[Federal Register Volume 60, Number 138 (Wednesday, July 19, 1995)]
[Proposed Rules]
[Pages 37294-37306]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-17810]




[[Page 37293]]

_______________________________________________________________________

Part V





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Assistant Secretary for Public and Indian Housing



_______________________________________________________________________



24 CFR Parts 950 and 990



Low-Income Public and Indian Housing--Vacancy Rule; Proposed Rule

  Federal Register / Vol. 60, No. 138 / Wednesday, July 19, 1995 / 
Proposed Rules   

[[Page 37294]]


DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Public and Indian Housing

24 CFR Parts 950 and 990

[Docket No. FR-3647-P-04]
RIN 2577-AB44


Low-Income Public and Indian Housing--Vacancy Rule

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

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposed rule would establish new conditions under which 
a Public Housing Agency (PHA), an Indian Housing Authority (IHA), or 
Resident Management Corporation (RMC) could include vacant units in its 
computation of eligibility under the Performance Funding System (PFS). 
(Note: The term housing authority (HA) will be used in this proposed 
rule when referring to both PHAs and IHAs.) The proposed rule would 
give greater recognition to units that are vacant for reasons beyond 
the HA's control, make changes in the current treatment of vacant units 
that are part of a modernization program, and, under certain 
circumstances, have HAs exclude long-term vacant units from their 
inventory of units available for occupancy. The changes being proposed 
are based on the recommendations of a regulatory negotiation advisory 
committee composed of persons who represent the interests affected by 
the current vacancy rule.

DATES: Comments due date: August 18, 1995.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Rules Docket Clerk, Office of General 
Counsel, Room 10276, Department of Housing and Urban Development, 451 
Seventh Street, SW., Washington, DC 20410-0500. Communications should 
refer to the above docket number and title. Facsimile (FAX) comments 
are not acceptable. A copy of each communication submitted will be 
available for public inspection and copying between 7:30 a.m. and 5:30 
p.m. weekdays at the above address.

FOR FURTHER INFORMATION CONTACT: Mr. John T. Comerford, Director, 
Financial Management Division, Public and Indian Housing, Room 4210, 
U.S. Department of Housing and Urban Development, 451 Seventh Street, 
SW., Washington, DC 20410, telephone (202) 708-1872. Hearing- or 
speech-impaired individuals may call HUD's TDD number: (202) 708-0850. 
[These telephone numbers are not toll-free.]

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act Statement

    The information collection requirements contained in this proposed 
rule have been submitted to the Office of Management and Budget (OMB) 
for review under the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-
3520). No person may be subjected to a penalty for failure to comply 
with these information collection requirements until they have been 
approved and assigned an OMB control number. The OMB control number, 
when assigned, will be announced by separate notice in the Federal 
Register.
    Public reporting burden for the collection of information 
requirements contained in this rule is estimated to include the time 
for reviewing the instructions, searching existing data sources, 
gathering and maintaining the data needed, and completing and reviewing 
the collection of information. Information on the estimated public 
reporting burden is provided under the Preamble heading, Other Matters. 
Send comments regarding this burden estimate or any other aspect of 
this collection of information, including suggestions for reducing this 
burden, to the Department of Housing and Urban Development, Rules 
Docket Clerk, 451 Seventh Street SW., Room 10276, Washington, DC 20410-
0500; and to the Office of Information and Regulatory Affairs, Office 
of Management and Budget, Attention: Desk Officer for HUD, Washington, 
DC 20503.
Justification for Shortened Comment Period

    It is the general practice of the Department to provide a 60-day 
public comment period on all proposed rules. However, the Department is 
shortening its usual 60-day public comment period to 30 days for this 
proposed rule. By statute, the rule cannot become effective unless it 
is in place at the beginning of the housing authority's (HA's) fiscal 
year. Because a number of HAs affected by this rule have fiscal years 
beginning on October 1, 1995, the Department wants to publish a final 
rule, which is not permitted to become effective for 30 days after 
publication, so that it will be effective by that date. The Department 
believes that because the rule has been developed by a consensus 
process, there is not likely to be much objection to its general 
provisions and that, therefore, the 30 days allowed for comment will be 
sufficient.

Regulatory Review Initiative

    This proposed rule has been developed through negotiated 
rulemaking, sometimes referred to as regulatory negotiations or ``reg-
neg.'' Negotiated rulemaking is a relatively new process for the 
Federal government and this was the first use of the process at HUD. 
The basic concept of reg-neg is to have the agency that is considering 
drafting a rule bring together representatives of affected interests 
for formal face-to-face negotiations that are open to the public. The 
give-and-take of the negotiation process is expected to foster 
constructive, creative, and acceptable solutions to difficult problems. 
As such, this proposed rule represents a serious effort by Department 
and affected interests to draft a clear, comprehensive rule that meets 
the needs of the program and its participants.
    Consistent with Executive Order 12866 and the President's 
memorandum of March 4, 1995, to all Federal Departments and Agencies on 
the subject of Regulatory Reinvention, the Department is reviewing each 
of its regulations to determine whether the regulation is a candidate 
for elimination, streamlining, or consolidation. As part of this 
review, at the final rule stage this rule may undergo revisions in 
accordance with the President's regulatory reform initiatives. 
Therefore, in addition to comments on the substance of this proposed 
rule, the Department welcomes comments on ways, if any, that the rule 
may be made more understandable and less burdensome, while still 
assuring the goals of the Performance Funding System (PFS).

Background

    HUD uses a formula approach called the Performance Funding System 
(PFS) to distribute operating subsidies to housing agencies. A 
regulatory description of the PFS can be found at 24 CFR parts 950, 
subpart J, and 990. Although somewhat oversimplified, the amount of 
subsidy received by an HA is the difference between projected expenses 
and projected income, with the PFS regulations detailing how these 
projections will be made. HAs calculate their PFS eligibility annually 
and submit a request for funding as part of their budget process. While 
the amount varies, this subsidy can represent a substantial amount of 
revenue to an HA. In 1994, HUD distributed over $2.6 billion in 
operating subsidies to HAs. 

[[Page 37295]]

    The amount of dwelling rental income an HA expects to receive is an 
important element in estimating subsidy eligibility. If rental income 
increases, operating subsidy eligibility will generally decrease. 
Likewise, if rental income decreases, an HA may receive a greater 
amount of subsidy. With some exceptions, HUD expects that HAs will 
project an occupancy level of 97 percent. This standard of 97% has been 
part of the PFS since its implementation in 1975.
    That part of the PFS that deals with the projection of occupancy 
levels is known as the vacancy rule. The vacancy rule was published as 
a final rule in 1986 (51 FR 16835, May 7, 1986) and was intended to 
create incentives to HAs to return vacant units to occupancy and to 
maintain an occupancy level of 97% or higher. The rule provided these 
incentives by: defining the conditions under which HUD would approve 
the use of an occupancy level of less than 97%; specifying that an HA 
need not use an occupancy level higher than 97%; and, in recognition 
that a low number of vacancies may make it difficult for a small HA to 
reach 97%, allowing small HAs to use an occupancy percentage based on 
having 5 or fewer vacant units.
    In September 1991, HUD published a proposed rule (56 FR 45814, 
September 6, 1991) that would have made significant changes to the way 
in which vacant units would be considered eligible for operating 
subsidy. These proposed changes would have included:
    1. Increasing the occupancy standard from 97% to 98%;
    2. Eliminating HUD-approved Comprehensive Occupancy Plans (COPs) as 
a means to justify using less than the prescribed occupancy standard;
    3. Limiting the amount of subsidy paid for those vacant units that 
are greater than 2% of the total number of units available for 
occupancy; and
    4. Instituting a year-end review to compare the HA's actual 
occupancy achieved with its projected occupancy percentage.
    Before the comment period on the proposed rule expired, Congress 
inserted language in HUD's Appropriation Act for 1992 (105 Stat. 757) 
that prohibited HUD from using appropriated funds to implement the 
proposed rule. Later, Congress included a provision in the Housing and 
Community Development Act of 1992 (section 114(b), Pub. L. 102-550; 42 
U.S.C. 1437g(a)(3)(A)) that required that any changes to the PFS 
relating to the payment of operating subsidies to vacant public housing 
units be accomplished only through the use of negotiated rulemaking 
procedures.
Regulatory Negotiations

    In July 1994, HUD entered into an Interagency Agreement with the 
Federal Mediation and Conciliation Service (FMCS) for convening 
services that would assist HUD in assessing the feasibility of 
assembling a balanced committee willing and able to work towards the 
goal of consensus on a proposed vacancy rule that was within HUD's 
statutory authority and addressed the issues of the interested parties. 
If HUD proceeded with the formation of a negotiated rulemaking 
committee, the Interagency Agreement called for the FMCS to provide 
facilitating services.
    The final convening report was provided to HUD in September 1994 
and concluded that ``there is sufficient support to re-examine the 
vacancy rule through a regulatory negotiations process.'' A copy of the 
report titled Convening Report for Regulatory--Negotiations on HUD's 
Vacancy Rule is in the office of the Rules Docket Clerk.

Chartering of Reg-Neg Committee

    As a general rule, a Federal Department is required to comply with 
the requirements of the Federal Advisory Committee Act (FACA), Pub. L. 
92-463, 5 U.S.C. App., when it establishes or uses a group of non-
Federal members as a source of advice. Under FACA, HUD was required to 
request a charter for this reg-neg committee. Approval of the charter 
submitted by HUD to the Office of Management and Budget was given on 
February 23, 1995.

Substantive Issues for Negotiation

    The convening report identified the following issues to be 
addressed by the Committee:
     What constitutes an acceptable level of vacancies for 
housing authorities of various size classifications?
     What criteria should be used for providing less than full 
subsidy?
     What criteria should be used for providing full subsidy 
despite less than full occupancy?

Committee Membership

    The FMCS conveners consulted and interviewed over 30 officials of 
various organizations interested in and affected by the vacancy rule. 
Three national HA associations--the Council of Large Public Housing 
Authorities (CLPHA), the National Association of Housing and 
Redevelopment Officials (NAHRO), and the Public Housing Authority 
Directors Association (PHADA)--worked together to suggest executive 
directors of HAs for committee membership that would reflect a balance 
among HAs in terms of size and number of vacant units. The national 
associations committed themselves to serving as staff support to the 
HAs selected for membership.
    The members of the Committee were:
     Housing Agencies

Housing Authority of the City Of Houston (TX)
Cuyahoga Metropolitan Housing Authority (Cleveland, OH)
Housing Authority of the Birmingham District (AL)
New York City Housing Authority (NY)
Housing Authority of the City of Newark (NJ)
Housing Authority of the City of Reno (NV)
Housing Authority of the City of Littleton (CO)
Housing Authority of the City of South Bend (IN)

     Tenant Organizations and Public Interest Groups

Bromley Heath Tenant Management Corporation, Jamaica Plain, MA
New Jersey Association of Public and Subsidized Housing Residents, Inc.
Housing and Development Law Institute, Washington, DC
Illinois Association of Housing Authorities
     Federal Government

U.S. Department of Housing and Urban Development

Development of Proposed Rule

    The first meeting of the Committee took place March 7-9, 1995, in 
Washington, DC. The FMCS conveners also served as facilitators for the 
Committee. Committee members agreed to a set of protocols that covered 
the areas of participation, decisionmaking, meetings, the role of the 
FMCS facilitators, and the intended product of the negotiations. The 
Committee agreed to define consensus as unanimous agreement to advance 
a specific proposal as the Committee's recommendation on any given 
point. As framed by one member, the goal of the negotiation should be a 
proposed rule that makes sense to all committee members or, 
alternatively, no proposed rule at all.
    The Committee members then began a discussion among themselves over 
possible issues that needed to be addressed. The FMCS facilitators used 
a variety of techniques, including brainstorming, supposition, and 
suggestion, to have the group focus on what the general objective or 
objectives should be for a new vacancy rule and 

[[Page 37296]]
to develop a list of factors that would make it possible to achieve the 
objectives. Points of discussion included:
    1. The appropriateness of the current occupancy standard of 97% and 
the use of five or fewer vacant units in determining the occupancy 
percentage for small HAs.
    2. Circumstances that create vacant units or cause vacant units to 
remain vacant for long periods of time. These included modernization, 
turnover, litigation, legislation, insurance claims, natural disasters, 
and market factors.
    3. Circumstances or causes of vacancies that would warrant 
continuation of some level of subsidy payment.
    4. Recognition of direct costs that are incurred by an HA 
regardless of the level of its vacancies.
    5. Factors that could be incorporated into a vacancy rule that 
would promote the occupancy of vacant units.
    6. Circumstances under which waivers of the regulatory provisions 
would be permitted.
    The discussion process continued throughout the afternoon of the 
first day's session. The Committee reached consensus on retaining the 
provisions of the current rule with respect to small HAs being able to 
use an occupancy percentage of less than 97%, if the percentage is 
based on having five or fewer vacant units. The Committee, recognizing 
budgetary realities, rejected as not feasible or productive the 
possibility of redefining the 97% occupancy goal at a different optimum 
level.
    A synopsis of the first day's efforts to develop a new vacancy rule 
was presented to the Committee by the facilitator at the start of the 
second day. The Committee, under the guidance of the facilitator, used 
the synopsis as a starting point to continue its discussion. Discussion 
included how litigation, Federal and State legislation, and regulatory 
action can serve as barriers to vacant units or buildings being 
reoccupied, demolished, sold, consolidated, or modernized.
    Much of the discussion during the second morning segment was on the 
issue of vacant units that were undergoing modernization or were being 
scheduled for modernization. The Committee viewed modernization as a 
positive undertaking on the part of HAs to reduce vacancies, for which 
continued subsidy support is appropriate at some level. Topics 
discussed under this issue included sources of funding; scheduling of 
work and the ability of an HA to control its modernization; what 
constitutes a reasonable period of time in advance of modernization 
work for vacating occupied units or not reoccupying vacant units; and 
the treatment of small HAs that compete for modernization funding, 
where the resources may be insufficient to fund all approvable 
applications.
    The facilitator prepared a new synopsis for the Committee to use as 
it began the second afternoon segment of the negotiations. After 
reviewing the synopsis, the Committee started to discuss the 
circumstances under which it would be reasonable to receive full or 
partial subsidy funding for vacant units. Full or partial subsidy was 
understood to mean receiving 100% or some lower level of the current 
Allowable Expense Level (AEL). A chart that presented the various cost 
items that comprise the AEL was provided to the Committee for its use. 
The Committee discussed whether and to what extent certain costs would 
be applicable to vacant units undergoing modernization, excess vacant 
units or empty buildings not undergoing modernization.
    For partial funding purposes, the Committee agreed that the 
determination of the appropriate partial amount should be expressed in 
terms of a percentage of the AEL, and not in terms of reimbursement of 
actual allowable costs, because of the administrative burden that a 
direct reimbursable system would entail. The Committee then discussed 
various levels of partial subsidy support and whether it was reasonable 
to apply one partial subsidy level to all the different scenarios under 
consideration (vacant units undergoing modernization, excess vacant 
units, or empty buildings not undergoing modernization).
    During the discussion the point was made that the current vacancy 
rule permits vacant units that are part of a funded, on-schedule 
modernization program to receive full funding. The Committee agreed to 
full subsidy eligibility for vacant units undergoing modernization, if 
the units have to be vacant in order to accomplish the work and the 
units are included in a HUD-approved modernization budget. The HA must 
place the vacant units under construction within two Federal Fiscal 
Years (FFYs) of funding approval. The Committee discussed a proposal to 
permit vacant units proposed for rehabilitation in the second year of 
an HA's Five-Year Action Plan to be eligible for full funding, but 
rejected the idea because of the annual cycle of Federal 
appropriations. Discussion continued on what partial subsidy level 
would be sufficient for the HA to maintain the structural integrity of 
vacant buildings/units in other circumstances. The session ended with 
an agreement to revisit this topic the following day.
    The third day's session began with a discussion by members on 
whether a new vacancy rule should contain a section describing the 
general circumstances under which a waiver might be given. The 
Committee felt that there may be circumstances beyond an HA's or 
Resident Management Corporation's (RMC) control that have brought about 
a vacancy problem that, despite the HA's/RMC's documented best efforts, 
is not correctable or would place an unreasonable burden on the HA/RMC. 
The Committee agreed that the procedures and the documentation needed 
for obtaining a waiver would not be part of the new rule, but would be 
contained in a notice.
    An updated synopsis was presented to the Committee for review and 
discussion. The Committee then returned to the issue of partial 
subsidies and agreed that an appropriate level of subsidy support would 
be 20% of the AEL. The Committee agreed that this level of support 
would be applied against vacant units that have been vacant for more 
than 12 months and were not undergoing modernization or were not vacant 
due to circumstances beyond the HA's control. These long-term vacant 
units will be removed from the HA's inventory of unit months available 
(UMAs). However, the Committee noted and emphasized that full funding 
of utilities under the current PFS would be continued. The Committee 
also agreed that the new vacancy rule would eliminate the current 
provisions regarding Comprehensive Occupancy Plans (COPs) and 
reiterated that units approved by HUD for deprogramming would not be 
included in the calculation of UMAs. A final synopsis containing all 
the consensus agreements made to that date was prepared for the 
Committee.
    The second meeting of the Committee took place April 4-5, 1995, in 
Washington, DC. The meeting began with a discussion on whether the 
proposed rule language should reflect consequences that could occur if 
funds already appropriated by Congress for the Comprehensive Grant 
Program (CGP) were rescinded. If funds for the CGP were to be 
significantly decreased, HAs might have to delay placing some vacant 
units under a construction contract. This could lead to the HA having 
long-term vacancies that would not be eligible for full operating 
subsidy. The Committee agreed to language that 

[[Page 37297]]
would permit the HA to seek a waiver to deal with this situation.
    The Committee also discussed the treatment of Resident Management 
Corporations (RMCs) that have responsibility for administering 
modernization programs, but are dependent upon the HA to provide 
funding. The Committee found that there are parallels between requests 
made by HAs for Comprehensive Improvement Assistance Program (CIAP) 
funds and requests made by RMCs for CGP funds, in that an otherwise 
approvable application or request could be denied because of 
insufficient funding. The Committee agreed to language that would treat 
this situation as a circumstance or action that was beyond the RMC's 
control.
    The Committee then began a section-by-section review of the 
proposed rule language that had been prepared by HUD staff based on the 
agreements reached at the first meeting. Edits and clarifications were 
proffered for incorporation into a new draft. The Committee then 
followed the same process in its review of the preamble material.
    A copy of the approved minutes is available for public inspection 
and copying from the Department's Rules Docket Clerk (see Addresses in 
this preamble).

Components of Proposed Rule

    The following elements of the proposed rule evolved from the 
consensus-seeking process applied in the reg-neg Committee. Although 
the Committee recognized that there are anomalies that will not be 
reached by the general elements of this proposed rule, its provisions 
were developed to address the majority of the situations facing HAs.
    (1) The standard for expected occupancy will continue to be 97%. 
The proposed rule would also maintain the five-unit exception, as in 
the current regulation, for small HAs where small numbers of vacant 
units would make it extremely difficult to attain a 97% occupancy rate.
    (2) HAs will be allowed to take into consideration circumstances 
and actions beyond the HA's control that prohibit the HA from 
occupying, selling, demolishing, rehabilitating, reconstructing, 
consolidating, or modernizing vacant units. Such circumstances and 
actions are limited to:
    (a) Litigation, such as a court order or settlement agreement that 
is legally enforceable. Units that are being held vacant as part of a 
court-ordered or HUD-approved desegregation effort would be an example.
    (b) Laws. Federal, Tribal, or State laws of general applicability, 
or their implementing regulations. For example, demolition or 
disposition requirements that have the effect of preventing an HA from 
taking action to remove unusable units from its inventory may be 
considered a circumstance beyond the HA's control. However, units 
vacant only because they do not meet minimum standards pertaining to 
construction or habitability under Federal, State, or local laws or 
regulations will not be considered vacant due to circumstances and 
actions beyond the PHA's control.
    (c) Changing market conditions. For example, small PHAs that are 
located in areas experiencing population loss or economic dislocations 
may face a lack of demand in the foreseeable future, even after the HA 
has taken aggressive marketing and outreach measures.
    (d) Natural disasters.
    (e) Insufficient funding for otherwise approvable applications made 
for Comprehensive Improvement Assistance Program (CIAP) funds.
    (f) RMC Funding. The failure of a PHA to fund an otherwise 
approvable RMC request for Federal modernization funding.
    (g) Casualty Losses. Delays in repairing damage to vacant units due 
to the time needed for settlement of insurance claims.
    (3) An HA with vacant units in a project that is otherwise viable, 
but is undergoing modernization that includes work necessary to 
reoccupy the vacant units will not be penalized for the vacancies when 
the HA determines its operating subsidy eligibility, if one of the 
following conditions is met:
    (a) The vacant units are under construction (i.e., construction 
contract awarded or force account work started); or
    (b) Treatment of the vacant units is included in a HUD-approved 
modernization budget (e.g., an approved Annual Statement for the 
Comprehensive Grant Program (CGP) or CIAP Budget), but the time period 
for placing the vacant units under construction has not yet expired. 
The HA must place the vacant units under construction within two 
Federal Fiscal Years (FFYs) after the FFY in which the modernization 
funds are approved. For example, if the HA receives HUD approval for 
the modernization budget in FFY 1996, the HA must start construction on 
the vacant units by September 30, 1998. If the HA fails to place the 
vacant units under construction within this 2-year time frame, the 
units will be treated as long-term vacancies and the HA is eligible for 
limited subsidy for those units.
    The 2-year provision to place vacant units under construction will 
not be extended. Failure to meet this provision affects subsidy 
eligibility only, not the use of the modernization funds, which are 
governed by a modernization implementation schedule that may be longer 
than 2 years.
    Because of the funding cycle for modernization funds, HAs with FYs 
beginning January 1 or April 1 may not have approved modernization 
budgets at the time they develop operating budgets for those years. 
These HAs would use their current approved modernization budget to 
determine their subsidy eligibility, but would be permitted to submit 
an operating budget revision when the modernization budget had been 
approved.
    (4) Any HA that estimates it will have vacant units in its 
requested budget year in excess of 3% of the units available for 
occupancy (and in excess of five vacant units), after adjusting for 
units that are vacant for reasons beyond its control (as described in 
item 2 under this heading), and vacant units that are covered by funded 
modernization (as described in item 3 under this heading), will receive 
less than full operating subsidy for these vacant units. If a unit has 
been vacant for longer than 12 months, it will be removed from the HA's 
calculation of units available for occupancy and subsidy eligibility 
will be limited to 20% of the Allowable Expense Level. Units that are 
vacant for 12 months or less will be included in the HA's calculation 
of units available for occupancy, but the HA will have to presume 
dwelling rental income will be generated by these units.
    (5) Provisions in the current vacancy rule relating to 
Comprehensive Occupancy Plans (COPs) will be eliminated. An HA that has 
a HUD-approved COP at the time the new vacancy rule becomes effective 
may choose to determine its PFS eligibility under the existing rule or 
to terminate its COP and become subject to the new rule.
    (6) Because the 2-year provision to place vacant units under 
construction is new, the proposed rule contains a transition section to 
address the treatment of units already under an approved modernization 
budget at the time the new rule becomes effective. Such units may have 
a longer time period, if already approved by HUD.
    (7) The new vacancy rule would permit the granting of waivers to 
HAs or RMCs when necessary to address unusual situations. HUD will 
establish 

[[Page 37298]]
procedures for requesting a waiver and required documentation. HUD will 
take prompt action in responding to a waiver request, and any relief 
provided will be in accordance with these procedures and at a level 
established at HUD's discretion on a case-by-case basis.

Computation of Subsidy Under Proposed Rule

    In computing its per-unit Dwelling Rental Income under the 
Performance Funding System, an HA will determine its Projected 
Occupancy Percentage in much the same manner as in the current rule. 
The HA will either take a ``snapshot'' of the last day of the month 
which is 6 months before the start of its fiscal year or take the 
average occupancy during that month. The HA will then use the data to 
develop an estimated average occupancy percentage for its Requested 
Budget Year (RBY). The conditions under which the RBY occupancy 
percentage will be used as the projected occupancy percentage for 
purposes of determining operating subsidy eligibility are described 
below:
    (1) If the RBY percentage is 97% or higher, the HA will use 97% as 
its projected occupancy percentage. If the HA estimates a RBY 
percentage of less than 97% but can demonstrate that it will have an 
average of five or fewer vacant units in the requested budget year, the 
HA may use its RBY percentage as its projected occupancy percentage. 
(Reference in this part to ``more than five units'' or ``fewer than 
five units'' refers to a circumstance in which 5 units equals or 
exceeds 3% of the number of units to which the 3% threshold is 
applicable.)

    Example: The ABC Housing Authority has 1,000 units available for 
occupancy. It estimates for its RBY an average of 980 units will be 
occupied, an occupancy rate of 98%. Since the RBY percentage is 
higher than 97%, it will use 97% as its projected occupancy 
percentage.
    Example: The XYZ Housing Authority has 50 units available for 
occupancy. It estimates that for its RBY an average of 46 units will 
be occupied; a RBY occupancy percentage of 92%. Since the Authority 
estimates that it will have four vacant units in the RBY, it will 
use 92% as its projected occupancy percentage.

    (2) If the RBY occupancy percentage is less than 97% and the HA has 
more than 5 vacant units, the HA will adjust its estimate of vacant 
units to exclude units undergoing modernization. (see item 3 under the 
section of the preamble headed COMPONENTS OF PROPOSED RULE). The HA 
will also adjust its estimate for units that are vacant due to 
circumstances and actions beyond the HA's control (see item 2 under the 
section of the preamble headed COMPONENTS OF PROPOSED RULE). After 
making these adjustments, the HA will recalculate its estimated vacancy 
percentage. If the recalculated vacancy percentage is 3% or less (or 
the HA would have five or fewer vacant units), the HA will use its RBY 
occupancy percentage as its projected occupancy percentage.

    Example: The ABC Housing Authority has 1,000 units available for 
occupancy. It estimates that for its RBY an average of 950 units 
will be occupied, a RBY occupancy percentage of 95%. Of its 50 
vacant units, 40 units are part of a HUD-approved modernization 
budget and will be under a construction contract during the budget 
year. The Authority will adjust its 50 vacancies to exclude the 40 
vacant units undergoing modernization and recalculate its RBY 
vacancy percentage (10/1,000 = 1%). Since the recalculated RBY 
vacancy percentage is less than 3%, the Authority will use its RBY 
occupancy percentage of 95% as its projected occupancy percentage.
    Example: The XYZ Housing Authority is a small HA with 50 units 
available for occupancy. It estimates for its RBY an average of 40 
units will be occupied, a RBY occupancy percentage of 80%. The 
Authority documents that 5 of the vacancies are efficiencies in a 
building serving elderly residents. There is no demand for these 
units despite aggressive marketing and outreach and selling, 
demolishing, or reconfiguration of the units is not possible. Since 
the Authority can show that these 5 vacancies are due to 
circumstances or action beyond its control, it will adjust its 10 
vacancies to exclude these 5. With the number of vacant units now 
recalculated to be 5, the Authority will use its RBY occupancy 
percentage of 80% as its projected occupancy percentage.

    (3) If the RBY vacancy percentage is greater than 3% and the HA has 
more than 5 vacant units, even after adjusting for vacant units 
undergoing modernization or units vacant due to circumstances and 
actions beyond its control, the HA will then recalculate its RBY 
occupancy percentage by excluding from its calculation of units months 
available (UMAs), all vacant units that have been vacant for longer 
than 12 months that are not either undergoing modernization or vacant 
for reasons beyond the HA's control. The long-term vacancies removed 
will be eligible to receive a reduced operating subsidy calculated at 
20% of the HA's AEL. The conditions under which the recalculated RBY 
occupancy percentage will be used as the projected occupancy percentage 
for purposes of determining operating subsidy eligibility for a low-
occupancy HA are described below:
    (a) If the recalculated RBY occupancy percentage estimate is 97% or 
higher, the HA will use 97%.

    Example: The ABC Housing Authority has 1,000 units available for 
occupancy. It estimates for its RBY an average of 950 units will be 
occupied, a RBY occupancy percentage of 95%. The 50 vacant units do 
not meet the criteria of being either vacant units undergoing 
modernization or vacant due to circumstances or actions beyond the 
HA's control. There are 25 long-term vacancies in the group of 50. 
The Authority will remove these 25 units from its determination of 
units available for occupancy and recalculate its RBY occupancy 
percentage (950/975 = 98%). Since the RBY occupancy percentage is 
higher than 97%, it will use 97% as its projected occupancy 
percentage.

    (b) If the recalculated RBY occupancy percentage is less than 97%, 
but the RBY vacancy rate after adjusting for vacant units undergoing 
modernization and units that are vacant due to circumstances and 
actions beyond the HA's control is 3% or less (or the HA has five or 
fewer vacant units), the HA may use its recalculated RBY Occupancy 
Percentage as its projected occupancy percentage.

    Example: The ABC Housing Authority has 1,000 units available for 
occupancy. It estimates for its RBY that an average of 900 units 
will be occupied, a RBY occupancy percentage of 90%. Of its 100 
vacant units, 50 units are part of a HUD-approved modernization 
budget and will be under a construction contract during the budget 
year. The remaining 50 units fall outside the definition of being 
vacant due to circumstances or actions beyond the HA's control; 25 
of these units have been vacant for more than 12 months (long-term 
vacancies) and 25 have been vacant for 12 months or less. When the 
Authority excludes its long-term vacancies from its inventory of 
units available for occupancy and recalculates its RBY occupancy 
percentage, it finds that the recalculated RBY occupancy percentage 
is still below 97%, (900/975 = 92%). The Authority will then take 
its 75 vacancies, exclude the 50 vacant units undergoing 
modernization, and recalculate its RBY vacancy percentage. Since the 
resulting vacancy percentage is 3% or below (25/975 = 3%), the 
Authority will use its recalculated RBY occupancy percentage of 92% 
as its projected occupancy percentage.

    (c) If the vacancy percentage is greater than 3% and the HA has 
more than five vacant units after adjusting for vacant units undergoing 
modernization and units that are vacant due to circumstances and 
actions beyond the HA's control, the HA will use 97% as its projected 
occupancy percentage, but will be allowed to adjust the 97% by the 
number of vacant units undergoing modernization and units that are 
vacant due to circumstances and actions beyond the HA's control. For a 
small HA using five vacant units as its occupancy objective for the 
RBY, the HA will determine what percentage five 

[[Page 37299]]
units represents as a portion of its units available for occupancy and 
subtract that percentage from 100%. The result will be used as the HA's 
projected occupancy percentage; however, the HA will be allowed to 
adjust the projected occupancy percentage by vacant units undergoing 
modernization and units that are vacant for circumstances and actions 
beyond the HA's control.

    Example: The ABC Housing Authority has 1,000 units available for 
occupancy. It estimates for its RBY an average of 900 units will be 
occupied, a RBY occupancy percentage of 90%. Of its 100 vacant 
units, 50 units are part of a HUD-approved modernization budget and 
will be under a construction contract during the budget year. The 
remaining 50 units fall outside the definition of being vacant due 
to circumstances or actions beyond the HA's control; none of the 
vacancies are long-term vacancies. The Authority will have to use a 
projected occupancy percentage of 97%, but will adjust the 97% by 
the number of vacant units undergoing modernization. The 50 vacant 
units undergoing modernization represent 5% of the Authority's 
inventory and the 5% will be subtracted from the 97%. The Authority 
will use 92% as its projected occupancy percentage.

    (4) The relationship between the RBY occupancy percentage and the 
projected occupancy percentage is illustrated in the chart below:

   Relationship Between the RBY Occupancy Percentage and the Projected  
                          Occupancy Percentage                          
------------------------------------------------------------------------
      RBY occupancy percentage          Projected occupancy percentage  
------------------------------------------------------------------------
1. RBY Occupancy Percentage is 97%   1. Use 97%.                        
 or higher.                                                             
2. RBY Occupancy Percentage is less  2. Use the RBY Occupancy           
 than 97%, but HA estimates it will   Percentage.                       
 have 5 or fewer vacant units in                                        
 RBY.                                                                   
3. RBY Occupancy Percentage is less  3. Use the RBY Occupancy Percentage
 than 97% and HA has more than 5      if vacancy percentage is 3% or    
 vacant units.                        less after adjusting for vacant   
                                      units undergoing modernization and
                                      units vacant due to circumstances 
                                      and actions beyond the HA's       
                                      control.                          
4. RBY Occupancy Percentage is less  4. HA will exclude all long-term   
 than 97% and HA has more than 5      vacant units from its inventory of
 vacant units, even after adjusting   units available for occupancy and 
 for vacant units undergoing          will recalculate its RBY Occupancy
 modernization and units vacant due   Percentage:                       
 to circumstances and actions                                           
 beyond the HA's control.                                               
                                     a. If the recalculated RBY         
                                      Occupancy Percentage is 97% or    
                                      higher, the HA will use 97%.      
                                     b. If the recalculated RBY         
                                      Occupancy Percentage is less than 
                                      97%, but the HA estimates it will 
                                      have 5 or fewer vacant units in   
                                      the RBY, the HA will use the RBY  
                                      Occupancy Percentage.             
                                     c. If the recalculated RBY         
                                      Occupancy Percentage is less than 
                                      97% and HA has more than 5 vacant 
                                      units, even after making all      
                                      adjustments, the HA will use 97%, 
                                      but will be allowed to adjust the 
                                      97% for vacant units undergoing   
                                      modernization and units vacant due
                                      to circumstances and actions      
                                      beyond the HA's control. A small  
                                      HA will determine what percentage 
                                      five units represents as a portion
                                      of its units available for        
                                      occupancy and will make           
                                      adjustments against that          
                                      percentage.                       
------------------------------------------------------------------------

Comparison of Current and Proposed Rule

    The proposed rule distinguishes itself from the current regulation 
in several important respects, as follows:
    (1) Conditions under which a vacant unit is considered eligible for 
subsidy. The proposed rule would limit the circumstances under which an 
HA could include excess long-term vacancies in its inventory of units 
available for occupancy to those units that are: (a) Under construction 
as part of a modernization program; (b) included in a HUD-approved 
modernization budget, and the time period for placing the vacant units 
under construction has not yet expired; or (c) subject to circumstances 
and actions recognized to be beyond the HA's control. If long-term 
vacant units are removed from an HA's inventory, those units would be 
eligible for a reduced subsidy, calculated at 20% of the AEL, and would 
continue to be eligible for utility costs. Section 990.108(b)(3) 
describes the eligibility of long-term vacancies for these other costs. 
The current rule does not make a distinction in the length of time a 
unit has been vacant. The Committee believed that a reduced subsidy 
level of 20% for such vacant units would be sufficient to maintain the 
structural integrity of the units, but would also provide incentive to 
returning the units to occupancy as soon as feasible.
    (2) Treatment of vacant units in CIAP, CGP or other funded 
modernization programs. Under the existing rule, the Department allows 
each HA an opportunity to receive special treatment in determining 
operating subsidy eligibility if the HA has or applies to have vacant 
units in a funded, on-schedule modernization program. This special 
treatment has been provided in two ways: first, if an HA anticipates 
that it will have less than 97% occupancy in its budget year, the HA 
may be able to use that lower percentage in its operating subsidy 
calculations, by showing that its occupancy rate would be 97% or higher 
after adjusting for vacant units in an on-schedule modernization 
program. Second, if an HA has a HUD-approved Comprehensive Occupancy 
Plan (COP), the HA would be permitted to adjust its otherwise fixed 
occupancy goals if the HA could demonstrate that it had submitted an 
approvable application for modernization work that was rejected because 
of insufficient HUD funds. This special treatment has allowed an HA to 
be eligible for full operating subsidy for vacant units that are 
undergoing modernization and for units awaiting modernization when 
funds become available.
    The Committee supported the principle embodied in the existing 
rule, i.e., HAs should not be unduly burdened in undertaking 
modernization activities because of lost rental revenue. However, the 
Committee believed that eligibility for full operating subsidy to this 
group of vacant units should be limited to units that are actually 
under a construction contract or included in an approved modernization 
budget. The existing rule does not make this distinction and permits 
the special treatment when funds are first 

[[Page 37300]]
committed to the modernization program, often for the development of 
architectural and engineering (A & E) specifications. The A & E work 
may cover a number of units, buildings, or projects that will not 
actually go to construction for some period of time; furthermore, the 
construction work might not require the unit to be vacant.
    (3) Recognition of Circumstances Beyond an HA's/RMC's Control That 
Cause Vacancies. The proposed rule would permit an HA or RMC to be 
eligible for full operating subsidies for its vacant units if it can 
show that the circumstances or actions causing the vacancies are beyond 
the HA's/RMC's control and are prohibiting it from occupying, selling, 
demolishing, rehabilitating, reconstructing, consolidating, or 
modernizing the vacant units. A listing of eligible circumstances is 
provided in the section of this preamble titled Components of the 
Proposed Rule. The existing regulation gives special recognition only 
to vacant units in projects with funded, on-schedule modernization 
programs.
    (4) Elimination of Comprehensive Occupancy Plans (COPs). Under the 
proposed rule, no new COPs would be approved. An HA that has a HUD-
approved COP at the time the new vacancy rule becomes effective will 
have the option of choosing to determine its PFS eligibility under the 
existing rule or to terminate its COP and be subject to the new rule. 
HAs are still encouraged to undertake the structured, analytical 
approach encompassed in the COP concept, i.e., to identify the causes 
of their vacancy problems and develop vacancy reduction strategies and 
actions that are responsive to the problems and appropriate to the 
management and resources of the HA.

Other Matters

Public Reporting Burden

    The information collection requirements contained in this proposed 
rule have been submitted to the Office of Management and Budget under 
the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3520). The 
Department has determined that the following provisions contain 
information collection requirements.

 Tabulation of Annual Reporting Burden--Contributions for Operating Subsidies--Performance Funding System; Low- 
                                  Income Public Housing--Vacancy; Proposed Rule                                 
----------------------------------------------------------------------------------------------------------------
                                                                         No. of                                 
                                              Section of     No. of     responses    Total    Hours per   Total 
   Description of information collection        24 CFR    respondents      per       annual   responses   hours 
                                               affected                respondent  responses                    
----------------------------------------------------------------------------------------------------------------
Determining operating income level.........     950.725;                                                        
                                                 990.109      3,100            1      3,100          1     3,100
    Total reporting burden.................  ...........      3,100            1      3,100          1     3,100
----------------------------------------------------------------------------------------------------------------

Environmental Impact

    In accordance with 40 CFR 1508.4 of the regulations of the Council 
on Environmental Quality and 24 CFR 50.20(o) of the HUD regulations, 
the policies and procedures contained in this proposed rule relate only 
to operating costs that do not affect a physical structure or property 
and, therefore, are categorically excluded from the requirements of the 
National Environmental Policy Act.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this proposed rule before publication and 
by approving it certifies that this proposed rule will not have a 
significant economic impact on a substantial number of small entities. 
The proposed rule would result in eligibility criteria for low-income 
public and Indian housing operating subsidies that may impact those HAs 
with large numbers of long-term vacant units. However, HUD's data 
incident to establishing the Vacancy Reduction Program indicates that 
high-vacancy PHAs are relatively few in number (and high-vacancy IHAs 
virtually nonexistent), and that a preponderance of the program's 
vacancies are in a very limited number of the larger PHAs. Most HAs 
will be unaffected by this proposed rule.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this proposed rule would not have substantial direct 
effects on States or their political subdivisions, or the relationship 
between the Federal government and the States, or on the distribution 
of power and responsibilities among the various levels of government. 
As a result, the proposed rule is not subject to review under the 
Order. The rule will refine the criteria under which operating 
subsidies are paid on HUD-assisted housing owned and operated by HAs, 
but will not interfere with State or local government functions.

Executive Order 12606, the Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this proposed rule would 
not have potential for significant impact on family formation, 
maintenance, and general well-being, and, thus, is not subject to 
review under the Order. No significant change in existing HUD policies 
or programs will result from promulgation of this proposed rule, as 
those policies and programs relate to family concerns. The proposed 
rule merely involves the amount of funding that an HA should receive 
under a refinement of an existing procedure.

Regulatory Agenda

    This proposed rule was listed as Item No. 1526 in the Department's 
Semiannual Agenda of Regulations published on May 8, 1995 (60 FR 23368, 
23402), in accordance with Executive Order 12866 and the Regulatory 
Flexibility Act.


    The Catalog of Federal Domestic Assistance Program numbers for 
this proposed rule are 14.145, 14.146, and 14.147.

List of Subjects

24 CFR Part 950
    Aged, Grant programs--housing and community development, Grant 
programs--Indians, Disability, Homeownership, Indians, Low and moderate 
income housing, Public housing, Reporting and recordkeeping 
requirements. 

[[Page 37301]]


24 CFR Part 990

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

    For the reasons set out in the preamble, parts 950 and 990 of title 
24 of the Code of Federal Regulations are proposed to be amended as 
follows:

PART 950--INDIAN HOUSING PROGRAMS

    1. The authority citation for part 950 would continue to read as 
follows:

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

    2. Section 950.102 would be amended by adding definitions for 
``Long-term vacancy'', ``Units vacant due to circumstances and actions 
beyond the IHA's control'', and ``Vacant unit undergoing 
modernization'', and by revising the definition for ``Unit months 
available'', to read as follows:


Sec. 950.102  Definitions.

* * * * *
    Long-term vacancy. This term means the same as it is used in the 
definition of ``Unit Months Available'' in this section.
* * * * *
    Unit months available. Project Units multiplied by the number of 
months the Project Units are available for occupancy during a given IHA 
fiscal year. For purposes of this subpart, a unit is considered 
available for occupancy from the date established as the End of the 
Initial Operating Period for the Project until the time the unit is 
approved by HUD for deprogramming and is vacated or is approved for 
nondwelling use. A unit will be considered a long-term vacancy and will 
not be considered available for occupancy in any given IHA Requested 
Budget Year if the IHA determines that:
    (1) The unit has been vacant for more than 12 months at the time 
the IHA determines its Actual Occupancy Percentage;
    (2) The unit is not either:
    (i) A vacant unit undergoing modernization; or
    (ii) A unit vacant for circumstances and actions beyond the IHA's 
control, as these terms are defined in this section; and
    (3) The IHA determines that it will have a vacancy percentage of 
more than 3 percent and will have more than five vacant units, for its 
Requested Budget Year, even after adjusting for vacant units undergoing 
modernization and units that are vacant for circumstances and actions 
beyond the IHA's control, as defined in this section. (Reference in 
this subpart to ``more than five units'' or ``fewer than five units'' 
shall refer to a circumstance in which 5 units equals or exceeds 3 
percent of the number of units to which the 3 percent threshold is 
applicable.)
    Units vacant due to circumstances and actions beyond the IHA's 
control. Dwelling units that are vacant due to circumstances and 
actions that prohibit the IHA from occupying, selling, demolishing, 
rehabilitating, reconstructing, consolidating or modernizing vacant 
units and are beyond the IHA's control. For purposes of this 
definition, circumstances and actions beyond the IHA's control are 
limited to:
    (1) Litigation. The effect of court litigation such as a court 
order or settlement agreement that is legally enforceable. An example 
would be units that are being held vacant as part of a court-ordered or 
HUD-approved desegregation plan.
    (2) Laws. Federal, Tribal, or State laws of general applicability, 
or their implementing regulations. Units vacant only because they do 
not meet minimum standards pertaining to construction or habitability 
under Federal, State, or local laws or regulations will not be 
considered vacant due to circumstances and actions beyond the IHA's 
control.
    (3) Changing market conditions. For example, IHAs may face a lack 
of demand in the foreseeable future, even after the IHA has taken 
aggressive marketing and outreach measures.
    (4) Natural disasters. 
    (5) Insufficient funding for otherwise approvable applications made 
for Comprehensive Improvement Assistance Program (CIAP) funds.
    (6) Resident Organization Funding. The failure of an IHA to fund an 
otherwise approvable RO request for Federal modernization funding;
    (7) Casualty Losses. Delays in repairing damage to vacant units due 
to the time needed for settlement of insurance claims.
* * * * *
    Vacant unit undergoing modernization. Except as provided in 
Sec. 950.775(a), a vacant unit in an otherwise viable project (as 
determined using the indicia in Sec. 970.6 of this chapter), when the 
project is undergoing modernization that includes work that is 
necessary to reoccupy the vacant unit, and in which one of the 
following conditions is met:
    (1) The unit is under construction (i.e., the construction contract 
has been awarded or force account work has started); or
    (2) The treatment of the vacant unit is included in a HUD-approved 
modernization budget (e.g., the Annual Statement for the Comprehensive 
Grant Program (CGP) (Form HUD-52837 or its successor), or the 
Comprehensive Improvement Assistance Program (CIAP) Budget (Form HUD-
52825 or its successor)), but the time period for placing the vacant 
unit under construction has not yet expired. The IHA must place the 
vacant unit under construction within two Federal Fiscal Years (FFYs) 
after the FFY in which the modernization funds are approved.
* * * * *
    3. Section 950.720 would be amended by revising paragraph (b), to 
read as follows:


Sec. 950.720  Other costs.

* * * * *
    (b) (1) Costs attributable to units approved for deprogramming and 
vacant may be eligible for inclusion, but must be limited to the 
minimum services and protection necessary to protect and preserve the 
units until the units are deprogrammed. Costs attributable to units 
temporarily unavailable for occupancy because the units are utilized 
for IHA-related activities are not eligible for inclusion. In 
determining the PFS operating subsidy, these units shall not be 
included in the calculation of Unit Months Available. Units approved 
for deprogramming shall be listed by the IHA, and supporting 
documentation regarding direct costs attributable to such units shall 
be included as a part of the Performance Funding System calculation in 
which the IHA requests operating subsidy for these units. If the IHA 
requires assistance in this matter, the IHA should contact the HUD 
Field Office.
    (2) Units approved for nondwelling use to promote economic self-
sufficiency services and anti-drug activities are eligible for 
operating subsidy under the conditions provided in this paragraph 
(b)(2), and the costs attributable to these units are to be included in 
the operating budget. If a unit satisfies the conditions stated below, 
it will be eligible for subsidy at the rate of the AEL for the number 
of months the unit is devoted to such use. Approval will be given for a 
period of no more than 3 years. HUD may renew the approval to allow 
payments after that period only if the IHA can demonstrate that no 
other sources for paying the non-utility operating costs of the unit 
are available. The conditions the unit must satisfy are:
    (i) The unit must be used for either economic self-sufficiency 
activities 

[[Page 37302]]
directly related to maximizing the number of employed residents or for 
anti-drug programs directly related to ridding the development of 
illegal drugs and drug-related crime. The activities must be directed 
toward and for the benefit of residents of the development.
    (ii) The IHA must demonstrate that space for the service or program 
is not available elsewhere in the locality and that the space used is 
safe and suitable for its intended use or that the resources are 
committed to make the space safe and suitable.
    (iii) The IHA must demonstrate satisfactorily that other funding is 
not available to pay for the non-utility operating costs. All rental 
income generated as a result of the activity must be reported as income 
in the operating subsidy calculation.
    (iv) Operating subsidy may be approved for only one site (involving 
one or more contiguous units) per public housing development for 
economic self-sufficiency services or anti-drug programs, and the 
number of units involved should be the minimum necessary to support the 
service or program. Operating subsidy for any additional sites per 
development can only be approved by HUD Headquarters.
    (v) The IHA must submit a certification with its Performance 
Funding System Calculation that the units are being used for the 
purpose for which they were approved and that any rental income 
generated as a result of the activity is reported as income in the 
operating subsidy calculation. The IHA must maintain specific 
documentation of the units covered. Such documentation should include a 
listing of the units, the street addresses, and project/management 
control numbers.
    (3) Long-term vacant units that are not included in the calculation 
of Unit Months Available are eligible for operating subsidy in the 
Requested Budget Year at the rate of 20 percent of the AEL. Allowable 
utility costs for long term vacant units will continue to be funded in 
accordance with Sec. 950.715.
* * * * *
    4. In Sec. 950.725, paragraph (b)(3) would be revised, to read as 
follows:


Sec. 950.725  Projected operating income level.

    (b) * * *
    (3) Projected Occupancy Percentage. The IHA shall determine its 
projected percentage of occupancy for all Project Units (Projected 
Occupancy Percentage), as follows:
    (i) General. Using actual occupancy data collected before the start 
of the budget year as a beginning point, the IHA will develop estimates 
for its Requested Budget Year (RBY) of: how many units the IHA will 
have available for occupancy; how many of the available units will be 
occupied and how many will be vacant, and what the average occupancy 
percentage will be for the RBY. The conditions under which the RBY 
occupancy percentage will be used as the projected occupancy percentage 
for purposes of determining operating subsidy eligibility are described 
below.
    (ii) High Occupancy IHA--No Adjustments Necessary. If the IHA's RBY 
Occupancy Percentage, calculated in accordance with Sec. 950.760, is 
equal to or greater than 97%, the IHA's Projected Occupancy Percentage 
is 97%. If the IHA's RBY Occupancy Percentage is less than 97%, but the 
IHA demonstrates that it will have an average of five or fewer vacant 
units in the requested budget year, the IHA will use its RBY Occupancy 
Percentage as its projected occupancy percentage.
    (iii) Adjustments in Determining Occupancy. If the IHA's RBY 
Occupancy Percentage is less than 97% and the IHA has more than 5 
vacant units, the IHA will adjust its estimate of vacant units to 
exclude vacant units undergoing modernization and units that are vacant 
due to circumstances and actions beyond the IHA's control. After making 
this adjustment, the IHA will recalculate its estimated vacancy 
percentage for the RBY.
    (A) High Occupancy IHA after adjustment. If the recalculated 
vacancy percentage is 3% or less (or the IHA would have five or fewer 
vacant units), the IHA will use its RBY Occupancy Percentage as its 
projected occupancy percentage.
    (B) Low Occupancy IHA--adjustment for long-term vacancies. If the 
recalculated vacancy percentage is greater than 3% (or more than 5 
vacant units), the IHA will then further adjust its RBY Occupancy 
Percentage by excluding from its calculation of Unit Months Available 
(UMAs), all units that have been vacant for longer than 12 months that 
are not vacant units undergoing modernization or are not units vacant 
due to circumstances and actions beyond the IHA's control.
    (iv) Low Occupancy IHA after all adjustments. An IHA that has 
determined its RBY Occupancy Percentage in accordance with paragraph 
(b)(iii)(B) of this section will be eligible for operating subsidy as 
follows:
    (A) Long-term vacancies removed from the calculation of UMAs will 
be eligible to receive a reduced operating subsidy calculated at 20% of 
the IHA's AEL.
    (B) If the recalculated RBY Occupancy Percentage is 97% or higher, 
the IHA will use 97%.
    (C) If the recalculated RBY Occupancy Percentage is less than 97%, 
but the vacancy rate after adjusting for vacant units undergoing 
modernization and units that are vacant due to circumstances and 
actions beyond the IHA's control is 3% or less (or the IHA has five or 
fewer vacant units), the IHA may use its recalculated RBY Occupancy 
Percentage as its projected occupancy percentage.
    (D) If the recalculated RBY Occupancy Percentage is less than 97% 
and the vacancy percentage is greater than 3% (or the IHA has more than 
five vacant units) after adjusting for vacant units undergoing 
modernization and units that are vacant due to circumstances and 
actions beyond the IHA's control, the IHA will use 97% as its projected 
occupancy percentage, but will be allowed to adjust the 97% by the 
number of vacant units undergoing modernization and units that are 
vacant due to circumstances and actions beyond the IHA's control. For a 
small IHA using five vacant units as its occupancy objective for the 
RBY, the IHA will determine what percentage five units represents as a 
portion of its units available for occupancy and subtract that 
percentage from 100%. The result will be used as the IHA's projected 
occupancy percentage, but the IHA will be allowed to adjust the 
projected occupancy percentage by vacant units undergoing modernization 
and units that are vacant for circumstances and actions beyond the 
IHA's control.
* * * * *
    5. Section 950.760 would be revised to read as follows:


Sec. 950.760  Determining Actual and Requested Budget Year Occupancy 
Percentages.

    (a) Actual Occupancy Percentage. When submitting Performance 
Funding System Calculations for Requested Budget Years beginning on or 
after January 1, 1996, the IHA shall determine an Actual Occupancy 
Percentage for all Project Units included in the Unit Months Available. 
The IHA shall have the option of basing this option on either:
    (1) The number of units occupied on the last day of the month that 
ends 6 months before the beginning of the Requested Budget Year; or
    (2) The average occupancy during the month ending 6 months before 
the beginning of the Requested Budget Year. If the IHA elects to use an 
average occupancy under this paragraph (a)(2), 

[[Page 37303]]
the IHA shall maintain a record of its computation of its Actual 
Occupancy Percentage.
    (b) Requested Budget Year Occupancy Percentage. The IHA will 
develop a Requested Budget Year Occupancy Percentage by taking the 
Actual Occupancy Percentage and adjusting it to reflect changes up or 
down in occupancy during the Requested Budget Year due to HUD-approved 
activities such as units undergoing modernization, new development, 
demolition, or disposition. If after the submission and approval of the 
Performance Funding System Calculations for the Requested Budget Year, 
there are changes up or down in occupancy because of modernization, new 
development, demolition or disposition that are not reflected in the 
Requested Budget Year Occupancy Percentage, the IHA may submit a 
revision to reflect the actual change in occupancy due to these 
activities.
    (c) Documentation Required to be Maintained. The IHA must maintain, 
and upon HUD's request, make available to HUD specific documentation of 
the occupancy status of all units, including long-term vacancies, 
vacant units undergoing modernization, and units vacant due to 
circumstances and actions beyond the IHA's control. This documentation 
shall include a listing of the units, street addresses, and project/
management control numbers.


Sec. 950.770  [Removed and Reserved]

    6. Section 950.770, Comprehensive Occupancy Plan (COP) 
Requirements, would be removed and reserved.
    7. A new Sec. 950.775 would be added, to subpart J, to read as 
follows:


Sec. 950.775  Transition provisions.

    (a) Treatment of units already under an approved modernization 
budget. Vacant units to be rehabilitated under modernization budgets 
approved in FFY 1995 or prior are subject to the modernization 
implementation schedule, without extension, previously approved by HUD. 
It is the intent of HUD not to penalize IHAs that have longer 
construction schedules in an approved modernization budget.
    (b) Treatment of Existing COPs. (1) An IHA that on [effective date 
of final rule] is operating under a Comprehensive Occupancy Plan (COP) 
approved by HUD under Sec. 950.770, as that section existed before 
[effective date of final rule] may, until the expiration of its COP, 
continue to determine its PFS eligibility under the provisions of part 
950 effective on [1 day before effective date of final rule]. If the 
IHA does not elect to continue to determine its PFS eligibility using 
its COP, the IHA's PFS eligibility will be calculated in accordance 
with this part.
    (2) HUD will not approve any extensions of existing COPs.
    8. A new Sec. 950.777 would be added to subpart J, to read as 
follows:


Sec. 950.777  Waivers.

    (a) Documentation for Waiver. A waiver may be granted in accordance 
with Sec. 999.101 of this chapter. Any request for a waiver should 
include documentation that the IHA has made best efforts to correct the 
problems underlying its excess vacancies and could not correct the 
problems in a cost-effective manner.
    (b) Effect of Rescission. If there is a rescission of appropriated 
funds that reduces the level of Comprehensive Grant Program funding in 
an approved Annual Statement under the CGP, to the extent that the IHA 
can document that it is not possible to complete all the vacant unit 
rehabilitation in the IHA's approved Annual Statement, the IHA may seek 
and HUD may grant a waiver for 1 fiscal year to permit full PFS 
eligibility for those units approved but not funded.

PART 990--ANNUAL CONTRIBUTIONS FOR OPERATING SUBSIDY

    9. The authority citation for part 990 would continue to read as 
follows:

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

    10. Section 990.102 would be amended by adding definitions for 
``Long-term vacancy'', ``Units vacant due to circumstances and actions 
beyond the PHA's control'', and ``Vacant unit undergoing 
modernization''; by revising the definitions for ``Unit approved for 
deprogramming'' and ``Unit months available''; and by removing the 
definition for ``Vacant, On-Schedule Modernization Units'', to read as 
follows:


Sec. 990.102  Definitions.

* * * * *
    Long-term vacancy. This term means the same as it is used in the 
definition of ``Unit Months Available'' in this section.
* * * * *
    Unit approved for deprogramming. (1) A dwelling unit for which HUD 
has approved the PHA's formal request to remove the dwelling unit from 
the PHA's inventory and the Annual Contributions Contract but for which 
removal (i.e., deprogramming) has not yet been completed; or
    (2) A nondwelling structure or a dwelling unit used for nondwelling 
purposes that the PHA has determined will no longer be used for PHA 
purposes and that HUD has approved for removal from the PHA's inventory 
and Annual Contributions Contract.
    Unit months available. Project Units multiplied by the number of 
months the Project Units are available for occupancy during a given PHA 
fiscal year. For purposes of this part, a unit is considered available 
for occupancy from the date established as the End of the Initial 
Operating Period for the Project until the time the unit is approved by 
HUD for deprogramming and is vacated or is approved for nondwelling 
use. A unit will be considered a long-term vacancy and will not be 
considered available for occupancy in any given PHA Requested Budget 
Year if the PHA determines that:
    (1) The unit has been vacant for more than 12 months at the time 
the PHA determines its Actual Occupancy Percentage;
    (2) The unit is not either:
    (i) A vacant unit undergoing modernization; or
    (ii) A unit vacant for circumstances and actions beyond the PHA's 
control, as these terms are defined in this section; and
    (3) The PHA determines that it will have a vacancy percentage of 
more than 3 percent and will have more than five vacant units, for its 
Requested Budget Year, even after adjusting for vacant units undergoing 
modernization and units that are vacant for circumstances and actions 
beyond the PHA's control, as defined in this section. (Reference in 
this part to ``more than five units'' or ``fewer than five units'' 
shall refer to a circumstance in which five units equals or exceeds 3 
percent of the number of units to which the 3 percent threshold is 
applicable.)
    Units vacant due to circumstances and actions beyond the PHA's 
control. Dwelling units that are vacant due to circumstances and 
actions that prohibit the PHA from occupying, selling, demolishing, 
rehabilitating, reconstructing, consolidating or modernizing vacant 
units and are beyond the PHA's control. For purposes of this 
definition, circumstances and actions beyond the PHA's control are 
limited to:
    (1) Litigation. The effect of court litigation such as a court 
order or settlement agreement that is legally enforceable. An example 
would be units that are being held vacant as part of a court-ordered or 
HUD-approved desegregation plans.
    (2) Laws. Federal or State laws of general applicability, or their 
implementing regulations. Units vacant only because they do not meet 

[[Page 37304]]
minimum standards pertaining to construction or habitability under 
Federal, State, or local laws or regulations will not be considered 
vacant due to circumstances and actions beyond the PHA's control.
    (3) Changing market conditions. For example, small PHAs that are 
located in areas experiencing population loss or economic dislocations 
may face a lack of demand in the foreseeable future, even after the PHA 
has taken aggressive marketing and outreach measures.
    (4) Natural disasters.
    (5) Insufficient funding for otherwise approvable applications made 
for Comprehensive Improvement Assistance Program (CIAP) funds.
     (6) RMC funding. The failure of a PHA to fund an otherwise 
approvable RMC request for Federal modernization funding;
    (7) Casualty losses. Delays in repairing damage to vacant units due 
to the time needed for settlement of insurance claims.
* * * * *
    Vacant unit undergoing modernization. Except as provided in 
Sec. 990.119(a), a vacant unit in an otherwise viable project (as 
determined using the indicia in Sec. 970.6 of this chapter), when the 
project is undergoing modernization that includes work that is 
necessary to reoccupy the vacant unit, and in which one of the 
following conditions is met:
    (1) The unit is under construction (i.e., the construction contract 
has been awarded or force account work has started); or
    (2) The treatment of the vacant unit is included in a HUD-approved 
modernization budget (e.g., the Annual Statement for the Comprehensive 
Grant Program (CGP) (Form HUD-52837 or its successor), or the 
Comprehensive Improvement Assistance Program (CIAP) Budget (Form HUD-
52825 or its successor)), but the time period for placing the vacant 
unit under construction has not yet expired. The PHA must place the 
vacant unit under construction within two Federal Fiscal Years (FFYs) 
after the FFY in which the modernization funds are approved.
    11. Section 990.108 would be amended by revising paragraph (b), to 
read as follows:


Sec. 990.108  Other costs.

* * * * *
    (b) (1) Costs attributable to units approved for deprogramming and 
vacant may be eligible for inclusion, but must be limited to the 
minimum services and protection necessary to protect and preserve the 
units until the units are deprogrammed. Costs attributable to units 
temporarily unavailable for occupancy because the units are utilized 
for PHA-related activities are not eligible for inclusion. In 
determining the PFS operating subsidy, these units shall not be 
included in the calculation of Unit Months Available. Units approved 
for deprogramming shall be listed by the PHA, and supporting 
documentation regarding direct costs attributable to such units shall 
be included as a part of the Performance Funding System calculation in 
which the PHA requests operating subsidy for these units. If the PHA 
requires assistance in this matter, the PHA should contact the HUD 
Field Office.
    (2) Units approved for nondwelling use to promote economic self-
sufficiency services and anti-drug activities are eligible for 
operating subsidy under the conditions provided in this paragraph 
(b)(2), and the costs attributable to these units are to be included in 
the operating budget. If a unit satisfies the conditions stated below, 
it will be eligible for subsidy at the rate of the AEL for the number 
of months the unit is devoted to such use. Approval will be given for a 
period of no more than 3 years. HUD may renew the approval to allow 
payments after that period only if the PHA can demonstrate that no 
other sources for paying the non-utility operating costs of the unit 
are available. The conditions the unit must satisfy are:
    (i) The unit must be used for either economic self-sufficiency 
activities directly related to maximizing the number of employed 
residents or for anti-drug programs directly related to ridding the 
development of illegal drugs and drug-related crime. The activities 
must be directed toward and for the benefit of residents of the 
development.
    (ii) The PHA must demonstrate that space for the service or program 
is not available elsewhere in the locality and that the space used is 
safe and suitable for its intended use or that the resources are 
committed to make the space safe and suitable.
    (iii) The PHA must demonstrate satisfactorily that other funding is 
not available to pay for the non-utility operating costs. All rental 
income generated as a result of the activity must be reported as income 
in the operating subsidy calculation.
    (iv) Operating subsidy may be approved for only one site (involving 
one or more contiguous units) per public housing development for 
economic self-sufficiency services or anti-drug programs, and the 
number of units involved should be the minimum necessary to support the 
service or program. Operating subsidy for any additional sites per 
development can only be approved by HUD Headquarters.
    (v) The PHA must submit a certification with its Performance 
Funding System Calculation that the units are being used for the 
purpose for which they were approved and that any rental income 
generated as a result of the activity is reported as income in the 
operating subsidy calculation. The PHA must maintain specific 
documentation of the units covered. Such documentation should include a 
listing of the units, the street addresses, and project/management 
control numbers.
    (3) Long-term vacant units that are not included in the calculation 
of Unit Months Available are eligible for operating subsidy in the 
Requested Budget Year at the rate of 20 percent of the AEL. Allowable 
utility costs for long term vacant units will continue to be funded in 
accordance with Sec. 990.107.
* * * * *
    12. In Sec. 990.109, paragraph (b)(3) would be revised, to read as 
follows:


Sec. 990.109  Projected operating income level.

    (b) * * *
    (3) Projected Occupancy Percentage. The PHA shall determine its 
projected percentage of occupancy for all Project Units (Projected 
Occupancy Percentage), as follows:
    (i) General. Using actual occupancy data collected before the start 
of the budget year as a beginning point, the PHA will develop estimates 
for its Requested Budget Year (RBY) of: how many units the PHA will 
have available for occupancy; how many of the available units will be 
occupied and how many will be vacant, and what the average occupancy 
percentage will be for the RBY. The conditions under which the RBY 
occupancy percentage will be used as the projected occupancy percentage 
for purposes of determining operating subsidy eligibility are described 
below.
    (ii) High Occupancy PHA--No Adjustments Necessary. If the PHA's RBY 
Occupancy Percentage, calculated in accordance with Sec. 990.117, is 
equal to or greater than 97%, the PHA's Projected Occupancy Percentage 
is 97%. If the PHA's RBY Occupancy Percentage is less than 97%, but the 
PHA demonstrates that it will have an average of five or fewer vacant 
units in the requested budget year, the PHA will use its RBY Occupancy 
Percentage as its projected occupancy percentage.
    (iii) Adjustments in Determining Occupancy. If the PHA's RBY 
Occupancy Percentage is less than 97% and the PHA has more than 5 
vacant 

[[Page 37305]]
units, the PHA will adjust its estimate of vacant units to exclude 
vacant units undergoing modernization and units that are vacant due to 
circumstances and actions beyond the PHA's control. After making this 
adjustment, the PHA will recalculate its estimated vacancy percentage 
for the RBY.
    (A) High Occupancy PHA After Adjustment. If the recalculated 
vacancy percentage is 3% or less (or the PHA would have five or fewer 
vacant units), the PHA will use its RBY Occupancy Percentage as its 
projected occupancy percentage.
    (B) Low Occupancy PHA--Adjustment for Long-Term Vacancies. If the 
recalculated vacancy percentage is greater than 3% (or more than 5 
vacant units), the PHA will then further adjust its RBY Occupancy 
Percentage by excluding from its calculation of Unit Months Available 
(UMAs), all units that have been vacant for longer than 12 months that 
are not vacant units undergoing modernization or are not units vacant 
due to circumstances and actions beyond the PHA's control.
    (iv) Low Occupancy PHA After All Adjustments. A PHA that has 
determined its RBY Occupancy Percentage in accordance with paragraph 
(b)(iii)(B) of this section will be eligible for operating subsidy as 
follows:
    (A) Long-term vacancies removed from the calculation of UMAs will 
be eligible to receive a reduced operating subsidy calculated at 20% of 
the PHA's AEL.
    (B) If the recalculated RBY Occupancy Percentage is 97% or higher, 
the PHA will use 97%.
    (C) If the recalculated RBY Occupancy Percentage is less than 97%, 
but the vacancy rate after adjusting for vacant units undergoing 
modernization and units that are vacant due to circumstances and 
actions beyond the PHA's control is 3% or less (or the PHA has five or 
fewer vacant units), the PHA may use its recalculated RBY Occupancy 
Percentage as its projected occupancy percentage.
    (D) If the recalculated RBY Occupancy Percentage is less than 97% 
and the vacancy percentage is greater than 3% (or the PHA has more than 
five vacant units) after adjusting for vacant units undergoing 
modernization and units that are vacant due to circumstances and 
actions beyond the PHA's control, the PHA will use 97% as its projected 
occupancy percentage, but will be allowed to adjust the 97% by the 
number of vacant units undergoing modernization and units that are 
vacant due to circumstances and actions beyond the PHA's control. For a 
small PHA using five vacant units as its occupancy objective for the 
RBY, the PHA will determine what percentage five units represents as a 
portion of its units available for occupancy and subtract that 
percentage from 100%. The result will be used as the PHA's projected 
occupancy percentage, but the PHA will be allowed to adjust the 
projected occupancy percentage by vacant units undergoing modernization 
and units that are vacant for circumstances and actions beyond the 
PHA's control.
* * * * *
    13. Section 990.117 would be revised to read as follows:


Sec. 990.117   Determining Actual and Requested Budget Year Occupancy 
Percentages.

    (a) Actual Occupancy Percentage. When submitting Performance 
Funding System Calculations for Requested Budget Years beginning on or 
after January 1, 1996, the PHA shall determine an Actual Occupancy 
Percentage for all Project Units included in the Unit Months Available. 
The PHA shall have the option of basing this option on either:
    (1) The number of units occupied on the last day of the month that 
ends 6 months before the beginning of the Requested Budget Year; or
    (2) The average occupancy during the month ending 6 months before 
the beginning of the Requested Budget Year. If the PHA elects to use an 
average occupancy under this paragraph (a)(2), the PHA shall maintain a 
record of its computation of its Actual Occupancy Percentage.
    (b) Requested Budget Year Occupancy Percentage. The PHA will 
develop a Requested Budget Year Occupancy Percentage by taking the 
Actual Occupancy Percentage and adjusting it to reflect changes up or 
down in occupancy during the Requested Budget Year due to HUD-approved 
activities such as units undergoing modernization, new development, 
demolition, or disposition. If after the submission and approval of the 
Performance Funding System Calculations for the Requested Budget Year, 
there are changes up or down in occupancy because of modernization, new 
development, demolition or disposition that are not reflected in the 
Requested Budget Year Occupancy Percentage, the PHA may submit a 
revision to reflect the actual change in occupancy due to these 
activities.
    (c) Documentation Required to be Maintained. The PHA must maintain, 
and upon HUD's request, make available to HUD specific documentation of 
the occupancy status of all units, including long-term vacancies, 
vacant units undergoing modernization, and units vacant due to 
circumstances and actions beyond the PHA's control. This documentation 
shall include a listing of the units, street addresses, and project/
management control numbers.
Sec. 990.118  [Removed and Reserved]

    14. Section 990.118, Comprehensive Occupancy Plan Requirements, 
would be removed and reserved.
    15. Section 990.119 would be revised to read as follows:


Sec. 990.119  Transition provisions.

    (a) Treatment of Units Already Under an Approved Modernization 
Budget. Vacant units to be rehabilitated under modernization budgets 
approved in FFY 1995 or prior are subject to the modernization 
implementation schedule, without extension, previously approved by HUD. 
It is the intent of HUD not to penalize PHAs that have longer 
construction schedules in an approved modernization budget.
    (b) Treatment of Existing COPs. (1) A PHA that on [effective date 
of final rule] is operating under a Comprehensive Occupancy Plan (COP) 
approved by HUD under Sec. 990.118, as that section existed before 
[effective date of final rule] may, until the expiration of its COP, 
continue to determine its PFS eligibility under the provisions of part 
990 effective on 1 day before effective date of final rule. If the PHA 
does not elect to continue to determine its PFS eligibility using its 
COP, the PHA's PFS eligibility will be calculated in accordance with 
this part.
    (2) HUD will not approve any extensions of existing COPs.
    16. A new Sec. 990.121 would be added to subpart A, to read as 
follows:


Sec. 990.121  Waivers.

    (a) Documentation for Waiver. A waiver may be granted in accordance 
with Sec. 999.101 of this chapter. Any request for a waiver should 
include documentation that the PHA has made best efforts to correct the 
problems underlying its excess vacancies and could not correct the 
problems in a cost-effective manner.
    (b) Effect of Rescission. If there is a rescission of appropriated 
funds that reduces the level of Comprehensive Grant Program funding in 
an approved Annual Statement under the CGP, to the extent that the PHA 
can document that it is not possible to complete all the vacant unit 
rehabilitation in the PHA's approved Annual Statement, the PHA may seek 
and HUD may grant a waiver for 1 fiscal year to permit full PFS 

[[Page 37306]]
eligibility for those units approved but not funded.

    Dated: June 27, 1995.
Joseph Shuldiner,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 95-17810 Filed 7-18-95; 8:45 am]
BILLING CODE 4210-33-P