[Federal Register Volume 61, Number 40 (Wednesday, February 28, 1996)]
[Rules and Regulations]
[Pages 7586-7593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4169]




[[Page 7585]]

_______________________________________________________________________

Part II





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; Final Rule

  Federal Register / Vol. 61, No. 40 / Wednesday, February 28, 1996 / 
Rules and Regulations   

[[Page 7586]]


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-F-01]
RIN 2577-AB44


Low-Income Public and Indian Housing--Vacancy Rule

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

ACTION: Final rule.

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

SUMMARY: This final rule establishes new conditions under which a 
Public Housing Agency (PHA), an Indian Housing Authority (IHA), or 
Resident Management Corporation may include vacant units in its 
computation of eligibility under the Performance Funding System (PFS). 
(The term housing authority (HA) is used throughout this final rule 
when referring to both PHAs and IHAs.) The final rule gives greater 
recognition to units that are vacant for reasons beyond the HA's 
control, makes changes in the current treatment of vacant units that 
are part of a modernization program, and, under certain circumstances, 
has HAs exclude long-term vacant units from their inventory of units 
available for occupancy.

DATES: April 1, 1996. Applicability date: Operating subsidy eligibility 
will first be determined under the new provisions of this rule by PHAs 
and IHAs having fiscal years beginning July 1, 1996.

FOR FURTHER INFORMATION CONTACT: MaryAnn Russ, General Deputy Assistant 
Secretary, Public and Assisted Housing Operations, Room 4210, U.S. 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Washington, DC 20410, telephone (202) 708-1380 [this telephone number 
is not toll-free]. For hearing- and speech-impaired persons, this 
number may be accessed via TDD by calling the Federal Information Relay 
Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act Statement

    The information collection requirements contained in Secs. 950.725, 
950.760, 990.109, and 990.117 of this rule have been approved by the 
Office of Management and Budget, in accordance with the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501-3520), and assigned OMB control 
number 2577-0066. An agency may not conduct or sponsor, and a person is 
not required to respond to, a collection of information unless the 
collection displays a valid control number.

Background

    On July 19, 1995, the Department published a proposed rule (60 FR 
37294) that would establish new conditions under which an HA may use a 
Projected Occupancy Percentage of less than 97 percent in computing its 
Dwelling Rental Income under the Performance Funding System (PFS). The 
proposed rule incorporated the recommendations of a regulatory 
negotiation advisory committee composed of persons who represent the 
interests affected by the current vacancy rule.

Discussion of Public Comments

    The Department received eight public comments in response to the 
proposed rule, including comments from five PHAs, two national HA 
associations, and one IHA. One of the PHA commenters was a member of 
the advisory committee.
    The Department received very favorable comments for using a 
negotiated rulemaking process to develop the proposed rule. This was 
the first use of negotiated rulemaking by the Department and 
consideration is being and will be given to using this model for other 
rulemaking efforts in the future. The IHA commenter expressed regrets 
that there was no IHA representative on the advisory committee. The 
Department notes that the National American Indian Housing Council was 
invited to join the committee, but declined membership.
    The IHA commenter recommended that the definition of ``Units vacant 
due to circumstances and actions beyond the IHA's control'' 
(Sec. 950.102) be expanded to include cultural, social, or religious 
circumstances. The commenter notes that ``[i]n many Indian communities 
* * * unexpected death, suicide, or violent act'' in a unit may 
``affect the re-occupancy of [that] unit.'' The Department appreciates 
the comment, but does not believe that this type of circumstance 
seriously affects the ability of a significant number of IHAs to 
maintain an overall acceptable occupancy level. The Department has 
found that IHAs generally have high levels of occupancy and, thus, 
would not be adversely affected by the provisions of the vacancy rule. 
If such a circumstance did arise that caused the IHA to project an 
occupancy percentage of less than 97 percent and to have more than 5 
vacant units, a waiver request could be made and considered on the 
merits of the case.
    One commenter requested that reduced Comprehensive Grant Program 
(CGP) funds be added to the list of acceptable ``beyond control'' 
circumstances. This rule does address the situation of a reduction in 
CGP funding which occurs as a result of a rescission of appropriated 
funds, although not as a ``beyond control'' circumstance. If such an 
action results in an HA not being able to complete all the vacant unit 
rehabilitation in its approved Annual Statement, the HA may seek a 
waiver to permit full PFS eligibility for those units approved but not 
funded. While the advisory committee discussed the need to mitigate the 
consequences of a rescission, the only procedural process mentioned to 
obtain relief was through a waiver. The specific waiver provision in 
the proposed rule is omitted in the final rule, because waiver 
authority already exists (see 24 CFR 990.101). Since the objective of 
the commenter is being met, the Department does not feel it necessary 
to overturn the decision of the committee.
    One commenter noted that insufficient funding for otherwise 
approvable applications for Comprehensive Improvement Assistance 
Program (CIAP) funds was an acceptable ``beyond control'' circumstance 
and asked why insufficient CGP funding could not also be an acceptable 
reason. This rule does provide that the failure of an HA to fund an 
otherwise approvable Resident Management Corporation (RMC) request for 
CGP funds from its HA would be treated as an acceptable ``beyond 
control'' circumstance that the RMC could use to justify using a 
projected occupancy percentage of less than 97 percent. The advisory 
committee agreed on this relief because both the HA application to the 
Department for CIAP funds and a RMC request for CGP funds from its HA 
could be denied because of insufficient funds. The CGP, however, is not 
a competition program and the concept of insufficient funds as 
described above does not apply. Funds are provided to eligible HAs on a 
formula basis, and the HA knows what its resources are at the time it 
develops its Annual Statement.
    Two commenters addressed that portion of the proposed rule dealing 
with vacant units undergoing modernization. One commenter stated that 
the requirement that an HA place its vacant units under construction 
within two Federal Fiscal Years (FFY) after the FFY in which the funds 
are approved was very stringent. Another 

[[Page 7587]]
commenter believed that the 2-year requirement should be extended if 
HUD approves extensions to the modernization implementation schedule. 
The committee had addressed this issue and reached a consensus that the 
2-year provision would not be extended.
    It should be noted that the 2-year time period does not include the 
FFY in which the funds were received. Depending on when the HA received 
its modernization funding, it could actually have up to 3 years to 
place the vacant units under a construction contract. Also, if an HA 
initially fails to place its vacant units under a construction contract 
within the 2-year period, the HA would still be able to regain special 
treatment at the time it did place the units under a construction 
contract, although not retroactively.
    The Department was part of the consensus on this issue and 
continues to support the committee decision.
    The Department received three comments regarding the process for 
requesting a waiver. One commenter stated that if there were a 
rescission of appropriated funds for the CGP, the HA should not have to 
bear the burden of requesting a waiver. The Department appreciates the 
comment, but because the impact of a rescission will vary widely, the 
Department needs to know on a case-by-case basis what that impact will 
be in order to provide relief; that information can only come from the 
HA. The same commenter asked that procedures for requesting a waiver be 
provided to HAs before the rule becomes final, and another commenter 
requested that the rule include the conditions under which a waiver 
will be approved. The proposed rule provided general guidance in 
Sec. 990.121 (the PHA would have had to document that it has made best 
efforts to correct the underlying problems and that it could not 
correct the problems in a cost-effective manner), but the specific 
documentation that the HA will have to submit cannot be determined in 
advance because a waiver by its nature involves a special circumstance. 
The final rule has omitted the separate waiver language from this part, 
because of the waiver authority already provided in Sec. 999.101; 
repetition of this authority is contrary to the Department's ongoing 
efforts to streamline its regulations.
    One commenter requested that the Department provide a 2-year 
extension to any HA, instead of 1 year, if a rescission of appropriated 
funds for the CGP occurs that prevents the HA from completing the 
modernization of all of the vacant units that were in the HA's approved 
Annual Statement. The committee did recognize that relief should be 
given to an HA that had to change its approved Annual Statement in 
order to reflect a rescission of funds. Because the relief provided 
should relate back to the severity of the rescission and that severity 
is not known in advance, it was difficult to develop an appropriate 
measure of relief. The Department was part of the consensus to provide 
this relief and believes that, until there has been some experience 
with this type of unusual situation, the 1-year extension is 
appropriate.
    The Department received one comment on the transition provisions of 
the proposed rule. The commenter believed that the rule would eliminate 
Comprehensive Occupancy Plans (COPs), even for those HAs that are still 
under a HUD-approved COP. This is not the case. An HA with a HUD-
approved COP at the time the final rule becomes effective may continue 
to determine its PFS eligibility using the provisions of Sec. 990.118, 
as that section exists before this final rule becomes effective. The 
Department will not approve new COPs, however, after the effective date 
of this rule, and after the time period of the COP has expired, the HA 
will determine its projected occupancy percentage using the provisions 
of this rule.
    One commenter proposed that a lower standard of occupancy--of 
between 93 percent to 95 percent, rather than 97 percent--would be more 
reasonable for HAs. The appropriateness of the 97 percent occupancy 
standard was discussed at length by the committee, and the members 
concluded that, given current budget constraints, it was not feasible 
to redefine the standard. The provisions of the proposed rule developed 
by the committee, therefore, were based on an assumption that the 97 
percent standard would remain in place; this final rule also continues 
the 97 percent standard.

Other Matters

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 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 rule before publication and by 
approving it certifies that this rule will not have a significant 
economic impact on a substantial number of small entities. The rule 
sets out 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 
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 rule will not have substantial direct effects on 
States or their political subdivisions, or the relationship between the 
Federal government and the States, or on the distribution of power and 
responsibilities among the various levels of government. As a result, 
the rule is not subject to review under the Order. The rule refines 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 rule does not have 
potential for significant impact on family formation, maintenance, and 
general well-being, and, thus, is not subject to review under the 
Order. No significant change in existing HUD policies or programs 
results from promulgation of this rule, as those policies and programs 
relate to family concerns. The rule merely involves the amount of 
funding that an HA should receive under a refinement of an existing 
procedure.
    The Catalog of Federal Domestic Assistance Program numbers for this 
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, Indians, Individuals with disabilities, Low and 
moderate income housing, Public housing, Reporting and recordkeeping 
requirements. 

[[Page 7588]]


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 amended as follows.

PART 950--INDIAN HOUSING PROGRAMS

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

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

    2. Section 950.102 is amended by adding in alphabetical order 
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. In the case of an IHA development involving the 
acquisition of scattered site housing, see also Sec. 950.705(b). 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, small IHAs that are 
located in areas experiencing population loss or economic dislocations 
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 Management Corporation funding. The failure of an IHA 
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. 950.775(a), a vacant unit in a project not considered to be 
obsolete (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.
* * * * *


Sec. 950.705  [Amended]

    3. Section 950.705(b) is amended by removing the first sentence.
    4. Section 950.720 is 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 

[[Page 7589]]
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 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.
* * * * *
    5. In Sec. 950.725, paragraph (b)(3) is revised and the OMB 
approval number is added at the end of the section, 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.
* * * * *
(Approved by the Office of Management and Budget under control 
number 2577-0066.)

    6. Section 950.760 is 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 July 1, 1996, the IHA shall determine an 

[[Page 7590]]
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), 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.

(Approved by the Office of Management and Budget under control 
number 2577-0066.)


Sec. 950.770  [Removed and Reserved]

    7. Section 950.770, Comprehensive Occupancy Plan (COP) 
Requirements, is removed and reserved.
    8. A new Sec. 950.775 is added, 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 operating under a 
Comprehensive Occupancy Plan (COP) approved by HUD under Sec. 950.770, 
as that section existed immediately before April 1, 1996, may, until 
the expiration of its COP, continue to determine its PFS eligibility 
under the provisions of part 950 as that part existed immediately 
before April 1, 1996. 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 COPs.
    9. A new Sec. 950.777 is added, to read as follows:


Sec. 950.777  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

    10. The authority citation for part 990 continues to read as 
follows:

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

    11. Section 990.102 is amended by adding in alphabetical order 
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 definition for ``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 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. In the case of a PHA development involving the acquisition of 
scattered site housing, see also Sec. 990.104(b). 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 plan.
    (2) Laws. Federal 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 PHA's control.
    (3) Changing market conditions. For example, small PHAs that are 
located in areas experiencing population loss or 

[[Page 7591]]
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 a project not considered to be 
obsolete (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.


Sec. 990.104  [Amended]

    12. Section 990.104(b) is amended by removing the first sentence.
    13. Section 990.108 is 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.
* * * * *
    14. In Sec. 990.109, paragraph (b)(3) and the parenthetical 
statement containing the OMB approval number at the end of the section 
are 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 units, the PHA will adjust its estimate of vacant units to 
exclude vacant units 

[[Page 7592]]
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.
* * * * *
(Approved by the Office of Management and Budget under control 
number 2577-0066. Paragraphs (e) and (f) have been approved by the 
Office of Management and Budget under control number 2577-007.)

    15. Section 990.117 is 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 July 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.

(Approved by the Office of Management and Budget under control 
number 2577-0066.)

Sec. 990.118  [Removed and Reserved]

    16. Section 990.118, Comprehensive Occupancy Plan Requirements, is 
removed and reserved.
    17. Section 990.119 is 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 FY 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 is operating under a 
Comprehensive Occupancy Plan (COP) approved by HUD under Sec. 990.118, 
as that section existed immediately before April 1, 1996, may, until 
the expiration of its COP, continue to determine its PFS eligibility 
under the provisions of part 990 as that part existed immediately 
before April 1, 1996. 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 COPs.
    18. A new Sec. 990.121 is added, to read as follows:


Sec. 990.121  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 eligibility for those 
units approved but not funded.


[[Page 7593]]

    Dated: February 14, 1996.
Kevin E. Marchman,
Deputy Assistant Secretary for Distressed and Troubled Housing 
Recovery.
[FR Doc. 96-4169 Filed 2-27-96; 8:45 am]
BILLING CODE 4210-33-P