% of their modernization money, since this is 
much more within the control of the PHA. Another commenter objected to 
the all or nothing bases of PHMAP. Although no suggestions were made, 
the PHA suggested as an overall recommendation that a PHA's performance 
be based on whether they have accomplished the scope of work stated in 
their work plan as opposed to whether they have residuals resulting 
from this plan.
    Response: HUD has referred these comments to the PHMAP working 
group for consideration in the development of a revised PHMAP rule. If 
a HA can demonstrate that a longer implementation schedule is 
necessary, e.g., size of grant, complexity of work, HUD may approve a 
schedule that exceeds the National guideline. PHMAP is based on whether 
they are performing under the HUD-approved or extended schedule.
Alternative Management Strategy
    Comment: While commmenters appreciated the mechanism of a prior 
corrective action order with appeal rights that the proposed rule 
offers, the parameters were found to be too vague. The following 
improvements were suggested: (a) Prior to imposition of this penalty, 
the agency must have been declared mod-troubled for at least one year; 
(b) The mod-troubled authority must be failing to meet the objectives 
set forth in its Memorandum of Agreement; and (c) At least six months 
prior to imposing the penalty, a team consisting of HUD personnel and 
better performing CGP agencies should be sent to the affected authority 
to try to assist the agency in getting its program in order. Some 
commenters agreed that a HUD alternative management strategy may be 
imposed as long as the HA is given a voice in the strategy.
    Response: The comments present a rather rigid structure. HUD 
prefers to work with the HAs on a case-by-case basis and tailor its 
technical assistance to HAs based on their specific needs before 
requiring an alternative strategy. HUD would only require alternative 
management by a third party after a corrective action order had been 
issued and the HA failed to comply with the order. Examples of 
technical assistance that may be provided include but are not limited 
to:
    1. Helping the HA with budget revisions that will use the oldest 
funds first by substituting work items which are ready to go to 
contract award;
    2. Working with the HA to acquire in-house capability for managing 
the modernization program, including hiring additional staff or staff 
training, or requiring alternative oversight of the modernization 
program through contracting with another entity for oversight;
    3. Facilitating the sharing of information and cross-training among 
HAs, such as arranging for a HA with problems obligating funds to 
receive assistance from a HA that is a high performer in this area; and
    4. Training the HA on the use of an indefinite quantity A/E 
contract or the issuance of a solicitation to procure a pool of 
qualified A/E firms, rather than just one firm, to provide services, as 
a means to contract quickly for critical services in a timely manner.

Secs. 905.672 and 968.320  Comprehensive Plan (Including Five-Year 
Action Plan)

Notice of Submission Date
    Comment: It was proposed that HUD shall notify HAs of the requested 
date for submitting or updating a Comprehensive Plan. For planning 
purposes, HAs may use the amount they received under CGP in the prior 
year in developing their Comprehensive Plan or they may wait for the 
annual HUD notification of formula amount. One commenter conditionally 
supported this proposal, and explained that without the formula amount, 
forms cannot be completely or accurately filled out. If there is a 
major change in the formula amount, the planning and meetings with 
residents, staff, architects, governmental agencies would have to be 
repeated. While the proposal may help, it was noted that it has the 
potential to also do a lot of harm by creating more work and putting a 
HA into a very awkward and damaging position with staff, residents and 
local agencies. IHA commenters were in favor of these changes. One 
commenter objected to the removal of the 30-day notice for resident 
groups upon HUD's indication of the estimated funding level.
    Response: A HA has the option to prepare its Comprehensive Plan/
Annual Statement based on funding received in the prior year and make 
adjustments before submission to HUD if the same amount of funding is 
not provided in the current year or the HA can wait for the actual 
formula amounts before preparing its submission. HUD has retained the 
proposed provision, and notes that with one formula amount, any 
difference between a presumptive estimate and a final formula amount is 
eliminated. The accelerated approach which is optional, may use a 
dollar amount for planning purposes, i.e., last FFY's final formula 
amount, that is different from the actual formula amount for the 
current FFY. If there are problems associated with that approach, the 
HA may continue to use the old approach (i.e., the HA could wait for 
the actual formula amount, before planning for the current year). In 
any event, a HA's Annual Submission must be received in the Field 
Office no later than July 15 each year in order to allow for the 75-day 
review period before the end of the FFY. Since HUD will no longer 
provide an estimated formula amount, HUD has eliminated the requirement 
for the initial notice. The level of detail and the format for the 
public notice has been left to local discretion.
Public Notice
    Comment: HUD proposed to expand the public notice requirements. HAs 
were to provide public notice of the advance meeting and the public 
hearing in a manner determined by the HA and which ensures notice to 
all duly elected resident councils. The information to be provided in 
the public notice was also to be expanded to include a summary of 
activities of the previous year and progress update, estimated funding 
level, summary of CGP requirements, the estimated time frames for 
completion of the required CGP documents and the requirement for 
resident participation in the planning, development and monitoring of 
modernization activities under the CGP. In order to reach a much 
broader public, HAs stated that they would have to use means beyond 
mailings to current residents. Commenters objected to the use of media 
such as newspapers, radio and TV because it would greatly increase the 
cost to the HA, and HUD should allow an increase in the allowable 
administrative costs to cover the additional expense. For the public at 
large, it was suggested that the HAs state that the required 
information is available for inspection at various locations. 
Presenting a draft P&E Report for all active funding years would 
increase the HA's administrative burden. A simplified summary of active 
modernization projects and management improvements in a format to be 
determined by the HA was suggested as sufficient for this stage of the 
process.
    Other commenters found an improvement in the timing and manner of 
the notice, but also questioned the level of detail. The listed details 
were thought to be more appropriate for the resident meetings and 
public hearings and the notice should properly indicate that these 
details will be presented during these forums. Large HAs found there is 
no way to simply summarize this information because any summary's level 
of detail would be so broad that the report would be meaningless. It 
was also said to be impossible to summarize large HA's activities and 
progress on hundreds of contracts representing hundreds of millions of 
dollars in contract work on any HA-wide notice. HAs requested the 
discretion to provide such detail where feasible and appropriate. 
Recommended information in resident letters would include basic 
information (i.e., level of funding and the time and place of the 
advance meeting) with the understanding that additional information is 
available upon request at the HA's management office.
    Response: HUD has revised the public notice provision. HAs have the 
discretion to decide the level of detail and format of the public 
notice. HUD is not specifying the information to be included in the 
public notice. Public notice related costs are eligible administrative 
costs.
Advance Meetings
    Comment: HUD proposed that the HA shall hold, within a reasonable 
amount of time before the public hearing, an advance meeting for 
residents and duly elected resident councils at which the HA shall 
explain the components of the Comprehensive Plan. The meeting shall be 
open to all residents and duly elected resident councils. In addition, 
HUD requested comments as to resident consultation regarding changes to 
the Five-Year Action Plan.
    Most commenters agreed that the timing of meetings with residents 
should be the decision of the HA. HUD was requested to clarify to HAs, 
residents and HUD Field Offices that the residents' role is to advise 
and not approve. It was stated that resident interest and concern are 
concentrated on the development in which they reside. Given the backlog 
of critical work that must be done, such as replacing leaking roofs and 
complying with HUD mandates, there is often considerable frustration 
about the inclusionary planning process when realistically there is not 
a lot of choice about what will be done. Another HA noticed that 
resident involvement has diminished since it began conducting advance 
meetings. One commenter objected to the removal of the three-week 
notification for a public hearing, following the advance meeting 
because they considered the current rule to be a reasonable minimum.
    Regarding resident consultation on changes to the Five-Year Action 
Plan, NAHRO suggested there is no need for a dollar threshold 
nationwide. Each HA has its own method in place for consultation with 
residents. HAs are currently notifying residents and their 
representatives and public officials about the CGP. They questioned 
what benefit further notification requirements would provide. One HA 
proposed written notification to resident council presidents with a 
meeting per local needs. They proposed to limit the definition of 
significant change to instances where a work item is deleted or 
postponed from the Five-Year Plan. Modifications resulting from a 
reprogramming of unobligated funds from a work item or in response to 
emergency needs should not be deemed as significant changes for 
resident consultation purposes. IHAs that commented suggested that this 
consultation should be at the discretion of each HA. For a threshold, 
they recommended that resident consultation would be in order when 
significant changes reach the cumulative total of 15% of the total 
grant amount.
    One commenter did not support putting the burden on the HA to 
create resident involvement. It was recommended that HUD should mandate 
that a minimum of one notice be given to residents of the HA's intent 
to apply for funds combined with a notice of one public hearing to 
solicit input.
    One commenter suggested that the proposed rule separates the 
planning process from the funding process, making resident 
participation in the former of little consequence to the latter. Tenant 
consultation would have no meaningful purpose. It was also suggested 
that this is inconsistent with the statute because HUD was fulfilling 
the resident consultation requirements simply by engaging tenants in 
abstract discussions of modernization concerns, unrelated to any 
particular year's funding decisions.
    Response: The final rule incorporates the proposed rule provisions. 
HUD strongly recommends open and full communication between the 
residents and the HA throughout the planning and funding process and 
believes that it is essential to achieve and sustain viable public and 
Indian housing. As requested by the comments, the timing of meetings 
with the residents should be at the discretion of the HA. HUD has 
decided not to impose thresholds on resident consultation for changes 
within the Five-Year Action Plan. Although resident council involvement 
is not required whenever work items are shifted within the Five-Year 
Action Plan, HUD believes that consultation is generally in the best 
interest of good relations between the HA and the residents. The degree 
of consultation should be consistent with the degree of change and that 
determination is at the discretion of the HA. HAs are encouraged to 
inform residents of significant changes. Except for emergencies, items 
which are not in the Five-Year Action Plan require resident 
consultation and HUD approval before being undertaken.
Public Hearing
    Comment: HUD proposed that HAs hold annually at least one public 
hearing and any appropriate number of additional hearings to ensure 
ample opportunity for residents, local government officials and other 
interested parties to express their priorities and concerns. HAs were 
to give full consideration to the comments and concerns of residents, 
local government officials, and other interested parties. NYCHA 
indicated that each year there are too many changes in their plans to 
detail at the public hearing. NYCHA urged PHAs to provide detailed 
resident notification, and the best vehicle for large PHAs to provide 
this notification is through Modernization and Maintenance Committee 
meetings at the development level.
    Additionally, it was commented that presenting a draft P&E Report 
for all active funding years would increase instead of decrease the HA 
administrative burden. The final report would need to prepared again in 
just a few months. Adding the P&E Reports to the agenda would compound 
the confusion in absorbing all this information during meetings. A 
simple summary of active modernization projects and management 
improvements would suffice for this stage of the process.
    Response: In the final rule, HUD has left the level of detail up to 
the HA. However, the HA is required to present information on the 
Comprehensive Plan/Annual Submission and progress of previously funded 
modernization programs. Development level meetings are acceptable, but 
not required. By statute, HAs must hold at least one public hearing. 
The number of additional meetings necessary is left to HA discretion.
Summaries
    Comment: As part of its Comprehensive Plan, a HA is required to 
prepare various summaries. Some commenters questioned the level of 
detail required. Rather than require less detail that would require 
more explanation after the fact, one HA suggested that the required 
level of detail should be such that HUD will be able to make its 
eligibility and environmental needs determination at the time of 
submission. PHADA suggested that the provision of work categories, 
quantity, and overall costs, as opposed to work items and individual 
costs, is a workable compromise. It was requested that the rule more 
clearly define the level of detail at this point.
    Another issue related to the level of detail was that because HUD 
proposes that the level of detail in the Annual Statement and Five-Year 
Action Plan be consistent, this would result in increased detail in the 
balance of the Five-Year Plan. It was found to be beneficial to use a 
consistent level of detail for all work, however a HA noted that the 
level of detail should be in sufficient detail to relay the scope of 
work and cost for all reports, i.e., the new Five-Year Plan and the P&E 
Report. A further breakdown of work items in the P&E Report would be an 
extraordinary administrative burden for HAs and contractors and would 
be of questionable value and accuracy. Detailed cost documentation 
exists in HA's files to support any work items that HUD would like to 
examine more closely.
    Response. HUD has adopted the recommendation that the level of 
detail be consistent in the Annual Statement, the Five-Year Action Plan 
and the P&E Report. The level of detail for physical work includes a 
description of major work categories, quantity and cost. The level of 
detail for administrative and management improvement costs must be 
sufficient enough for HUD to make a determination of eligibility. For 
example, the HA must describe training activities and how they relate 
to identified physical or management improvement needs.
    Comment: The combination of annual statements and five-year plans 
at Sec. 968.330 presented a statutory issue according to ACORN. ACORN 
argued that this contradicts section 14(e)(3)(A) of the Act, which sets 
forth the requirement of PHAs to produce an Annual Statement. Further, 
it was stated that this requirement is clearly distinct from the 
comprehensive needs assessment and action plan described in subsections 
(e)(l)(A) and (e)(l)(D). ACORN stated that the combination of the 
Annual Statement with the larger document will make interpretation of 
the single year's policymaking very difficult. Site-specific data for 
residents will become confusing. Since the Five-Year Action Plan and 
Annual Statement serve two distinct purposes, and since their merger 
will entail significant disadvantages in citizen participation, they 
argued that the two should remain separate.
    Response: It is not accurate to suggest that HUD has combined the 
Annual Statement and Five-Year Action Plan in a way that violates the 
Act. The information related to the Annual Statement and Five-Year 
Action Plan remain distinguishable. The work expected to be 
accomplished in each of the five years will be identified on a Work 
Statement for that year by major work categories. Requiring HAs to only 
describe a major work category with quantity and cost without 
specifying work items within a major work category is in keeping with 
the statutory intent of granting more flexibility to HAs and eases the 
transition to full five-year fungibility. The HA must continue to 
provide residents with the opportunity to review the Annual Statement 
and comment on it, and such comments must be taken into account in 
finalizing the Annual Statement prior to submission to HUD. Definitions 
of Annual Statement, Work Statements and Annual Submission have been 
added to the rule.
Level of Detail in Five-Year Action Plan vs. Performance and Evaluation 
Report (P&E Report)
    Comment: Numerous comments were received concerning the level of 
detail in the Annual Statement versus the level of detail in the P&E 
Report. Currently, the level of detail is the same in both documents; 
however, in the proposed rule, this provision was modified to require 
less detail in the Annual Statement and more detail in the P&E Report.
    One HA agreed with HUD's proposal to eliminate the current Annual 
Statement and Five-Year Action Plan and incorporate their information 
into a modified Five-Year Action Plan. They agreed that requiring HAs 
to describe a major work category with only quantity and cost without 
specifying work items is in keeping with the statutory intent of 
granting more flexibility to HAs and as such eases the transition to 
full five-year fungibility. However, they requested that HUD clarify 
the issue regarding ineligible costs in the Five-Year Action Plan. To 
further minimize major disagreements at the end of the process, CLPHA 
recommended that HUD should clearly spell out in advance any items 
which HUD will consider strictly ineligible. CLPHA urged that the list 
of ineligible items be shortened and that additional items be made 
specifically eligible under CGP.
    NAHR0 supported a five-year ``fungible'' approach to the CGP. 
However, NAHRO commented on the level of detail to be required in the 
new Five-Year Action Plan. NAHRO was concerned by HUD's statement on 
ineligible costs. It was found to give HAs the impression that when 
their P&E Reports are filed with the Field Offices, work items can be 
disallowed even if they are eligible expenses. In order for the Five-
Year Action Plan to be ``fungible'' the actual details of how the funds 
were spent should be included at the end of the year, not at the 
beginning, in the Annual Submission. Both Field Offices and HAs should 
be familiar with eligibility of work items and guidance to both groups 
about eligible costs should be clear. However, NAHRO did not want Field 
Offices to believe that they can disallow eligible items. According to 
NAHRO, fungibility should allow the HA to decide what items they will 
do and where.
    Four IHAs indicated satisfaction with the guidance on eligible and 
ineligible costs, but noted that if HUD expands and or clarify these 
lists, they suggest that IHA's should be included in developing such 
lists in light of their unique modernization needs and differences from 
PHAs.
    Two commenters questioned HUD's proposal that if the HA performs a 
work item that HUD will not be able to determine if it was an eligible 
work item, then HA's would have to repay ineligible costs discovered 
during review of the P&E Report. It was suggested that this procedure 
could permit HUD to fail to properly review and then seek denial of 
funds or reimbursement later. A better approach is for HUD to have 
sufficient detail in the Annual Statement in order to make an 
eligibility determination up-front. This eliminates any question of how 
the HA should proceed. HUD still has the authority to deny funds or 
seek reimbursement from the HA that has clearly performed ineligible 
work. The HA did not support the Five-Year Action Plan minimal level of 
detail and the resulting discretion by HUD to seek reimbursement for 
ineligible costs. Another suggested approach was to reduce the agency's 
future CGP amount to recoup the ineligible expenditure.
    CLPHA disagreed with the level of detail being proposed for the 
Five-Year Action Plan and for the P&E Report. They suggested that in 
the Five-Year Action Plan, references to quantities be eliminated and 
that the ``major work category'' along with a general description be 
considered acceptable. They acknowledged that PHAs must plan in detail, 
and HUD could require them to maintain documentation in their files to 
support the work activities proposed. CLPHA indicated that it would be 
desirable to keep the detail in the P&E statements no greater than in 
the Five-Year Action Plan. A further breakdown of work items in the P&E 
Report would be a heavy administrative burden for PHAs and contractors, 
and would be of questionable value and accuracy. For purposes of 
audits, HUD could reasonably require a PHA to keep detailed cost 
documentation in its files, to support any work items that HUD would 
like to examine more closely.
    They considered the Two-Year Application a better option for 
reducing paperwork and the burden of review. The HA supported the 
current level of detail required by the Annual Statement and Five-Year 
Action Plan versus the proposed Five-Year Action Plan with one level of 
detail.
    Several comments regarding the P&E Report were mentioned and 
responded to above. The level of detail was the greatest concern. One 
commenter noted that the proposed amendments will require them to 
develop the annual P&E Report in greater detail to cover a lack of 
detail in the Five-Year Action Plan. Generally, they had been moving 
from more detail in the Physical Needs Assessment to lesser detail in 
their Annual P&E Report. They wished to continue this practice. They 
also hoped that HUD would continue to allow HA's to develop facsimiles 
of required HUD forms for the CGP that work better with their housing 
stock while allowing them to work on the forms in spreadsheet format.
    To satisfy the proposed rule, one commenter thought it would have 
to keep two sets of records (one to prepare the limited detail of the 
Five-Year Action Plan and another to write the P&E Report). This change 
was found to not result in any real saving of time or effort for HUD. 
It may reduce by, at most, two months the up-front processing time 
reviewing HA submissions; however, HUD would still have to review each 
HA's P&E Report in detail for line-item eligibility. It was proposed 
that if it is beneficial for a HA to keep the current level of detail 
in its submitted plans and P&E Report, it should be able to do so. They 
suggested the following amendment: ``The Work Statement for all five 
years will be, at least, at the current level of detail so that the HA 
may interchange work items as discussed in Sec. 968.320(d)(5)(i).'' 
Adding any additional post-program review and evaluation was not found 
to be in the spirit of providing HAs with regulatory relief. The time 
saved up-front is not worth the additional time spent responding to 
audits later on.
    Commenters recommended combining the two processes (P&E Report and 
Annual Submission of Activities and Expenditures) into one. One HA also 
requested that HAs not be burdened with generating resident interest in 
the preparation of this report.
    Response: In order to permit full fungibility of work items in the 
Five-Year Action Plan, the level of detail with regard to work items 
must be consistent in all five years. HUD proposed limiting the level 
of detail up-front to reduce administrative burden to HAs. It was 
further proposed that HAs provide additional detail in the P&E Report 
for purposes of determining eligibility. However, after reviewing the 
comments, HUD agrees that the level of detail should be consistent in 
the Annual Statement, the Five-Year Action Plan and the P&E Report. 
Also, in keeping with HUD's commitment to simplify the CGP and provide 
maximum flexibility wherever possible, HUD has streamlined the level of 
detail that must be provided. The rule now requires HAs to specify 
major work categories, quantities and costs. For example, 100 kitchens 
at Development X for a total of $100,000. The level of detail for 
administrative and management improvement costs must be sufficient 
enough for HUD to make a determination of eligibility. HUD already may 
request additional information (e.g., for eligibility determinations) 
to facilitate review and approval of the Annual Submission during the 
75-day review period. HUD notes that HAs have the responsibility for 
ensuring that only eligible modernization work items are charged to the 
CGP. As previously noted, work items, including the purchase of 
equipment, must be directly related to carrying out physical and 
management improvements identified in the Needs Assessments. Such work 
must be modest in design and cost, but still blend in with the design 
and architecture of the surrounding community. HAs are advised to keep 
supporting documentation relative to work items within the major work 
category for monitoring and auditing purposes and such information must 
be made available to HUD upon request.
    HUD wishes to maintain a partnership with HAs throughout the CGP 
process and minimize concerns regarding the eligibility of work items. 
Eligible work items include those which are modest in design and cost, 
but still blend in with the design and architecture of the surrounding 
communities by including amenities, quality materials and design and 
landscaping features that are customary for the locality and culture. 
However, if a HA has a question on the possible eligibility of a work 
item, it should consult with the Field Office. Should a HA expend funds 
for ineligible work items, HUD will require repayment.
    HAs may develop facsimiles of required HUD forms as long as they 
contain all of the required information in a format that reasonably 
approximates the actual format.
Demonstration of Long-Term Physical and Social Viability Cost 
Reasonableness and TDC
    Comment: Generally, IHAs supported retaining TDC while HAs 
preferred other methods. One PHA supported the current method of TDC 
and the 90% requirement. However, the PHA suggested that, HAs have the 
option to use CGP funds to supplement other funds to demo and replace 
units where that option is most advantageous to HUD and the HA. Thus, 
if the HA intends to modernize a project at 80% of TDC, it should have 
the option to add 20% of other funding to demolish and rebuild the 
complex. This option could require review and approval by HUD, and the 
Public Hearing and Resident Group review.
    Commenters noted that often, the HA spends an inordinate amount of 
time after the architect develops the plans and specifications trying 
to determine how or what should be cut from the minimum to construct 
the development. We should be striving for quality not a specific 
quantity.
    Commenters were pleased with the proposed new way of evaluating 
cost reasonableness, namely by evaluating the costs of individual types 
of work items and comparing them with published private construction 
cost standards. CLPHA recommended that a PHA be allowed to demonstrate 
cost reasonableness under any of the three following methods: (a) The 
current approach using 90% of TDCs; (b) the cost reasonableness 
approach related to the cost of individual work proposed by HUD in the 
proposed rule, but also allowing PHAs to submit additional data 
concerning local market conditions as they relate to published cost 
indicators; or (c) sealed pre-bid estimates to be compared to the 
competitive bids received for such work. Once approved, the definition 
used by the PHA would remain constant.
    Another commenter suggested that HUD should allow HAs to develop 
their own methods of determining the cost reasonableness of planned 
work. These cost evaluations should not be submitted to HUD on an 
annual basis and should not have to be retained by HAs for HUD review. 
The time and cost of generating this kind of data in a form suitable 
for HUD audit could be significant. Pre-bid estimates and competitive 
bids received for work should be adequate to document the 
reasonableness of cost for work items. HUD was urged to use a 
sufficiently expansive definition of reasonable cost to permit HAs to 
utilize very durable materials and construction techniques and revised 
modernization standards critical to ensuring a development's long-term 
viability. HUD was also urged to implement a similar standard for its 
development program. In particular, development cost must: (a) Be more 
reflective of local and changing conditions; (b) expand beyond the 
modest design standards; and (c) provide adequate square footage for 
today's family needs.
    NAHRO recommended that the reasonable cost determinations still be 
compared to the cost of new development. They also suggested a 
viability assessment must allow both approaches, a cumulative approach, 
such as a comparison of the total cost of modernization as compared to 
the total cost of new development or as the Department suggests, a cost 
reasonable test of the work items proposed.
    PHADA applauded the removal of the artificial TDC caps, but 
remained concerned about the level of detail PHAs will have to keep in 
their files and the form of the annual HUD review. Management choices 
are an essential part of this process and they were worried about some 
HUD personnel second-guessing authority decisions, thus leading to 
huge, unnecessary, battles. HUD was requested to clearly address the 
level of detail for filing in the handbook revisions. There was also an 
expressed need to prevent redundant files where work is publicly bid 
and selected architect/engineers provide cost estimates prior to 
bidding. No program benefit was found in further administrative 
procedures that do not impact construction quality or timeliness of 
expenditures.
    One PHA was concerned that if HUD does not establish a procedure it 
will be left to Field Office definition. The PHA suggested that local 
authorities be given the discretion to define reasonableness and have 
HUD approve the definition. Once approved, the definition would remain 
constant. The issue of cost reasonableness also illustrates the need 
for greater flexibility to do a cost analysis of rehabilitation of the 
existing units versus demolition and new construction. While a PHA does 
not want to see HUD reduce its responsibility to provide a steady 
funding source for new construction of public housing units, they 
believed that it is important to look at the cost reasonableness. The 
PHA was also seeking that the revised regulations permit this 
flexibility in scattered sites. It could be limited to specific units 
where the cost analysis demonstrated the cost-effectiveness and long-
term viability of new construction.
    Response: In the rule, HUD has clarified that long-term viability 
includes ensuring structural/system integrity and full occupancy. For 
cost reasonableness, HUD has decided that HAs may choose one of two 
methods to determine cost reasonableness: (1) unfunded modernization 
hard costs do not exceed 90% of computed TDC; or (2) individual work 
items are reasonable in accordance with National cost indices, adjusted 
by local conditions and the HA's own recent procurement experience.
Five-Year Fungibility
    Comment: All but one commenter supported HUD's proposed five-year 
fungibility. HAs found that full fungibility will allow HAs more 
flexibility to undertake and complete rehabilitation and modernization 
work at their housing developments. The elimination of the need for 
preparing amendments for HUD approval before work items may be 
interchanged from one year to another was predicted to save countless 
hours for both HAs and HUD Field Offices. While HAs wholeheartedly 
supported fungibility, some indicated a preference for it to be based 
on the Needs Assessments, rather than the Five-Year Action Plan. HAs 
stated a general principle that once a HA has established a need in 
their Needs Assessments, they would not have to request prior approval 
from HUD to fund that item. The condition of a development's physical 
plant can change dramatically from one year to the next. HAs, not HUD, 
were found to be in a better position to decide what work items need to 
be funded and when. Any extra level of approval was seen as not keeping 
with HUD's goal of increasing HA discretion and responsibility. It was 
also asserted that this would enable HAs to better and more rapidly 
address changing conditions without an extensive, interim public and 
HUD review process. Such reviews were considered more appropriate at 
the annual submission and performance and evaluation stages of the CGP. 
However, some HAs and CLPHA opposed the proposed requirement for HUD 
approval of any item not included in the current five-year plan as 
unrealistic, overly restrictive and would negate the benefits intended 
by full fungibility. Preparing budget revision proposals and the 
turnaround time involved in seeking HUD approval could result in 
project delays. With the increased emphasis for timely obligation and 
expenditure of funds, they were concerned that this restriction would 
make those goals more difficult to achieve. It was recommended that HAs 
should be able to add items to their current year modernization 
activities without HUD approval if these items are shown in their needs 
assessment (even if not included in the HA's Five-Year Action Plan), or 
are of similar type to items in their approved plan. HAs should also be 
able to add emergency items, or items certified by the HA as otherwise 
eligible and approvable, without further approval from HUD, provided 
that any items so added will not result in the deletion of any work 
item from the Five-Year Action Plan. Only if a HA proposes to delete an 
item from its Five-Year Action Plan should it have to notify HUD, or 
changes should be allowed for any item identified in an approved needs 
assessment up to a predetermined percentage cap.
    One HA supported the proposal to allow a HA to perform emergency 
work not outlined in its Five-Year Action Plan without prior HUD 
approval. As an incentive for high performers, one HA suggest that high 
performers should be allowed to not report on changes in excess of 10% 
of the grant other than on the yearly P&E Report, along with giving a 
reason for the change.
    Response: HUD has adopted the proposed version of fungibility. HUD 
has not revised its approach to be based on the Needs Assessments 
because it would be too broad and would circumvent the resident and 
local government consultation requirements. HAs are currently able to 
add emergency work items, and will continue to be able to do so without 
HUD approval. HAs cannot add other work items to the Five-Year Action 
Plan without HUD approval. Full fungibility will be allowed within the 
five-year period spanned by the latest HUD-approved Five-Year Action 
Plan. It should also be noted that the five-year fungibility eliminates 
the need to report on changes in excess of 10% of the annual grant 
other than on the yearly P&E Report.
Definition of Fungibility
    Comment: One commenter saw a need to define fungibility in the 
rule. The following definition of fungibility was proposed: 
``Fungibility. The ability to exchange CIAP or Comprehensive Grant 
program dollars or work items prospectively or retroactively, between 
any years covered by an ACC, Five-Year Action Plan or Needs 
Assessment.'' It was also noted that additional references to 
``fungibility'' should be altered to conform to this definition.
    Response: Fungibility is a concept reflected throughout the rule. 
Fungibility permits a HA to substitute any work item from the latest 
approved Five-Year Action Plan to any previously approved CIAP budget 
or CGP Annual Statement and to move work items among approved budgets 
without prior HUD approval. This definition of fungibility appears in 
the rule.
Retroactive Fungibility
    Comment: NYCHA indicated that applying fungibility only to those 
jobs included in the current Five-Year Action Plan is too restrictive. 
This HA wanted to be able to apply the fungibility principle to 
unobligated work items--past, present, or future (currently in either 
an approved implementation schedule or their needs assessment 
(including both CIAP and CGP-funded items)). By authorizing 
``retroactive fungibility'' in the CGP rule and with guidance in the 
Handbook, NYCHA expected a significant increase in PHA flexibility and 
responsiveness to modernization needs. NYCHA suggested that retroactive 
fungibility will allow a PHA to close out its older programs on 
schedule and will also aid in reprogramming underruns.
    With respect to the time period for the fungibility of work items, 
it was suggested that full fungibility should be allowed within the 
five-year period spanned by a Five-Year Action Plan's rolling base. If 
fungibility is tied to our initial Five-Year Action Plan (submitted in 
FFY 92), they expected to move work items from FFY 96 into their FFY 94 
CGP budget, but not items from FFY 97. If fungibility is tied to the 
rolling base Five-Year Action Plan, developed each year by dropping off 
the initial year and adding a subsequent year for their Annual 
Submission, they could move work items from FFY 98 into their FFY 94 
CGP budget. Another commenter found it would be much simpler to have a 
fixed five-year period with changes and updates made annually to that 
plan. In the fifth year a new Five-Year Action Plan for the next five 
years would be submitted and approved. This HA found a lot of 
difficulty in trying to explain to residents that the first year of the 
1993 budget was the same as the second year of the 1992 budget but that 
they were different because some items had been revised or changed.
    Response: HUD does not agree with the suggestions that fungibility 
should apply to all unobligated work items and any work items in the 
Needs Assessment. If HUD permitted the use of the Needs Assessments for 
purposes of fungibility, the five-year planning and resident 
partnership processes could be circumvented. The Five-Year Action Plan 
has a rolling base and is updated annually. The approval of the Five-
Year Action Plan submitted for the current FFY supersedes other 
previously approved Five-Year Action Plans. For example, the current 
Five-Year Action Plan may cover FFYs 1994-1998. However, a HA may 
substitute a major work category from the latest approved Five-Year 
Action Plan into a 1992 CGP or a 1991 CIAP budget, but it cannot 
substitute work that only appears in the Needs Assessments.
    It should be clarified that HUD approval is not required for moving 
previously approved work among previously approved budgets. In 
addition, HUD approval is not required for reprogramming if funds 
remain after completion of a work item where the funds will be used for 
any item in the latest approved Five-Year Action Plan or an approved 
CIAP budget or Annual Statement. The HA may also self-execute a time 
extension, if necessary, to use the leftover funds.
Post-Obligation Fungibility of Dollars
    Comment: In the proposed rule, fungibility centers on the 
interchangeability of work items between funding programs prior to 
obligation. However, for one large HA, fungibility of dollars during 
the expenditure period would be just as useful. Numerous circumstances 
beyond a PHA's control can make it impossible to close a contract, and 
with it the funding program, within the five-year statutory limit. When 
such circumstances occur, the monies remaining in a funding program 
about to expire should be used for payments on contracts in later 
funding programs. In a sense, PHAs would be creating post-award, 
``split funded'' contracts. Fungibility of dollars is the expenditure 
version of using old money first.
    Post-obligation fungibility of contract dollars would allow PHAs to 
closeout old funding programs within the five-year funding deadline and 
would yield a more accurate picture of the PHAs ability to expend 
modernization funds. The rule should provide directly for post-
obligation fungibility, and this important subject should not be left 
for handbook interpretation, as suggested in the proposed rule's 
preamble.
    Response: As previously noted, there is no statutory five-year 
funding deadline. HUD wishes to emphasize that fungibility relates to 
major work categories, not dollars. The dollars approved in a 
particular grant, e.g., 701, are tracked against that grant number. A 
HA may fund work categories in total or in part from a particular 
grant. If the cost of a work category is in excess of the funds 
available in 701, the HA may charge up to the total amount of funds 
remaining in 701 and add that work category to another grant, e.g., 
702.
    The Department issued Notice PIH 94-13 (HA), Expediting Obligation/
Expenditure of Modernization Funds in the Pipeline, on April 6, 1994. 
HAs should refer to this Notice which specifically discusses methods 
which HAs may wish to use to obligate and expend their oldest 
modernization funds before charging work against newer programs.
Comprehensive Grant Process
    Comment: One commenter suggested a revised CGP process. It would 
require an approval process only every five years. The plan would be 
updated annually with changes made to reflect actual funding costs as 
tasks are completed, items added and/or deleted from the Plan or moved 
to different years. A new fifth year would not be added each year. Only 
new items added to the Plan would require HUD approval and interim year 
changes would require documented consultation with the tenants at a 
public meeting. PHAs could expend funds from any grant year against any 
item in the approved Plan. An example of a Plan was also provided.
    As previously mentioned only one commenter opposed the proposed 
fungibility provisions. They argued that this was an attempt to 
circumvent the statutory five-year planning requirements. They asserted 
that full fungibility is inconsistent with the Act because it violated 
the requirement of a schedule to prioritize work items during the Five-
Year Action Plan. The full fungibility was said to remove the scheduled 
order of the planning process. The second perceived inconsistency was 
the exemption of HAs from the amendment process outlined in the Act 
which describes how changes to the approved plan may be made. They 
interpreted the Act to require HAs to wait until their submission of an 
annual statement, with appropriate tenant consultation and public 
comment, before elements of the comprehensive plan are to be changed. 
It was also stated that full fungibility is bad public policy. The 
proposed rule gives HAs absolute discretion over modernization funds 
upon award. They found this to be an abdication of Federal 
responsibility. They asserted that this approach is also problematic 
because modernization is a troubled program with an enormous pipeline 
and an inability to impact the profound repair needs in public housing. 
HUD was charged with the failure of the modernization program due to 
its poor oversight and HA's weak management practices and financial 
operations.
    Response: HUD cannot change the comprehensive grant process to a 
once every five years submission process. The Act requires an Annual 
Statement. The Five-Year Action Plan is also a statutory requirement. 
Fungibility is not inconsistent with the Act. The Act provides that as 
long as the activities and expenditures are consistent with the 
approved plan, the HA shall have total discretion in expending 
assistance for any activity or work set forth in the plan. HAs are to 
certify that they have provided residents of the housing affected by 
the planned activities the opportunity to review the Annual Statement 
and comment on it, and that such comments have been taken into account 
in formulating the Annual Statement as submitted to the Secretary.
Needs Assessment
    Comment: One HA found the requirement to amend the Needs Assessment 
in order to perform work items not on that Needs Assessment to be 
redundant and of no value. The Needs Assessment's value was found in 
providing the residents and public overview information about the 
identified deficiencies of each site.
    Response: The Act requires that work items be included in a 
Comprehensive Plan or Annual Statement before modernization funds may 
be spent on the work items, except in the case of emergencies. The Act 
also provides that work items may not appear in the Annual Statement or 
Five-Year Action Plan unless the need for the work has been identified 
in the Physical or Management Needs Assessments. Therefore, this 
comment was not accepted because the Needs Assessments have to be 
amended to include new needs.
Six-Year Revision of Comprehensive Plan
    Comment: HAs and CLPHA objected to the requirement for submission 
of a totally new Comprehensive Plan in the sixth year of a HA's 
participation in the CGP, but suggested allowing HAs to keep updating 
the Five-Year Action Plan's rolling base so that it would continue 
indefinitely. Another comment was that the requirement for a 
development-by-development analysis of whether the improvements will 
(a) reasonably ensure the long-term viability of the development at a 
reasonable cost or (b) is necessary to maintain habitability until 
residents can be relocated does not accomplish any purpose. Another 
commenter suggested that HUD's inclusion of ``essential non-routine 
maintenance necessary to maintain habitability'' is good but requires 
further clarification (such as including routine maintenance costs that 
are excessively high as a direct result of the units' need for 
comprehensive modernization work).
    Response: HUD has retained the requirement for the submission of an 
updated Comprehensive Plan every sixth year. However, the submission 
requirements have been reduced by eliminating two components of the 
Executive Summary, which are the strategy statement and the statement 
regarding the HA's plans for developments funded for comprehensive 
modernization under CIAP. Therefore, the additional documents which 
must be submitted in the sixth year are: Summary of total preliminary 
estimated costs; description of the resident participation process and 
summary of general issues; and revised and updated Physical and 
Management Needs Assessments. The Five-Year Action Plan, which is also 
part of the Comprehensive Plan, must be submitted in any case. While 
HAs may elect to update annually the Physical and Management Needs 
Assessments by eliminating work already funded and adding newly 
identified work, there is no requirement for HAs to submit these 
updates to HUD. HAs are only required to submit updated Needs 
Assessments to HUD if they wish to undertake work which was not 
previously identified on the Needs Assessments. HUD feels that a 
completely updated Comprehensive Plan every sixth year will provide 
valuable information to both HUD and the public on how well the CGP is 
meeting HA needs, as well as the types and dollar estimates of unmet 
needs.
    The Act requires the development-by-development analysis of whether 
the improvements will reasonably ensure the long-term viability of the 
development at a reasonable cost. HUD has added the alternative of 
maintaining habitability where reasonable cost cannot be met and an 
interim period is needed to provide housing until relocation for the 
residents can be arranged. When providing ``essential non-routine 
maintenance necessary to maintain habitability'', a HA is required to 
do so in the most efficient and economical manner and within the 
eligibility guidelines of the CGP. Routine maintenance costs are 
ineligible. However, work items that would ordinarily be performed on a 
regular basis but have become substantial in scope because they have 
been put off, and involve expenditures that would otherwise materially 
distort the level trend of maintenance expenses are eligible CGP costs 
under the definition of nonroutine maintenance.

Secs. 905.675 and 968.325  Effect of HUD Approval of Comprehensive Plan

    Comment: Commenters supported the elimination of approval of 
amendments to the annual statement, but were confused by the mechanics 
in the process. Similar questions as previously raised above were 
expressed on the fungibility of work items between years and the 
requirement for HAs to consult to the extent practicable with residents 
on significant changes. One HA noted that based on their experience 
with HUD, the term practicable imposed an impossibly high standard of 
performance. The HA again requested that each HA should have the 
discretion to develop appropriate means of resident communications.
    Response: HAs have the responsibility to keep residents informed as 
they exercise fungibility. When a HA amends the Five-Year Action Plan 
by adding work not previously included, the HA is required to consult 
with residents and obtain HUD approval.

Secs. 905.678 and 968.330  Annual Submission of Activities and 
Expenditures

    Comment: Commenters raised the same issues on the annual submission 
procedures as they did for the Five-Year Action Plan and Comprehensive 
Plan. Most HAs agreed that they would prefer to develop their 
preliminary plans based upon the amount of money they had received in 
the prior year, and not finalize these plans until HUD announces the 
final amounts for the current year. The public notice, advance 
meetings, public hearing, and level of detail concerned many 
commenters. Commenters also suggested that either some parameters be 
defined regarding the time allotment for corrections or that some other 
mechanism be defined by which a HA may have recourse to unreasonable 
time constraints. Commenters supported the proposal authorizing HAs to 
self-execute an extension of target dates contained in the annual 
submission for fund obligation and expenditure when a delay outside of 
its control occurs. Penalties for missed target dates concerned the 
commenters. One HA suggested an option of a two-year application that 
eliminates one year of application. NAHRO suggested that the P&E Report 
be submitted at the same time as the annual submission of the Five-Year 
Action Plan.
    Commenters supported the proposal which requires only an annual 
report and its intent to involve HA residents. However, HUD was 
directed not to place a burden on HAs to create resident interest and 
councils. It was proposed that HUD should mandate that HAs make 
information available, and the methods and format should be left to 
local discretion. Only one hearing each year was recommended and 
advanced meetings were not needed because the residents should have 
been working on the plan and know what it contains. HUD was asked to 
develop a system by which it could certify that authorities with 
effective resident participation processes would not have to have an 
advance hearing.
    CLPHA agreed that HAs should be allowed the option of advance 
planning, to complete their annual updates before the final 
modernization awards are announced. However, they urged HUD not to 
require HAs to do this because local circumstances vary.
    Response: These comments have been addressed above. HUD again 
emphasizes that the Annual Statement is statutory. HUD reviews the P&E 
Report before approving the next year's submission in order to 
determine if corrective actions are needed. Therefore, NAHRO's 
suggestion for simultaneous submission could hinder early approval of 
the Annual Statement and access to funds. HAs must be accountable to 
the residents. There must be a partnership process which is documented. 
HAs must annually conduct both an advance meeting and a public hearing. 
The format has been left to HA discretion. Also, as previously 
mentioned, HUD is providing the option for advance planning.

Secs. 905.681 and 968.335  Conduct of Modernization Activities

    Comment: One commenter requested that HUD clarify the statement 
that ``the HA shall comply with requirements prescribed by HUD.'' They 
interpreted this to apply only to the process by which funds are 
requisitioned and not to the actual administration of the CGP program 
by a HA. Any other interpretation could allow HUD to take away the 
flexibility that was granted in other sections of the rule.
    Response: HUD wishes to clarify that the purpose of the above-
referenced statement is that there are other requirements regarding 
fund requisitions (through LOCCS/VRS) which are prescribed by HUD. 
Sections 905.681(b) and 968.335(b) only relate to fund requisitions.

Secs. 905.684 and 968.340  HA Performance and Evaluation Report

    Comment and Response: Several comments were raised regarding this 
report and have been responded to in other sections. See e.g., 
Contingency accounts, Obligation of Formula Funding, Public Notice, 
Summaries, Five-Year Fungibility, Level of Detail in Five-Year Action 
Plan vs. P&E Report, Annual Submission of Activities and Expenditures, 
and HUD Discretion.

Secs. 905.687 and 968.345  HUD review of HA Performance

    Comment: As previously mentioned in other comments, it was 
suggested that this section should also clarify timeliness. When 
referring to the obligation of funds, it was suggested that it should 
make reference to legitimate self-executed time extensions and also 
take into consideration any other delays that were outside of the HA's 
control.
    Response: Timeliness includes meeting HUD-approved implementation 
schedules, or HA-executed time extensions which are the result of 
delays beyond the control of the HA. HUD annually reviews these 
schedules and may review these schedules more frequently as needed.
    Comment: One commenter supported the proposal which continues the 
reduction of paperwork by requiring only an annual report, but did not 
support the creation of a Section 3 Annual Report.
    Response: Comments on Section 3 related issues are also found under 
the Miscellaneous Issues heading below.

Miscellaneous Issues

    Several comments were also received in response to HUD requests for 
specific comments in the preamble to the proposed rule. Additional 
comments were made on other topics and guidance provided in the 
preamble or comments which are not limited or covered by regulatory 
sections. These issues include HA discretion, LOCCS/VRS, space 
guidelines, environmental reviews, procurement procedures, HUD-2530 
Previous Participation, force account, Section 3, paperwork burden, 
consistent funding levels, ACC issues, contractor delays and wage rate 
issues, Consolidated Supply Program, HUD Assistance, including Handbook 
guidance and Field Office assistance, Section 504 issues, and CGP and 
MROP.
HUD Discretion
    Comment: Commenters emphasized that HAs should be given discretion, 
flexibility, responsibility and control of their CGPs. Changes to the 
CGP program should contribute to the greater discretion, flexibility, 
responsibility and control of the local HAs and their residents. HAs 
should maintain control over methods of working with and meeting with 
residents, determining and prioritizing needed improvements, 
determining the methods to accomplish these improvements, establishing 
budgets, generating bid documents, entering into contracts, and 
determining the clearest methods of providing HUD with required 
information such as comprehensive plans, annual submissions and P&E 
Reports.
    Response: HUD agrees, and this final rule supports HA discretion.
LOCCS/VRS
    The impact of LOCCS/VRS on the CGP program has been discussed 
above; however, additional miscellaneous comments were received which 
recommended various changes.
    Comment: Commenters recommended that HUD eliminate the thresholds 
for LOCCS/VRS because they found the threshold amounts are insufficient 
and result in Field Office review for approval. They found this is 
often time consuming and results in delays in payments and delays in 
fund expenditure. HAs favored eliminating the percentage limitations on 
monthly draw-downs. In addition, it was recommended that the eight 
percent draw-down limit be lifted for high performers. It was noted 
that because the modernization process results in low levels of 
expenditure during early design phases and high levels of expenditures 
when one or more construction contracts are in process, HAs have 
frequently exceeded the percentage limitation and delayed requesting 
funds or sought HUD approval to request additional funds.
    Response: LOCCS/VRS contains an edit limiting the total cumulative 
amount that any HA can draw down in a current month without triggering 
Field Office review. The limit is set forth as a percentage of the 
annual grant and varies by size of the annual grant (from 2 percent to 
8 percent). The Department is reevaluating these percentages to 
determine if they are overly restrictive and result in an excessive 
number of requisitions requiring Field Office review. If the Department 
finds this to be the case, the Department will adjust the percentages 
accordingly. However, it should be noted that Field Office review 
should not result in lengthy delays in payment. When a HA's voucher is 
flagged for review, the HA should immediately call the Field Office and 
explain the circumstances. Based on the HA's telephone explanation, the 
Field Office may decide to release the voucher or request additional 
documentation. Extensive documentation is not needed in most cases.
    Comment: HAs requested immediate access to funds via LOCCS once an 
amendment to the ACC is executed.
    Response: Once the ACC amendment is executed by HUD, the Field 
Office must enter the Budget Line Items (BLIs) into LOCCS/VRS before 
HAs may requisition funds. The Field Office may not enter the BLIs into 
LOCCS/VRS before the fund obligation (ACC amendment) is recorded in the 
Program Accounting System (PAS).
    Comment: One commenter opposed entering expended and obligated 
funds into LOCCS on a quarterly basis because it requires extensive 
research and data preparation as well as requiring more frequent budget 
revisions. A two-day turnaround on the supply of funds through the 
LOCCS was requested (currently it is three days). Full fungibility was 
also requested to be reflected in LOCCS.
    Response: The Department believes that obtaining quarterly 
information on obligations and expenditures is essential to monitoring 
implementation progress by HAs. This requirement should not be 
burdensome since HAs should be maintaining this information as part of 
their own financial systems and controls. The Department would like to 
point out that the need for budget revisions triggered by obligations 
and expenditures will be greatly diminished by the provision of 
fungibility.
    Comment: CLPHA advised HUD to meet with industry groups quickly, 
make a commitment to a specific deadline for changing the LOCCs system 
to accommodate five-year fungibility and in the interim, make some 
changes manually.
    Response: The Department has taken steps to revise the existing BLI 
edits in LOCCS/VRS to accommodate fungibility. Specifically, the 
existing soft edit of 110% will be removed for the following BLIs: 
1430, 1440, 1450, 1460, 1465, 1470, 1475, and 1495. In addition, the 
existing edits for BLIs 1408 and 1410 will be revised.
Space Guidelines
    Comment: Two commenters suggested changes regarding space 
guidelines. One PHA suggested that HUD should delete the maximum space 
guidelines for administrative, maintenance and community space. 
Instead, PHAs should determine the amount of space, the configuration 
of space and type of space appropriate based on the intended usage. The 
needs and usages of space were stated to vary widely and did not 
warrant an arbitrary imposition of a set square footage criteria. 
Providing space for service providers serving HA residents including 
community organizations, Head Start, early childhood education, parent 
education, English as a second language, medical clinics, food shelf, 
teen centers, drug elimination activities, employment and Section 3 
training, family self-sufficiency should be a high priority for use of 
these HUD funds.
    Response: Non-dwelling space standards are to be viewed as 
guidance, not mandatory. HAs may exceed the standards. However, the 
Department notes that modernization funds may be used only to provide 
space which is primarily for the benefit of the public housing 
residents.
    Comment: Another PHA suggested that HAs should have the ability to 
convert all existing non-dwelling space (whether previous dwelling 
space or not) into dwelling space. This ability could ease the unit 
loss impact of complying with Section 504 as well as address design 
deficiency conditions.
    Response: The CGP Handbook 7485.3 cites the extension of exterior 
walls to enlarge interior dwelling space or provide for physical 
accessibility as an ineligible work item. HUD has decided to revise its 
policy and to amend the regulations to allow the adding of dwelling 
space to existing units, including Mutual Help and Turnkey III units. 
However, it is noted that HAs are not required to exercise this option 
in order to meet 504 requirements. Modernization funds may not be used 
to construct or acquire additional public housing units. The HA may use 
its own funds to provide additional dwelling units, but without a 
reservation of development funds, such units will not be covered by the 
ACC and, therefore, not included in the operating subsidy calculation.
    Comment: HAs should be permitted to utilize CGP funds to convert 
studio units in elderly developments into one bedroom units as local 
conditions warrant.
    Response: Conversion of efficiencies or studio units into one-
bedroom units is an eligible modernization cost, with prior Field 
Office approval.
Environmental Reviews
    Comment: One comment was received which indicated that the proposal 
to require HUD conduct environmental reviews of all proposed activities 
in the Five-Year Action Plan should be a part of the burden on the HA 
to obtain an independent environmental analysis and submit it to HUD 
prior to modernization activities occurring. The commenter concluded 
that HUD did not have the travel funds nor the staff to do this type of 
review and suggested that HAs could hire and train residents out of 
management improvement funds to perform these reviews.
    Response: The Department is required by law to comply with the 
National Environmental Policy Act (NEPA) of 1969 and related 
environmental and historic preservation laws before approving funding 
for specific developments. The provision for fungibility of work within 
the entire Five-Year Action Plan means that the Department must make 
this determination on an annual basis for each development within the 
Five-Year Action Plan. This responsibility cannot be delegated to HAs. 
On April 11, 1994, S. 1299 became law, and added, among other things, a 
new Section 26 to the United States Housing Act of 1937, as amended. 
This new Section 26 authorizes the Department to designate a State or 
unit of general local government to assume the responsibilities for 
environmental review. The authorization for State and local governments 
to conduct such reviews continues a statutory precedent embodied in the 
legislation of other HUD programs. The delegations are limited to 
entities with general governmental powers to control development, land 
use, development standards and special mitigation requirements. HAs do 
not possess these powers and do not qualify for such delegations. In 
order to implement this new Section 26, the Department must issue 
regulations after consultation with the Council on Environmental 
Quality. Until those regulations are issued, the Department must 
continue to comply with NEPA and related environmental and historic 
preservation laws by undertaking the required reviews itself and cannot 
delegate any responsibilities to State or local governments. In 
addition, it should be noted that Field Offices are encouraged to 
maintain previously completed environmental reviews on file and update 
them as necessary when undertaking the required reviews.
Procurement Procedures
    Comments: A number of comments were made on HUD's discussion of 
procurement procedures in the preamble to the proposed rule. CLPHA 
indicated that PHAs have identified possible conflicts between 
comprehensive grant procurement procedures and the requirements of 
other HUD procurement rules. CLPHA recommended that HUD ask PHAs for 
recommendations in this area, then follow up to clarify these areas and 
provide PHAs with greater flexibility and consistency. One PHA wanted 
to see additional information addressing contract administration in the 
revised CGP Handbook. PHAs and CLPHA recommended an extensive review of 
procurement requirements to identify proper and appropriate ways to 
simplify or ease how HAs contract for work.
    Suggested items included establishing procedures for HAs to better 
utilize alternative procurement vehicles like state procurement, job 
order contracting, and a revived, modified HUD Consolidated Supply 
Program and accelerating the approval process of HUD Form 5230, the 
Previous Participation Certificate.
    A PHA suggested the use of competitive proposals and indicated that 
the seven percent administrative cost limit would not be required to be 
increased because it would be part of the contract cost. Another 
commenter disagreed and indicated that this method was not successful 
for development of public housing units and would not be appropriate 
for modernization except on a small scale at a limited number of HAs.
    HUD's clarification on the use of indefinite quantity contracts for 
A/E services and the ability to perform modernization work through 
competitive proposals was viewed as a real benefit in expediting 
construction.
    One PHA disagreed with the limit on modifications or contract 
modifications in the Handbook (7460.8, REV.1 dated 1/14/93, paragraph 
11-1 (e). They challenged the rational for this requirement since they 
may award construction contracts exceeding several million dollars 
without prior HUD approval, but must obtain HUD approval on all 
contract modifications exceeding $25,000. In addition, HAs are not 
required to forward contract documents to the Field Offices which would 
appear to make it difficult to approve any contract modification. The 
present process was found to slow down construction. It was requested 
that HAs be allowed to authorize contract modifications up to 10% of 
the original contract amount without prior HUD approval.
    CLPHA commented that pre-qualification of vendors should be 
encouraged and expedited.
    Response: HUD appreciates these comments and will take them under 
advisement as revisions and updates to the Procurement Handbook are 
considered.
HUD-2530 Previous Participation
    Comment: Four commenters fully supported the proposal to automate 
the 2530 system to allow direct access to HAs. CLPHA also indicated 
that previous participation forms should be valid for two to three 
years.
    Response: In an effort to streamline procurement procedures and 
reduce HA requirements, HUD published an interim rule at 59 F.R. 31521 
on June 20, 1994, which eliminates the previous participation approval 
requirement (submission of Form HUD-2530) for all HA contracts. This 
interim rule became effective on July 20, 1994.
Force Account
    Comment: Seven commenters were strongly in favor of eliminating 
prior HUD approval for use of force account labor, but four of those 
commenters recommended limiting this proposal to high performers.
    Response: For PHAs that are designated as both over-all high 
performers and mod-high performers under the PHMAP, and IHAs which are 
not high risk, HUD has eliminated prior approval for use of force 
account labor.
Section 3
    Comment: Seven comments were received on HUD's proposal to monitor 
each HA's Section 3 efforts. One commenter noted that HUD did not 
specify which division or department would do this, and recommended 
that training should be provided. One commenter cautioned HUD on the 
impact its proposals would have on CGP and recommended HUD gather input 
from people who work in this area. To further Section 3 efforts, a PHA 
suggested that residents registered with the HA as trainees be exempt 
from the HUD-determined wage Rates and Davis-Bacon wage rates. The 
resident trainee rates could be approved by HUD the same as HUD 
determined wage rates. By analogy to Connecticut law, one PHA noted 
that their housing construction programs required 25% of the dollar 
value of the contract be sub-contracted to Minority Business 
Enterprises and that 25% of that amount be awarded to Women's Business 
Enterprises. This was stated to produce verifiable results and has been 
very effective. Another PHA supported HUD's effort and suggested HA's 
focus more of their resources on the Section 3 process and involve more 
residents in the distribution of work and training program. CLPHA 
indicated that by FFY 95, HUD expects to have an effective final rule 
implementing the amended Section 3 which proposes that PHAs certify as 
to compliance with Section 3 and provide anticipated projections based 
on best efforts. PHAs can certify as to compliance with Section 3 but 
CLPHA stated it was unreasonable to expect projections as to the number 
of jobs or type of training available through various contracts. This 
was found to only be determined by the successful contractor. The 
additional costs of carrying out Section 3 training should also be 
taken into account in evaluating bids according to CLPHA.
    NAHRO disagreed with any request for numerical targets because 
annual targets are influenced by a number of factors beyond the PHA's 
or contractor's control, and monitoring and reporting regarding such 
targets creates paper games. NAHRO did not find a program-by-program 
approach to necessarily be effective in creating real employment for 
residents. NAHRO recommended that PHAs establish goals authority-wide 
to comply with Section 3, of which CGP is one component. To foster 
successful implementation of Section 3, HUD should work with public 
housing industry groups as well as contractors and unions.
    Response: Section 3 of the Housing and Urban Development Act of 
1968 (Section 3) (as amended by the Housing and Community Development 
Act of 1992) requires that employment and other economic opportunities 
generated by Federal financial assistance for housing and community 
development programs shall, to the greatest extent feasible, be 
directed toward low- and very low-income persons, particularly, those 
who are recipients of government assistance for housing.
    The requirements of Section 3 apply to HAs for modernization 
activities, notwithstanding the amount of the assistance provided to 
the HA or the amount of the contract or subcontract.
    For CGP, the Section 3 rule requires HAs to certify compliance with 
Section 3 and demonstrate this compliance by committing ``to the 
greatest extent feasible'' to meet the numerical goals set in the 
Section 3 interim rule (24 CFR 135.30). For CGP, HUD requested through 
the letter transmitting the FY 1994 presumptive estimate, that each HA 
to the greatest extent feasible, establish and commit to numerical 
goals.
    Each HA is required to submit, with the annual P&E Report, an 
annual Section 3 report on Form HUD-60002. The HA must document actions 
taken to comply with the requirements of Section 3, the results of 
actions taken and impediments.
    As part of the process of development of the Section 3 interim rule 
and data collection, the Department held meetings with various housing 
authorities, industry groups and organizations which are currently 
subject to compliance with Section 3 or share interest in the 
regulatory implementation of Section 3.
Paperwork Burden
    Comment: One commenter recommended that CGP funds be allocated 
through the HA's operating budget in order to eliminate most CGP 
paperwork.
    Response: HUD does not have the statutory authority to allocate CGP 
funds through the Performance Funding System.
Consistent Funding Levels
    Comment: Three commenters concluded that a constant or increasing 
level of funding for CGP is required if HAs are to complete required 
improvements on public housing properties to ensure their long-term 
viability. Decreases in funding levels results in only emergency work 
being completed and destroys HA's ability to do long range planning and 
follow thorough on commitments made to the residents. Significant 
decreases from year to year (anything exceeding 10%) was stated to 
result in delays in implementing completed design work (risking the 
need to revise work based on changing existing conditions) and 
decreased resident participation and interest.
    Response: HUD understands the competing demands for limited 
resources and the significant points made by the commenters. HUD is 
bound by the modernization appropriations and formula.
ACC and CGP
    Comment: CLPHA stated that all statements about flexibility in the 
CGP rule should over-ride less flexible statements in the ACC, and that 
the ACC should be revised to be consistent with the CGP rule.
    Response: HUD has started revising the ACC with the goal of 
simplifying the contract and placing most of the existing requirements 
in program regulations.
Contractor Delays, Wage Rates and CSP
    Comment: One HA indicated that greater consideration should be 
given to valid delays, including contractor or consultant performance 
problems which impact obligation and expenditure of CGP funds, 
including those which may remain after planned work items have been 
completed.
    Response: HUD does consider contractor delays to be an acceptable 
reason outside of the HA's control for the HA to execute a time 
extension in its implementation schedule.
    Comment: Wage rate determinations have become increasingly 
problematic in their timing and completeness. They are received after 
contracts are executed and sometimes many months of construction has 
already been completed. Often there is no wage rate determination given 
for requested classifications.
    Response: The Department is unaware of any widespread or systemic 
problems involving the provision of Davis-Bacon wage determinations for 
modernization projects. HUD is installing a Davis-Bacon wage 
determination database to expedite the provision of determinations.
    Comment: Expedite wage-rate issuances. HUD should expedite Davis-
Bacon issuances and eliminate variances between HUD and DOL 
requirements. The date of the wage decision should be the date of the 
start of the contract. HAs shouldn't have to delay opening of the bids 
because of a ``pending wage decision.''
    Response: HUD works closely with DOL to assure that wage 
determinations are made available for projects in a timely manner. This 
means that the wage determinations must be made available for 
incorporation into bid solicitations. There are projects which are 
subject to HUD-determined wage rates (``non-routine'' maintenance) 
rather than DOL-determined wage rates which are issued under the Davis-
Bacon and Related Acts. Resultant variations in wages which may be 
issued are due to the fact that the work is defined differently and the 
rates are determined under separate legal authorities. The applicable 
Davis-Bacon wage determination for a particular project is ``locked 
in'' at the award of the contract.
    Comment: An HA suggests that HUD encourage local expenditures. 
Although Consolidated Supply type programs provide competitive rates, 
they do nothing for the local economy. The HA suggested that HUD 
emphasize the ``buy locally'' proposition in order to best stimulate 
the HA's local economy.
    Response: HAs are required to follow the Department's regulation at 
24 CFR 85.36 for the procurement of goods and services. This regulation 
was developed pursuant to Office of Management and Budget (OMB) 
Circular A-102, Uniform Administrative Requirements for Grants to State 
and Local Governments, to provide consistent government-wide 
procurement standards in Federal grant programs.
    One of the fundamental principles of the regulation is that all 
procurements are to be conducted in a manner to promote full and open 
competition. The principle is intended to ensure equal treatment among 
contractors, while providing the most advantageous prices in the market 
place, particularly when the Federal government is providing the funds. 
Consistent with the concept of providing equal treatment among 
contractors is a specific requirement in the regulation prohibiting the 
use of statutorily or administratively imposed in-state or local 
geographical preferences in the award of contracts. Further, 
restricting competition to local contractors will not yield HAs the 
best prices in the market place. This is particularly important with 
limited Federal resources. Accordingly, the Department does not accept 
the comment that HUD should emphasize the ``buy locally'' proposition 
in order to stimulate the HA's local economy.
HUD Assistance: Handbook and Field Offices
    Comment: Nine comments provided advice on better ways to give 
assistance to program participants. One suggestion was to reinforce the 
concept of enhanced flexibility with rational handbook guidelines and 
grant Field Offices sufficient authority to adapt the regulation to 
local conditions. Field Office and PHA partnerships were praised such 
as the relationship between the St. Paul HA and the Minneapolis Field 
Office. Further delegation of approvals and discretion to Field Offices 
was suggested. Additional Field Office staff training was recommended. 
The Handbook was found to be deficient on implementation guidance. IHAs 
expressed a need for extensive assistance on the new rule. Four IHAs 
also strongly recommended that each Office of Native American Programs 
should have a full time CIAP/CGP Director/Coordinator or fund NAIHC 
additional monies to allow them to give technical assistance to those 
IHAs needing additional support.
    HUD was directed to give clear, strict instructions to its Field 
Offices that establish time deadlines for Field Office action on HA 
requests, including approvals of RFPs, recommendations for awards, 2530 
approvals and approving of waivers. If HUD does not act within 14 days, 
HAs suggested that the items should be approved. Departmental review 
and approval of CGP submissions was also mentioned as improving but HAs 
wanted mandated deadlines for HUD approval and no continuous review of 
previous approvals. Field Office oversight of troubled HAs was 
criticized for lacking in clear direction.
    CLPHA and the NYCHA recommended that HUD's rules and procedures for 
CGP should vary much more widely to acknowledge the differences between 
modernization programs at HAs of different sizes.
    Response: HUD will take these comments regarding better assistance 
to program participants into account when it revises the CGP Handbook. 
Recently, HUD completed its reorganization of the Field Offices. 
Regional Offices were eliminated and revised delegations of authority 
were provided to the Field Offices. IHAs are advised that technical 
assistance is already in place. HUD will make its best efforts to 
provide timely reviews. However, HUD cannot always respond to HA 
requests within 14 days in all cases.
Section 504 Requirements
    Comment: CLPHA requested that HUD allow HAs much wider latitude in 
meeting 504 requirements, to take into account the current 
configuration of buildings and units and the comparative suitability of 
individual buildings for 504 modifications. They also requested that 
HUD speed up its decisions concerning 504 requirements under 
modernization and noted that Field Offices sometimes make unreasonable 
demands on the HAs, and there is no official HUD guidance in this area.
    Response: It is unclear what the commenter intended. Section 504 of 
the Rehabilitation Act of 1973 is a civil rights statute. The current 
regulation at 24 CFR part 8 provides HAs with a considerable amount of 
latitude to take into consideration current building and site 
configuration. When an HA undertakes new construction or substantial or 
other alterations with respect to a given project, the HA has the 
authority to determine which are the units, buildings and sites in 
which the required number of accessible units will be located. The 
following are several examples of how the regulation provides latitude:

--Section 8.23(b) of the regulation requires that when ``other 
alterations'' are undertaken, accessible units be provided to ``the 
maximum extent feasible.'' The regulation indicates that this 
requirement shall not be interpreted as requiring that an HA make a 
dwelling unit accessible if doing so would impose an undue financial 
and administrative burden on the operation of the development.
--Section 8.26 requires that units be distributed throughout 
developments and sites and shall be available in a range of sizes and 
amenities. The regulation, however, indicates that this provision shall 
not be construed to require the provision of an elevator solely for the 
purpose of permitting the location of accessible units above or below 
grade level.
--Section 8.32 provides that compliance with the Uniform Federal 
Accessibility Standards (UFAS) shall be deemed to comply with the 504 
requirements and that departures from UFAS are permitted where 
substantially equivalent or greater access to and usability of the 
building is provided. Since the regulation does not mandate the use of 
UFAS, the HA is free to use another standard as long as it is at least 
equal to or greater than this standard. Further, this part of the 
regulation indicates that the HA is not required to make building 
alterations that have little likelihood of being accomplished without 
removing or altering a load-bearing structural member.

    While the Department believes that HAs do have wide latitude in 
determining the location of accessible units, it is important to 
emphasize that such latitude should not be construed as relieving HAs 
from the specific requirements mandated by the statute or regulation.
    The Department also is unclear why Field Offices should be slow 
making decisions concerning 504 requirements. Further, the Department 
disagrees that there is ``no guidance'' with respect to 504 
requirements. The requirements for compliance with Section 504 are 
outlined in 24 CFR part 8 and UFAS. There may be individual unusual or 
unique situations which require a more detailed solution in order for 
particular design to meet these requirements.
CGP and MROP
    Comment: One HA found it impossible to accomplish a comprehensive 
improvement program for a given development because of the incremental 
approach resulting from CGP. Developments with needs for major redesign 
of obsolete systems have inadequate funds to complete this work. A 
solution proposed was to eliminate the requirement that prohibits 
previous use of CIAP or CGP funds on a development seeking MROP 
eligibility.
    Response: HUD is seeking repeal of MROP. There is a statutory 
prohibition against using modernization funds on a building being 
funded with MROP funds. HUD's Office of General Counsel has determined 
that this prohibition does not last forever. Accordingly, the 
Department has determined that a development or a building which has 
been funded under MROP after FFY 1988 is eligible for modernization 
funding if it has reached DOFA. Also, a development or a building which 
has been funded under MROP during FFYs 1986-1988 is eligible for 
modernization funding if all MROP funds have been expended.

III. Other Matters

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 
provides revisions to the existing CGP under which HAs receive 
modernization assistance from HUD on the basis of a formula. HUD does 
not anticipate a significant economic impact on small entities since 
HAs will continue to carry out their modernization activities by 
entering into contracts for the work as they now do.

Finding of No Significant Impact

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50 that 
implement section 102(2)(C) of the National Environmental Policy Act of 
1969, 42 U.S.C. 4332. The Finding of No Significant Impact is available 
for public inspection and copying during regular business hours (7:30 
a.m. to 5 p.m. weekdays) in the Office of the Rules Docket Clerk, Room 
10272, 451 Seventh Street, SW., Washington, DC 20410.

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 will 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 revised CGP is 
consistent with federalism principles since it reduces unnecessary 
burdens on HAs. While the program is revised, the primary change is 
only in the way that HUD processes and reviews HA modernization 
activities, and not the modernization activities. Since participation 
by HAs is discretionary, this rule lacks the direct and substantial 
effects on HAs required for a policy with federalism implications under 
the Order.

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 will 
result from promulgation of this rule, as those policies and programs 
relate to family concerns. The rule does not have the potential for 
significant impact on family formation, maintenance, or general well-
being, since its effect is limited to revising program procedures for 
HAs applying for discretionary grants.

Regulatory Agenda

    This rule was listed as item 1680 in the Department's Semiannual 
Regulatory Agenda published on April 25, 1994, at 59 FR 20424/20468, in 
accordance with Executive Order 12866 and the Regulatory Flexibility 
Act.

Anti-Lobbying

    On February 26, 1990, the Department published an interim rule (24 
CFR part 87) advising recipients and subrecipients of Federal 
contracts, grants, cooperative agreements and loans of a prohibition 
mandated by Congress. Section 319 of the Department of the Interior 
Appropriations Act (Pub. L. 101-121, approved October 23, 1989) 
generally prohibits recipients of Federal contracts, grants, and loans 
from using appropriated funds for lobbying the Executive or Legislative 
branches of the Federal Government in connection with a specific 
contract, grant, or loan. The interim rule generally prohibits the 
awarding of contracts, grants, cooperative agreements, or loans unless 
the recipient has made an acceptable certification regarding lobbying. 
In addition, the recipient must also file a disclosure if it has made 
or has agreed to make any payment with nonappropriated funds that would 
be prohibited, if paid with appropriated funds. IHAs established by an 
Indian Tribe as a result of the exercise of the tribe's sovereign power 
are excluded from coverage of the Byrd Amendment, but IHAs established 
under State law are not excluded from the statute's coverage.
    The certification and disclosure requirements apply to all grants 
in excess of $100,000. All potential grantees are required to submit 
the certification, and to make the required disclosure if the grant 
amount exceeds $100,000. Potential grantees should refer to 24 CFR part 
87 for the language for the certification and disclosure. The law 
provides substantial monetary penalties for failure to file the 
required certification or disclosure.
    The Catalog of Domestic Assistance numbers for the programs 
affected by this proposed rule are 14.146, 14.147, 14.850, 14.851, 
14.852, and 15.141.

List of Subjects

24 CFR Part 905

    Aged, Energy conservation, Grant programs--housing and community 
development, Grant programs--Indians, Indians, Individuals with 
disabilities, Lead poisoning, Loan programs--housing and community 
development, Loan programs--Indians, Low and moderate income housing, 
Public housing, Reporting and recordkeeping requirements.

24 CFR Part 968

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

    Accordingly, the Department amends 24 CFR parts 905 and 968 as set 
forth below:

PART 905--INDIAN HOUSING PROGRAMS

    1. The authority citation for 24 CFR part 905 continues to read as 
follows:

    Authority: 25 U.S.C. 450e(b); 42 U.S.C. 1437a, 1437aa, 1437bb, 
1437cc, 1437ee, and 3535(d).

    2. Section 905.102 is amended by removing the definition of Major 
changes, revising the definition of Annual Statement, and adding in 
alphabetical order definitions of Annual Submission, Fungibility and 
Work Statements, to read as follows:


Sec. 905.102  Definitions.

* * * * *
    Annual Statement. A work statement covering the first year of the 
Five-Year Action Plan and setting forth the major work categories and 
costs by development or IHA-wide for the current FFY grant, as well as 
a summary of costs by development account and implementation schedules 
for obligation and expenditure of the funds.
* * * * *
    Annual Submission. A collective term for all documents which the 
IHA must submit to HUD for review and approval before accessing the 
current FFY grant funds. Such documents include the Annual Statement, 
Work Statements for years two through five of the Five-Year Action 
Plan, local government statement, IHA Board Resolution, materials 
demonstrating the partnership process and any other documents as 
prescribed by HUD.
* * * * *
    Fungibility. Fungibility is a concept which permits an IHA to 
substitute any work item from the latest approved Five-Year Action Plan 
to any previously approved CIAP budget or CGP Annual Statement and to 
move work items among approval budgets without prior HUD approval.
* * * * *
    Work Statements. Work Statements cover the second through the fifth 
years of the Five-Year Action Plan and set forth the major work 
categories and costs by development or IHA-wide which the IHA intends 
to undertake in each year of years two through five. In preparing these 
Work Statements, the IHA shall assume that the current FFY formula 
amount will be available in each year of years two through five.
* * * * *
    3. In Sec. 905.601, paragraph (b) is revised, paragraph (h) is 
amended by removing the reference to ``Sec. 905.669(b)(2)'' and adding 
in its place ``Sec. 905.669(b)''; by adding three sentences to the end 
of paragraph (j); and by revising paragraphs (k)(2)(i) and (k)(3)(iii), 
to read as follows:


Sec. 905.601  Allocation of funds under section 14.

* * * * *
    (b) Set-aside for emergencies and disasters. For each FFY, HUD 
shall reserve from amounts approved in the appropriation act for grants 
under this part and part 968 of this title, $75 million (which shall 
include unused reserve amounts carried over from previous FFYs), which 
shall be made available to IHAs and PHAs for modernization needs 
resulting from natural and other disasters, and from emergencies. HUD 
shall replenish this reserve at the beginning of each FFY so that it 
always begins with a $75 million balance. Any unused funds from 
previous years will remain in the reserve until allocated. The 
requirements governing the reserve for disasters and emergencies and 
the procedures by which an IHA may request such funds, are set forth in 
Sec. 905.667.
* * * * *
    (j) Calculation of number of units. * * * New development units 
that are added to an IHA's or PHA's inventory will be added to the 
overall unit count so long as they are under ACC amendment and have 
reached DOFA by the first day in the FFY in which the formula is being 
run. Any increase in units (reaching DOFA and under ACC amendment) as 
of the beginning of the FFY shall result in an adjustment upwards in 
the number of units under the formula. New units reaching DOFA after 
this date will be counted for formula purposes as of the following FFY.
    (k) * * *
    (2) * * *
    (i) Increases in the number of units resulting from the conversion 
of existing units will be added to the overall unit count so long as 
they are under ACC amendment by the first day in the FFY in which the 
formula is being run;
* * * * *
    (3) * * *
    (iii) Exception. A unit which is conveyed under the Mutual Help or 
Turnkey III programs will result in an automatic (rather than a phased-
in) reduction in the unit count. Paid-off Mutual Help or Turnkey III 
units continue to be counted until they are conveyed.
    4. Section 905.602 is revised to read as follows:


Sec. 905.602  Special requirements for Turnkey III and Mutual Help 
developments.

    (a) Modernization costs. Modernization work on a Mutual Help or 
Turnkey III unit shall not increase the purchase price or amortization 
period of the home.
    (b) Paid-off units-- (1) Turnkey III units. Eligible modernization 
work on any Turnkey III units that have been paid-off, but not 
conveyed, by the time the CIAP application or CGP Annual Statement is 
submitted, is limited to work which is necessary to meet statutory 
requirements (e.g., accessibility for disabled persons, lead-based 
paint testing, interim containment, professional risk assessment and 
abatement). Such work must be completed prior to conveyance. Turnkey 
III units that have not been paid-off at the time the CIAP application 
or CGP Annual Statement is submitted and for which work is included in 
the CIAP application or CGP Annual Statement, are eligible for any 
physical improvements provided under Sec. 905.666(d) even where the 
units are subsequently paid-off before the work is completed, so long 
as the work is completed prior to conveyance.
    (2) Mutual Help units. An IHA may use CIAP or CGP funds under this 
subpart for the purposes of modernizing a Mutual Help unit which is 
paid-off, but not conveyed, and may do so only with a unit which the 
IHA has identified in its CIAP application or Comprehensive Plan 
(including Five-Year Action Plan and Annual Statement). In accordance 
with the provisions of Sec. 905.440 (e)(8), an IHA may perform non-
emergency work on a paid-off Mutual Help unit only after all 
delinquencies are repaid.
    (c) Other. The homebuyer family must be in compliance with its 
financial obligations under its homebuyer agreement in order to be 
eligible for non-emergency physical improvements, with the exception of 
work necessary to meet statutory and regulatory requirements, (e.g., 
accessibility for disabled persons, lead-based paint testing, interim 
containment, professional risk assessment, and abatement) and the 
correction of development deficiencies. Notwithstanding the above 
requirement, an IHA may, with prior HUD approval, complete non-
emergency physical improvements on any homeownership unit where the IHA 
demonstrates that, due to economies of scale or geographic constraints, 
substantial cost savings may be realized by completing all necessary 
work in a development at one time.
    5. Section 905.666 is amended by revising paragraphs (a)(1) through 
(a)(3), (b), (c), (d)(1), (d)(3)(i), (f)(1)(iii), and (m) to read as 
follows:


Sec. 905.666  Eligible costs.

    (a) * * *
    (1) Undertaking activities described in its approved Five-Year 
Action Plan under Sec. 905.672(d)(5);
    (2) Carrying out emergency work, whether or not the need is 
indicated in the IHA's approved Comprehensive Plan (including Five-Year 
Action Plan) or Annual Statement;
    (3) Funding a replacement reserve to carry out eligible activities 
in future years, subject to the restrictions set forth in paragraph (f) 
of this section;
* * * * *
    (b) Demonstration of viability. Except in the case of emergency 
work, an IHA shall only expend funds on a development for which the IHA 
has demonstrated that completion of the improvements and replacements 
identified in the comprehensive plan will reasonably ensure the long-
term physical and social viability of the development at a reasonable 
cost or for essential non-routine maintenance needed to keep the 
property habitable until residents are relocated.
    (c) Physical improvement costs. Eligible costs include alterations, 
betterments, additions, replacements, and non-routine maintenance that 
are necessary to meet the modernization and energy conservation 
standards prescribed in Sec. 905.603. These mandatory standards may be 
exceeded only when the IHA determines that it is necessary or highly 
desirable for the long-term physical and social viability of the 
individual development. If demolition or disposition is proposed, the 
IHA shall comply with 24 CFR part 905, subpart M. Additional dwelling 
space may be added to existing units.
    (d) Costs for Turnkey III developments--(1) General. Eligible 
physical improvement costs for existing Turnkey III developments are 
limited to work items which are not the responsibility of the homebuyer 
families and which are related to health and safety, correction of 
development deficiencies, physical accessibility, energy audits and 
cost-effective energy conservation measures, and lead-based paint 
testing and abatement. In addition, management improvements are 
eligible modernization costs for existing Turnkey III developments.
    (2) * * *
    (3) * * *
    (i) Notwithstanding the requirements of paragraph (d)(1) of this 
section, an IHA may substantially rehabilitate a Turnkey III unit 
whenever the unit becomes vacant or is occupied by a non-homebuyer 
family. An IHA that intends to use funds under this paragraph must 
identify in its needs assessment the estimated number of units that the 
IHA is proposing for substantial rehabilitation and subsequent sale. In 
addition, an IHA must demonstrate in its needs assessment that the IHA 
has homebuyers who are both eligible for homeownership, in accordance 
with the requirements of 24 CFR part 905 (Subpart G), and who have 
demonstrated their intent to be placed into each of the Turnkey III 
units proposed to be substantially rehabilitated;
* * * * *
    (f) * * *
    (1) * * *
    (iii) A management improvement requires more funds than the IHA may 
use under its 20% limit for management improvements (except as provided 
in paragraph (m)(1)), and the IHA needs to save a portion of its annual 
grant in order to combine it with a portion of subsequent year(s) 
grants, to fund the work item;
* * * * *
    (m) Cost limitation. (1) Notwithstanding the full fungibility of 
work items in Sec. 905.675(c), an IHA shall not use more than a total 
of 20 percent of its annual grant for management improvement costs in 
account 1408, unless specifically approved by HUD.
    (2) Notwithstanding the full fungibility of work items in 
Sec. 905.675(c), an IHA shall not use more than a total of 10 percent 
of its annual grant on administrative costs in account 1410, excluding 
any costs related to lead-based paint or asbestos testing (whether 
conducted by force account employees or by a contractor), in-house 
architectural/engineering (A/E) work, or other special administrative 
costs required by State, tribal or local law, unless specifically 
approved by HUD;
* * * * *
    6. Paragraphs (a)(1) and (a)(3) of 905.667 are revised to read as 
follows:


Sec. 905.667  Reserve for emergencies and disasters.

    (a) Emergencies--(1) Eligibility for assistance. An IHA (including 
an IHA that is determined to be high risk under Sec. 905.135) may 
obtain funds at any time, for any eligible emergency work item as 
defined in Sec. 905.102 (for IHAs participating in CGP) or for any 
eligible emergency work item (described as emergency modernization in 
Sec. 905.102) (for IHAs participating in CIAP), from the reserve 
established under Sec. 905.601(b). However, emergency reserve funds may 
not be provided to an IHA participating in CGP that has the necessary 
funds available from any other source, including its annual formula 
allocation under Sec. 905.601(e) and (f), other unobligated 
modernization funds, and its replacement reserves under Sec. 905.666. 
An IHA is not required to have an approved comprehensive plan under 
Sec. 905.672 before it can request emergency assistance from this 
reserve. Emergency reserve funds may not be provided to an IHA 
participating in CIAP unless it does not have the necessary funds 
available from any other source, including unobligated CIAP, and no 
CIAP modernization funding is available from HUD for the remainder of 
the fiscal year.
* * * * *
    (3) Repayment. A CGP IHA that receives assistance for its emergency 
needs from the reserve under Sec. 905.601(b) must repay such assistance 
from its future allocations of assistance, where available. For IHAs 
participating in the CGP, HUD shall deduct up to 50 percent of an IHA's 
succeeding year's formula allocation under Sec. 905.601 (e) and (f) to 
repay emergency funds previously provided by HUD to the IHA. The 
remaining balance, if any, shall be deducted from an IHA's succeeding 
years' formula allocations.
* * * * *
    7. Section 905.669 is amended by adding three sentences to the end 
of paragraph (a)(1); by revising paragraphs (b) and (c); by adding a 
new paragraph (d); and by adding the OMB control number to the end of 
the section, to read as follows:


Sec. 905.669  Allocation of assistance.

    (a) * * *
    (1) * * * On an annual basis, HUD will transmit to the IHA the 
formula characteristics report which reflects the data that will be 
used to determine the IHA's formula share. The IHA will have at least 
30 calendar days to review and advise HUD of errors in this HUD report. 
Necessary adjustments will be made to the IHA's data before the formula 
is run for the current FFY.
* * * * *
    (b) HUD notification of formula amount; appeal rights. (1) Formula 
amounts notification. After HUD determines an IHA's formula allocation 
under Sec. 905.601 (e) and (f) based upon the IHA, development, and 
community characteristics, it shall notify the IHA of its formula 
amount and provide instructions on the Annual Submission in accordance 
with Secs. 905.672(a) and 905.678;
    (2) Appeal based upon unique circumstances. An IHA may appeal in 
writing HUD's determination of its formula amount within 60 calendar 
days of the date of HUD's determination on the basis of ``unique 
circumstances.'' The IHA must indicate what is unique, and specify the 
manner in which it is different from all other IHAs participating in 
the CGP, and provide any necessary supporting documentation. HUD shall 
render a written decision on an IHA's appeal under this paragraph 
within 60 calendar days of the date of its receipt of the IHA's request 
for an appeal. HUD shall publish in the Federal Register a description 
of the facts supporting any successful appeals based upon ``unique 
circumstances.'' Any adjustments resulting from successful appeals in a 
particular FFY under this paragraph shall be made from the subsequent 
years' allocation of funds under this part;
    (3) Appeal based upon error. An IHA may appeal in writing HUD's 
determination of its formula amount within 60 calendar days of the date 
of HUD's determination on the basis of an error. The IHA may appeal on 
the basis of error the correctness of data in the formula 
characteristics report. The IHA must describe the nature of the error, 
and provide any necessary supporting documentation. HUD shall respond 
to the IHA's request within 60 calendar days of the date of its receipt 
of the IHA's request for an appeal. Any adjustment resulting from 
successful appeals in a particular FFY under this paragraph shall be 
made from subsequent years' allocation of funds under this part;
    (c) IHAs determined to be high risk. If an IHA is determined to 
have serious deficiencies in accordance with Sec. 905.135, or if the 
IHA fails to meet, or to make reasonable progress toward meeting, the 
goals previously established in its management improvement plan under 
Sec. 905.135, HUD may designate the IHA high risk. If the IHA is 
designated high risk with respect to modernization, HUD may withhold 
some or all of the IHA's annual grant; HUD may declare a breach of the 
grant agreement with respect to all or some of the IHA's functions so 
that the IHA or a particular function of the IHA may be administered by 
another entity; or HUD may take other sanctions authorized by law or 
regulation.
    (d) Obligation of formula funding. All formula funding should be 
obligated within two years of approval. However, due to the size of the 
grant, complexity of the work, and other factors, the IHA may propose, 
and HUD may approve, a longer time period.

(Approved by the Office of Management and Budget under control 
number 2577-0157)

    8. Section 905.672 is amended by revising paragraphs (a), 
(b)(2)(i), (b)(3) through (b)(5), (c)(2), (d)(1), (d)(2)(i)(E), (d)(4), 
(d)(5)(i), (d)(5)(iii), (d)(6)(i), (d)(6)(ii), (d)(7)(v), (d)(7)(viii), 
and (d)(7)(xv); by adding a new paragraph (d)(7)(xviii); by revising 
paragraphs (e)(2), (3) and (4), to read as follows:


Sec. 905.672  Comprehensive Plan (including Five-Year Action Plan).

    (a) Submission. As soon as possible after modernization funds first 
become available for allocation under this subpart, HUD shall notify 
IHAs in writing of their formula amount. For planning purposes, IHAs 
may use the amount they received under CGP in the prior year in 
developing their Comprehensive Plan or they may wait for the annual HUD 
notification of formula amount under Sec. 905.669(b)(1).
    (b) * * *
    (2) * * *
    (i) To assure that residents are fully briefed and involved in 
developing the content of, and monitoring the implementation of, the 
Comprehensive Plan including, but not limited to, the physical and 
management needs assessments, viability analysis, Five-Year Action 
Plan, and Annual Statement. If necessary, the IHA shall develop and 
implement capacity building strategies to ensure meaningful resident 
participation in CGP. Such technical assistance efforts for residents 
are eligible management improvement costs under CGP;
* * * * *
    (3) Public notice. Within a reasonable amount of time before the 
advance meeting for residents and duly elected resident organizations 
under paragraph (b)(4) of this section, and the public hearing under 
paragraph (b)(5) of this section, the IHA shall provide public notice 
of the advance meeting and the public hearing in a manner determined by 
the IHA and which ensures notice to all duly elected resident 
organizations;
    (4) Advance meeting for residents and duly elected resident 
organizations. The IHA shall hold, within a reasonable amount of time 
before the public hearing under paragraph (b)(5) of this section, a 
meeting for residents and duly elected resident organizations at which 
the IHA shall explain the components of the Comprehensive Plan. The 
meeting shall be open to all residents and duly elected resident 
organizations;
    (5) Public Hearing. The IHA shall hold at least one public hearing, 
and any appropriate number of additional hearings, to present 
information on the Comprehensive Plan/Annual Submission and the status 
of prior approved programs. The public hearing shall provide ample 
opportunity for residents, duly elected resident organizations, local 
government officials, and other interested parties, to express their 
priorities and concerns. The IHA shall give full consideration to the 
comments and concerns of residents, local government officials, and 
other interested parties.
    (c) * * *
    (2) A copy of the summary of total preliminary estimated costs to 
address physical needs by each development and management/operations 
needs IHA-wide and a specific description of the IHA's process for 
maximizing the level of participation by residents and a summary of the 
general issues raised on the plan by residents and others during the 
public comment process and the IHA's response to the general issues. 
IHA records, such as minutes of planning meetings or resident surveys 
shall be maintained in the IHA's files and made available to residents, 
resident organizations, and other interested parties upon request; and
* * * * *
    (d) * * *
    (1) Summaries. An IHA shall include as part of its Comprehensive 
Plan the following summaries:
    (i) A summary of total preliminary estimated costs to address 
physical needs by each development and management needs IHA-wide; and
    (ii) A specific description of the IHA's process for maximizing the 
level of participation by residents during the development, 
implementation and monitoring of the Comprehensive Plan, a summary of 
the general issues raised on the plan by residents and others during 
the public comment process and the IHA's response to the general issue. 
IHA records, such as minutes of planning meetings or resident surveys, 
shall be maintained in the IHA's files and made available to residents, 
duly elected resident organizations, and other interested parties, upon 
request.
* * * * *
    (2) * * *
    (i) * * *
    (E) In addition, the IHA shall provide with respect to vacant or 
non-homebuyer-occupied Turnkey III units, the estimated number of units 
that the IHA is proposing for substantial rehabilitation and subsequent 
sale, in accordance with Sec. 905.666(d)(3).
* * * * *
    (4) Demonstration of long-term physical and social viability. (i) 
General. The plan shall include, on a development-by-development basis, 
an analysis of whether completion of the improvements and replacements 
identified under paragraphs (d)(2) and (d)(3) of this section will 
reasonably ensure the long-term physical and social viability, 
including achieving structural/system soundness and full occupancy of 
the development at a reasonable cost. For cost reasonableness, the IHA 
may choose to use the 90% of Total Development Cost (TDC) approach (the 
preliminary estimate of hard costs for work proposed at the development 
is 90% or less of TDC) or a cost reasonableness approach related to the 
cost of individual work items as indicated by National cost indices, 
adjusted by local conditions and the IHA's own recent procurement 
experience. The IHA shall keep documentation in its files to support 
its reasonable cost determinations of each major work item (e.g., 
kitchen cabinets, exterior doors). HUD will review cost reasonableness 
as part of its review of the Annual Submission and the Performance and 
Evaluation Report. Where necessary, HUD will review the IHA's 
documentation in support of its cost reasonableness;
    (ii) Determination of non-viability. Where an IHA's analysis of a 
development, under paragraph (d) of this section, establishes that 
completion of the identified improvements and replacements will not 
result in the long-term physical and social viability of the 
development at a reasonable cost, the IHA shall not expend CGP funds 
for the development, except for emergencies and essential non-routine 
maintenance necessary to maintain habitability until residents can be 
relocated. The IHA shall specify in its Comprehensive Plan the actions 
it proposes to take with respect to the non-viable development (e.g., 
demolition or disposition under 24 CFR part 905, subpart M).
    (5) Five-Year Action Plan--(i) General. The Comprehensive Plan 
shall include a rolling Five-Year Action Plan to carry out the 
improvements and replacements (or a portion thereof) identified under 
paragraphs (d)(2) and (d)(3) of this section. In developing its Five-
Year Action Plan, the IHA shall assume that the current year funding or 
formula amount will be available for each year of its Five-Year Action 
Plan, whichever the IHA is using for planning purposes, plus the IHA's 
estimate of the funds that will be available from other sources, such 
as State, local and tribal governments. All activities specified in an 
IHA's Five-Year Action Plan are contingent upon the availability of 
funds;
* * * * *
    (iii) Procedure for maintaining current Five-Year Action Plan. The 
IHA shall maintain a current Five-Year Action Plan by annually amending 
its Five-Year Action Plan, in conjunction with the Annual Submission;
    (6) * * *
    (i) The IHA developed the Comprehensive Plan/Five-Year Action Plan 
or amendments thereto in consultation with officials of the appropriate 
governing body and with development residents covered by the 
Comprehensive Plan/Five-Year Action Plan, in accordance with the 
requirements of Sec. 905.672(b) and (c);
    (ii) The Comprehensive Plan/Five-Year Action Plan or amendments 
thereto are consistent with the appropriate governing body's assessment 
of its low-income housing needs and that the appropriate governing body 
will cooperate in providing resident programs and services; and
* * * * *
    (7) * * *
    (v) The proposed activities in the Five-Year Action Plan/Annual 
Statement are consistent with the proposed or approved Comprehensive 
Plan of the IHA;
* * * * *
    (viii) The IHA has provided to HUD any documentation that the 
Department has requested to carry out its review under the National 
Environmental Policy Act (NEPA) and other related authorities in 
accordance with 24 CFR 905.120(a) and (b), and will not obligate, in 
any manner, the expenditure of CGP funds, or otherwise undertake the 
activities identified in its Comprehensive Plan/Annual Statement, until 
the IHA receives written notification from HUD indicating that the 
Department has complied with its responsibilities under NEPA and other 
related authorities;
* * * * *
    (xv) The IHA has complied with the requirements governing tribal 
government and resident participation in accordance with 24 CFR 
905.672(b), 905.678(d), and 905.684, and has given full consideration 
to the priorities and concerns of tribal government and residents, 
including comments which were ultimately not adopted, in preparing the 
Comprehensive Plan/Five-Year Action Plan and any amendments thereto;
* * * * *
    (xviii) The IHA will comply with section 3 of the Housing and Urban 
Development Act of 1968, as amended, and make best efforts, consistent 
with existing Federal, State, and local laws and regulations, to give 
low- and very low-income persons, training and employment opportunities 
generated by CGP assistance, and to make best efforts, consistent with 
existing Federal, State, and local laws and regulations, to award 
contracts for work to be performed in connection with CGP assistance to 
business concerns that provide economic opportunities for low- and very 
low-income persons.
    (e) * * *
    (2) Amendments to needs assessments. The IHA must amend its plan by 
revising its needs assessments whenever it proposes to carry out 
activities in its Five-Year Action Plan or Annual Statement, that are 
not reflected in its current needs assessments (except in the case of 
emergencies). The IHA may propose an amendment to its needs 
assessments, in connection with the submission of its Annual Submission 
(see Sec. 905.678(b)), or at any other time. These amendments shall be 
reviewed by HUD in accordance with Sec. 905.675;
    (3) Six-year revision of Comprehensive Plan. Every sixth year 
following the initial year of participation, the IHA shall submit to 
HUD, with its Annual Submission, a complete update of its Comprehensive 
Plan. An IHA may elect to revise some or all parts of the Comprehensive 
Plan more frequently.
    (4) Annual revision of Five-Year Action Plan. Annually, the IHA 
shall submit to HUD, with its Annual Submission, an update of its Five-
Year Action Plan, eliminating the previous year and adding an 
additional year. The IHA shall identify changes in work categories 
(other than those included in the new fifth year) from the previous 
year Five-Year Action Plan when making this Annual Submission.
* * * * *
    9. In Sec. 905.675, paragraph (b)(1) is amended by adding ``and 
Sec. 968.103'' after the reference to ``Sec. 905.601'' and before the 
period; by revising paragraph (c); and by adding the OMB approval 
number to the end of the section, to read as follows:


Sec. 905.675  HUD review and approval of Comprehensive Plan (including 
Five-Year Action Plan).

* * * * *
    (c) Effect of HUD approval of Comprehensive Plan. After HUD 
approves the Comprehensive Plan (including the Five-Year Action Plan), 
or any amendments to the plan, it shall be binding upon HUD and the 
IHA, until such time as the IHA submits, and HUD approves, an amendment 
to its plan. The IHA is expected to undertake the work set forth in the 
Annual Statement. However, the IHA may undertake any of the work 
identified in any of the other four years of the latest approved Five-
Year Action Plan, current approved Annual Statement or previously 
approved CIAP budgets, without further HUD approval. Actual uses of the 
funds are to be reflected in the IHA annual Performance and Evaluation 
Report for each grant. See Sec. 905.684. The IHA is encouraged to 
inform the residents of significant changes (such as changes in scope 
of work or whenever it moves work items within the approved Five-Year 
Action Plan). Documentation of that information shall be retained in 
IHA files. If HUD determines as a result of an audit or monitoring 
findings that an IHA has provided false or substantially inaccurate 
data in its Comprehensive Plan/Annual Submission or has circumvented 
the intent of the program, HUD may condition the receipt of assistance, 
in accordance with Sec. 950.687. Moreover, in accordance with 18 U.S.C. 
1001, any individual or entity who knowingly and willingly makes or 
uses a document or writing containing any false, fictitious or 
fraudulent statement or entry, in any matter within the jurisdiction of 
any department or agency of the United States, shall be fined not more 
than $10,000 or imprisoned for not more than five years, or both.

(Approved by the Office of Management and Budget under control 
number 2577-0157)

    10. Section 905.678 is revised to read as follows:


Sec. 905.678  Annual Submission of activities and expenditures.

    (a) General. The Annual Submission is a collective term for all 
documents which the IHA must submit to HUD for review and approval 
before accessing the current FFY grant funds. Such documents include 
the Annual Statement, Work Statements for years two through five of the 
Five-Year Action Plan, local government statement, IHA Board 
Resolution, materials demonstrating the partnership process and any 
other documents as prescribed by HUD. For planning purposes, an IHA may 
use either the amount of funding received in the current year or the 
actual formula amount provided in HUD's notification under 
Sec. 905.669(b)(1) in developing the Five-Year Action Plan for 
presentation at the resident meetings and public hearing. Work 
Statements cover the second through the fifth years of the Five-Year 
Action Plan and set forth the major work categories and costs by 
development or IHA-wide which the IHA intends to undertake in each year 
of years two through five. In preparing these Work Statements, the IHA 
shall assume that the current FFY formula amount will be available in 
each year of years two through five. The Work Statements for all five 
years will be at the same level of detail so that the IHA may 
interchange work items as discussed in Sec. 905.672(d)(5)(i). An IHA 
may budget up to 8% of its annual grant in a contingency account for 
cost overruns.
    (b) Submission. After receiving HUD notification of the formula 
amount and estimating how much funding will be available from other 
sources, such as State and tribal governments, and determining its 
activities and costs based on the current FFY formula amount, the IHA 
shall submit its Annual Submission.
    (c) Acceptance for review. (1) Upon receipt of an Annual Submission 
from an IHA, HUD shall determine whether:
    (i) The Annual Submission contains each of the required components; 
and
    (ii) The IHA has submitted any additional information or assurances 
required as a result of HUD monitoring, findings of inadequate IHA 
performance, audit findings, and civil rights compliance findings.
    (2) If the IHA has submitted a complete Annual Submission and all 
required information and assurances, HUD will accept the submission for 
review, as of the date of receipt. If the IHA has not submitted all 
required material, HUD will promptly notify the IHA that it has 
disapproved the submission, indicating the reasons for disapproval, the 
modifications required to qualify the Annual Submission for HUD review, 
and the date by which such modifications must be received by HUD.
    (d) Resident and local government participation. An IHA is required 
to develop its Annual Submission, including any proposed amendments to 
its Comprehensive Plan as provided in Sec. 905.672(e), in consultation 
with officials of the appropriate governing body (or, in the case of an 
IHA with developments in multiple jurisdictions, in consultation with 
the CEO of each such jurisdiction or with an advisory group 
representative of all jurisdictions) and with residents and duly 
elected resident organizations of the developments covered by the 
Comprehensive Plan, as follows:
    (1) Public notice. Within a reasonable amount of time before the 
advance meeting for residents under paragraph (d)(2) of this section, 
and the public hearing under paragraph (d)(3) of this section, the IHA 
shall annually provide public notice of the advance meeting and the 
public hearing in a manner determined by the IHA and which ensures 
notice to all duly elected resident organizations;
    (2) Advance meeting with residents. The IHA shall at least annually 
hold a meeting open to all residents and duly elected resident 
organizations. The advance meeting shall be held within a reasonable 
amount of time before the public hearing under paragraph (d)(3) of this 
section. The IHA will provide residents with information concerning the 
contents of the IHA's Five-Year Action Plan (and any proposed 
amendments to the IHA's Comprehensive Plan to be submitted with the 
Annual Submission) so that residents can comment adequately at the 
public hearing on the contents of the Five-Year Action Plan and any 
proposed amendments to the Comprehensive Plan.
    (3) Public hearing. The IHA shall annually hold at least one public 
hearing, and any appropriate number of additional hearings, to present 
information on the Annual Submission and the status of prior approved 
programs. The public hearing shall provide ample opportunity for 
residents of the developments covered by the Comprehensive Plan, 
officials of the appropriate governing body, and other interested 
parties, to express their priorities and concerns. The IHA shall give 
full consideration to the comments and concerns of residents, local 
government officials, and other interested parties in developing its 
Five-Year Action Plan, or any amendments to its Comprehensive Plan.
    (4) Expedited scheduling. IHAs are encouraged to hold the meeting 
with residents and duly elected resident organizations under paragraph 
(d)(2) of this section, and the public hearing under paragraph (d)(3) 
of this section between July 1 (i.e., after the end of the program 
year--June 30) and September 30, using the formula amount for the 
current FFY. If an IHA elects to use such expedited scheduling, it must 
explain at the meeting with residents and duly elected resident 
organizations and at the public hearing that the current FFY amount is 
not the actual grant amount for the subsequent year, but is rather the 
amount used for planning purposes. It must also explain that the Five-
Year Action Plan will be adjusted when HUD provides notification of the 
actual formula amount, and explain which major work categories at which 
developments may be added or deleted to adjust for the actual formula 
amount and that any added work categories/developments will come from 
the Comprehensive Plan.
    (e) Contents of Annual Submission. The Annual Statement for each 
year must include, for each development or on an IHA-wide basis for 
management improvements or certain physical improvements for which work 
is to be funded out of that year's grant:
    (1) A list of development accounts with an identification of major 
work categories;
    (2) The cost for each major work category, as well as a summary of 
cost by development account;
    (3) The IHA-wide or development-specific management improvements to 
be undertaken during the year;
    (4) For each development and for any management improvements not 
covered by a HUD-approved management improvement plan, a schedule for 
the use of current year funds, including target dates for the 
obligation and expenditure of the funds. In general, HUD expects that 
an IHA will obligate its current year's allocation of CGP funds (except 
for its funded replacement reserves) within two years, and expend such 
funds within three years, of the date of HUD approval, unless longer 
time-frames are approved by HUD due to the size of the grant, the 
complexity of the work, and other factors;
    (5) A summary description of the actions to be taken with non-CGP 
funds to meet physical and management improvement needs which have been 
identified by the IHA in its needs assessments;
    (6) Any documentation that HUD needs to assist it in carrying out 
its responsibilities under the National Environmental Policy Act and 
other related authorities in accordance with Sec. 905.120(a) and (b);
    (7) Other information, as specified by HUD and approved by OMB 
under the Paperwork Reduction Act; and
    (8) An IHA resolution approving the Annual Submission or any 
amendments thereto, as set forth in Sec. 905.672(d)(7).
    (f) Additional submissions with Annual Submission. An IHA shall 
submit with the Annual Submission any amendments to the Comprehensive 
Plan, as set forth in Sec. 905.672(e), and such additional information 
as may be prescribed by HUD. HUD shall review any proposed amendments 
to the Comprehensive Plan in accordance with review standards under 
Sec. 905.675(b).
    (g) HUD review and approval of Annual Submission. (1) General. An 
Annual Submission accepted in accordance with paragraph (a) of this 
section shall be considered to be approved, unless HUD notifies the IHA 
in writing, postmarked within 75 calendar days of the date that HUD 
receives the Annual Submission for review under paragraph (c) of this 
section, that HUD has disapproved the Annual Submission, indicating the 
reasons for disapproval, the modifications required to make the Annual 
Submission approvable, and the date by which such modifications must be 
received by HUD. HUD may request additional information (e.g., for 
eligibility determinations) to facilitate review and approval of the 
Annual Submission during the 75-day review period. HUD shall not 
disapprove an Annual Submission on the basis that the Department cannot 
complete its review under this section within the 75-day deadline;
    (2) Bases for disapproval for Annual Submission. HUD shall approve 
the Annual Submission, except where:
    (i) Plainly inconsistent with Comprehensive Plan. HUD determines 
that the activities and expenditures proposed in the Annual Submission 
are plainly inconsistent with the IHA's approved Comprehensive Plan;
    (ii) Contradiction of IHA resolution. HUD has evidence which tends 
to challenge, in a substantial manner, the certifications contained in 
the board resolution, as required by Sec. 905.672(d)(7).
    (h) Amendments to Annual Statement. The IHA shall advise HUD of all 
changes to the IHA's approved Annual Statement in its Performance and 
Evaluation Report submitted under Sec. 905.684. The IHA shall submit to 
HUD for prior approval any additional work categories (except for 
emergency work) which are not within the IHA's approved Five-Year 
Action Plan.
    (i) Failure to obligate formula funding and extension of time for 
performance. (1) Failure to obligate formula funds. If the IHA fails to 
obligate formula funds within the approved or extended time period, the 
IHA may be subject to an alternative management strategy which may 
involve third-party oversight or administration of the modernization 
function. HUD would only require such action after a corrective action 
order had been issued under Sec. 905.687 and the IHA failed to comply 
with the order. HUD could then require an alternative management 
strategy in a corrective action order. An IHA may appeal in writing the 
corrective action order requiring an alternative management strategy 
within 30 calendar days of that order. HUD Headquarters shall render a 
written decision on an IHA's appeal within 30 calendar days of the date 
of its receipt of the IHA's appeal.
    (2) Extension of time for performance. An IHA may extend the target 
dates for fund obligation and expenditure in the approved Annual 
Statement whenever any delay outside the IHA's control occurs, as 
specified by HUD, and the extension is made in a timely manner. Such 
revision is subject to HUD review under Sec. 905.687(a)(2) as to the 
IHA's continuing capacity. HUD shall not review as to an IHA's 
continuing capacity any revisions to an IHA's Comprehensive Plan and 
related statements where the basis for the revision is that HUD has not 
provided the amount of assistance set forth in the Annual Submission, 
or has not provided such assistance in a timely manner.
    (j) ACC Amendment. After HUD approval of each year's Annual 
Submission, HUD and the IHA shall enter into an ACC amendment to obtain 
modernization funds. The ACC amendment shall require low-income use of 
housing for not less than 20 years from the date of the ACC amendment 
(subject to sale of homeownership units in accordance with the terms of 
the ACC).
    (k) Declaration of Trust. As HUD may require, the IHA shall execute 
and file for record a Declaration of Trust as provided under the ACC to 
protect the rights and interests of HUD throughout the 20-year period 
during which the IHA is obligated to operate its developments in 
accordance with the ACC, the Act, and HUD regulations and requirements. 
A Declaration of Trust is not required for Mutual Help units. 
(Information collections requirements have been approved by the Office 
of Management and Budget under control number 2577-0157)
    11. Section 905.681 is amended by revising paragraph (a) 
introductory text and paragraph (b), to read as follows:


Sec. 905.681  Conduct of modernization activities.

    (a) Initiation of activities. After HUD has approved a Five-Year 
Action Plan and entered into an ACC amendment with the IHA, the IHA 
shall undertake in a timely, efficient and economical manner, the 
modernization activities and expenditures set forth in its approved 
Annual Statement or substitute work categories from within the approved 
Five-Year Action Plan, subject to the following requirements:
* * * * *
    (b) Fund requisitions. To request modernization funds against the 
approved Annual Statement for year one, the IHA shall comply with 
requirements prescribed by HUD.
* * * * *
    12. Section 905.684 is amended by revising the section heading and 
paragraphs (a) and (b)(2); by removing paragraph (b)(3); by 
redesignating paragraphs (b)(4) through (b)(7) as paragraphs (b)(3) 
through (b)(6), respectively; and by revising newly redesignated 
paragraphs (b)(4) and (b)(6), to read as follows:


Sec. 905.684  IHA Performance and Evaluation Report.

    (a) Submission. For any FFY in which an IHA has received assistance 
under this subpart, the IHA shall submit a Performance and Evaluation 
Report, in a form and at a time to be prescribed by HUD, describing its 
use of assistance in accordance with the approved Annual Statement. The 
IHA shall make reasonable efforts to notify residents and officials of 
the appropriate governing body of the availability of the draft report, 
make copies available to residents in the development office, and 
provide residents with at least 30 calendar days in which to comment on 
the report.
    (b) * * *
    (2) An explanation of how the IHA has used the CGP funds to address 
the needs identified in its Comprehensive Plan and to carry out the 
activities identified in its approved Five-Year Action Plan, and shall 
specifically address:
    (i) Any funds used for emergency needs not set forth in its Five-
Year Action Plan; and
    (ii) Any changes to the Annual Statement under Sec. 905.678(h);
* * * * *
    (4) The current status of the IHA's obligations and expenditures 
and specifying how the IHA is performing with respect to its 
implementation schedules, and an explanation of any necessary revision 
to the planned target dates;
* * * * *
    (6) A resolution by the IHA Board of Commissioners approving the 
Performance and Evaluation Report and containing a certification that 
the IHA has made reasonable efforts to notify residents in the 
development(s) and local government officials of the opportunity to 
review the draft report and to comment on it before its submission to 
HUD, and that copies of the report were provided to residents in the 
development office and to local government officials, or furnished upon 
their request.
    13. Section 905.687 is amended by revising paragraphs (a)(1)(i), 
(a)(2)(i)(A), and (a)(3)(ii); by adding a new paragraph (a)(3)(iii); by 
revising paragraph (e) (2) and (4); by redesignating (e)(7) to read 
paragraph (e)(8); and by adding a new paragraph (e)(7), to read as 
follows:


Sec. 905.687  HUD review of IHA performance.

    (a) * * *
    (1) * * *
    (i) In making this determination, HUD will review the IHA's 
performance to determine whether the modernization activities 
undertaken during the period under review conform substantially to the 
activities specified in the approved Five-Year Action Plan. HUD will 
also review an IHA's progress against the implementation schedules for 
purposes of determining whether the IHA has carried out its 
modernization activities in a timely manner;
* * * * *
    (2) * * *
    (i) * * *
    (A) Carried out its activities under the CGP program, as well as 
the CIAP, in a timely manner, taking into account the level of funding 
available and whether the IHA obligates its modernization funds within 
two years from the execution of the ACC amendment and expends such 
modernization funds within three years of ACC amendment execution, or 
such longer period where approved by HUD or where extended by the IHA 
for reasons outside of its control.
* * * * *
    (3) * *  *
    (ii) With respect to the management condition of the IHA, whether 
the IHA has achieved, or is making reasonable progress in implementing, 
the work items (specified in its Annual Statement and Five-Year Action 
Plan), which are designed to address deficiencies identified in its 
management needs assessment or through audits or HUD reviews; and
    (iii) In determining whether the IHA has made reasonable progress, 
HUD will take into account the level of funding available and whether 
the IHA obligates its modernization funds within two years from the 
execution of the ACC amendment and expends such modernization funds 
within three years of ACC amendment execution, or such longer period if 
approved by HUD or extended by the IHA for reasons outside of its 
control in an implementation schedule. The IHA must demonstrate to 
HUD's satisfaction that any lack of timeliness (beyond the time periods 
specified in this paragraph or date specified in a HUD approved 
implementation schedule) has resulted from factors beyond the IHA's 
control. If the IHA fails to obligate formula funds within the approved 
or extended time period, the IHA may be subject to an alternative 
management strategy which may involve third-party oversight or 
administration of the modernization function. HUD would only require 
such action after a corrective action order had been issued under this 
section and the IHA failed to comply with the order. HUD could then 
require an alternative management strategy in a correction action 
order. An IHA may appeal in writing the corrective action order 
requiring an alternative management strategy within 30 calendar days of 
that order. HUD Headquarters shall render a written decision on an 
IHA's appeal within 30 calendar days of the date of its receipt of the 
IHA's appeal.
* * * * *
    (e) * * *
    (2) Submit detailed schedules for completing the work identified in 
its Annual Statements and report periodically on its progress on 
meeting the schedules;
* * * * *
    (4) Submit additional material in support of one or more of the 
statements, resolutions, and certifications submitted as part of the 
IHA's Comprehensive Plan, Five-Year Action Plan, or Performance and 
Evaluation Report;
* * * * *
    (7) Submit to an alternative management strategy which may involve 
third-party oversight or administration of the modernization function 
(see Sec. 905.669(d)); and
* * * * *

PART 968--PUBLIC HOUSING MODERNIZATION

    14. The authority citation for 24 CFR part 968 continues to read as 
follows:

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

    15. Section 968.102 is revised to read as follows:


Sec. 968.102  Special requirements for Turnkey III developments.

    (a) Modernization Costs. Modernization work on a Turnkey III unit 
shall not increase the purchase price or amortization period of the 
home.
    (b) Paid-off units. Eligible modernization work on any Turnkey III 
units that have been paid-off, but not conveyed, by the time the CIAP 
application or CGP Annual Statement is submitted, is limited to work 
which is necessary to meet statutory requirements (e.g., accessibility 
for disabled persons, lead-based paint testing, interim containment, 
professional risk assessment and abatement). Such work must be 
completed prior to conveyance. Turnkey III units that have not been 
paid-off at the time the CIAP application or CGP Annual Statement is 
submitted and for which work is included in the CIAP application or CGP 
Annual Statement, are eligible for any physical improvements provided 
under Sec. 968.310(d) even where the units are subsequently paid-off 
before the work is completed, so long as the work is completed prior to 
conveyance.
    (c) Other. The homebuyer family must be in compliance with its 
financial obligations under its homebuyer agreement in order to be 
eligible for non-emergency physical improvements, with the exception of 
work necessary to meet statutory and regulatory requirements, (e.g., 
accessibility for disabled persons, lead-based paint testing, interim 
containment, professional risk assessment, and abatement) and the 
correction of development deficiencies. Notwithstanding the above 
requirement, a PHA may, with prior HUD approval, complete non-emergency 
physical improvements on any homeownership unit where the PHA 
demonstrates that, due to economies of scale or geographic constraints, 
substantial cost savings may be realized by completing all necessary 
work in a development at one time.
    16. Section 968.103 is amended by revising paragraph (b); by adding 
three sentences to the end of paragraph (j); and by revising paragraphs 
(k)(2)(i) and (k)(3)(iii), to read as follows:


Sec. 968.103  Allocation of funds under section 14.

* * * * *
    (b) Set-aside for emergencies and disasters. For each FFY, HUD 
shall reserve from amounts approved in the appropriation act for grants 
under this part and part 905 of this title, $75 million (which shall 
include unused reserve amounts carried over from previous FFYs), which 
shall be made available to PHAs and IHAs for modernization needs 
resulting from natural and other disasters, and from emergencies. HUD 
shall replenish this reserve at the beginning of each FFY so that it 
always begins with a $75 million balance. Any unused funds from 
previous years will remain in the reserve until allocated. The 
requirements governing the reserve for disasters and emergencies and 
the procedures by which a PHA may request such funds, are set forth in 
Sec. 968.312.
* * * * *
    (j) Calculation of number of units. * * * New development units 
that are added to an PHA's or IHA's inventory will be added to the 
overall unit count so long as they are under ACC amendment and have 
reached DOFA by the first day in the FFY in which the formula is being 
run. Any increase in units (reaching DOFA and under ACC amendment) as 
of the beginning of the FFY shall result in an adjustment upwards in 
the number of units under the formula. New units reaching DOFA after 
this date will be counted for formula purposes as of the following FFY.
    (k) * * *
    (2) * * *
    (i) Increases in the number of units resulting from the conversion 
of existing units will be added to the overall unit count so long as 
they are under ACC amendment by the first day in the FFY in which the 
formula is being run;
* * * * *
    (3) * * *
    (iii) Exception. A unit which is conveyed under the Mutual Help or 
Turnkey III programs will result in an automatic (rather than a phased-
in) reduction in the unit count. Paid-off Mutual Help or Turnkey III 
units continue to be counted until they are conveyed.
    17. Section 968.305 is amended by removing the definition of Major 
changes, revising the definition of Annual Statement, and adding in 
alphabetical order definitions of Annual Submission, Fungibility and 
Work Statements, to read as follows:


Sec. 968.305  Definitions.

* * * * *
    Annual Statement. A work statement covering the first year of the 
Five-Year Action Plan and setting forth the major work categories and 
costs by development or PHA-wide for the current FFY grant, as well as 
a summary of costs by development account and implementation schedules 
for obligation and expenditure of the funds.
* * * * *
    Annual Submission. A collective term for all documents which the 
PHA must submit to HUD for review and approval before accessing the 
current FFY grant funds. Such documents include the Annual Statement, 
Work Statements for years two through five of the Five-Year Action 
Plan, local government statement, PHA Board Resolution, materials 
demonstrating the partnership process and any other documents as 
prescribed by HUD.
* * * * *
    Fungibility. Fungibility is a concept which permits a PHA to 
substitute any work item from the latest approved Five-Year Action Plan 
to any previously approved CIAP budget or CGP Annual Statement and to 
move work items among approved budgets without prior HUD approval.
* * * * *
    Work Statements. Work Statements cover the second through the fifth 
years of the Five-Year Action Plan and set forth the major work 
categories and costs by development or PHA-wide which the PHA intends 
to undertake in each year of years two through five. In preparing these 
Work Statements, the PHA shall assume that the current FFY formula 
amount will be available in each year of years two through five.
* * * * *
    18. Section 968.310 is amended by revising paragraphs (a)(1), 
(a)(2), (f)(1)(iii), (b), (c) and (m); by removing the reference to 
``paragraph (g)'' in paragraph (a)(3) and adding in its place 
``paragraph (f)'', by revising (d)(1) and (d)(3)(i), by removing 
(d)(3)(iii), and by adding paragraph (g)(4) to read as follows:


Sec. 968.310  Eligible costs.

    (a) * * *
    (1) Undertaking activities described in its approved Five-Year 
Action Plan under Sec. 968.320(d)(5);
    (2) Carrying out emergency work, whether or not the need is 
indicated in the PHA's approved Comprehensive Plan (including Five-Year 
Action Plan) or Annual Statement;
* * * * *
    (b) Demonstration of viability. Except in the case of emergency 
work, a PHA shall only expend funds on a development for which the PHA 
has demonstrated that completion of the improvements and replacements 
identified in the comprehensive plan will reasonably ensure the long-
term physical and social viability of the development at a reasonable 
cost or for essential non-routine maintenance needed to keep the 
property habitable until residents are relocated.
    (c) Physical improvement costs. Eligible costs include alterations, 
betterments, additions, replacements, and non-routine maintenance that 
are necessary to meet the modernization and energy conservation 
standards prescribed in Sec. 968.115. These mandatory standards may be 
exceeded only when the PHA determines that it is necessary or highly 
desirable for the long-term physical and social viability of the 
individual development. If demolition or disposition is proposed, the 
PHA shall comply with 24 CFR part 970. Additional dwelling space may be 
added to existing units.
    (d) Costs for Turnkey III developments--(1) General. Eligible 
physical improvement costs for existing Turnkey III developments are 
limited to work items which are not the responsibility of the homebuyer 
families and which are related to health and safety, correction of 
development deficiencies, physical accessibility, energy audits and 
cost-effective energy conservation measures, and lead-based paint 
testing and abatement. In addition, management improvements are 
eligible modernization costs for existing Turnkey III developments.
    (2) * * *
    (3) * * *
    (i) Notwithstanding the requirements of paragraph (d)(1) of this 
section, a PHA may substantially rehabilitate a Turnkey III unit 
whenever the unit becomes vacant or is occupied by a non-homebuyer 
family. A PHA that intends to use funds under this paragraph must 
identify in its needs assessment the estimated number of units that the 
PHA is proposing for substantial rehabilitation and subsequent sale. In 
addition, a PHA must demonstrate in its needs assessment that the PHA 
has homebuyers who are both eligible for homeownership, in accordance 
with the requirements of 24 CFR part 904, and who have demonstrated 
their intent to be placed into each of the Turnkey III units proposed 
to be substantially rehabilitated;
* * * * *
    (f) * * *
    (1) * * *
    (iii) A management improvement requires more funds than the PHA may 
use under its 20% limit for management improvements (except as provided 
in paragraph (m)(1) of this section), and the PHA needs to save a 
portion of its annual grant in order to combine it with a portion of 
subsequent year(s) grants, to fund the work item;
* * * * *
    (g) * * *
    (4) Preventive maintenance system. The establishment of a 
preventive maintenance system or improvement of an existing system is 
strongly encouraged. A preventive maintenance system must provide for 
regular inspections of building structures, systems and units and 
determine the applicability of work eligible for operating funds 
(routine maintenance) and work eligible for CGP funding (non-routine 
maintenance).
* * * * *
    (m) Cost limitation. (1) Notwithstanding the full fungibility of 
work items in Sec. 968.325(c), a PHA shall not use more than a total of 
20 percent of its annual grant for management improvement costs in 
account 1408, unless specifically approved by HUD or the PHA has been 
designated as both an over-all high performer and mod-high performer 
under the PHMAP. PHAs are encouraged to use management improvement 
funds to train residents in carrying out activities related to the 
modernization-funded physical and management improvements.
    (2) Notwithstanding the full fungibility of work items in 
Sec. 968.325(c), a PHA shall not use more than a total of 10 percent of 
its annual grant on administrative costs in account 1410, excluding any 
costs related to lead-based paint or asbestos testing (whether 
conducted by force account employees or by a contractor), in-house 
architectural/engineering (A/E) work, or other special administrative 
costs required by State or local law, unless specifically approved by 
HUD;
* * * * *
    19. Section 968.312 is amended by revising paragraphs (a)(1) and 
(a)(3) to read as follows:


Sec. 968.312  Reserve for emergencies and disasters.

    (a) Emergencies--(1) Eligibility for assistance. A PHA (including a 
PHA that has been designated as mod troubled under PHMAP) may obtain 
funds at any time, for any eligible emergency work item as defined in 
Sec. 968.305 (for PHAs participating in CGP) or for any eligible 
emergency work item (described as emergency modernization in 
Sec. 968.205) (for PHAs participating in CIAP), from the reserve 
established under Sec. 968.103(b). However, emergency reserve funds may 
not be provided to a PHA participating in CGP that has the necessary 
funds available from any other source, including its annual formula 
allocation under Sec. 968.103 (e) and (f), other unobligated 
modernization funds, and its replacement reserves under 
Sec. 968.310(a)(3). A PHA is not required to have an approved 
comprehensive plan under Sec. 968.320 before it can request emergency 
assistance from this reserve. Emergency reserve funds may not be 
provided to a PHA participating in CIAP unless it does not have the 
necessary funds available from any other source, including unobligated 
CIAP, and no CIAP modernization funding is available from HUD for the 
remainder of the fiscal year.
* * * * *
    (3) Repayment. A CGP PHA that receives assistance for its emergency 
needs from the reserve under Sec. 968.103(b) must repay such assistance 
from its future allocations of assistance, where available. For PHAs 
participating in the CGP, HUD shall deduct up to 50 percent of a PHA's 
succeeding year's formula allocation under Sec. 968.103 (e) and (f) to 
repay emergency funds previously provided by HUD to the PHA. The 
remaining balance, if any, shall be deducted from a PHA's succeeding 
years' formula allocations.
* * * * *
    20. Section 968.315 is amended by revising the section heading; by 
adding three sentences to the end of paragraph (a)(1); by revising 
paragraphs (b), (c)(1) and (c)(5); by adding a new paragraph (d); and 
by adding the OMB control number to the end of the section, to read as 
follows:


Sec. 968.315  Allocation of assistance.

    (a) * * *
    (1) * * * On an annual basis, HUD will transmit to the PHA, the 
formula characteristics report which reflects the data that will be 
used to determine the PHA's formula share. The PHA will have at least 
30 calendar days to review and advise HUD of errors in this HUD report. 
Necessary adjustments will be made to the PHA's data before the formula 
is run for the current FFY.
* * * * *
    (b) HUD notification of formula amount; appeal rights--(1) Formula 
amounts notification. After HUD determines a PHA's formula allocation 
under Sec. 968.103 (e) and (f) based upon the PHA, development, and 
community characteristics, it shall notify the PHA of its formula 
amount and provide instructions on the Annual Submission in accordance 
with Secs. 968.320 and 968.330;
    (2) Appeal based upon unique circumstances. A PHA may appeal in 
writing HUD's determination of its formula amount within 60 calendar 
days of the date of HUD's determination on the basis of ``unique 
circumstances.'' The PHA must indicate what is unique, and specify the 
manner in which it is different from all other PHAs participating in 
the CGP, and provide any necessary supporting documentation. HUD shall 
render a written decision on an PHA's appeal under this paragraph 
within 60 calendar days of the date of its receipt of the PHA's request 
for an appeal. HUD shall publish in the Federal Register a description 
of the facts supporting any successful appeals based upon ``unique 
circumstances.'' Any adjustments resulting from successful appeals in a 
particular FFY under this paragraph shall be made from subsequent 
years' allocation of funds under this part;
    (3) Appeal based upon error. A PHA may appeal in writing HUD's 
determination of its formula amount within 60 calendar days of the date 
of HUD's determination on the basis of an error. The PHA may appeal on 
the basis of error the correctness of data in the formula 
characteristics report. The PHA must describe the nature of the error, 
and provide any necessary supporting documentation. HUD shall respond 
to the PHA's request within 60 calendar days of the date of its receipt 
of the PHA's request for an appeal. Any adjustment resulting from 
successful appeals in a particular FFY under this paragraph shall be 
made from subsequent years' allocation of funds under this part;
    (c) Reduced formula allocation for PHAs designated as mod troubled 
under PHMAP--(1) Notification. After a PHA is designated as a mod 
troubled agency under PHMAP (24 CFR part 901), HUD shall inform the PHA 
that its funding may be limited under this subpart because of its 
designation as a mod troubled PHA. HUD shall also provide the PHA with 
information concerning the PHA's funding levels for CGP, CIAP and MROP 
for each of the preceding three FFYs for purposes of determining the 
PHA's reduced formula allocation, in accordance with paragraph 
(c)(2)(ii) of this section. In addition, HUD will provide the PHA with 
information on its full formula allocation under Sec. 968.103 (e) and 
(f), and the amount which represents 25 percent of the difference 
between the average amounts provided to the PHA in each of the 
preceding three FFYs and its full formula allocation.
* * * * *
    (5) Reallocation of funds withheld from mod troubled PHAs. Any 
amounts which are not provided to a PHA under paragraph (c)(1) of this 
section because the PHA is designated as a mod troubled agency under 
PHMAP, shall be reallocated by HUD to other PHAs under this subpart 
which are not designated as either troubled or mod troubled agencies 
under PHMAP, and to IHAs under 24 CFR part 905 (subpart I) which are 
not determined to be high risk under Sec. 905.135 of this chapter, the 
ACA, and the Field Office Monitoring of IHAs Handbook. Such funds shall 
be reallocated in the next FFY based upon the relative needs of these 
PHAs and IHAs, as determined under the formula.
* * * * *
    (d) Obligation of formula funding. All formula funding should be 
obligated within two years of approval. However, due to the size of the 
grant, complexity of the work, and other factors, the PHA may propose, 
and HUD may approve, a longer time period.

(Approved by the Office of Management and Budget under control 
number 2577-0157)

    21. Section 968.320 is amended by revising the section heading; by 
revising paragraphs (a), (b)(2)(i), (b)(3) through (b)(5), (c)(2), 
(d)(1)(i), (d)(1)(ii), (d)(2)(i)(E), (d)(4), (d)(5)(i), (d)(5)(iii), 
(d)(6)(i), (d)(6)(ii), (d)(7)(v), (d)(7)(viii), and (d)(7)(xv); by 
adding a new paragraph (d)(7)(xviii); by revising paragraphs (e) (2), 
(3) and (4); and by adding the OMB control number to the end of the 
section, to read as follows:


Sec. 968.320  Comprehensive Plan (including Five-Year Action Plan).

    (a) Submission. As soon as possible after modernization funds first 
become available for allocation under this subpart, HUD shall notify 
PHAs in writing of their formula amount. For planning purposes, PHAs 
may use the amount they received under CGP in the prior year in 
developing their Comprehensive Plan or they may wait for the annual HUD 
notification of formula amount under Sec. 968.315(b)(1).
    (b) * * *
    (2) * * *
    (i) To assure that residents are fully briefed and involved in 
developing the content of, and monitoring the implementation of, the 
Comprehensive Plan including, but not limited to, the physical and 
management needs assessments, viability analysis, Five-Year Action 
Plan, and Annual Statement. If necessary, the PHA shall develop and 
implement capacity building strategies to ensure meaningful resident 
participation in CGP. Such technical assistance efforts for residents 
are eligible management improvement costs under CGP;
* * * * *
    (3) Public notice. Within a reasonable amount of time before the 
advance meeting for residents under paragraph (b)(4) of this section, 
and the public hearing under paragraph (b)(5) of this section, the PHA 
shall provide public notice of the advance meeting and the public 
hearing in a manner determined by the PHA and which ensures notice to 
all duly elected resident councils;
    (4) Advance meeting for residents. The PHA shall hold, within a 
reasonable amount of time before the public hearing under paragraph 
(b)(5) of this section, a meeting for residents and duly elected 
resident councils at which the PHA shall explain the components of the 
Comprehensive Plan. The meeting shall be open to all residents and duly 
elected resident councils;
    (5) Public hearing. The PHA shall hold at least one public hearing, 
and any appropriate number of additional hearings, to present 
information on the Comprehensive Plan/Annual Submission and the status 
of prior approval programs. The public hearing shall provide ample 
opportunity for residents, local government officials, and other 
interested parties, to express their priorities and concerns. The PHA 
shall give full consideration to the comments and concerns of 
residents, local government officials, and other interested parities.
    (c) * * *
    (2) A copy of the summary of total preliminary estimated costs to 
address physical needs by each development and management/operations 
needs PHA-wide and a specific description of the PHA's process for 
maximizing the level of participation by residents and a summary of the 
general issues raised on the plan by residents and others during the 
public comment process and the PHA's response to the general issues. 
PHA records, such as minutes of planning meetings or resident surveys, 
shall be maintained in the PHA's files and made available to residents, 
residents organizations, and other interested parties upon request; and
* * * * *
    (d) * * *
    (1) Summaries. A PHA shall include as part of its Comprehensive 
Plan the following summaries:
    (i) A summary of total preliminary estimated costs to address 
physical needs by each development and management needs PHA-wide; and
    (ii) A specific description of the PHA's process for maximizing the 
level of participation by residents during the development, 
implementation and monitoring of the Comprehensive Plan, a summary of 
the general issues raised on the plan by residents and others during 
the public comment process and the PHA's response to the general 
issues. PHA records, such as minutes of planning meetings or resident 
surveys, shall be maintained in the PHA's files and made available to 
residents, duly elected resident councils, and other interested 
parties, upon request.
* * * * *
    (2) * * *
    (i) * * *
    (E) In addition, the PHA shall provide with respect to vacant or 
non-home buyer-occupied Turnkey III units, the estimated number of 
units that the PHA is proposing for substantial rehabilitation and 
subsequent sale, in accordance with Sec. 968.310(d)(3).
* * * * *
    (4) Demonstration of long-term physical and social viability--(i) 
General. The plan shall include, on a development-by-development basis, 
an analysis of whether completion of the improvements and replacements 
identified under paragraphs (d)(2) and (d)(3) of this section will 
reasonably ensure the long-term physical and social viability, 
including achieving structural/system soundness and full occupancy, of 
the development at a reasonable cost. For cost reasonableness, the PHA 
may choose to use the 90% of Total Development Cost (TDC) approach (the 
preliminary estimate of hard costs for work proposed at the development 
is 90% or less of TDC) or a cost reasonableness approach related to the 
cost of individual work items as indicated by National cost indices, 
adjusted by local conditions and the PHA's own recent procurement 
experience. The PHA shall keep documentation in its files to support 
its reasonable cost determinations of each major work item (e.g., 
kitchen cabinets, exterior doors). HUD will review cost reasonableness 
as part of its review of the Annual Submission and the Performance and 
Evaluation Report. Where necessary, HUD will review the PHA's 
documentation in support of its cost reasonableness;
    (ii) Determination of non-viability. Where a PHA's analysis of a 
development, under paragraph (d) of this section, establishes that 
completion of the identified improvements and replacements will not 
result in the long-term physical and social viability of the 
development at a reasonable cost, the PHA shall not expend CGP funds 
for the development, except for emergencies and essential non-routine 
maintenance necessary to maintain habitability until residents can be 
relocated. The PHA shall specify in its Comprehensive Plan the actions 
it proposes to take with respect to the non-viable development (e.g., 
demolition or disposition under 24 CFR part 970).
    (5) Five-Year Action Plan--(i) General. The Comprehensive Plan 
shall include a rolling Five-Year Action Plan to carry out the 
improvements and replacements (or a portion thereof) identified under 
paragraphs (d)(2) and (d)(3) of this section. In developing its Five-
Year Action Plan, the PHA shall assume that the current year funding or 
formula amount will be available for each year of its Five-Year Action 
Plan, whichever the PHA is using for planning purposes, plus the PHA's 
estimate of the funds that will be available from other sources, such 
as State and local governments. All activities specified in an PHA's 
Five-Year Action Plan are contingent upon the availability of funds;
* * * * *
    (iii) Procedure for maintaining current Five-Year Action Plan. The 
PHA shall maintain a current Five-Year Action Plan by annually amending 
its Five-Year Action Plan, in conjunction with the Annual Submission;
    (6) * * *
    (i) The PHA developed the Comprehensive Plan/Five-Year Action Plan 
or amendments thereto in consultation with officials of the appropriate 
governing body and with development residents covered by the 
Comprehensive Plan/Five-Year Action Plan, in accordance with the 
requirements of Sec. 968.320(b)(1) and (2);
    (ii) The Comprehensive Plan/Five-Year Action Plan or amendments 
thereto are consistent with the appropriate governing body's assessment 
of its low-income housing needs (as evidenced by its Comprehensive 
Housing Affordability Strategy under 24 CFR part 91, if applicable), 
and that the appropriate governing body will cooperate in providing 
resident programs and services; and
* * * * *
    (7) * * *
    (v) The proposed activities in the Five-Year Action Plan/Annual 
Statement are consistent with the proposed or approved Comprehensive 
Plan of the PHA;
* * * * *
    (viii) The PHA has provided to HUD any documentation that the 
Department has requested to carry out its review under the National 
Environmental Policy Act (NEPA) and other related authorities in 
accordance with 24 CFR 968.110(c), (d) and (m), and will not obligate, 
in any manner, the expenditure of CGP funds, or otherwise undertake the 
activities identified in its Comprehensive Plan/Annual Statement, until 
the PHA receives written notification from HUD indicating that the 
Department has complied with its responsibilities under NEPA and other 
related authorities;
* * * * *
    (xv) The PHA has complied with the requirements governing local 
government and resident participation in accordance with 24 CFR 
968.320(b) and (c), 968.330(d), and 968.340, and has given full 
consideration to the priorities and concerns of local government and 
residents, including comments which were ultimately not adopted, in 
preparing the Comprehensive Plan/Five-Year Action Plan and any 
amendments thereto;
* * * * *
    (xviii) The PHA will comply with section 3 of the Housing and Urban 
Development Act of 1968, as amended, and make best efforts, consistent 
with existing Federal, State, and local laws and regulations, to give 
low- and very low-income persons, training and employment opportunities 
generated by CGP assistance, and to make best efforts, consistent with 
existing Federal, State, and local laws and regulations, to award 
contracts for work to be performed in connection with CGP assistance to 
business concerns that provide economic opportunities for low- and very 
low-income persons.
    (e) * * *
    (2) Amendments to needs assessments. The PHA must amend its plan by 
revising its needs assessments whenever it proposes to carry out 
activities in its Five-Year Action Plan or Annual Statement that are 
not reflected in its current needs assessments (except in the case of 
emergencies). The PHA may propose an amendment to its needs 
assessments, in connection with the submission of its Annual Submission 
(see Sec. 968.330(b)), or at any other time. These amendments shall be 
reviewed by HUD in accordance with Sec. 968.325;
    (3) Six-year revision of Comprehensive Plan. Every sixth year 
following the initial year of participation, the PHA shall submit to 
HUD, with its Annual Submission, a complete update of its Comprehensive 
Plan. A PHA may elect to revise some or all parts of the Comprehensive 
Plan more frequently.
    (4) Annual revision of Five-Year Action Plan. Annually, the PHA 
shall submit to HUD, with its Annual Submission, an update of its Five-
Year Action Plan, eliminating the previous year and adding an 
additional year. The PHA shall identify changes in work categories 
(other than those included in the new fifth year) from the previous 
year Five-Year Action Plan when making this Annual Submission.
* * * * *
(Approved by the Office of Management and Budget under control 
number 2577-0157)

    22. Section 968.325 is amended by revising the section heading and 
paragraph (c); and by adding the OMB control number to the end of the 
section, to read as follows:


Sec. 968.325   HUD review and approval of Comprehensive Plan (including 
Five-Year Action Plan).

* * * * *
    (c) Effect of HUD approval of Comprehensive Plan. After HUD 
approves the Comprehensive Plan (including the Five-Year Action Plan), 
or any amendments to the plan, it shall be binding upon HUD and the 
PHA, until such time as the PHA submits, and HUD approves, an amendment 
to its plan. The PHA is expected to undertake the work set forth in the 
Annual Statement. However, the PHA may undertake any of the work 
identified in any of the other four years of the latest approved Five-
Year Action Plan, current approved Annual Statement or previously 
approved CIAP budgets, without further HUD approval. Actual uses of the 
funds are to be reflected in the PHA annual Performance and Evaluation 
Report for each grant. See Sec. 968.340. The PHA is encouraged to 
inform the residents of significant changes (such as changes in scope 
of work or whenever it moves items within the approved Five-Year Action 
Plan). Documentation of that information shall be retained in PHA 
files. If HUD determines as a result of an audit or monitoring findings 
that a PHA has provided false or substantially inaccurate data in its 
Comprehensive Plan/Annual Submission or has circumvented the intent of 
the program, HUD may condition the receipt of assistance, in accordance 
with Sec. 968.345. Moreover, in accordance with 18 U.S.C. 1001, any 
individual or entity who knowingly and willingly makes or uses a 
document or writing containing any false, fictitious or fraudulent 
statement or entry, in any matter within the jurisdiction of any 
department or agency of the United States, shall be fined not more than 
$10,000 or imprisoned for not more than five years, or both.

(Approved by the Office of Management and Budget under control 
number 2577-0157)

    23. Section 968.330 is amended by revising paragraphs (a), (b), 
(c), (d), (e) introductory text, (e)(1), (e)(2), (e)(4), (e)(8), (f), 
(g)(1), (g)(2) introductory text, (g)(2)(i), (h), (i), and (j); by 
adding a new paragraph (k); and by adding the OMB control number to the 
end of the section, to read as follows:


Sec. 968.330   Annual Submission of activities and expenditures.

    (a) General. The Annual Submission is a collective term for all 
documents which the PHA must submit to HUD for review and approval 
before accessing the current FFY grant funds. Such documents include 
the Annual Statement, Work Statements for years two through five of the 
Five-Year Action Plan, local government statement, PHA Board 
Resolution, materials demonstrating the partnership process and any 
other documents as prescribed by HUD. For planning purposes, a PHA may 
use either the amount of funding received in the current year or the 
actual formula amount provided in HUD's notification under 
Sec. 968.315(b)(1) in developing the Five-Year Action Plan for 
presentation at the resident meetings and public hearing. Work 
Statements cover the second through the fifth years of the Five-Year 
Action Plan and set forth the major work categories and costs by 
development or PHA-wide which the PHA intends to undertake in each year 
of years two through five. In preparing these Work Statements, the PHA 
shall assume that the current FFY formula amount will be available in 
each year of years two through five. The Work Statements for all five 
years will be at the same level of detail so that the PHA may 
interchange work items as discussed in Sec. 968.320(d)(5)(i). A PHA may 
budget up to 8% of its annual grant in a contingency account for cost 
overruns.
    (b) Submission. After receiving HUD notification of the formula 
amount and estimating how much funding will be available from other 
sources, such as State and local governments, and determining its 
activities and costs based on the current FFY formula amount, the PHA 
shall submit its Annual Submission.
    (c) Acceptance for review. (1) Upon receipt of an Annual Submission 
from a PHA, HUD shall determine whether:
    (i) The Annual Submission contains each of the required components; 
and
    (ii) The PHA has submitted any additional information or assurances 
required as a result of HUD monitoring, findings of inadequate PHA 
performance, audit findings, and civil rights compliance findings.
    (2) If the PHA has submitted a complete Annual Submission and all 
required information and assurances, HUD will accept the submission for 
review, as of the date of receipt. If the PHA has not submitted all 
required material, HUD will promptly notify the PHA that it has 
disapproved the submission, indicating the reasons for disapproval, the 
modifications required to qualify the Annual Submission for HUD review, 
and the date by which such modifications must be received by HUD.
    (d) Resident and local government participation. A PHA is required 
to develop its Annual Submission, including any proposed amendments to 
its Comprehensive Plan as provided in Sec. 968.320 (b) and (c), in 
consultation with officials of the appropriate governing body (or, in 
the case of a PHA with developments in multiple jurisdictions, in 
consultation with the CEO of each such jurisdiction or with an advisory 
group representative of all jurisdictions) and with residents and duly 
elected resident councils of the developments covered by the 
Comprehensive Plan, as follows:
    (1) Public notice. Within a reasonable amount of time before the 
advance meeting for residents under paragraph (d)(2) of this section, 
and the public hearing under paragraph (d)(3) of this section, the PHA 
shall annually provide public notice of the advance meeting and the 
public hearing in a manner determined by the PHA and which ensures 
notice to all duly elected resident councils;
    (2) Advance Meeting with residents. The PHA shall at least annually 
hold a meeting open to all residents and duly elected resident 
councils. The advance meeting shall be held within a reasonable amount 
of time before the public hearing under paragraph (d)(3) of this 
section. The PHA will provide residents with information concerning the 
contents of the PHA's Five-Year Action Plan (and any proposed 
amendments to the PHA's Comprehensive Plan to be submitted with the 
Annual Submission) so that residents can comment adequately at the 
public hearing on the contents of the Five-Year Action Plan and any 
proposed amendments to the Comprehensive Plan.
    (3) Public hearing. The PHA shall annually hold at least one public 
hearing, and any appropriate number of additional hearings, to present 
information on the Annual Submission and the status of prior approved 
programs. The public hearing shall provide ample opportunity for 
residents of the developments covered by the Comprehensive Plan, 
officials of the appropriate governing body, and other interested 
parties, to express their priorities and concerns. The PHA shall give 
full consideration to the comments and concerns of residents, local 
government officials, and other interested parties in developing its 
Five-Year Action Plan, or any amendments to its Comprehensive Plan.
    (4) Expedited scheduling. PHAs are encouraged to hold the meeting 
with residents and duly elected resident councils under paragraph 
(d)(2) of this section, and the public hearing under paragraph (d)(3) 
of this section between July 1 (i.e., after the end of the program 
year--June 30) and September 30, using the formula amount for the 
current FFY. If a PHA elects to use such expedited scheduling, it must 
explain at the meeting with residents and duly elected resident 
councils and at the public hearing that the current FFY amount is not 
the actual grant amount for the subsequent year, but is rather the 
amount used for planning purposes. It must also explain that the Five-
Year Action Plan will be adjusted when HUD provides notification of the 
actual formula amount, and explain which major work categories at which 
developments may be added or deleted to adjust for the actual formula 
amount and that any added work categories/developments will come from 
the Comprehensive Plan.
    (e) Contents of Annual Submission. The Annual Statement for each 
year must include, for each development or on a PHA-wide basis for 
management improvements or certain physical improvements for which work 
is to be funded out of that year's grant:
    (1) A list of development accounts with an identification of major 
work categories;
    (2) The cost for each major work category, as well as a summary of 
cost by development account;
* * * * *
    (4) For each development and for any management improvements not 
covered by a HUD-approved MOA or management improvement plan, a 
schedule for the use of current year funds, including target dates for 
the obligation and expenditure of the funds. In general, HUD expects 
that a PHA will obligate its current year's allocation of CGP funds 
(except for its funded replacement reserves) within two years, and 
expend such funds within three years, of the date of HUD approval, 
unless longer time-frames are approved by HUD due to the size of the 
grant, the complexity of the work, and other factors;
* * * * *
    (8) A PHA resolution approving the Annual Submission or any 
amendments thereto, as set forth in Sec. 968.320(d)(7).
    (f) Additional submissions with Annual Submission. A PHA shall 
submit with the Annual Submission any amendments to the Comprehensive 
Plan, as set forth in Sec. 968.320(e), and such additional information 
as may be prescribed by HUD. HUD shall review any proposed amendments 
to the Comprehensive Plan in accordance with review standards under 
Sec. 968.325(b).
    (g) HUD review and approval of Annual Submission. (1) General. An 
Annual Submission accepted in accordance with paragraph (a) of this 
section shall be considered to be approved, unless HUD notifies the PHA 
in writing, postmarked within 75 calendar days of the date that HUD 
receives the Annual Submission for review under paragraph (c) of this 
section, that HUD has disapproved the Annual Submission, indicating the 
reasons for disapproval, the modifications required to make the Annual 
Submission approvable, and the date by which such modifications must be 
received by HUD. HUD may request additional information (e.g., for 
eligibility determinations) to facilitate review and approval of the 
Annual Submission during the 75-day review period. HUD shall not 
disapprove an Annual Submission on the basis that the Department cannot 
complete its review under this section within the 75-day deadline;
    (2) Bases for disapproval for Annual Submission. HUD shall approve 
the Annual Submission, except where:
    (i) Plainly inconsistent with Comprehensive Plan. HUD determines 
that the activities and expenditures proposed in the Annual Submission 
are plainly inconsistent with the PHA's approved Comprehensive Plan;
* * * * *
    (h) Amendments to Annual Statement. The PHA shall advise HUD of all 
changes to the PHA's approved Annual Statement in its Performance and 
Evaluation Report submitted under Sec. 968.305. The PHA shall submit to 
HUD for prior approval any additional work categories (except for 
emergency work) which are not within the PHA's approved Five-Year 
Action Plan.
    (i) Failure to obligate formula funds and extension of time for 
performance.--(1) Failure to obligate formula funds. If the PHA fails 
to obligate formula funds within the approved or extended time period, 
the PHA may be subject to an alternative management strategy which may 
involve third-party oversight or administration of the modernization 
function. HUD would only require such action after a corrective action 
order had been issued under Sec. 968.345 and the PHA failed to comply 
with the order. HUD could then require an alternative management 
strategy in a corrective action order. A PHA may appeal in writing the 
corrective action order requiring an alternative management strategy 
within 30 calendar days of that order. HUD Headquarters shall render a 
written decision on a PHA's appeal within 30 calendar days of the date 
of its receipt of the PHA's appeal.
    (2) Extension of time for performance. A PHA may extend the target 
dates for fund obligation and expenditure in the approved Annual 
Statement whenever any delay outside the PHA's control occurs, as 
specified by HUD, and the extension is made in a timely manner. Such 
revision is subject to HUD review under Sec. 968.345(a)(2) as to the 
PHA's continuing capacity. HUD shall not review as to a PHA's 
continuing capacity any revisions to a PHA's Comprehensive Plan and 
related statements where the basis for the revision is that HUD has not 
provided the amount of assistance set forth in the Annual Submission, 
or has not provided such assistance in a timely manner.
    (j) ACC Amendment. After HUD approval of each year's Annual 
Submission, HUD and the PHA shall enter into an ACC amendment to obtain 
modernization funds. The ACC amendment shall require low-income use of 
housing for not less than 20 years from the date of the ACC amendment 
(subject to sale of homeownership units in accordance with the terms of 
the ACC).
    (k) Declaration of trust. As HUD may require, the PHA shall execute 
and file for record a Declaration of Trust as provided under the ACC to 
protect the rights and interests of HUD throughout the 20-year period 
during which the PHA is obligated to operate its developments in 
accordance with the ACC, the Act, and HUD regulations and requirements. 
(Approved by the Office of Management and Budget under control number 
2577-0157)
    24. Section 968.335 is amended by revising paragraph (a) 
introductory text and paragraph (b), to read as follows:


Sec. 968.335  Conduct of modernization activities.

    (a) Initiation of activities. After HUD has approved a Five-Year 
Action Plan and entered into an ACC amendment with the PHA, the PHA 
shall undertake in a timely, efficient and economical manner, the 
modernization activities and expenditures set forth in its approved 
Annual Statement or substitute work categories from within the approved 
Five-Year Action Plan, subject to the following requirements:
* * * * *
    (b) Fund requisitions. To request modernization funds against the 
Annual Statement, the PHA shall comply with requirements prescribed by 
HUD.
* * * * *
    25. Section 968.340 is amended by revising paragraphs (a) and 
(b)(2); by removing paragraph (b)(3); by redesignating paragraphs 
(b)(4) through (b)(7) as paragraphs (b)(3) through (b)(6), 
respectively; by revising the newly redesignated paragraphs (b)(4) and 
(b)(6); and by adding the OMB control number to the end of the section, 
to read as follows:


Sec. 968.340  PHA Performance and Evaluation Report.

    (a) Submission. For any FFY in which a PHA has received assistance 
under this subpart, the PHA shall submit a Performance and Evaluation 
Report, in a form and at a time to be prescribed by HUD, describing its 
use of assistance in accordance with the approved Annual Statement. The 
PHA shall make reasonable efforts to notify residents and officials of 
the appropriate governing body of the availability of the draft report, 
make copies available to residents in the development office, and 
provide residents with at least 30 calendar days in which to comment on 
the report.
    (b) * * *
    (2) An explanation of how the PHA has used the CGP funds to address 
the needs identified in its Comprehensive Plan and to carry out the 
activities identified in its approved Five-Year Action Plan, and shall 
specifically address:
    (i) Any funds used for emergency needs not set forth in its Five-
Year Action Plan; and
    (ii) Any changes to the Annual Statement under Sec. 968.330;
* * * * *
    (4) The current status of the PHA's obligations and expenditures 
and specifying how the PHA is performing with respect to its 
implementation schedules, and an explanation of any necessary revision 
to the planned target dates;
* * * * *
    (6) A resolution by the PHA Board of Commissioners approving the 
Performance and Evaluation Report and containing a certification that 
the PHA has made reasonable efforts to notify residents in the 
development(s) and local government officials of the opportunity to 
review the draft report and to comment on it before its submission to 
HUD, and that copies of the report were provided to residents in the 
development office and to local government officials, or furnished upon 
their request.

(Approved by the Office of Management and Budget under control no. 
2577.0157)

    26. Section 968.345 is amended by revising paragraphs (a)(1)(i), 
(a)(1)(ii), (a)(2)(i)(A), and (a)(3)(ii); by adding a new paragraph 
(a)(3)(iii); by revising paragraphs (e)(2) and (e)(4); by redesignating 
paragraph (e)(7) to read paragraph (e)(8); by adding a new paragraph 
(e)(7); and by adding the OMB control number to the end of the section, 
to read as follows:


Sec. 968.345  HUD review of PHA performance.

    (a) * * *
    (1) * * *
    (i) In making this determination, HUD will review the PHA's 
performance to determine whether the modernization activities 
undertaken during the period under review conform substantially to the 
activities specified in the approved Five-Year Action Plan. HUD will 
also review a PHA's progress against the implementation schedules for 
purposes of determining whether the PHA has carried out its 
modernization activities in a timely manner;
    (ii) HUD will review a PHA's performance to determine whether the 
activities carried out comply with the requirements of the Act, 
including the requirement that work carried out meets the modernization 
and energy conservation standards in Sec. 968.115, this part, and other 
applicable laws and regulations. This review should also include a 
review of the PHA's section 3 (of the Housing and Urban Development Act 
of 1968) past performance.
    (2) * * *
    (i) * * *
    (A) Carried out its activities under the CGP program, as well as 
the CIAP, in a timely manner, taking into account the level of funding 
available and whether the PHA obligates its modernization funds within 
two years from the execution of the ACC amendment and expends such 
modernization funds within three years of ACC amendment execution, or 
such longer period where approved by HUD or where extended by the PHA 
for reasons outside of its control.
* * * * *
    (3) * * *
    (ii) With respect to the management condition of the PHA, whether 
the PHA has achieved, or is making reasonable progress towards 
implementing the work items specified in its Annual Statement and Five-
Year Action Plan which are designed to address deficiencies identified 
through its management needs assessment, PHMAP, audits, or HUD reviews; 
and
    (iii) In determining whether the PHA has made reasonable progress, 
HUD will take into account the level of funding available and whether 
the PHA obligates its modernization funds within two years from the 
execution of the ACC amendment and expends such modernization funds 
within three years of ACC amendment execution, or such longer period if 
approved by HUD or extended by the PHA for reasons outside of its 
control in an implementation schedule. The PHA must demonstrate to 
HUD's satisfaction that any lack of timeliness (beyond the time periods 
specified in this paragraph or date specified in a HUD approved 
implementation schedule) has resulted from factors beyond the PHA's 
control. If the PHA fails to obligate formula funds within the approved 
or extended time period, the PHA may be subject to an alternative 
management strategy which may involve third-party oversight or 
administration of the modernization function. HUD would only require 
such action after a corrective action order had been issued under this 
section and the PHA failed to comply with the order. HUD could then 
require an alternative management strategy in a corrective action 
order. A PHA may appeal in writing the corrective action order 
requiring an alternative management strategy within 30 calendar days of 
that order. HUD Headquarters shall render a written decision on a PHA's 
appeal within 30 calendar days of the date of its receipt of the PHA's 
appeal.
* * * * *
    (e) * * *
    (2) Submit detailed schedules for completing the work identified in 
its Annual Statements and report periodically on its progress on 
meeting the schedules;
* * * * *
    (4) Submit additional material in support of one or more of the 
statements, resolutions, and certifications submitted as part of the 
PHA's Comprehensive Plan, Five-Year Action Plan, or Performance and 
Evaluation Report;
* * * * *
    (7) Submit to an alternative management strategy which may involve 
third-party oversight or administration of the modernization function 
(see Sec. 968.315(d)); and
* * * * *
(Approved by the Office of Management and Budget under control 
number 2577-0157)

    Dated: August 18, 1994.
Michael B. Janis,
General Deputy Assistant Secretary for Public and Indian Housing.
[FR Doc. 94-21139 Filed 8-29-94; 8:45 am]
BILLING CODE 4210-33-P