[Federal Register Volume 60, Number 11 (Wednesday, January 18, 1995)]
[Rules and Regulations]
[Pages 3706-3724]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1113]




[[Page 3705]]

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Part III





Department of Housing and Urban Development





Office of the Assistant Secretary for Public and Indian Housing



_______________________________________________________________________



24 CFR Part 970



Public Housing Program; Demolition or Disposition of Public Housing 
Projects; Final Rule

  Federal Register / Vol. 60, No. 11 / Wednesday, January 18, 1995 / 
Rules and Regulations   
[[Page 3706]] 

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Public and Indian Housing

24 CFR Part 970

[Docket No. R-95-1407; FR-2463-F-06]
RIN 2577-AA58


Public Housing Program; Demolition or Disposition of Public 
Housing Projects

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

ACTION: Final rule.

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SUMMARY: This rule makes final the interim rule which implemented 
section 121 of the Housing and Community Development Act of 1987. 
Section 121 amended section 18 of the United States Housing Act of 
1937, which governs the demolition and disposition of public and Indian 
housing. Section 121 combined two of the previous demolition criteria, 
so that demolition may be approved if the project is obsolete due to 
its physical condition, location, or other factors which make it 
unusable for housing, and no reasonable program of modifications, such 
as rehabilitation, is feasible to return the project to useful life. 
Section 121 also provided that projects may not be demolished or 
disposed of unless the public housing agency (PHA) has developed a plan 
for the provision of a replacement unit for each unit involved. The 
plan must include a schedule for its completion (not to exceed six 
years); and HUD must agree, upon approving the plan, to commit the 
funds necessary to carry out the plan over the approved schedule, to 
the extent such funding is not provided from other sources (e.g., State 
or local programs or proceeds of disposition), and HUD's commitment is 
subject to the availability of future appropriations. Section 121 
repealed a previous statutory provision which made section 18 
inapplicable to conveyance of units under homeownership programs. This 
rule continues that inapplicability to units under certain established 
homeownership programs, including disposition of a public housing 
project in accordance with an approved homeownership program under 
title III of the United States Housing Act of 1937, as provided by 
section 412(b) of the National Affordable Housing Act (``NAHA'').
    Section 412(a) of NAHA amended section 18 of the U.S. Housing Act 
of 1937 to require that tenant councils, resident management 
corporation, and tenant cooperative, if any, be given appropriate 
opportunities to purchase the project or portion of the project covered 
by the demolition or disposition application. Therefore, a separate 
Federal Register document was published on October 6, 1992, at 57 FR 
46074, that set forth the procedures and requirements for providing the 
opportunity to purchase to tenant councils, resident management 
corporations, and tenant cooperatives. This document was open to public 
comment and is being made final by this rule.
    This rule also contains a provision that states that in the case of 
scattered-site housing of a public housing agency, the net proceeds of 
a disposition that is less than the full disposition shall be used for 
the payment of development cost for the project and for the retirement 
of outstanding obligations issued to finance original development or 
modernization of the project, in an amount that bears the same ratio to 
the total of such costs and obligations as the number of units disposed 
of bears to the total number of units of the project at the time of 
disposition. This is a direct statutory requirement in compliance with 
section 512 of NAHA and, therefore, is contained in this final rule.
    Section 116 of the Housing and Community Development Act of 1992 
modified section 412(a) and provided for the use of 5-year project-
based and tenant-based assistance in certain instances. It also 
provided that a very limited number of units could be demolished before 
the replacement requirements must be met. The section 116 provisions 
are considered self-executing and, therefore, are contained in this 
final rule.

EFFECTIVE DATE: February 17, 1995.

FOR FURTHER INFORMATION CONTACT:  William J. Flood, Acting Director, 
Office of Construction, Rehabilitation and Management, Office of Public 
and Indian Housing, Department of Housing and Urban Development, 451 
Seventh Street, S.W., Washington, D.C. 20410, telephone (202) 708-1800. 
A telecommunications device for deaf persons (TDD) is available at 
(202) 472-6725. (These are not toll-free telephone numbers.)

SUPPLEMENTARY INFORMATION: The information collection requirements 
contained in this rule have been submitted to the Office of Management 
and Budget (OMB) for review under the Paperwork Reduction Act of 1980 
and have been assigned OMB control number 2577-0075.

Background

    Section 121 of the Housing and Community Development Act of 1987 
(Pub. L. 100-242) (``1987 Act'') amended section 18 of the United 
States Housing Act of 1937 (42 U.S.C. 1437p) (``1937 Act'')--the 
statutory provision governing the demolition and disposition of public 
and Indian housing. On August 17, 1988, the Department published an 
interim rule (53 FR 30984) which implemented the 1987 Act amendments 
and became effective on October 6, 1988.
    Below is a discussion of the public comments received on the 
interim rule, as well as the changes made by the interim rule as a 
result of the public comments.
    Following that is a discussion of the remaining provisions of the 
final rule that were not discussed in the interim rule section of this 
preamble. This section also includes a discussion of the statutory 
changes made by section 412(a) of the National Affordable Housing Act 
(Pub.L. 101-625) (``NAHA''), as amended by section 116(a) of the 1992 
Act, and the public comments received on the October 6, 1992 Federal 
Register notice which implemented section 412(a).

Interim Rule

    Section 121 of the 1987 Act combined two of the criteria for 
demolition of public housing units, by requiring both that the project 
or portion of the project be obsolete as to physical condition, 
location, or other factors, making it unusable for housing purposes, 
and that no reasonable program of modifications is feasible to return 
the project or portion of the project to useful life. One factor that 
the Department will take into consideration in determining whether the 
program of modifications is reasonable is where the costs of such 
program exceed 90 percent of total development cost (TDC). (The use of 
a percentage of TDC to establish the reasonable cost for demolition was 
set forth previously in HUD Handbook 7486.1.) Before this statutory 
change, either criterion could be the basis for demolition of a project 
or portion of a project. The regulatory amendment for implementation of 
this statutory requirement can be found in Sec. 970.6 of both the 
interim rule and this final rule.
    The 1987 Act made no change in the alternative demolition criterion 
applicable to demolition of only a portion of a project; i.e., where 
demolition will help to assure the useful life of the remaining portion 
of the project. An example of this would be selective demolition of 
units to reduce [[Page 3707]] project density incident to the 
modernization of the rest of the project.
    The 1987 Act made no change in the disposition criteria.
    Section 121 of the 1987 Act also mandated detailed requirements for 
a replacement housing plan for the provision of a decent, safe, 
sanitary, and affordable rental dwelling unit--on a one-for-one basis--
for each public housing dwelling unit to be demolished or disposed of. 
The replacement housing plan must contain a schedule for completing the 
plan, within a period consistent with the size of the proposed 
demolition or disposition, but the schedule may in no event exceed six 
years. Questions have been raised regarding the meaning of 
``completion.'' ``Completion'' does not mean that the replacement 
housing must be built or rehabilitated within the six years. For 
replacement units developed under the public housing development 
program, the completion of the plan would be when units have reached 
the stage of notice to proceed for conventional units and contract of 
sale for Turnkey units. Other replacement plan requirements contained 
in the 1987 Act are (1) that the plan be approved by the unit of 
general local government1 in which the project is located; (2) 
that the plan ensure that the rent paid by the tenant after relocation 
will not exceed that permitted under the Act; and (3) that there be no 
action to demolish or dispose of any unit until the tenant has been 
relocated to decent, safe, sanitary, and affordable housing that is, to 
the maximum extent practicable, of the tenant's choice. (Some persons 
displaced by a demolition or disposition activity are also covered by 
the Uniform Relocation Act, as described later.) The rule also allows 
replacement with units of different sizes, after analysis of local 
needs as determined by the PHA, to accommodate changes in local 
priority needs. However, at least the same total number of individuals 
and families must be accommodated. The regulatory amendments for 
implementation of these statutory requirements can be found in 
Secs. 970.4(d) and 970.11 of both the interim rule and this final rule.

    \1\The Department has interpreted the phrase ``unit of general 
local government'' to mean the chief executive officer, e.g., the 
mayor or the county executive, as discussed later in this preamble.
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    Approval of an application for demolition or disposition requires a 
commitment for the funds necessary to carry out the plan. To the extent 
funding is not provided from other sources (e.g., from State or local 
programs or the proceeds of disposition), HUD approval of the 
application for demolition or disposition will be conditioned on HUD's 
agreement to commit the funds--subject to availability of future 
appropriations--necessary to carry out the plan in accordance with its 
approved schedule. Because of the responsibility imposed on HUD to 
commit the funds necessary to carry out the plan, a high degree of 
certainty with respect to State and local commitments is necessary. 
Therefore, in order for HUD to determine HUD's commitment, at the time 
of application the PHA must provide written documentation of commitment 
of State or local funding for the replacement housing if that is what 
is contemplated in the replacement housing plan.
    The statutory requirements for the plan enumerate the following 
types of eligible replacement housing, to be used singularly or in any 
combination: (1) The development of additional public housing dwelling 
units (by acquisition with or without rehabilitation or new 
construction); (2) the use of 15-year project-based assistance under 
section 8, when appropriated;\2\ (3) the use of not less than 15-year 
project-based assistance under other Federal programs; (4) the 
acquisition with or without rehabilitation or development of dwelling 
units assisted under a State or local government program that provides 
for project-based assistance that is, in terms of eligibility, 
contribution to rent, and length of assistance contract (not less than 
15 years), comparable to assistance under section 8(b)(1) of the 1937 
Act; or (5) any combination of such methods; or (6) the use of 15-year 
tenant-based assistance under section 8 (excluding rental vouchers 
under section 8(o)), including Section 8 Rental Certificates with 15-
year funding subject to the special additional statutory constraints 
discussed below.

    \2\Replacement housing under this provision is limited. When 
section 121 of the 1987 Act was enacted, all Certificate Program 
funding was appropriated with 15 years of budget authority and, 
therefore, was readily available with a 15-year term. However, since 
1989, Certificate Program funding has been appropriated with only a 
5-year term, except for the special appropriations for Public 
Housing Demo/Dispo replacement housing. The last such special 
appropriation was in FY 1990.
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    However, section 116(b) of the 1992 Act modifies the replacement 
housing plan requirements by permitting, where 15-year project-based 
assistance under section 8, 15-year project-based assistance under 
other Federal programs, and 15-year tenant-based assistance under 
section 8 (excluding vouchers) is not available, and where an 
application proposes demolition or disposition of 200 or more units, 
the use of available project-based assistance under section 8 having a 
term of not less than 5 years, the use of available project-based 
assistance under other Federal programs having a term of not less than 
5 years, and the use of tenant-based assistance under section 8 
(excluding vouchers) having a term of not less than 5 years, 
respectively.

    Note: In the case of 15-year project based assistance under 
other Federal programs, the Department has determined that low-
income housing credits under Section 42 of the Internal Revenue 
Service Code is a Federal program providing 15-year project-based 
assistance and, therefore, qualifies as a source of replacement 
housing. Any replacement housing plan proposing the use of these 
credits must assure that the low-income housing units in the low-
income housing credit project which are designated as replacement 
housing will be reserved for low-income families for the requisite 
period. Units which at the time of allocation of the credit are also 
receiving Federal assistance under Section 8 (except tenant-based 
assistance) or Section 23 of the Act, or Section 236, 221(d)(3) BMIR 
or Section 221(d)(5) of the National Housing Act, or Section 101 of 
the Housing Act of 1965, or other similar Federal program, are not 
eligible as replacement housing under this paragraph.

    However, in the case of an application proposing demolition or 
disposition of 200 or more units, not less than 50 percent of the 
dwelling units for replacement housing shall be provided through the 
acquisition or development of additional public housing dwelling units 
or through project-based assistance, and not more than 50 percent of 
the additional dwelling units shall be provided through tenant-based 
assistance under section 8 (excluding vouchers) having a term of not 
less than 5 years.
    Section 116(b) also provides that, in any 5-year period, a PHA may 
demolish not more than the lesser of 5 dwelling units or 5 percent of 
the total dwelling units owned and operated by the PHA, without 
providing an additional dwelling unit for each public housing dwelling 
unit to be demolished, but only if the space occupied by the demolished 
unit is used for meeting the service of other needs of the public 
housing residents. It should be noted that this provision applies only 
to demolition and not to disposition.
    The provisions of section 116(b) are considered self-executing 
also. Accordingly, this final rule contains revisions to Sec. 970.11(a) 
and creates a new Sec. 970.11(j).
    The following statutory limitations on the use of fifteen-year 
section 8 tenant-based assistance should be kept in mind:
    With the exception of applications for demolition or disposition of 
200 or more [[Page 3708]] units that propose the use of tenant-based 
assistance under Section 8 having a term of not less than five years 
for the replacement of not more than 50 percent of the units to be 
demolished or disposed of, the use of Section 8 tenant-based assistance 
(Existing Housing rental certificates) for replacement housing requires 
a two-part finding by HUD that (1) project-based assistance (including 
public housing, as well as other types of project-based assistance) is 
not feasible under the program standards or under any combination of 
these programs, and (2) private rental housing is actually available to 
those who would be assisted under the plan and that the supply of such 
housing is sufficient for the total number of rental certificates and 
rental vouchers available in the community and is likely to remain 
available for the full 15-year term of the assistance. This two-part 
finding must be based on objective information, such as the following 
statutory data elements: Rates of participation by landlords in the 
section 8 program; size, conditions and rent levels of available rental 
housing as compared to section 8 standards; the supply of vacant 
existing housing meeting the section 8 housing quality standards with 
rents at or below the fair market rent, or the likelihood of adjusting 
the fair market rent; the number of eligible families waiting for 
public housing or housing assistance under section 8; and the extent of 
discrimination against the types of individuals or families to be 
served by the assistance.
    To justify the two-part finding, the PHA must provide sufficient 
information to support both parts of the finding--why any and all 
combinations of project-based assistance are not feasible and how the 
conditions for tenant-based assistance will be met, based on the 
pertinent facts of the particular local situation.
    The determination as to the lack of feasibility of project-based 
assistance must be based on the standards for feasibility stated in the 
regulations pertaining to each type of eligible project-based program 
identified in Sec. 970.11, including public housing, as well as the 
other types of eligible Federal, State and local programs. Thus, a 
finding of lack of feasibility may be made only if the applicable 
feasibility standards could not be met under any of the eligible 
programs, or any combination of them. For example, with regard to the 
feasibility of additional public housing development, relevant factors 
would include local needs for new construction or rehabilitation, 
availability of suitable properties for acquisition or sites for 
construction, and HUD determinations under cost containment policies.
    The second part of the finding--availability of housing for tenant-
based assistance--is a matter of whether the facts concerning local 
need and housing supply justify such a finding. Above are listed the 
statutory data elements on which a finding should be based. HUD may 
require additional data as may be relevant in particular circumstances.

    Note: The statutory limitations discussed above do not apply to 
applications for demolition or disposition of 200 or more units that 
propose the use of tenant-based assistance under section 8 having a 
term of not less than 5 years for replacement of not more than 50 
percent of the units to be demolished or disposed of.

    Section 121 of the 1987 Act prohibits the use of rental vouchers 
for replacement housing. However, the Department has determined that 
rental vouchers may be an acceptable relocation housing resource, 
provided the displaced tenant is given referrals to suitable/comparable 
replacement housing (comparable housing, if the URA applies) where the 
rent paid by the tenant following relocation will not exceed the amount 
permitted under section 3(a) of the 1937 Act. (See Sec. 970.5(b)). The 
PHA can meet its relocation housing obligation by providing a housing 
voucher and referrals to units that fall within the voucher payment 
standard and are owned by a person who agrees to rent to a voucher 
holder. The rule also makes the PHA responsible for payment of moving 
expenses and the provision of appropriate advisory services, including 
timely information notices, counseling, and the inspection of housing 
to which persons relocate.
    The statutory restrictions on types of housing assistance that may 
be counted as replacement units do not apply to relocation. For 
example, tenants may relocate to other existing public housing units, 
or to privately owned housing, with rental certificate or rental 
voucher assistance, as qualified above. The purpose of relocation is to 
assure that all displaced families obtain other suitable/comparable 
housing at affordable rents, while the purpose of one-for-one 
replacement is to assure that the total low-income housing stock 
available is not diminished.

Public Comments

    As a result of the interim rule published on August 17, 1988, at 53 
FR 30984, public comments were received from six commenters: Three 
legal services organizations, one public housing agency, one community 
development organization, and one national association.
    The commenters raised a variety of issues concerning the 
applicability of part 970, including whether (1) the 1987 Act 
amendments are applicable retroactively, (2) ``units approved for 
deprogramming'' before the effective date of the 1987 Act should be 
exempted, and (3) the exemption for homeownership sales to tenants 
should be retained. Below is a discussion of these issues, as well as 
some others raised by the commenters, and the Department's responses to 
them.

Retroactivity

    Some commenters argued that the 1987 Act amendments should be 
applicable retroactively to cases where demolition or disposition was 
approved by HUD but not completed by the PHA before February 5, 1988, 
the effective date of the 1987 Act. These commenters maintained that 
even before the 1987 Act, section 18 of the 1937 Act required 
replacement housing in all instances of demolition or disposition of 
housing units, and that the 1987 amendments did not change the 
statutory requirements for replacement, but merely corrected an 
erroneous interpretation by HUD in the then-existing regulations.
    The effect of acceptance of this argument would be to revoke those 
pre-1987 Act approvals, requiring the PHA to meet all added 
requirements under the 1987 Act and obtain a new HUD approval. The 
Department does not believe this effect to be defensible and disagrees 
with the commenters for the reasons set forth below.
    HUD's first regulation on the demolition and disposition of public 
housing was published as a final rule (24 CFR part 870) on November 9, 
1979 (44 FR 65368). At that time, the statutory language on this issue 
afforded HUD considerable administrative discretion as to regulatory 
policy. (See sections 6(f) and 14(f) of the 1937 Act). Neither these 
statutory provisions nor their legislative history contain any mention 
of replacement housing (except in connection with relocation), thus 
allowing HUD administrative rule making discretion on this issue. HUD 
exercised that discretion by providing in the 1979 regulation that ``If 
there is a local need for low-income housing, the PHA's request for 
demolition or disposition of dwelling units shall include a plan for 
replacement housing on a one-for-one basis or as approved by HUD to be 
warranted by current and projected needs for low-income housing and 
subject to HUD's findings as to the availability of funds.'' Thus, 
subject to [[Page 3709]] the need for low-income housing and the 
availability of funds, HUD's original regulation required, as a matter 
of policy, replacement housing as a condition for HUD approval in all 
cases of either demolition or disposition of dwelling units. However, 
the Housing and Urban-Rural Recovery Act of 1983 (``1983 Act'') 
repealed former sections 6(f) and 14(f) and substituted a new section 
18 that was more detailed and prescriptive. HUD decided to impose a 
replacement housing requirement only where required by the statute, and 
both the statute and the rule allowed the PHA discretion as to the 
provision of replacement housing with one exception. The only 
circumstance under which the statute and the rule required replacement 
housing was where the justification for disposition is that it will 
allow acquisition, development or rehabilitation of other units which 
will be more efficiently or effectively operated as lower income 
housing and will preserve the lower income housing stock available in 
the community. (See section 18(a)(2)(A)(i), U.S. Housing Act of 1937, 
42 U.S.C.1437p.) No replacement housing requirement was prescribed 
under the other two alternative criteria for disposition, and no 
replacement requirement was prescribed at all for demolition, 
regardless of which of the demolition criteria was applicable.
    The argument for retroactive application of the 1987 amendments is 
not persuasive. Indeed, in Project B.A.S.I.C. v. Kemp, 907 F.2d 1242 
(1st Cir., July 6, 1990) the Court of Appeals for the First Circuit 
rejected the retroactive operation of the statute. The Fifth Circuit 
was in accord in Walker v. HUD, 912 F.2d 819 (5th Cir., September 27, 
1990).
    To preclude any further misconceptions on this point, the final 
rule adds clarifying language under Sec. 970.2(b). A demolition or 
disposition application that received written HUD approval before 
February 5, 1988, may be carried out according to the terms and 
conditions of the approval and the regulations in effect at the date of 
approval, without the necessity for meeting any additional requirements 
under the 1987 Act or for seeking any additional HUD approval.

Applicability to Units Approved for Deprogramming

    Several commenters objected to the inclusion in the interim rule's 
listing of exceptions in Sec. 970.2(g) of ``units deprogrammed before 
February 5, 1988'' (the effective date of the 1987 Act). In a 
subsequent notice, however, this provision was corrected to read 
``units approved for deprogramming before February 5, 1988''. (See 53 
FR 40220, October 14, 1988).
    The final rule removes the ``units approved for deprogramming'' 
exception. The term ``units approved for deprogramming'' refers to HUD 
approval of a formal written request by a PHA to permanently remove a 
unit from both its public housing inventory and its ACC. (See 24 CFR 
990.102). The exception for ``units approved for deprogramming prior to 
February 5, 1988'' was intended to exclude from the coverage of the 
interim rule, units which HUD had approved for demolition or 
disposition, prior to the effective date of the 1987 Act amendments. 
Because the term ``units approved for deprogramming'' is misinterpreted 
by some to include units temporarily removed for non-dwelling use, as 
well as, units approved for demolition or disposition, utilizing this 
term has caused unnecessary confusion in the administration of HUD's 
demolition or disposition regulations. Therefore, the exception which 
references ``units approved for deprogramming'' is being deleted. A new 
Sec. 970.2(b) of the final rule more clearly states the intended 
exception which is that demolitions and dispositions approved by HUD 
prior to February 5, 1988, are exempt from the requirements of the 1987 
Act. Demolitions or dispositions that were approved by HUD before 
February 5, 1988, but not carried out by that date, may be carried out 
according to the terms of such approval, without reference to 
subsequent amendments to this part and without obtaining any further 
HUD approval. Conversions and reconfigurations of interior space are 
exempted by Sec. 970.2(a)(5).
    Other commenters argued for some degree of flexibility. One urged 
that the exception from the replacement housing requirement be extended 
to include units that were uninhabitable as of February 5, 1988, and 
defined such housing as housing stock that was not suitable and usable 
for housing purposes and that was not being used by the PHA as part of 
its housing stock as of February 5, 1988. Another commenter suggested 
that HUD be authorized to waive the replacement requirement in special 
situations, such as where there is an urgent need for demolition, but 
special problems preclude replacement. While arguments for some degree 
of flexibility have considerable merit the statute does not provide for 
such flexibility.

Exemption for Homeownership Sales to Residents

    Some commenters argued that the 1987 Act amendments make the 
disposition provisions applicable to homeownership sales to tenants, 
because the 1987 Act removed the paragraph that specifically excepted 
such sales. One commenter asserted that Congress intended to make only 
the replacement housing provisions applicable to homeownership sales.
    There is nothing to suggest that Congress intended to make 
homeownership sales subject to the disposition provisions, including 
not only the replacement housing provision, but also the justifiability 
provisions under the statutory criteria, the local government approval 
provision, and the tenant consultation provision. This means that the 
issue is not germane to any of the following homeownership units whose 
sales were approved (even if not completed) before February 5, 1988:

--All existing Turnkey III units, because approval for sale was 
incident to approval for development. (Development of additional 
Turnkey III units was suspended before enactment of the 1987 Act, so 
there is no issue as to post-February 5, 1988 approvals for Turnkey III 
sales.)
--All Mutual Help units approved for development before February 5, 
1988, whether in existence or in the process of development as of that 
date. (Like Turnkey III, approval of sales of Mutual Help units were 
incident to approvals for development.)
--All units approved for sale under the Public Housing Homeownership 
Demonstration, because all such approvals were made before the 
effective date of the 1987 Act.
--All units approved for sale under the section 5(h) Homeownership 
Program before the effective date of the 1987 Act. (This refers to the 
regular Section 5(h) Homeownership Program under which a number of PHAs 
have chosen to initiate homeownership sales to tenants over the 15 
years since this statutory option was added in 1974, as distinguished 
from the demonstration that was undertaken by HUD under the authority 
of section 5(h).)

    The Department believes that it was not the intent of Congress to 
make the disposition requirements applicable to homeownership sales via 
resident management corporations under the new Public Housing 
Homeownership and Management Opportunities program established by 
section 123 of the 1987 Act (section 21 of the 1937 [[Page 3710]] Act), 
because the legislative provisions for that program contain separate 
requirements on replacement, rights of tenants in occupancy, public 
hearings, and use of sale proceeds.
    HUD does not believe that Congress intended to make the disposition 
requirements applicable to future approvals for sale of Mutual Help 
units. Since approval for sale to eligible homebuyers is incident to 
approval for development, imposing the disposition requirements would 
seriously hinder, if not entirely preclude, development of new Mutual 
Help projects that have been expressly authorized by Congress as the 
principal vehicle for additional units under the Indian Housing 
Program. Also, we do not believe that Congress intends to treat future 
approvals for homeownership sales under the Section 5(h) Program as 
dispositions subject to part 970. Property that would be suitable for 
homeownership could not satisfy the disposition criteria, so that the 
effect of interpreting the disposition requirements of section 18 as 
applicable to the Section 5(h) Program would be de facto repeal of the 
program. This would be contrary to the Conference Report language 
regarding section 123(d) of the 1987 Act, which states that ``any 
homeownership program in existence prior to enactment may be continued 
under existing requirements * * *'' [H.R. Rep. No. 100-426, 100th 
Cong., 1st Sess. p. 175 (Conference Report on S. 825)] Also, it should 
be noted that the National Affordable Housing Act subjects 5(h) 
proposals to replacement housing requirements contained in the HOPE for 
Public and Indian Housing Homeownership (HOPE 1) program. This 
represents further evidence of congressional intent that 5(h) sales not 
be subject to the disposition requirements of section 18. However, 
proposals by a PHA to demolish units that are the subject of these 
various homeownership programs would have to satisfy the demolition 
requirements of section 18 and part 970.
    In keeping with section 412(b) of NAHA, the provisions of this rule 
do not apply to the disposition of a public housing project in 
accordance with an approved homeownership program under title III of 
the 1937 Act, as added by section 411 of that legislation, (HOPE 1). In 
the case of a homeownership proposal under HOPE 1 or section 5(h) from 
a PHA involving partial or total demolition of units, Section 18 and 
this rule apply. HOPE for Homeownership of Single Family Homes (Hope 3) 
proposals involving public housing units approved prior to the 1992 Act 
are likewise covered by the requirements of section 18. [The 1992 Act 
took scattered-site single family public housing from under the 
requirements of HOPE 3 and moved it to HOPE 1.]

Criteria for Demolition or Disposition

    None of the commenters objected to the change in the disposition 
criteria under the interim rule. Some, however, objected to the 
language in place before the 1988 interim rule regarding the criteria 
for demolition which did not change because of the 1987 Act amendments. 
The language to which the commenters objected is Sec. 970.6(a)(2), 
which lists adverse neighborhood conditions among the three types of 
``major problems indicative of obsolescence.'' Section 970.6(a)(2) was 
included in the interim rule merely to provide the context for the 
change that combined ``obsolescence as to physical condition, etc.'' 
with ``no reasonable program of modifications, etc.'' as necessary 
criteria to justify demolition. Although the language in question is 
not open to public comment, the next paragraph provides clarification 
on this issue.
    Concern for this issue reflects a misreading of the fundamental 
rationale of the whole of paragraph (a) of this section. The commenters 
mistakenly assume that demolition is necessarily justified when any of 
the problems listed in subparagraphs (a)(1) through (3) are found to 
exist. That is not the case. The provision is not intended as a 
simplistic formula, and no such formula would be adequate for the kind 
of complex analysis that is called for in making these types of 
determinations. The Department believes that Congress intended a 
common-sense viability determination, based on a thorough examination 
of all of the facts that are pertinent to both obsolescence and the 
feasibility of rehabilitation.
    One commenter objected to Sec. 970.6(b)--the alternative criterion 
that applies in cases of partial demolition only; i.e., to permit 
demolition of a portion of a project where demolition will help assure 
the useful life of the remaining portion of the project. [Where 
demolition of all units of a project is proposed, the only option is 
the criterion of paragraph (a). Where partial demolition is proposed, 
the PHA has the choice of seeking approval under either paragraph (a) 
or (b)]. This commenter, expressing concern about possible abuse, urged 
further amendment of the regulation to add guidelines for interpreting 
the alternative criterion in paragraph (b).
    The Department believes that Congress intended to give PHAs 
reasonable discretion in making the judgments required to determine 
when partial demolition may be justified to ``help assure the useful 
life of the remaining portion of the project.'' However, the Department 
is considering providing some guidance on this provision in the 
revision to the Demolition/Disposition/Conversion Handbook (HUD 
7486.1).

Tenant Consultation

    While not making specific recommendations for changes in the 
requirements for tenant consultation (see Sec. 970.4(a)), some 
commenters expressed concern about this subject. Neither the interim 
nor the final rule changes this provision of the old regulation. 
However, in view of the comments, the Department takes this opportunity 
to clarify that this regulatory requirement remains unchanged by the 
later statutory requirements set forth in the NAHA or the 1992 Act.
    Neither the interim rule nor this final rule changes the 
requirement that the tenants of the project affected and any tenant 
organizations for the project or on a PHA-wide basis must be consulted 
in the developmental stage of the PHA's proposal, with fair notice and 
opportunity to submit comments and recommendations, including any 
recommendations for alternative strategies. While the PHA retains the 
authority to make the final decision whether to submit a demolition or 
disposition proposal, ``consultation'' implies a requirement for the 
PHA to give full and serious consideration to tenant comments and 
recommendations before making a decision. Where a building, or group of 
buildings, at the development is vacant, the PHA is responsible for 
consulting with any remaining residents or resident organizations, as 
well as any PHA-wide resident organizations. If the development is 
totally vacant, the PHA is still responsible for consulting with PHA-
wide resident organizations on the issue of whether to demolish or 
dispose of the property.
    Recognizing the variety of local circumstances in a program that 
encompasses PHAs of different sizes in many different kinds of 
communities throughout a diverse country, the regulation allows 
flexibility as to the exact methods that may be employed to satisfy the 
tenant consultation requirements, provided that there is genuine 
compliance with the essential elements stated in Sec. 970.4(a).

    Note: Section 412(a) of NAHA, as amended by the 1992 Act, 
amended section 18 of the U.S. Housing Act of 1937, to require that 
tenant councils, resident management [[Page 3711]] corporation, and 
tenant cooperative, of the project or portion of the project covered 
by the application, if any, be given appropriate opportunities to 
purchase the project or portion of the project covered by the 
demolition or disposition application. Therefore, a separate Federal 
Register document was published in the Federal Register on October 
6, 1992, at 57 FR 46074, that sets forth the procedures and 
requirements for affording the opportunity to purchase to tenant 
councils, resident management corporations, or tenant cooperatives. 
This document was open to public comment and is being made final by 
this rule. Further discussion of this document (and the public 
comments received on it) is set forth later in this preamble. The 
requirements of section 412(a) are separate and distinct from the 
tenant consultation requirements discussed immediately above.

Relocation Assistance

    Two commenters recommended that Sec. 970.5 be amended to make it 
clear that, when offering a displaced tenant the choice of using a 
Section 8 rental voucher or rental certificate, the PHA must inform the 
tenant that rent due to the owner under the lease following relocation 
may exceed the Section 8 fair market rent. The Department has included 
language to clarify its policy. The Department has determined that 
rental vouchers may be an acceptable relocation housing resource, 
provided the PHA ensures that referrals are made to units where the 
monthly amount the family must pay to the owner to cover the family's 
portion of the rent due to the owner will not exceed the amount 
determined in accordance with 24 CFR 813.107. (See Sec. 970.5(b)). Such 
referral may be to other public housing units or units made affordable 
with a Section 8 rental certificate or voucher. If the PHA provides 
referrals to suitable/comparable relocation housing (comparable housing 
when the displacement is subject to the URA) and a tenant with a rental 
voucher elects to rent a housing unit with a rent to owner that exceeds 
the voucher payment standard as determined by the Housing Voucher 
program, the tenant will be responsible for the difference between the 
voucher payment standard and the rent to owner. Furthermore, 
Sec. 970.5(e)(2) requires the PHA to provide ``counseling and advisory 
services to assure that full choices and real opportunities exist for 
tenants displaced * * *.'' That language, which remains unchanged from 
the old regulation, requires the PHA to give displaced tenants full and 
fair information about all relocation options, including use of rental 
vouchers where that option is available. As in all other matters, this 
implies a duty of good faith and diligence on the part of the PHA. 
There is no evidence to support the commenters' assertions that 
``tenants will only select rental vouchers if they are presented (or 
pushed) by the PHA as the only alternative''.
    A more complete discussion of the Uniform Relocation Assistance and 
Real Property Acquisition Policies Act of 1970 (URA) requirements is 
set forth later in this preamble.
    One commenter objected to the statement that tenants become 
eligible for relocation assistance as of the date of receipt of 
official notice to move, asserting that tenants sometimes vacate before 
official notice as a result of PHA pressure or reduction of services. 
This commenter recommended that tenants be entitled to relocation 
benefits at any time if the PHA is encouraging tenants to move or fails 
to maintain the property. The commenter is referred to the definition 
of ``displaced person'' under Sec. 970.5(i) and the definition of 
``initiation of negotiations'' under Sec. 970.5(k) to determine 
eligibility for relocation assistance. A person becomes eligible for 
relocation assistance when HUD approves the demolition or disposition 
under this part. Also, a person forced to vacate the property by an 
action associated with the planned demolition or disposition of the 
property, may qualify as a ``displaced person'' who is eligible for 
relocation assistance, even if the action occurs before HUD approval of 
the demolition or disposition. A person who is dissatisfied with the 
PHA's determination of eligibility may appeal to HUD under 
Sec. 970.5(g). If HUD determines that the PHA's action resulted from 
the demolition or disposition of the property, the PHA would be 
required to provide the appropriate relocation assistance.

    Note: If the PHA's action was found to be an ``action to 
demolish or dispose of'' the property under Sec. 970.12, then the 
PHA would be required to cease those actions (e.g., stop vacating a 
development). If tenants believe that the PHA's actions are contrary 
to its lease obligations, they may pursue the remedies available to 
them under the lease.

Actual Availability of Replacement Housing

    One commenter expressed concern over the fact that HUD cannot 
approve demolition or disposition until there is a commitment of funds 
for the necessary replacement units, and recommended that HUD propose 
to Congress options for PHAs that ``desperately need to get rid of 
units but for which no funds are immediately available''. The commenter 
also suggested that Congress be updated regularly on the yearly needs 
and costs for pending and approved demolition projects, so that 
adequate funding may be appropriated.
    The commenter's concern that the Department cannot approve 
applications for demolition or disposition until the funds are 
committed is unfounded. The Department processes requests for 
demolition or disposition under section 18. However, under section 18, 
applications are approved subject to the availability of funds for 
replacement housing. As a point of clarification, section 513 of the 
National Affordable Housing Act of 1990 requires the Department to 
report to Congress each year on its replacement housing needs beginning 
in FY 1992.
    One commenter recommended a requirement that the replacement 
housing be available for occupancy before the demolition or disposition 
is carried out. This recommendation has not been incorporated into the 
final rule, which conditions HUD approval and PHA action on commitment 
of funds for the replacement units, rather than availability of the 
units for occupancy. Once the decision has been properly approved, 
requiring that the actual demolition or disposition be delayed until 
replacement units are available for occupancy would be unwarranted. The 
old units may be a blight on the neighborhood, vacant and substandard, 
and perhaps a threat to public health and safety or a financial drain 
on the PHA. In some cases, selective demolition may be an essential 
part of a comprehensive modernization plan. One of the disposition 
criteria was developed in contemplation of the kind of case where the 
existing property will be sold to obtain funds to finance the 
replacement units. Where the replacement units are to be produced by 
new construction, several years will probably be required before the 
new units will be available for occupancy. The commenter's 
recommendation may reflect the misconception that replacement units are 
always needed for relocation. However, past experience indicates that 
replacement units do not normally serve as the source for relocation of 
the affected residents. The affected residents are usually relocated to 
other units within the PHA's inventory or provided with Section 8 
assistance. There is no statutory or regulatory requirement that the 
relocated residents be placed in the replacement housing.

This Final Rule

    In addition to the regulatory amendments being made as a result of 
the public comments discussed above, [[Page 3712]] the following 
additional revisions are made in this final rule. These revisions 
include modifications and new requirements originating out of the URA, 
the NAHA, and the 1992 Act.
    Section 970.2, Applicability, is revised to except, from coverage 
of the disposition requirements of section 18 and part 970, 
homeownership sales under (1) section 21 of the 1937 Act (as added by 
section 123 of the 1987 Act); (2) the Turnkey III/IV and Mutual Help 
Homeownership Opportunity Programs; and (3) other homeownership 
programs established under sections 5(h) or 6(c)(4)(D) of the 1937 Act 
and in existence before February 5, 1988, the effective date of the 
1987 Act. (Section 21 pertains to homeownership programs through 
resident management corporations.) Thus, the demolition/disposition 
regulations will be inapplicable to all conveyances under existing 
homeownership programs. In addition, in keeping with section 412(b) of 
NAHA, the provisions of Part 970 do not apply to the disposition of a 
public housing project in accordance with an approved homeownership 
program under title III of the 1937 Act, as added by section 411 of 
that legislation, (Hope 1 for Public and Indian Housing Homeownership). 
However, in the case of a homeownership proposal under HOPE 1 or 
section 5(h) from a PHA involving partial or total demolition of units, 
Section 18 and this rule apply. Hope 3 proposals involving public 
housing units approved prior to the 1992 Act are likewise covered by 
the requirements of section 18. [The 1992 Act took homeownership for 
scattered-site single family public housing from under the requirements 
of HOPE 3 and moved it to HOPE 1.]
    Section 970.2 is also revised to except easements, rights-of-way, 
and transfers of utility systems incident to the normal operations of 
the development.
    A correction is made to Sec. 970.4(b) to be redesignated as 
Sec. 970.4(c) the paragraph regarding the requirements of the 
environmental and historic preservation statutes. Furthermore, this 
section requires that where the site for the replacement housing is 
known at the time of application for the demolition or disposition, the 
site must comply with these requirements. However, the amendment to 
this section clarifies that where the site(s) of the replacement 
housing is not known at the time of application (whether federally or 
non-federally funded), the PHA shall follow the requirements of 24 CFR 
50.3(i), as set forth in the rule text at Sec. 970.4(c).
    In addition, paragraphs (d), (e), (f), and (g) are added to 
Sec. 970.4(c) regarding assurances and certifications for commitment of 
funds to carry out the replacement housing plan, compliance with the 
offering to resident organizations, relocation of residents, and site 
and neighborhood standards.

    [Note: In sec. 970.4 of the final rule as it existed prior to 
the 1988 interim rule, paragraph (c) required a certification from 
the chief executive officer that the proposed activity was 
consistent with the housing assistance plan (HAP). The requirements 
regarding the HAP were replaced by the Comprehensive Housing 
Affordability Strategy (CHAS). However, under 24 CFR 91.1(b)(3), all 
public housing programs, except HOPE 1, are excluded from the 
requirements of the CHAS.] Therefore, the previous requirement for 
consistency with the HAP has been dropped.

    Paragraph (c) of Sec. 970.5 of this final rule is added to set 
forth the requirements of the URA. Effective April 2, 1989, the URA was 
amended to, among other things, expand coverage. It now covers all 
persons displaced as a direct result of publicly or privately 
undertaken rehabilitation, demolition or acquisition for a Federal or 
federally assisted project. Therefore, demolition of any public housing 
property that is owned by PHAs and that is subject to the Annual 
Contributions Contract under the 1937 Act, or the disposition of the 
property to a Federal agency or to any person or entity that acquires 
the property for a federally assisted project, would make the 
transaction subject to the URA and make any person displaced as a 
result of such action eligible for relocation assistance at URA levels. 
Families and individuals who are not eligible for relocation assistance 
at URA levels are eligible for the relocation assistance described in 
section 970.5(e). Required relocation assistance is described in HUD 
Handbook 1378, Tenant Assistance, Relocation and Real Property 
Acquisition.
    Section 970.8, paragraph (f) is revised to clarify that approval of 
the replacement housing plan shall be provided by the unit of general 
local government which shall be the chief executive officer of the 
jurisdiction in which the project is located (e.g., the mayor or the 
county executive).
    In Sec. 970.9, paragraph (b)(1) is amended to state that net 
proceeds (after payment of HUD-approved costs of disposition and 
relocation) shall be used for the retirement of outstanding 
obligations, if any, issued to finance original development or 
modernization of the project. This is in recognition of the possibility 
that such obligations may not have been forgiven. (See 42 U.S.C. 
1437b.) (If project debt has been forgiven, there will be no 
outstanding obligations.) Reference to the payment of development costs 
has been removed because development cost is contained in the 
outstanding obligation, and double payment should not be implied.
    A new paragraph (c) is added to Sec. 970.9 which states that in the 
case of scattered-site housing of a public housing agency, the net 
proceeds of a disposition shall be used in an amount that bears the 
same ratio to the total of such costs and obligations as the number of 
units disposed of bears to the total number of units of the project at 
the time of disposition. This is a direct statutory requirement in 
compliance with section 512 of the National Affordable Housing Act 
(Pub. L. 101-625) and, therefore, is contained in this final rule. An 
example of how this provision would be applied in cases where debt has 
not been forgiven is: If a development project of ten units that cost 
$100,000 has one unit disposed of for $10,000, then there would be no 
net proceeds after paying off the proportional cost ($100,000 divided 
by 10 = $10,000/unit) of the project. If, however, the unit was 
disposed of and net proceeds were $12,000, there would be $2,000 
available that the PHA would use for the provision of housing 
assistance for low-income families.) Where debt has been forgiven, all 
the net proceeds may be used by the PHA for the provision for low-
income housing.
    Section 970.11(a) is revised to clarify that in the event that the 
replacement housing will be located outside the political boundaries of 
the locality of the PHA, all relevant program requirements must be 
satisfied, including approval of the replacement housing plan by the 
unit of general local government in which the project being demolished 
or disposed is located, and the execution of such agreements as may be 
necessary between the PHA and the locality in which the replacement 
housing will be located. In the case of new public housing, this would 
require a Cooperation Agreement between the PHA and the locality in 
which the replacement housing would be located. It is expected that 
replacement housing would be operated or administered by the PHA. 
However, in instances where the PHA can make arrangements for another 
PHA to develop, operate or administer the new public housing, the 
section 8 assisted housing, or other replacement housing such as a 
State or Local program Section 8 assisted housing that is outside the 
PHA's area of operation, the PHA must ensure that the families that 
would have been eligible to occupy the replacement housing if it had 
been replaced in the same locality as the project being 
[[Page 3713]] demolished or disposed, will be the same families that 
benefit from the replacement housing. In addition to the Cooperation 
Agreement for public housing, and in the case of Section 8 replacement 
housing or other replacement housing, other agreements may be necessary 
in order to assure that this and other program requirements are 
satisfied.
    Section 970.11(c) is revised to reflect the requirement that when 
demolition or disposition of dwelling units is proposed, the PHA 
application for HUD approval must contain documentation of approval by 
the unit of general local government in which the project proposed for 
demolition or disposition is located, which approval shall be provided 
by the chief executive officer of the jurisdiction in which the project 
is located (e.g., the mayor or county executive). Section 970.3 has 
been revised to add to the list of definitions, a definition for 
``chief executive officer of a State or unit of general local 
government.''
    Since October 1988 when the interim rule became effective, the 
Department has interpreted the phrase ``unit of general local 
government'' to mean the local governing body, e.g., the City Council 
or the Board of Aldermen. Consequently, in order to comply with this 
requirement, a PHA requesting permission to demolish or dispose of one 
or more dwelling units was required to provide the Department with a 
copy of a resolution from the City Council or the appropriate local 
governing body approving the replacement housing plan. However, 
experience has demonstrated that obtaining the approval of the local 
governing body has proven to be an extremely time consuming and 
difficult process, particularly when the replacement housing is public 
housing development. In some communities the local governing body has 
strenuously objected to putting public housing in the community. The 
effect of local governing body opposition to a replacement housing plan 
has been to delay approval of demolition or disposition applications 
for extended periods of time. After a review of the problem and 
research of the legislative history on this point, the Department has 
determined that it is permissible to allow the chief executive officer, 
e.g., the mayor or the county executive, to approve the replacement 
housing plan.
    Section 970.11(h) of the interim rule is revised by the final rule 
for technical and clarifying reasons. The purpose of this provision is 
to assure that the replacement sites will satisfy standards related to 
nondiscrimination and housing opportunities. In some instances the time 
for compliance with the site and neighborhood standards is during the 
demolition or disposition application and review process, and in other 
instances compliance is deferred. The requirements regarding site and 
neighborhood standards will be as follows:
    (1) If funds have been committed to provide replacement units under 
the Public Housing Development Program or the Section 8 project-based 
assistance program, except when the PHA plans to build back on the same 
site, the site and neighborhood standards applicable for those programs 
will apply and be assessed at the appropriate time as required by that 
program rule or handbook and not at the time of the demolition or 
disposition application. The PHA must certify to HUD at the time of the 
demolition or disposition application, that once the site is 
identified, the PHA will comply with the site and neighborhood 
standards applicable for those programs.
    (2) If funds have been committed to provide replacement units under 
the Public Housing Development Program or the Section 8 project-based 
assistance program and the PHA plans to build back on the same site, 
the PHA shall comply with the site and neighborhood standards 
applicable for those programs when the demolition or disposition 
application is submitted to HUD. A complete site and neighborhood 
standards review shall be done by HUD subsequent to the submission of 
the demolition or disposition application but prior to approval.
    (3) If the replacement housing units are to be provided under a 
State or local program, and the site is known (including building back 
on the same site), the PHA is required to comply with site and 
neighborhood standards comparable to 24 CFR part 882 when the 
demolition or disposition application is submitted to HUD. A complete 
site and neighborhood standards review shall be done by HUD subsequent 
to the submission of the demolition or disposition application but 
prior to approval.
    However, if the site is not known, the PHA shall include in the 
application for demolition or disposition a certification that it will 
comply with site and neighborhood standards comparable to 24 CFR part 
882 once the site is known.
    In the case of replacement housing funded by State or local 
government funds, the PHA must demonstrate in the application that it 
has a commitment for funding the replacement housing.
    (4) If the replacement housing units are to be provided out of the 
proceeds of the disposition of public housing property, and the site is 
known (including building back on the same site), the PHA is required 
to comply with site and neighborhood standards comparable to 24 part 
941 (or under 24 CFR part 882 in the case of use of Section 8 
assistance) when the demolition or disposition application is submitted 
to HUD. A complete site and neighborhood standards review shall be done 
by HUD subsequent to the submission of the demolition or disposition 
application but prior to approval.
    However, if the site is not known, the PHA shall include in the 
application for demolition or disposition a certification that it will 
comply with site and neighborhood standards comparable to 24 CFR part 
941 or under 24 CFR part 882 once the site is known.
    Section 970.12 of the August 1988 interim rule is not made final by 
this final rule. Comments received on Sec. 970.12 will be considered in 
the development of a separate proposed rulemaking on the issue of 
required and permitted actions prior to approval of an application for 
demolition or disposition. Until a final rule is issued on Sec. 970.12, 
the provisions of the August 1988 interim rule remain effective.

Changes Required by Section 412(a) of the National Affordable Housing 
Act--Resident Organization Opportunity to Purchase

    Section 412(a) of the National Affordable Housing Act (``NAHA''), 
Pub.L. 101-625, amended section 18 of the U.S. Housing Act of 1937 to 
require that ``tenant councils, resident management corporation, and 
tenant cooperative, if any,'' be given appropriate opportunities to 
purchase the project or portion of the project covered by the 
demolition or disposition application.
    Section 116(a) of the Housing and Community Development Act of 1992 
(the ``1992 Act'') amended section 18 of the U.S. Housing Act of 1937 
to require PHAs to limit the opportunity to purchase the development or 
portion of the development proposed for demolition or disposition only 
to the resident organization(s) at the affected development. This 
provision clarifies an ambiguity regarding the breadth of the offer (as 
discussed below in the public comments to the October 6, 1992 Notice) 
and is considered self-executing. Accordingly, the Department issued 
Notice PIH 93-17 (PHA) on April 2, 1993 to inform program 
administrators and participants of this clarification and its immediate 
effect. This final rule [[Page 3714]] accommodates this clarification 
in the new Sec. 970.13.
    Section 418 of NAHA permitted the Department to establish by notice 
the requirements necessary to carry out this provision. Therefore, the 
Department published a notice of guidelines on October 6, 1992, at 57 
FR 46075 and solicited public comments on the provisions set forth in 
that notice. The Department received public comments from five 
organizations: Two large national associations, one housing finance 
corporation, one public school system, and a HUD field office. Below is 
a listing of the issues raised by the commenters. Each issue is 
followed by a discussion of the Department's resolution of the issue.
    Comment: There should be a distinction provided between real 
property that is developed with dwelling units and is occupied and real 
property that is vacant and abandoned (which should be excluded from 
the section 412(a) requirements. [a public school system]
    Response: Section 412(a) does not apply in the case of totally 
vacant or abandoned development. There would be no residents to 
organize and, consequently, no organization to receive the offer. 
However, if the development is only partially vacant, the PHA is 
required to offer the property under application to the existing 
resident group, or where no group exists, the PHA must make a 
reasonable effort to allow the residents of the affected development to 
organize. The PHA has the same responsibility where only a building, or 
group of buildings, is vacant within the development.
    Comment: There is no rationale for limiting the area of land to be 
acquired by a public body to less than two acres. [a public school 
system]
    Response: On the basis of experiences in the program, the 
limitation of two acres was selected to reduce the possibility of 
injustice from profit-motivated actions. However, the Department's 
experience is rather limited. The threshold was established based upon 
experience for the last six years. It is inappropriate to allow more 
flexibility in this area without (1) more time to see the impact of the 
existing provision, and (2) a better understanding of the number of 
PHAs affected by the provision.
    Comment: Financial capabilities of resident councils, resident 
management corporations, resident cooperatives or other similar legal 
instrumentalities should be assessed independent of possible future 
Federal grants, because such organizations may flounder when these 
resources are gone. [a public school system]
    If the units being sold will continue as rental units, the plan for 
the use of the property should include financial operations/solvency of 
the development. [a HUD field office]
    Response: The long-term financial capability of a possible resident 
group as a purchaser should be considered by the PHA when it reviews 
the group's proposal. Absent any prior experience under the new 
resident purchase requirement, the Department sees no reason to require 
the PHA to give more weight to one factor over another.
    Comment: The guidelines should include realistic but firm 
timetables for plan implementation which should be enforced. [a public 
school system]
    Response: The requirements related to providing resident 
organizations the opportunity to organize are very new. To date only 
one resident organization has prepared a proposal for PHA 
consideration. Based on this experience, there is no reason to require 
strict timetables.
    Comment: Another case, regarding applicability, which does not 
present an appropriate opportunity for resident purchase is when the 
housing authority plans to redevelop the real estate with replacement 
public housing. [a housing finance corporation]
    Response: The PHA is required to consult with residents and 
resident organizations under Sec. 970.4 regarding any proposals to 
demolish or dispose of any property. This consultation should include 
advisements of any PHA plans to reuse the property and a complete 
discussion of any replacement housing plans. It is clear that Congress 
wanted resident organizations to be given the opportunity to purchase 
the property.
    Comment: It is an incorrect interpretation that is a violation of 
the statute to afford notice and opportunity to purchase to city-wide 
resident groups or, in the case where there is no organized resident 
group at the affected project, to allow 45 days for a resident 
organization to be formed. A process that is already lengthy is made 
more protracted and burdensome by the time periods created by the 
Department. The statutory reference to tenant groups, ``if any,'' 
refers to groups already in existence. [two national associations]
    HUD cannot avoid the cost/benefit analysis of Executive Order 
12291, by designating the document as a guideline. No cost/benefit 
analysis or regulatory review was performed prior to the issuance of 
the notice. The benefits of imposing a ``notice'' do not outweigh the 
cost to PHAs as a result of the long delays and increased liabilities 
they will have to face before being permitted to submit an application. 
A PHA is permitted to demolish or sell only its very worst projects 
which are often extremely unsafe. [one national association]
    Response: The Department has examined the notice and the process 
for permitting resident organizations to form and recognizes that the 
additional time periods may be burdensome. However, the Department 
still believes that as a matter of policy, residents should have the 
opportunity to form a resident organization. In response to the 
concerns raised by the commenter, however, this rule abbreviates the 
process considerably. The process can be further truncated into the 
already established requirement for tenant consultation under 24 CFR 
970.4(a). Therefore, where the affected development does not have an 
existing resident council, resident management corporation or resident 
cooperative at the time of the PHA proposal to demolish or dispose of 
the development or a portion of the development, the PHA shall make a 
reasonable effort to inform residents of the development of the 
opportunity to organize and purchase the property proposed for 
demolition or disposition. Examples of ``reasonable effort'' at a 
minimum include at least one of the following activities: Convening a 
meeting, sending letters to all residents, publishing an announcement 
in the resident newsletter, where available, or hiring a consultant to 
provide technical assistance to the residents. The Department will not 
approve any application that cannot demonstrate that the PHA has 
allowed at least 45 days for the residents to organize a resident 
organization. The PHA should initiate its efforts to inform the 
residents of their right to organize as an integral part of the 
resident consultation requirement under 24 CFR 970.4(a).
    While the Department is concerned about the costs and the benefits 
as they relate to the PHAs, the Department also has similar regard and 
concerns for the residents who are also beneficiaries of the public 
housing program. Therefore, we believe that giving residents the 
opportunity to purchase projects that the PHA has deemed unusable for 
public housing purposes could benefit the residents both socially and 
economically. Furthermore, under Executive Order 12866 (which replaced 
Executive Order 12291), only ``significant regulatory actions'' are 
required to have an assessment of the costs and benefits of the action 
prior to promulgation. This final rule does not [[Page 3715]] meet the 
definition of ``significant regulatory action.''
    Comment: The guidelines should not have been made effective upon 
publication but should have permitted public comment before taking 
effect. The guidelines are in violation of HUD's part 10 which requires 
the Department to follow APA procedures for rulemaking. The guidelines 
should be withdrawn and a new proposed rule issued, incorporating the 
provisions of the Housing and Community Development Act of 1992. The 
term ``notice'' in section 418 of NAHA refers to ``notice and public 
comment'' and not the Federal Register format. [two national 
associations]
    Response: Section 418 of the National Affordable Housing Act, 
Public Law 101-625, permitted the Department to establish by notice the 
requirements necessary to carry out the provision in a more timely 
manner. It is clear that the Congress intended that the Department 
establish the requirements and procedures for offerings to resident 
organizations as soon as possible. The determination as to the meaning 
of ``notice'' was made after substantial consideration.
    Comment: The fact that the statute and the guidelines give resident 
groups the right to demand to purchase a project, but impose no 
requirement on the purchasing group to use the project for housing 
purposes, raises serious constitutional and policy questions. The U.S. 
Constitution prohibits the Federal Government from appropriating 
private property unless just compensation is provided and the taking is 
pursuant to a public purpose. Without a use restriction, it is 
questionable whether forcing a PHA to transfer its project to a 
resident group, and thereby suffer the loss of a competitive price, 
serves a valid public purpose when the end result is not increased 
housing opportunity. [one national association]
    The guidelines should require some type of guarantee by the 
resident group purchasers that the units will be utilized as housing 
for low-income households. [one national association]
    If a PHA may consider an offer that proposes a purchase of less 
than fair market value with demonstrated commensurate public benefit, 
``demonstrated commensurate public benefit'' should be defined. [a HUD 
field office]
    Response: There is nothing in the statute or the legislative 
history which would lead the Department to believe that Congress 
intended that resident organizations be restricted in the use of the 
property. Therefore, the Department did not impose such a restriction. 
The final rule gives the PHA the authority to establish the terms of 
sale and to approve or disapprove of the resident organization's 
proposal. With this kind of authority, the PHA is not being forced to 
transfer its property to a resident organization.
    Examples of ``demonstrated commensurate public benefit'' will be 
provided in the new handbook for demolition/disposition activities.
    Comment: The Department's ``federalism'' certification under 
Executive Order 12612 incorrectly rules that PHAs are not units of 
local government. There are serious federalism implications because the 
guidelines intrude in to the day-to-day management decisions of PHA 
directors, who are State or local officials. The guidelines threaten 
the balance of power between the respective levels of government 
because they direct State or local officials to incur increased costs 
related to delay and maintenance of blighted or unsafe buildings. [one 
national association]
    Response: The Department recognizes that overall section 18 places 
significant requirements on PHAs; however, the requirement that 
offerings be made to resident organizations is mandated by statute. The 
Department has determined that these requirements do not have 
``federalism implications'' because they do not have substantial direct 
effects on the States (including their political subdivisions), or on 
the distribution of power and responsibilities among the various levels 
of government.
    Comment: The guidelines cannot be applied to pending applications 
because HUD does not have the power to promulgate rules with 
retroactive effect. Congressional enactments and administrative rule 
will not be construed to have retroactive effect unless their language 
requires this result. [one national association]
    Response: ``Pending'' does not mean ``approved.'' Section 18 
prohibits approval by the Secretary unless all of the requirements of 
the section are met.

    Note: Other comments received from the HUD field office were 
technical corrections related to appropriate cross-references and 
definitions. These technical comments were reviewed and accommodated 
where indicated.

    The regulatory provisions implementing section 412 of NAHA, as 
those provisions have been revised to accommodate the public comments 
discussed above, can be found at a new Sec. 970.13 added by this rule.

Applicability to the Native American Program

    As a result of section 201(b)(1) of the 1937 Act, the provisions of 
title I of the 1937 Act apply to low-income housing developed or 
operated pursuant to a contract between the Secretary and an Indian 
housing authority. Therefore, the demolition and disposition provisions 
under part 970 (as it is revised by the 1988 interim rule) extend to 
Indian housing authorities and have been incorporated in part 905, the 
regulations for the Indian Housing Program. However, under section 
201(b)(2) no provision of title I, or amendment to title I, that is 
enacted after the date of enactment of the Indian Housing Act of 1988 
(June 29, 1988) shall apply to public housing developed or operated 
pursuant to a contract between the Secretary and an Indian housing 
authority unless the provision explicitly provides for applicability. 
Therefore, absent such a provision, section 116 of the 1992 Act does 
not extend to Indian housing authorities.
    This issue, as well as finalizing the 1988 interim rule in part 905 
and sections 412 and 512 of NAHA, as they apply to Indian housing 
units, will be addressed in a separate final rule.

Other Matters

Environmental Review

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969. The Finding of No Significant Impact is available for 
public inspection during regular business hours in the Office of the 
Rules Docket Clerk, Office of the General Counsel, Department of 
Housing and Urban Development, Room 10276, 451 Seventh Street, S.W., 
Washington, D.C. 20410.

Executive Order 12866

    This rule was reviewed by the Office of Management and Budget (OMB) 
under Executive Order 12866 on Regulatory Planning and review, issued 
by the President on September 30, 1993. Any changes made in the rule 
subsequent to its submission to OMB are identified in the docket file, 
which is available for public inspection in the Office of the Rules 
Docket Clerk, Department of Housing and Urban Development, Room 10276, 
451 Seventh Street, SW, Washington, DC 20410.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of [[Page 3716]] Executive Order 12612, Federalism, has determined that 
this rule does not have ``federalism implications'' because it does not 
have substantial direct effects on the States (including their 
political subdivisions), or on the distribution of power and 
responsibilities among the various levels of government. This rule 
pertains to certain PHAs that are subject to Annual Contributions 
Contracts (ACCs) under the U.S. Housing Act of 1937 and the 
requirements that they must meet in order to demolish or dispose of 
public housing.

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 significant impact on family formation, maintenance, and 
general well-being because it redefines previous demolition and 
disposition criteria so as to hold applications for demolition and 
disposition to more stringent requirements.

Information Collection

    The collection of information requirements contained in this rule 
have been submitted to OMB for review under section 3504(h) of the 
Paperwork Reduction Act of 1980 and have been assigned OMB control 
number 2577-0075.

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 have a significant economic 
impact on a substantial number of small entities because the 1987 Act 
provides for substantial contributions of funds by the Federal 
government to assist in bearing the costs associated with the policy 
changes reflected in the rule. This cost sharing is, of course, 
available both to large and small PHAs whose demolition and disposition 
decisions are affected by the rule.

Semi-Annual Agenda of Regulations

    This rule was listed as item number 1899 in the Department's 
Semiannual Agenda of Regulations published on November 14, 1994 (59 FR 
57632, 57673) in accordance with Executive Order 12866 and the 
Regulatory Flexibility Act.

List of Subjects in 24 CFR Part 970

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

    Accordingly, the interim rule amending 24 CFR part 970 which was 
published at 53 FR 30984 on August 17, 1988, is adopted as a final rule 
with the following changes:

PART 970--PUBLIC HOUSING PROGRAM--DEMOLITION OR DISPOSITION OF 
PUBLIC HOUSING PROJECTS

    1. The authority citation for part 970 continues to read as 
follows:

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

    2. Section 970.2 is revised to read as follows:


Sec. 970.2   Applicability.

    (a) This part applies to public housing projects that are owned by 
public housing agencies (PHAs) and that are subject to Annual 
Contributions Contracts (ACCs) under the Act. It also applies to 
Section 23 bond-financed projects that have received modernization 
(i.e., Comprehensive Improvement Assistance Program (CIAP) or 
Comprehensive Grant funds (CGP)). This part does not apply to the 
following:
    (1) PHA-owned Section 8 housing, or housing leased under section 
10(c) or section 23 of the Act, except for section 23 bond-financed 
projects that have received modernization funding under the CIAP or the 
Comprehensive Grant Programs;
    (2) Demolition or disposition before the End of the Initial 
Operating Period (EIOP), as determined under the ACC, of property 
acquired incident to the development of a public housing project; 
(however, this exception shall not apply to dwelling units);
    (3) The conveyance of public housing for the purpose of providing 
homeownership opportunities for lower income families under section 21 
of the Act, the Turnkey III/IV or Mutual Help Homeownership Opportunity 
Programs, or other homeownership programs established under sections 
5(h) or 6(c)(4)(D) of the Act and in existence before February 5, 1988, 
the date of enactment of the 1987 Act. (Where a plan submitted by the 
PHA for homeownership includes a component of demolition, the plan must 
meet the requirements of section 18 and this part.);
    (4) The leasing of dwelling or nondwelling space incident to the 
normal operation of the project for public housing purposes, as 
permitted by the ACC;
    (5) The reconfiguration of the interior space of buildings (e.g., 
moving or removing interior walls to change the design, sizes, or 
number of units) without ``demolition'', as defined in Sec. 970.3. 
(This includes the conversion of bedroom size, occupancy type, changing 
the status of unit from dwelling to nondwelling.);
    (6) Easements, rights-of-way and transfers of utility systems 
incident to the normal operation of the development for public housing 
purposes, as permitted by the ACC;
    (7) A whole or partial taking by a public or quasi-public entity 
through the exercise of its power of eminent domain; however, HUD 
requirements with respect to the replacement housing requirement for 
one-for-one dwelling units shall be followed (see HUD Handbook 7486.1, 
Demolition, Disposition and Conversion);
    (8) Disposition of a public housing project in accordance with an 
approved homeownership program under title III of the United States 
Housing Act of 1937 (42 U.S.C. 1437p) (Hope 1);1

    \1\In keeping with section 412(b) of the National Affordable 
Housing Act (Pub.L. 101-625), the provisions of this part do not 
apply to the disposition of a public housing project in accordance 
with an approved homeownership program under title III of the United 
States Housing Act of 1937, as added by section 411 of that 
legislation, (HOPE 1 for Public and Indian Housing Homeownership). 
In the case of a HOPE 1 proposal from a PHA involving partial or 
total demolition of units, this part does apply. HOPE 3 proposals 
involving public housing units approved prior to the 1992 Act are 
likewise covered by the requirements of section 18. [The 1992 Act 
took scattered-site single family public housing from under the 
requirements of HOPE 3 and moved it to HOPE 1.]
---------------------------------------------------------------------------

    (9) Demolition after conveyance of a public housing project to a 
non-PHA entity in accordance with an approved homeownership program 
under title III of the United States Housing Act of 1937 (42 U.S.C. 
1437p) (HOPE 1); and
    (10) Units leased for non-dwelling purposes for one year or less.
    (b) Demolition or disposition that was approved by HUD before 
February 5, 1988, but not carried out by that date, may be carried out 
according to the terms of such approval, without reference to 
subsequent amendments to this part and without obtaining any further 
HUD approval.
    3. Section 970.3 is amended by adding in alphabetical order a 
definition for ``Chief Executive Officer of a unit of general local 
government'', to read as follows:


Sec. 970.3   Definitions.

* * * * *
    Chief Executive Officer of a unit of general local government means 
the elected official or the legally designated official, who has the 
primary responsibility for the conduct of that entity's governmental 
affairs. Examples [[Page 3717]] of the ``chief executive officer of a 
unit of general local government'' are: the elected mayor of a 
municipality; the elected county executive of a county; the chairperson 
of a county commission or board in a county that has no elected county 
executive; and the official designated pursuant to law by the governing 
body of a unit of general local government.
* * * * *
    4. Section 970.4 is amended by:
    a. Removing paragraphs (b) and (c);
    b. Redesignating paragraphs (d) and (e) as paragraphs (b) and (c), 
respectively;
    c. Revising newly redesignated paragraph (c); and
    d. Adding new paragraphs (d), (e), (f), and (g), to read as 
follows:


Sec. 970.4   General requirements for HUD approval of applications for 
demolition or disposition.

* * * * *
    (c) Demolition or disposition (including any related replacement 
housing plan) will meet the requirements of the National Environmental 
Policy Act of 1969 (42 U.S.C. 4321), the National Historic Preservation 
Act of 1966 (16 U.S.C. 469), and related laws, as stated in the 
Department's regulations at part 50 of this title. Where the site of 
the replacement housing is unknown at the time of submission of the 
application for demolition or disposition, the application shall 
contain an certification that the applicant agrees to assist HUD to 
comply with part 50 of this title and that the applicant shall:
    (1) Supply HUD with all available, relevant information necessary 
for HUD to perform for each property any environmental review required 
by part 50 of this title;
    (2) Carry out mitigating measures required by HUD or select 
alternate eligible property; and
    (3) Not acquire, rehabilitate, convert, lease, repair or construct 
property, or commit HUD or local funds to such program activities with 
respect to any eligible property, until HUD approval is received.
    (d) The public housing agency has developed a replacement housing 
plan, in accordance with Sec. 970.11, and has obtained a commitment for 
the funds necessary to carry out the plan over the approved schedule of 
the plan. To the extent such funding is not provided from other sources 
(e.g., State or local programs or proceeds of disposition), HUD 
approval of the application for demolition or disposition is 
conditioned on HUD's agreement to commit the necessary funds (subject 
to availability of future appropriations).
    (e) The PHA has complied with the offering to resident 
organizations, as required under Sec. 970.13.
    (f) The PHA has prepared a certification regarding relocation of 
residents, in accordance with Sec. 970.5(h)(1). If relocation is 
required, the PHA must submit a relocation plan in accordance with 
Sec. 970.5.
    (g) The PHA has made the appropriate certifications regarding site 
and neighborhood standards, in accordance with Sec. 970.11(h) (2) and 
(4).
    5. Section 970.5 is revised to read as follows;


Sec. 970.5   Displacement and relocation.

    (a) Relocation of displaced tenants on a nondiscriminatory basis. 
Tenants who are to be displaced as a result of demolition or 
disposition must be offered opportunities to relocate to other 
comparable/suitable (see HUD Handbook 1378, Tenant Assistance, 
Relocation and Real Property Acquisition) decent, safe, sanitary, and 
affordable housing (at rents no higher than permitted under the Act,) 
which is, to the maximum extent practicable, housing of their choice, 
on a nondiscriminatory basis, without regard to race, color, religion 
(creed), national origin, handicap, age, familial status, or sex, in 
compliance with applicable Federal and State laws.
    (b) Relocation resources. Relocation may be to other publicly 
assisted housing. Housing assisted under Section 8 of the Act, 
including housing available for lease under the Section 8 Housing 
Voucher Program, may also be used for relocation, provided the PHA 
ensures that displaced tenants are provided referrals to comparable/
suitable relocation dwelling units where the family's share of the rent 
to owner following relocation will not exceed the total tenant payment, 
as calculated in accordance with Sec. 813.107 of this title. If the PHA 
provides referrals to suitable/comparable relocation housing 
(comparable housing if the displacement is subject to the URA) and a 
tenant with a rental voucher elects to lease a housing unit where the 
family's share of rent to owner exceeds the amount calculated in 
accordance with Sec. 813.107 of this title, the tenant will be 
responsible for the difference between the voucher payment standard and 
the rent to owner. If there are no units with rents at or below the 
voucher payment standard to which the PHA may refer families, then the 
PHA cannot use vouchers as a relocation housing source.
    (c) Applicability of URA rules. (1) The displacement of any person 
(household, business or nonprofit organization) as a direct result of 
acquisition, rehabilitation, or demolition for a Federal or federally 
assisted project (defined in paragraph (j) of this section) is subject 
to the Uniform Relocation Assistance and Real Property Acquisition 
Policies Act of 1970, as amended, (URA) (42 U.S.C. 4601-4655) and 
implementing regulations at 49 CFR part 24. Therefore, if the PHA 
demolishes the property, or disposes of it to a Federal agency or to a 
person or entity that is acquiring the property for a federally 
assisted project, the demolition or acquisition is subject to the URA, 
and any person displaced (as described in paragraph (i) of this 
section) as a result of such action is eligible for relocation 
assistance at the levels described in, and in accordance with the 
requirements of 49 CFR part 24.
    (2) As described in Sec. 970.11, public housing units that are 
demolished must be replaced. Any person displaced (see paragraph (i) of 
this section) as a direct result of acquisition, demolition or 
rehabilitation for a project receiving Federal financial assistance 
(e.g., ACC) that provides the required replacement housing, must be 
provided relocation assistance at the levels described in, and in 
accordance with the requirements of 49 CFR part 24.
    (d) Applicability of antidisplacement plan. If CDBG funds (part 570 
of this title), or HOME funds (part 91 of this title) are used to pay 
any part of the cost of the demolition or the cost of a project 
(defined in paragraph (j) of this section) for which the property is 
acquired, the transaction is subject to the Residential 
Antidisplacement and Relocation Assistance Plan, as described in the 
cited regulations.
    (e) Relocation assistance for other displaced persons. Whenever the 
displacement of a residential tenant (family, individual or other 
household) occurs in connection with the disposition of the real 
property, but the conveyance is not for a Federal or federally assisted 
project (and is, therefore, not covered by the URA), the displaced 
tenant shall be eligible for the following relocation assistance:
    (1) Advance written notice of the expected displacement. The notice 
shall be provided as soon as feasible, describe the assistance to be 
provided and the procedures for obtaining the assistance; and contain 
the name, address and phone number of an official responsible for 
providing the assistance;
    (2) Other advisory services, as appropriate, including counseling 
and referrals to suitable, decent, safe, and sanitary replacement 
housing. Minority [[Page 3718]] persons also shall be given, if 
possible, referrals to suitable decent, safe and sanitary replacement 
dwellings that are not located in an area of minority concentration;
    (3) Payment for actual reasonable moving expenses, as determined by 
the PHA;
    (4) The opportunity to relocate to a suitable, decent, safe and 
sanitary dwelling unit at a rent that does not exceed that permitted 
under section 3(a) of the 1937 Act. All or a portion of the assistance 
may be provided under section 8 of the 1937 Act; and
    (5) Such other Federal, State or local assistance as may be 
available.
    (f) Temporary relocation. Residential tenants who will not be 
required to move permanently, but who must relocate temporarily (e.g., 
to permit property repairs), shall be provided:
    (1) Reimbursement for all reasonable out-of-pocket expenses 
incurred in connection with the temporary relocation, including the 
cost of moving to and from the temporary housing, any increase in 
monthly rent/utility costs, and the cost of reinstalling telephone and 
cable TV service.
    (2) Appropriate advisory services, including reasonable advance 
written notice of:
    (i) The date and approximate duration of the temporary relocation;
    (ii) The suitable, decent, safe and sanitary housing to be made 
available for the temporary period;
    (iii) The terms and conditions under which the tenant may lease and 
occupy a suitable, decent, safe and sanitary dwelling in the building/
complex following completion of the repairs; and
    (iv) The provision for reimbursement of out-of-pocket expenses (see 
paragraph (f)(1) of this section).
    (g) Appeals. A person who disagrees with the PHA's determination 
concerning whether the person qualifies as a ``displaced person'' or 
the amount of the relocation assistance for which the person is 
eligible, may file a written appeal of that determination with the PHA. 
A person who is dissatisfied with the PHA's determination on his or her 
appeal may submit a written request for review of the PHA's 
determination to the HUD Field Office.
    (h) Responsibility of PHA. (1) The PHA shall certify that it will 
comply with the URA, implementing regulations at 49 CFR part 24, and 
the requirements of this section, and shall ensure such compliance, 
notwithstanding any third party's contractual obligation to the PHA to 
comply with these provisions.
    (2) The cost of required relocation assistance is an eligible 
project cost in the same manner and to the same extent as other project 
costs. (See definition of ``project'' in paragraph (j) of this 
section.) Such costs may also be paid for with funds available from 
other sources.
    (3) The PHA shall maintain records in detail sufficient to 
demonstrate such compliance. The PHA shall maintain data on the race, 
ethnic, gender, and handicap status of displaced persons.
    (i) Definition of displaced person. (1) General definition. For 
purposes of this section, the term ``displaced person'' means any 
person (household, business, nonprofit organization, or farm) that 
moves from real property, or moves personal property from real 
property, permanently, as a direct result of acquisition, 
rehabilitation, or demolition for a Federal or federally assisted 
project.
    (2) Persons who qualify. The term ``displaced person'' includes, 
but may not be limited to:
    (i) A person who moves permanently from the real property after the 
PHA, or the person acquiring the property, issues a vacate notice to 
the person, or refuses to renew an expiring lease in order to evade the 
responsibility to provide relocation assistance, if the move occurs on 
or after the date of HUD approval of the demolition or disposition;
    (ii) Any person who moves permanently, including a person who moves 
before the date of HUD approval of the demolition or disposition, if 
HUD or the PHA determines that the displacement resulted from the 
demolition or disposition of the property and is subject to the 
provisions of this section; or
    (iii) A tenant-occupant of a dwelling who moves permanently from 
the building/complex on or after the date HUD approves the demolition 
or disposition, if the move occurs before the tenant is provided 
written notice offering him or her the opportunity to lease and occupy 
a suitable, decent, safe, and sanitary dwelling in the same building/
complex, under reasonable terms and conditions, upon completion of the 
project. Such reasonable terms and conditions shall include a monthly 
rent and estimated average monthly utility costs that do not exceed 
that permitted under section 3(a) of the 1937 Act.
    (iv) A tenant-occupant of a dwelling who is required to relocate 
temporarily and does not return to the building/complex, if either:
    (A) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with such temporary relocation 
(including the cost of moving to and from the temporarily occupied 
unit, any increase in rent/utility costs, and the cost of reinstalling 
telephone and cable TV service).
    (B) Other conditions of the temporary relocation are not 
reasonable.
    (v) A tenant-occupant of a dwelling who moves from the building/
complex permanently after he or she has been required to move to 
another unit in the same building/complex if either:
    (A) The tenant is not offered reimbursement for all reasonable out-
of-pocket expenses incurred in connection with the move; or
    (B) Other conditions of the move are not reasonable.
    (3) Persons not eligible. Notwithstanding the provisions of 
paragraphs (i)(1) and (i)(2) of this section, a person does not qualify 
as a ``displaced person'' (and is not eligible for relocation 
assistance under this section), if:
    (i) The person has been evicted for serious or repeated violation 
of the terms and conditions of the lease or occupancy agreement, 
violation of applicable Federal, State or local law, or other good 
cause, and the PHA determines that the eviction was not undertaken for 
the purpose of evading the obligation to provide relocation assistance;
    (ii) The person moved into the property after the submission of the 
application for the demolition or disposition and, before commencing 
occupancy, received written notice of the project, its possible impact 
on the person (e.g., the person may be displaced, temporarily 
relocated, or suffer a rent increase) and the fact that he or she would 
not qualify as a ``displaced person'' (or for assistance under this 
section) as a result of the project;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) HUD determines that the person was not displaced as a direct 
result of an action covered by this section.
    (j) Definition of project. For purposes of this section, the term 
``project'' means one or more activities (e.g., real property 
acquisition, demolition or construction) paid for in whole or in part 
with Federal financial assistance. Two or more activities that are 
integrally related, each essential to the other(s), are considered one 
project, whether or not all of the component activities are federally 
assisted.
    (k) Definition of initiation of negotiations. For purposes of 
providing the appropriate notices and determining the formula for 
computing a replacement housing payment under the URA to a tenant 
displaced from a [[Page 3719]] dwelling as a direct result of 
demolition or private owner acquisition, the term ``initiation of 
negotiations'' means HUD approval of the demolition or disposition 
under this part.
    6. Section 970.6 is revised to read as follows:


Sec. 970.6  Specific criteria for HUD approval of demolition requests.

    In addition to other applicable requirements of this part, HUD will 
not approve an application for demolition unless HUD determines that 
one of the following criteria is met:
    (a) In the case of demolition of all or a portion of a project, the 
project, or portion of the project, is obsolete as to physical 
condition, location, or other factors, making it unusable for housing 
purposes and no reasonable program of modifications, is feasible to 
return the project or portion of the project to useful life. The 
Department generally shall not consider a program of modifications to 
be reasonable if the costs of such program exceed 90 percent of total 
development cost (TDC). Major problems indicative of obsolescence are--
    (1) As to physical condition: Structural deficiencies (e.g. 
settlement of earth below the building caused by inadequate structural 
fills, faulty structural design, or settlement of floors), substantial 
deterioration (e.g., severe termite damage or damage caused by extreme 
weather conditions), or other design or site problems (e.g., severe 
erosion or flooding);
    (2) As to location: physical deterioration of the neighborhood; 
change from residential to industrial or commercial development; or 
environmental conditions as determined by HUD environmental review in 
accord with part 50 of this title, which jeopardize the suitability of 
the site or a portion of the site and its housing structures for 
residential use;
    (3) Other factors which have seriously affected the marketability, 
usefulness, or management of the property.
    (b) In the case of demolition of only a portion of a project, the 
demolition will help to assure the useful life of the remaining portion 
of the project (e.g., to reduce project density to permit better access 
by emergency, fire, or rescue services).
    7. In Sec. 970.7, paragraph (a)(2) is revised to read as follows:


Sec. 970.7  Specific criteria for HUD approval of disposition requests.

    (a) * * *
    (2) Disposition will allow the acquisition, development, or 
rehabilitation of other properties that will be more efficiently or 
effectively operated as lower income housing projects, and that will 
preserve the total amount of lower income housing stock available to 
the community. A PHA must be able to demonstrate to the satisfaction of 
HUD that the additional units are being provided in connection with the 
disposition of the property.
* * * * *
    8. Section 970.8 is amended by:
    a. Revising paragraphs (f) and (g);
    b. Redesignating existing paragraphs (h), (i), (j), (k), (l), and 
(m), as paragraphs (k), (l), (m), (n), (o), and (p), respectively; and
    c. Adding new paragraphs (h), (i), and (j), to read as follows:


Sec. 970.8  PHA application for HUD approval.

* * * * *
    (f) A replacement housing plan, as required under Sec. 970.11, and 
approved by the unit of general local government which approval shall 
be provided by the chief executive officer of the jurisdiction in which 
the project is located (e.g., the mayor or the county executive), 
indicating approval of the replacement plan.
    (g) Evidence of compliance with the offering to resident 
organizations, as required under Sec. 970.13.
    (h) A certification regarding relocation of residents, in 
accordance with Sec. 970.5(h)(1).
    (i) Appropriate certifications regarding site and neighborhood 
assessment, in accordance with Secs. 970.11(h) (2), (3), and (4).
    (j) Appropriate certification regarding compliance with 
environmental authorities, where required in accordance with 
Sec. 970.4(c).
* * * * *
    9. In Sec. 970.9, paragraphs (b) introductory text and (b)(1) are 
revised, and a new paragraph (c) is added, to read as follows:


Sec. 970.9  Disposition of property; use of proceeds.

* * * * *
    (b) Net proceeds, including any interest earned on the proceeds, 
(after payment of HUD-approved costs of disposition and relocation 
under paragraph (a) of this section) shall be used, subject to HUD 
approval, as follows:
    (1) For the retirement of outstanding obligations, if any, issued 
to finance original development or modernization of the project; and
* * * * *
    (c) In the case of scattered-site housing of a public housing 
agency, the net proceeds of a disposition shall be used for the 
retirement of outstanding obligations issued to finance original 
development or modernization of the project, in an amount that bears 
the same ratio to the total of such costs and obligations as the number 
of units disposed of bears to the total number of units of the project 
at the time of disposition. For example, in cases where debt has not 
been forgiven, if a development project of ten units that cost $100,000 
has one unit disposed of for $10,000, then there would be no net 
proceeds after paying off the proportional cost ($100,000 divided by 
10=$10,000/unit) of the project. If, however, the unit was disposed of 
and net proceeds were $12,000, there would be $2,000 available that the 
PHA would use for the provision of housing assistance for lower income 
families. Where debt has been forgiven, all the net proceeds may be 
used by the PHA for the provision of low income housing assistance.
    10. Section 970.11 is revised to read as follows:


Sec. 970.11  Replacement housing plan.

    (a) One-for-one replacement. HUD may not approve an application or 
furnish assistance under this part unless the PHA submitting the 
application for demolition or disposition also submits a plan for the 
provision of an additional decent, safe, sanitary, and affordable 
rental dwelling unit (at rents no higher than permitted under the Act) 
for each public housing dwelling unit to be demolished or disposed of 
under the application, except as provided in paragraph (j) of this 
section. A replacement housing plan may provide for the location of the 
replacement housing outside the political boundaries of the locality of 
the PHA, provided all relevant program requirements are satisfied 
including the approval of the replacement housing plan by the unit of 
general local government in which the project being demolished or 
disposed is located. In order to assure that all program requirements 
are satisfied, the PHA must enter into any necessary agreements, 
including where applicable, the execution of a Cooperation Agreement 
between the PHA and the locality in which the replacement housing will 
be located, prior to submission of the replacement housing plan to HUD 
for approval. In addition, the PHA must ensure that such agreements 
provide that the families selected for occupancy in the replacement 
housing will be families who would have been eligible for occupancy in 
the replacement housing if it had been replaced in the same locality as 
the project being demolished [[Page 3720]] or disposed. The plan must 
include any one or combination of the following:
    (1) The acquisition or development of additional public housing 
dwelling units;
    (2) The use of 15-year project-based assistance under section 8, to 
the extent available, or if such assistance is not available, in the 
case of an application proposing demolition or disposition of 200 or 
more dwelling units in a development, the use of available project-
based assistance under section 8 having a term of not less than 5 
years;
    (3) The use of not less than 15-year project-based assistance under 
other Federal programs, to the extent available, or if such assistance 
is not available, in the case of an application proposing the 
demolition or disposition of 200 or more dwelling units in a 
development, the use of available project-based assistance under other 
Federal programs having a term of not less than 5 years. (NOTE: In the 
case of 15-year project based assistance under other Federal programs, 
the Department has determined that low-income housing credits under 
Section 42 of the Internal Revenue Service Code is a Federal program 
providing 15-year project-based assistance and, therefore, qualifies as 
a source of replacement housing. Any replacement housing plan proposing 
the use of these credits must assure that the low-income housing units 
in the low-income housing credit project which are designated as 
replacement housing will be reserved for low-income families for the 
requisite period. Units which at the time of allocation of the credit 
are also receiving Federal assistance under Section 8 (except tenant-
based assistance) or Section 23 of the Act, or Section 236, 221(d)(3) 
BMIR or Section 221(d)(5) of the National Housing Act (12 U.S.C. 1701 
et seq.), or Section 101 of the Housing and Urban Development Act of 
1965 (12 U.S.C. 1701s), or other similar Federal program, are not 
eligible as replacement housing under paragraph (a)(3) of this 
section.);
    (4) The acquisition or development of dwelling units assisted under 
a State or local government program that provides for project-based 
rental assistance comparable in terms of eligibility, contribution to 
rent, and length of assistance contract (not less than 15 years) to 
assistance under section (8)(b)(1) of the Act; or
    (5)(i) The use of 15-year tenant-based assistance under section 8 
of the Act, (excluding rental vouchers under section 8(o)), under the 
conditions described in paragraph (b) of this section, to the extent 
available, or if such assistance is not available, in the case of an 
application proposing the demolition or disposition of 200 or more 
dwelling units in a development, the use of tenant-based assistance 
under section 8 (excluding rental vouchers under section 8(o)) having a 
term of not less than 5 years.
    (ii) However, in the case of an application proposing demolition or 
disposition of 200 or more units, not less than 50 percent of the 
dwelling units for replacement housing shall be provided through the 
acquisition or development of additional public housing dwelling units 
or through project-based assistance, and not more than 50 percent of 
the additional dwelling units shall be provided through tenant-based 
assistance under section 8 (excluding vouchers) having a term of not 
less than 5 years. The requirements of Sec. 970.11(b) do not apply to 
applications for demolition or disposition of 200 or more units that 
propose the use of tenant-based assistance under section 8 having a 
term of not less than 5 years for the replacement of not more than 50 
percent of the units to be demolished or disposed of.
    (b) Conditions for use of tenant-based assistance. Fifteen-year 
tenant-based assistance under section 8 may be approved under the 
replacement plan only if provisions listed in paragraphs (b)(1) through 
(3) of this section are met.
    (1) There is a finding by HUD that replacement with project-based 
assistance (including public housing, as well as other types of 
project-based assistance under paragraph (a) of this section) is not 
feasible under the feasibility standards established for project-based 
assistance; that the supply of private rental housing actually 
available to those who would receive tenant-based assistance under the 
plan is sufficient for the total number of rental certificates and 
rental vouchers available in the community after implementation of the 
plan; and that this available housing supply is likely to remain 
available for the full 15-year term of the assistance;
    (2) HUD's findings under paragraph (b)(1) of this section are based 
on objective information, which must include rates of participation by 
landlords in the Section 8 program; size, condition, and rent levels of 
available rental housing as compared to Section 8 standards; the supply 
of vacant existing housing meeting the Section 8 housing quality 
standards with rents at or below the fair market rent or the likelihood 
of adjusting the fair market rent; the number of eligible families 
waiting for public housing or housing assistance under Section 8; the 
extent of discrimination practiced against the types of individuals or 
families to be served by the assistance; an assessment of compliance 
with civil rights laws and related program requirements; and such 
additional data as HUD may determine to be relevant in particular 
circumstances; and
    (3) To justify a finding under paragraph (b)(1) of this section, 
the PHA must provide sufficient information to support both parts of 
the finding--why project-based assistance is infeasible and how the 
conditions for tenant-based assistance will be met, based on the 
pertinent data from the local housing market, as prescribed in 
paragraph (b)(2) of this section. The determination as to the lack of 
feasibility of project-based assistance must be based on the standards 
for feasibility stated in the respective regulations which govern each 
type of eligible project-based program identified in paragraph (a) of 
this section, including public housing under paragraph (a)(1) of this 
section as well as the other types of eligible Federal, State and local 
programs of project-based assistance under paragraphs (a)(2) through 
(4) of this section. A finding of lack of feasibility may thus be made 
only if the applicable feasibility standards cannot be met under any of 
those project-based programs, or any combination of them. For example, 
with regard to additional public housing development, feasibility would 
be determined by reference to part 941 of this chapter and any other 
applicable regulations and requirements, to include consideration of 
such factors as local needs for new construction or rehabilitation, 
availability of suitable properties for acquisition or sites for 
construction, and HUD determinations under cost containment policies. 
With regard to Section 8 programs involving rehabilitation, an example 
of a major feasibility factor would be the prospects for participation 
of private owners willing to meet the rehabilitation requirements.
    (c) Approval of unit of general local government. The plan must be 
approved by the unit of general local government in which the project 
proposed for demolition or disposition is located, which approval shall 
be provided by the chief executive officer (e.g., the mayor or the 
county executive).
    (d) Schedule for replacement housing plan. (1) The plan must 
include a schedule for carrying out all its terms within a period 
consistent with the size of the proposed demolition or disposition, 
except that the schedule for completing the plan shall in no event 
exceed 6 years from the date specified [[Page 3721]] to begin plan 
implementation, which is the date of HUD approval of the demolition or 
disposition application.
    (2) Where demolition or disposition will occur in phases, the 
schedule shall provide for completing the plan within six years from 
the date of the HUD approval letter for a specific demolition or 
disposition action requested. ``Completion'' does not mean that the 
replacement housing must be built or rehabilitated within the six 
years. For replacement units developed under the public housing 
development program, the completion of the plan would be units that 
have reached the stage of notice to proceed for conventional units and 
contract of sale for Turnkey units.
    (e) Housing the same number of individuals and families. The plan 
must include a method which ensures that at least the same total number 
of individuals and families will be provided housing, allowing for 
replacement with units of different sizes to accommodate changes in 
local priority needs, as determined by the PHA and reviewed and 
approved by HUD as a part of the demolition or disposition application.
    (f) Relocation plan. Where existing occupants will be displaced, 
the plan must include a relocation plan in accordance with Secs. 970.5 
and 970.8(d).
    (g) Assurances regarding relocation. The plan must prevent the 
taking of any action to demolish or dispose of any unit until the 
tenant of the unit is relocated in accordance with Sec. 970.5. This 
does not preclude actions permitted under Sec. 970.12, actions required 
under this part for development and submission of the PHA's application 
for HUD approval of demolition or disposition, or actions required to 
carry out a relocation plan which has been approved by HUD in 
accordance with Secs. 970.5 and 970.8(d).
    (h) Site and neighborhood standards assessment. With respect to 
replacement housing, PHAs must comply with site and neighborhood 
standards, as follows:
    (1) If units under the Public Housing Development Program or the 
Section 8 project-based assistance program have been requested as 
replacement housing in the PHA's application, except when the PHA plans 
to build back on the same site, the site and neighborhood standards 
applicable for those programs will apply and be assessed at the 
appropriate time as required by that program rule or handbook and not 
at the time of the demolition or disposition application. The PHA must 
certify to HUD at the time of application for demolition or 
disposition, that once the site is identified, the PHA will comply with 
the site and neighborhood standards applicable for those programs.
    (2) If units under the Public Housing Development Program or the 
Section 8 project-based assistance program have been requested as 
replacement housing in the PHA's application and the PHA plans to build 
back on the same site, the PHA shall comply with the site and 
neighborhood standards applicable for those programs when the 
demolition or disposition application is submitted to HUD. A complete 
site and neighborhood standards review shall be done by HUD subsequent 
to the submission of the demolition or disposition application but 
prior to approval.
    (3)(i) If the replacement housing units are to be provided under a 
State or local program, and the site is known (including building back 
on the same site), the PHA is required to comply with site and 
neighborhood standards comparable to part 882 of this title when the 
demolition or disposition application is submitted to HUD. A complete 
site and neighborhood standards review shall be done by HUD subsequent 
to the submission of the demolition or disposition application but 
prior to approval.
    (ii) However, if the site is not known, the PHA shall include in 
the application for demolition or disposition a certification that it 
will comply with site and neighborhood standards comparable to part 882 
of this title once the site is known.
    (iii) In the case of replacement housing funded by State or local 
government funds, the PHAs must demonstrate in the application that it 
has a commitment for funding the replacement housing.
    (4)(i) If the replacement housing units are to be provided out of 
the proceeds of the disposition of public housing property, and the 
site is known (including building back on the same site), the PHA is 
required to comply with site and neighborhood standards comparable to 
part 941 of this chapter (or under part 882 of this title in the case 
of use of Section 8 assistance) when the demolition or disposition 
application is submitted to HUD. A complete site and neighborhood 
standards review shall be done by HUD subsequent to the submission of 
the demolition or disposition application but prior to approval.
    (ii) However, if the site is not known, the PHA shall include in 
the application for demolition or disposition a certification that it 
will comply with site and neighborhood standards comparable to part 941 
of this chapter or under part 882 of this title once the site is known.
    (i) Assurances regarding accessibility. The plan must contain 
assurances that any replacement units acquired, newly constructed or 
rehabilitated will meet the applicable accessibility requirements set 
forth in Sec. 8.25 of this title.
    (j) Exception for replacement housing in cases of demolition. In 
any 5-year period, a public housing agency may demolish not more than 
the lesser of 5 dwelling units or 5 percent of the total dwelling units 
owned and operated by the public housing agency, without providing an 
additional dwelling unit for each public housing unit to be demolished, 
but only if the space occupied by the demolished unit is used for 
meeting the service or other needs of public housing residents. If the 
PHA elects to use this exception, it shall meet all other requirements 
of this part except Sec. 970.11.

(Approved by the Office of Management and Budget under control 
number 2577-0075.)

    11. Existing Sec. 970.13 is redesignated as Sec. 970.14, and a new 
Sec. 970.13 is added, to read as follows:


Sec. 970.13  Resident organization opportunity to purchase.

    (a) Applicability. (1) This section applies to applications for 
demolition or disposition of a development which involve dwelling 
units, nondwelling spaces (e.g. administration and community buildings, 
maintenance facilities), and excess land.
    (2) The requirements of this section do not apply to the following 
cases which it has been determined do not present appropriate 
opportunities for resident purchase:
    (i) The PHA has determined that the property proposed for 
demolition is an imminent threat to the health and safety of residents;
    (ii) The local government has condemned the property proposed for 
demolition;
    (iii) A local government agency has determined and notified the PHA 
that units must be demolished to allow access to fire and emergency 
equipment;
    (iv) The PHA has determined that the demolition of selected 
portions of the development in order to reduce density is essential to 
ensure the long term viability of the development or the PHA (but in no 
case should this be used cumulatively to avoid Section 412 
requirements);
    (v) A public body has requested to acquire vacant land that is less 
than 2 acres in order to build or expand its services (e.g., a local 
government wishes to use the land to build or establish a police 
substation); or [[Page 3722]] 
    (vi) PHA seeks disposition outside the public housing program to 
privately finance or otherwise develop a facility to benefit low-income 
families (e.g., day care center, administrative building, other types 
of low-income housing).
    (3) In the situations listed in paragraph (a) of this section, the 
PHA may proceed to submit its request to demolish or dispose of the 
property, or the portion of the property, to HUD, in accordance with 
Section 18 of the United States Housing Act of 1937 and 24 CFR part 970 
without affording an opportunity for purchase by a resident 
organization. However, resident consultation would be required in 
accordance with Sec. 970.4(a). The PHA must submit written 
documentation, on official stationery, with date and signatures to 
justify paragraphs (a)(2)(i), (ii), (iii), (iv), and (v) of this 
section. Examples of such documentation include:
    (i) A certification from a local agency, such as the fire or health 
department, that a condition exists in the development that is an 
imminent threat to residents; or
    (ii) A copy of the condemnation order from the local health 
department. If, however, at some future date, the PHA proposes to sell 
the remaining property described in paragraphs (a)(2)(i) through (iii) 
of this section, the PHA will be required to comply with this section.
    (b) Opportunity for residents to organize. Where the affected 
development does not have an existing resident council, resident 
management corporation or resident cooperative at the time of the PHA 
proposal to demolish or dispose of the development or a portion of the 
development, the PHA shall make a reasonable effort to inform residents 
of the development of the opportunity to organize and purchase the 
property proposed for demolition or disposition. Examples of 
``reasonable effort'' at a minimum include one of the following 
activities: convening a meeting, sending letters to all residents, 
publishing an announcement in the resident newsletter, where available, 
or hiring a consultant to provide technical assistance to the 
residents. The Department will not approve any application that cannot 
demonstrate that the PHA has allowed at least 45 days for the residents 
to organize a resident organization. The PHA should initiate its 
efforts to inform the residents of their right to organize as an 
integral part of the resident consultation requirement under 
Sec. 970.4(a).
    (c) Established Organizations. Where there are duly formed resident 
councils, resident management corporation, or resident cooperative at 
the affected development, the PHA shall follow the procedures beginning 
in paragraph (d) of this section. Where the affected development is 
fully or partially occupied, the residents must be given the 
opportunity to form under the procedures in paragraph (b) of this 
section.
    (d) Offer of sale to resident organizations. (1) The PHA shall make 
the formal offer for sale which must include, at a minimum, the 
information listed in this paragraph (d). All contacted organizations 
shall have 30 days to express an interest in the offer. The PHA must 
offer to sell the property proposed for demolition or disposition to 
the resident management corporation, the resident council or resident 
cooperative of the affected development under at least as favorable 
terms and conditions as the PHA would offer it for sale to another 
purchaser:
    (i) An identification of the development, or portion of the 
development, in the proposed demolition or disposition, including the 
development number and location, the number of units and bedroom 
configuration, the amount of space and use for non-dwelling space, the 
current physical condition (e.g., fire damaged, friable asbestos, lead-
based paint test results), and occupancy status (e.g., percent 
occupancy).
    (ii) In the case of disposition, a copy of the appraisal of the 
property and any terms of sale.
    (iii) A PHA disclosure and description of plans proposed for reuse 
of land, if any, after the proposed demolition or disposition.
    (iv) An identification of available resources (including its own 
and HUD's) to provide technical assistance to the resident management 
corporation, resident council or resident cooperative of the affected 
development to enable the organization to better understand its 
opportunity to purchase the development, the development's value and 
potential use.
    (v) Any and all terms of sale that the PHA requires for the Section 
18 action. (If the resident management corporation, resident council or 
resident cooperative of the affected development submits a proposal 
that is other than the terms of sale (e.g., purchase at less than fair 
market value with demonstrated commensurate public benefit or for the 
purposes of homeownership), the PHA may consider accepting the offer).
    (vi) A date by which the resident management corporation, resident 
council or resident cooperative of the affected development must 
respond to the HA's offer to sell the property proposed for demolition 
or disposition, which shall be no less than 30 days from the date of 
the official offering of the PHA. The response from the resident 
management corporation, resident council or resident cooperative of the 
affected development shall be in the form of a letter expressing its 
interest in accepting the PHAs written offer.
    (vii) A statement that the resident council, resident management 
corporation, and resident cooperative of the affected development will 
be given 60 days to develop and submit a proposal to the PHA to 
purchase the property and to obtain a firm financial commitment. It 
shall explain that the PHA shall approve the proposal from the resident 
council, resident management corporation or resident cooperative of the 
affected development, if it meets the terms of sale. However, the 
statement shall indicate that the PHA can consider accepting an offer 
from the resident council, resident management corporation or resident 
cooperative of the affected development that is other than the terms of 
sale; e.g., purchase at less than fair market value with demonstrated 
commensurate public benefit or for the purposes of homeownership. The 
statement shall explain that if the PHA receives more than one proposal 
from a resident council, resident management corporation or resident 
cooperative at the affected development, the PHA shall select the 
proposal that meets the terms of sale. In the event that two proposals 
from the affected development meet the terms of sale, the PHA shall 
chose the best proposal.
    (2) After the 30 day time frame for the resident council, resident 
management corporation, or resident cooperative of the affected 
development to respond to the notification letter has expired, the PHA 
is to prepare letters to those organizations that responded 
affirmatively inviting them to submit a formal proposal to purchase the 
property. The organization has 60 days from the date of its affirmative 
response to prepare and submit a proposal to the PHA that provides all 
the information requested in paragraph (g) of this section and meets 
the terms of sale.
    (e) PHA Review of Proposals. The PHA has up to 60 days from the 
date of receipt of the proposal(s) to review them and determine whether 
they meet the terms of sale set forth in its offer. If the resident 
management corporation, resident council or resident cooperative of the 
affected development submits a proposal that is other than the terms of 
sale (e.g., purchase at less than the fair market value with 
demonstrated [[Page 3723]] commensurate public benefit or for the 
purposes of homeownership), the PHA may consider accepting the offer. 
If the terms of sale are met, within 14 days of the PHA's final 
decision, the PHA shall notify the resident management corporation, 
resident council or resident cooperative of the affected development of 
that fact and that the proposal has been accepted or rejected.
    (f) Appeals. The resident management corporation, resident council 
or resident cooperative of the affected development has the right to 
appeal the PHA's decision to the HUD field office. A letter requesting 
an appeal has to be made within 30 days of the decision by the PHA. The 
request should include copies of the proposal and any related 
correspondence. The field office will render a final decision within 30 
days. A letter communicating the decision is to be prepared and sent to 
the PHA and the resident management corporation, resident council or 
resident cooperative of the affected development.
    (g) Contents of Proposal. (1) The proposal from the resident 
management corporation, resident council or resident cooperative of the 
affected development shall at a minimum include the following:
    (i) The length of time the organization has been in existence;
    (ii) A description of current or past activities which demonstrate 
the organization's organizational and management capability or the 
planned acquisition of such capability through a partner or other 
outside entities;
    (iii) A statement of financial capability;
    (iv) A description of involvement of any non-resident organization 
(non-profit, for profit, governmental or other entities), if any, the 
proposed division of responsibilities between these two, and the non-
resident organization's financial capabilities;
    (v) A plan for financing the purchase of the property and a firm 
commitment for funding resources necessary to purchase the property and 
pay for any necessary repairs;
    (vi) A plan for the use of the property;
    (vii) The proposed purchase price in relation to the appraised 
value;
    (viii) Justification for purchase at less than the fair market 
value in accordance with Sec. 970.9, if appropriate;
    (ix) Estimated time schedule for completing the transaction;
    (x) The response to the PHA's terms of sale;
    (xi) A resolution from the resident organization approving the 
proposal; and
    (xii) A proposed date of settlement, generally not to exceed six 
months from the date of PHA approval of the proposal, or such period as 
the PHA may determine to be reasonable.
    (2) If the proposal is to purchase the property for homeownership 
under 5(h) or HOPE 1, then the requirements of Section 18 of the United 
States Housing Act of 1937 and 24 CFR part 970 do not apply, but the 
applicable requirements shall be those under the HOPE 1 guidelines, as 
set forth at 57 FR 1522, or the section 5(h) regulation, as set forth 
in parts 905 and 906 of this chapter. In order for a PHA to consider a 
proposal to purchase under section 412, using homeownership 
opportunities under section 5(h) or HOPE 1, the resident council, 
resident management corporation or resident cooperative of the affected 
development shall meet the provisions of this rule, including 
paragraphs (g)(1)(i) through (g)(1)(xii) of this section.
    (3) If the proposal is to purchase the property for other than the 
aforementioned homeownership programs or for uses other than 
homeownership, then the proposal must meet all the disposition 
requirements of Section 18 of the United States Housing Act of 1937 and 
24 CFR part 970.
    (h) PHA obligations. (1) Prepare and disperse the formal offer of 
sale to the resident council, resident management corporation and 
resident cooperative of the affected development.
    (2) Evaluate proposals received and make the selection based on the 
considerations set forth in paragraph (b) of this section. Issuance of 
letters of acceptance and rejection.
    (3) Prepare certifications, where appropriate, as discussed in 
paragraph (i)(3) of this section.
    (4) The PHA shall comply with its obligations under Sec. 970.4(a) 
regarding tenant consultation and provide evidence to HUD that it has 
met those obligations. The PHA shall not act in an arbitrary manner and 
shall give full and fair consideration to any qualified resident 
management corporation, resident council or resident cooperative of the 
affected development and accept the proposal if it meets the terms of 
sale.
    (i) PHA application submission requirements for proposed demolition 
or disposition. (1) If the proposal from the resident organization is 
rejected by the PHA, and either there is no appeal by the organization 
or the appeal has been denied, the PHA shall submit its demolition or 
disposition application to HUD in accordance with Section 18 of the 
United States Housing Act of 1937 and part 970 of this chapter. The 
demolition or disposition application must include complete 
documentation that the requirements of this section have been met. PHAs 
must submit written documentation that the resident council, resident 
management corporation and tenant cooperative of the affected 
development have been apprised of their opportunity to purchase under 
this section. This documentation shall include:
    (i) A copy of the signed and dated PHA notification letter(s) to 
each organization informing them of the PHA's intention to submit an 
application for demolition or disposition, the right to purchase; and
    (ii) The responses from each organization.
    (2) If the PHA accepts the proposal of the resident organization, 
the PHA shall submit a disposition application in accordance with 
Section 18 of the United States Housing Act of 1937 and part 970 of 
this chapter, with appropriate justification for a negotiated sale and 
for sale at less than fair market value, if applicable.
    (3) HUD will not process an application for demolition or 
disposition unless the PHA provides the Department with one of the 
following:
    (i) Where no resident management corporation, resident council or 
resident cooperative exists in the affected development and the 
residents of the affected development have not formed a new 
organization in accordance with paragraph (b) of this section, a 
certification from either the executive director or the board of 
commissioners stating that no such organization(s) exists and 
documentation that a reasonable effort to inform residents of their 
opportunity to organize has been made; or
    (ii) Where a resident management corporation, resident council or 
resident cooperative exists in the affected development one of the 
following, either paragraph (i)(3)(ii)(A) or paragraph (i)(3)(ii)(B) of 
this section:
    (A) A board resolution or its equivalent from each resident 
council, resident management corporation or resident cooperative 
stating that such organization has received the PHA letter, and that it 
understands the offer and waives its opportunity to purchase the 
project, or portion of the project, covered by the demolition or 
disposition application. The response should clearly state that the 
resolution was adopted by the entire organization at a formal meeting; 
or
    (B) A certification from the executive director or board of 
commissioners of the PHA that the thirty (30) day timeframe has expired 
and no response was received to its offer.

(Approved by the Office of Management and Budget under control 
number 2577-0075.)

    [[Page 3724]] Dated: January 5, 1995.
Joseph Shuldiner,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 95-1113 Filed 1-17-95; 8:45 am]
BILLING CODE 4210-33-P