[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19708-19719]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10445]




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Part III





Department of Housing and Urban Development





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24 CFR Parts 941 and 970



Public/Private Partnerships for the Mixed-Finance Development of Public 
Housing Units; Final Rule

  Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules 
and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 941 and 970

[Docket No. FR-3919-I-01]
RIN 2577-AB54


Office of the Assistant Secretary for Public and Indian Housing; 
Public/Private Partnerships for the Mixed-Finance Development of Public 
Housing Units

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

ACTION: Interim rule.

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SUMMARY: This interim rule adds a new subpart F to the public housing 
development program at 24 CFR part 941, which authorizes a public 
housing authority to use a combination of private financing and public 
housing development funds to develop public housing units. HUD is 
issuing this interim rule as a result of its determination that public 
housing development funds may be provided to a PHA, even though the PHA 
will provide those funds to a non-PHA entity so that it can develop and 
own the resulting public housing units. This interim rule also sets 
forth the requirements that must be met by the owner entity before HUD 
will approve a proposal to use mixed-finance strategies under subpart 
F, and sets forth continuing requirements that apply throughout the 
development and operation of the public housing units by the owner 
entity. In addition, this interim rule clarifies that replacement 
public housing units for public housing units that have been demolished 
may be built on the original public housing site, or in the same 
neighborhood, if the number of such replacement units is significantly 
fewer than the number of units demolished.

DATES: Effective date: July 1, 1996, except for Secs. 941.606 and 
941.610, which contain information collection requirements, and are not 
effective until approved by the Office of Management and Budget. When 
approval is obtained, HUD will publish notice of the effective date. 
See the Paperwork Reduction Act Statement below under the heading, ``V. 
OTHER MATTERS.''
    Comments due date: Comments must be submitted by July 1, 1996.

ADDRESSES: Interested persons are invited to submit comments regarding 
this interim rule to the Office of the General Counsel, Rules Docket 
Clerk, room 10276, Department of Housing and Urban Development, 451 
Seventh Street, S.W., Washington, D.C. 20410-0500. Comments should 
refer to the above docket number and title. A copy of each 
communication submitted will be available for public inspection and 
copying during regular business hours (weekdays 7:30 a.m. to 5:30 p.m. 
Eastern time) at the above address. Facsimile (FAX) comments are not 
acceptable. A copy of any comment concerning the information 
collections contained in the interim rule also should be sent to the 
Office of Management and Budget, Office of Information and Regulatory 
Affairs, Attention: Desk Officer for HUD, Washington, D.C. 20503.

FOR FURTHER INFORMATION CONTACT: Bill Flood, Office of Capital 
Improvements, Office of Public and Indian Housing, Department of 
Housing and Urban Development, 451 Seventh Street, S.W., Washington, 
D.C. 20410. Telephone number (voice): (202) 708-1640, ext. 4185; (TTY): 
(202) 708-9300 or 1-800-877-8339. (Except for the ``800'' telephone 
number, these are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

I. Background

    This interim rule adds a new subpart F to the public housing 
development program at 24 CFR part 941, which authorizes a PHA to use a 
combination of private financing and public housing development funds 
to develop public housing units. HUD is issuing this interim rule as a 
result of its determination that a PHA may receive public housing 
development funds under section 5 of the United States Housing Act of 
1937, notwithstanding the fact that the PHA will provide those funds to 
a non-PHA entity to develop and own the resulting public housing units.
    Under this subpart, a PHA and its partner(s) may structure 
transactions that make use of private and/or public sources of 
financing (including public housing development funds) for the purpose 
of developing public housing units. The resulting development(s) 
(referred to as a ``mixed-finance'' development(s) for purposes of this 
interim rule), may consist of 100 percent public housing units, or may 
consist of both public housing and non-public housing units. Through 
Fiscal Year 1997, transactions approved under this subpart will not 
involve more than $94 million in mortgage financing insured by the 
Federal Housing Administration. Additionally, at the end of the 1997 
fiscal year, HUD will undertake an analysis to determine the costs and 
benefits of the transactions approved under this subpart and will 
reconsider the policy of using FHA mortgage insurance in connection 
with this development method.
    Many potential scenarios for ownership and transaction structures 
exist, ranging from the PHA or its partner(s) holding no ownership 
interest, a partial ownership interest, or l00 percent ownership 
interest in the public housing units that are to be developed. PHAs 
and/or their partner(s) may choose to enter into a partnership or other 
contractual arrangement with a third-party entity for the mixed-finance 
development and/or ownership of public housing units. If this entity 
has primary responsibility along with the PHA for the development of 
these units, it is referred to for purposes of this interim rule as the 
PHA's partner. The entity that ultimately owns the public housing 
units, whether the PHA retains an ownership interest or not, is 
referred to as the ``owner entity.''
    Subpart F also sets forth the requirements that must be met by the 
PHA before HUD can approve a proposal involving mixed-finance 
strategies, and sets forth continuing requirements that apply 
throughout the development and operation of the public housing units by 
the owner entity. HUD notes that, in developments where the proposed 
public housing units are not specifically designated units, the 
development requirements set forth in subpart F (including Davis-Bacon 
and procurement requirements) are applicable to all units that may, at 
any time, be used as the public housing units. Federal requirements 
applicable to the operation of public housing units must also be 
satisfied with respect to the percentage of public housing units 
approved by HUD for construction within the development.
    HUD believes that the establishment of this new subpart will expand 
greatly opportunities for private sector investment in the development 
of public housing units. The Department believes further that the 
increased development of such public housing units will aid local 
efforts in providing affordable housing for low income families. HUD 
expects that the increased flexibility of using public housing funds 
for mixed-finance developments will expand considerably the 
opportunities for low income families to become more economically and 
socially integrated within the broader community. HUD specifically 
requests comments from the public on how the interim rule can provide 
for further expansion of such opportunities.
    Furthermore, in HUD's continuing efforts to devolve responsibility 
and avoid micromanagement, it has

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attempted to establish in this interim rule the minimal process 
necessary to ensure that public housing development funds are used for 
program purposes and not subject to waste, fraud or abuse. The 
Department specifically requests comments from the public as to how the 
process may be further streamlined, particularly in light of any 
existing safe harbors that may permit an abbreviated Departmental 
review. HUD will consider all comments that it receives in developing 
the final rule implementing subpart F.

II. Implementation

    The Department's primary consideration in approving proposals under 
this new subpart is to ensure the financial viability of the proposed 
mixed-finance development, since HUD wants to ensure that the public 
housing units remain available to eligible families for the maximum 
term of any low-income use restrictions. HUD also wants to ensure that 
the Federal investment of funds in the development is protected.
    The mixed-finance strategies established in subpart F are 
independent of the normal requirements governing public housing 
development, as set forth in existing subparts A through E of part 941. 
To the extent that certain requirements contained in subparts A through 
E also apply to mixed-finance development, HUD has included in subpart 
F explicit cross-references to such requirements.
    The Department intends to model procedures and requirements under 
subpart F as closely as possible to the Urban Development Action Grant 
(UDAG) program. Just as UDAG provided grant assistance to local 
governments for use with other sources of public and private funds 
(frequently for implementation through partnerships with other 
entities), so subpart F is intended to allow PHAs to combine their 
funds with other sources and enter into partnerships for the 
development and/or ownership of the funded property. Of course, the 
public housing funding sources that may be used in a mixed-finance 
development strategy operate under statutory provisions different from 
those of the UDAG program. The requirements applicable to the use of 
public housing development funds are set forth in this subpart.
    The Department notes that currently it is in the process of 
overhauling the public housing development program set forth in 24 CFR 
subparts A through E, and expects to publish shortly an interim rule 
that will effect major changes to these subparts. HUD intends to 
include in that interim rulemaking a republication of the contents of 
today's rulemaking. This will enable HUD to correct in subpart F any 
cross-references to provisions that may be revised and reorganized in 
subparts A through E of part 941.
    A PHA may decide to pursue a mixed-finance development strategy 
under subpart F using either public housing development funds, or 
modernization funds reserved by HUD for the PHA prior to September 30, 
1995 and approved by HUD for conversion to development uses. A PHA may 
also propose mixed-finance strategies to HUD under funding rounds for 
any appropriate programs in the future, which may be implemented after 
HUD establishes the necessary regulatory framework.
    A PHA that wants to pursue a mixed-finance strategy is encouraged 
to identify as soon as possible the entity(ies) with which it would 
like to partner. The PHA must select its partner(s) pursuant to the 
requirements set forth in Sec. 941.602(d), in such a manner that it can 
certify as to competitive selection pursuant to Sec. 941.606(n)(1)(ii). 
Since the roles in development, ownership and management of the 
proposed public housing may substantially affect the type of partner 
the PHA seeks, PHAs are encouraged to thoroughly consider desired 
arrangements before soliciting partner(s).
    The Department is authorizing the use of mixed-finance strategies 
under this subpart because it allows PHAs to incorporate other 
financing sources into the redevelopment of public housing communities. 
The PHA and its partner(s), as the primary entities responsible for 
developing the proposal, will be responsible for raising non-public 
housing capital for the mixed-finance development, as well as 
structuring a transaction and ownership structure that accommodates the 
requirements of the other financing sources.
    For purposes of this interim rule, the term ``participating party'' 
refers to any public or private individual or organization that: (a) 
provides financial or other resources to carry out the proposal, or 
specified activities contained in the proposal; or (b) otherwise 
participates in the development and/or operation of the public housing 
units and will receive HUD funds with respect to such participation.
    To be eligible to use mixed-finance strategies under this subpart, 
a PHA must prepare its proposal pursuant to Sec. 941.606, and make a 
submission directly to Headquarters. Following a technical screening of 
the proposal, HUD will carry out a substantive review of the proposal. 
This review includes a preliminary assessment of the financing and 
other documentation so that HUD can determine, to its own satisfaction, 
whether the mixed-finance development is viable and is structured so as 
to adequately protect the Federal investment of funds in the 
development. In addition, HUD will determine whether the proposal 
complies with all program requirements set forth in subpart F, and will 
undertake various statutory, regulatory and executive order reviews.
    If Headquarters determines that the proposal can be approved, it 
will notify the PHA accordingly and send to the PHA for execution an 
ACC amendment and/or grant agreement. If the PHA has already executed a 
front-end ACC amendment, HUD will send to the PHA another ACC amendment 
for the mixed-finance development and/or a grant agreement. After the 
PHA executes these document(s), it must return them to HUD for 
execution.
    Before public housing development funds may be disbursed to the 
PHA, it must first submit to HUD evidentiary materials and other forms 
of documentation, as described in Secs. 941.610 and 941.612, and 
execute the ACC amendment or special mixed-finance amendment to the ACC 
(and/or grant agreement). Thereafter, the PHA is responsible for 
ensuring that the mixed-finance development is carried out in 
accordance with its approved proposal. Requirements governing HUD's 
monitoring and review of the development, and the sanctions that HUD 
may impose for non-performance, will be set forth in the special mixed-
finance amendment to the ACC (and/or grant agreement).

III. Justification for Interim Rulemaking

    In general, the Department publishes a rule for public comment 
before issuing a rule for effect, in accordance with its own 
regulations on rulemaking at 24 CFR part 10. However, part 10 does 
provide for exceptions from that general rule where the agency finds 
good cause to omit advance notice and public participation. The good 
cause requirement is satisfied when prior public procedure is 
``impracticable, unnecessary, or contrary to the public interest.'' (24 
CFR Sec. 10.1.)
    The Department finds that good cause exists to publish this interim 
rule for effect without first soliciting public comment, in that prior 
public procedure is contrary to the public interest. This is

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because 24 CFR part 941, subpart F authorizes a new and creative method 
of financing the development of public housing, which will enable 
localities to respond to critical shortages in their low income housing 
stock. The development of public housing units within a development 
will also promote the economic and social integration of low income 
families within the broader community, thereby providing greater 
opportunities for the upward mobility of such families. In addition, 
mixed-finance development will promote public/private development of 
public housing units, thereby facilitating the demolition of some of 
the nation's most severely distressed, obsolete high-rise public 
housing complexes. The Department invites public comment on the interim 
rule. The comments received within the 60-day comment period will be 
considered during development of a final rule that will supersede this 
interim rule.

IV. Description of Provisions

    Following is a section-by-section analysis of each of the 
provisions included in this interim rulemaking:

Section 941.202--(``Site and Neighborhood Standards'')

    This rulemaking adds a new paragraph (c)(3) to HUD's existing site 
and neighborhood standards at Sec. 941.202. This provision is 
applicable only to mixed-finance proposals submitted under 24 CFR part 
941, subpart F. The purpose of this provision is to clarify HUD's 
existing authority to approve the building of replacement public 
housing units for public housing units that have been demolished on 
either the original public housing site, or in the same neighborhood, 
if the number of such replacement public housing units is significantly 
fewer than the number of public housing units demolished. This 
authority was affirmed by the recent passage of section 1002(a)(9) of 
Pub.L. 104-19 (approved July 27, 1995) which explicitly authorizes HUD 
to approve the building of replacement public housing units under such 
circumstances.
    The Department notes that, in construing the phrase, 
``significantly fewer units,'' it has chosen not to establish a 
quantitative standard. Instead, HUD will assess, on a case-by-case 
basis, the facts involved in each request. In addition, it will take 
into account the evolving interpretation of the phrase, ``significantly 
fewer units'' as it develops in the course of HUD's separate rulemaking 
on site and neighborhood standards.

Section 941.600--(``Purpose'')

    This section indicates that the purpose of 24 CFR part 941, subpart 
F, is to authorize PHAs to use a combination of private financing and 
public housing development funds. In addition, this provision indicates 
that subpart F is intended to authorize a variety of ownership and 
transaction structures, in which the PHA or its partner(s) may hold no 
ownership interest, a partial ownership interest, or 100 percent 
ownership interest. In addition, this section sets forth continuing 
requirements that apply throughout the development and operation of the 
public housing units in the development.
    Section 941.600(b) provides that public housing units built within 
a development using mixed-finance strategies must be comparable to non-
public housing units with respect to size, location, external 
appearance, and distribution within the development.

Section 941.602--(``Applicability of Other Requirements'')

    Paragraph (a) identifies the relationship between subpart F and the 
remaining subparts in 24 CFR part 941. Specifically, this paragraph 
states that the requirements contained in subpart F apply to the 
development and operation of public housing units in a development that 
is owned, or that will be owned, by a public/private partnership using 
mixed-finance strategies. If the PHA and/or owner entity does not want 
to designate specific units in a development as public housing units, 
the development of all units that may at any time be considered public 
housing units must be carried out in accordance with Federal 
requirements (including Davis-Bacon and procurement requirements, as 
set forth in this subpart).
    This paragraph also provides that other requirements related to 
public housing development, as set forth in subparts A through E, do 
not apply to subpart F, except as may be required by HUD. Included in 
this paragraph is a listing of specific provisions contained in 
subparts A through E that are applicable to mixed-finance development 
under subpart F, which include: various definitions contained in 
Sec. 941.103; PHA eligibility (Sec. 941.201); site and neighborhood 
standards (Sec. 941.202); design and construction standards 
(Sec. 941.203); cost guidelines (Sec. 941.204); PHA contracts 
(Sec. 941.205); eligible properties (Sec. 941.206); relocation and 
acquisition (Sec. 941.207); other Federal requirements (Sec. 941.208); 
audit (Sec. 941.209); maximum development cost (Sec. 941.406); 
construction requirements (Sec. 941.503); acceptance of work and 
contract settlement (Sec. 941.504); and completion of development 
(Sec. 941.505). (See Sec. 941.602(a) for limitations on applicability.)
    Paragraph (b) provides that if HUD determines there is a conflict 
between a requirement contained in subpart F and a requirement 
contained in any other subpart of part 941, the requirements set forth 
in subpart F shall apply, unless HUD otherwise determines in writing.
    Paragraph (c) of this section states that all references in 
subparts A through F of part 941 to the need for ``HUD'' or ``field 
office'' action or approval shall be construed to mean that ``HUD 
Headquarters'' shall take such action or provide such approval, unless 
the field office is authorized in writing by Headquarters to carry out 
a specific function under this part. This is because HUD intends that 
its Headquarters office, located in Washington, DC, will be responsible 
primarily for taking necessary actions, and providing approvals with 
respect to proposals under subpart F.
    Paragraph (d) provides that the administrative requirements under 
24 CFR part 85, which are applicable to grants to PHAs and certain 
subgrantees, are also applicable to grantees and subgrantees that 
receive funds under subpart F. However, this paragraph also sets forth 
two provisos with respect to the applicability of part 85.
    The first proviso states that a PHA may select a partner to 
implement its proposal using competitive proposal procedures for 
qualifications-based procurement. This method will enable the PHA to 
select a partner based on its qualifications, subject to negotiation of 
fair and reasonable compensation. Currently, this method (which does 
not require a consideration of price as a selection factor) is 
authorized in part 85 only with respect to a grantee's procurement of 
architectural/engineering professional services (see 24 CFR 
Sec. 85.36(d)(3)(v). HUD believes that a qualifications-based 
procurement of partners in mixed-finance undertakings is critical to 
the success of this new development method. This is because the success 
of a public/private partnership hinges upon the creativity, capacity, 
and vision of the partner and, in many instances, the scope or cost of 
the development may not be known at the time the owner entity seeks to 
procure the partner.
    Consequently, HUD advocates providing maximum flexibility to the 
PHA to select a partner based upon its qualifications to develop a 
mixed-

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finance development. In this manner, once selected, the partner will 
have the freedom to consider various approaches, sites, and financing 
strategies for the development of the public housing units, so long as 
the partner can provide the minimum number of units for which public 
housing funds were provided, and complies with any total development 
cost (TDC) and other statutory and mandatory requirements.
    The second proviso relates to the applicability of part 85 to the 
owner entity that will develop and operate the public housing units. As 
a private entity, the owner entity would not normally be subject to the 
requirements of part 85. However, this provision states that the owner 
entity will be required to comply with 24 CFR part 85 if HUD determines 
that the PHA or PHA instrumentality exercises significant functions 
within the owner entity with respect to managing the development of the 
proposed units. Even under such circumstances, however, HUD may exempt 
the owner entity from complying with part 85 if it finds that the owner 
entity has developed an acceptable alternative procurement plan.

Section 941.604--(``Definitions'')

    This section of the interim rule defines terms that are applicable 
only to mixed-finance development: ``development,'' ``mixed-finance,'' 
``owner entity,'' ``participating party,'' ``partner,'' ``proposal,'' 
``public housing agency,'' and ``public housing unit.'' In addition to 
these terms, Sec. 941.602(a)(1) identifies those definitions in subpart 
A that are also applicable to development carried out pursuant to 
subpart F. These definitions include: ``Annual Contributions 
Contract,'' ``cooperation agreement,'' ``design documents,'' 
``reformulation,'' and ``total development cost.''

Section 941.606--Proposal

    This section provides that the PHA must submit its proposal for the 
mixed-finance development by a deadline to be established by HUD. The 
Department has the discretion to determine the scope of a PHA's 
submissions under this section. HUD shall exercise its discretion based 
upon a consideration of whether the documentation is required for HUD 
to carry out statutory or other mandatory reviews, as well as a 
consideration of the PHA's past performance in implementing development 
projects under part 941, and the PHA's administrative capability, as 
demonstrated by its overall score on the PHMAP.
    HUD has attempted to limit the scope of the PHA proposal 
submissions to those that it believes are necessary for the Department 
to comply with mandatory front-end reviews, such as environmental 
reviews, section 213 (24 CFR part 791, subpart C) clearance, subsidy 
layering, and life cycle analysis.
    In addition, HUD is requesting a number of items that it believes 
are necessary for a preliminary assessment of the financial viability 
of the proposed mixed-finance development, and which would be required 
by any private sector lender prior to making available construction or 
permanent financing. These submissions include, but are not limited to: 
information with respect to the proposed activities to be carried out; 
a description of the relationship of the participating parties and of 
the proposed financing (including the proposed use of public housing 
development funds); a description of the proposed housing; site 
information; a market analysis; an estimate of the development 
construction cost; information with respect to facilities, displaced 
occupants, life cycle analysis, a determination of operating 
feasibility, and a copy of the section 213 solicitation letter; and 
various certifications and assurances.

Section 941.608--Technical Processing and Approval

    After a PHA submits its proposal by the specified deadline, HUD 
will perform an initial screening to determine that all required 
documentation has been submitted. If there are any deficiencies in the 
proposal, HUD will advise the PHA and request that the additional 
information be submitted by a specified date.
    Once the proposal is determined to be complete, HUD will evaluate 
the proposal to determine whether: (1) The PHA has the necessary legal 
authority to develop the public housing units pursuant to subpart F; 
(2) the proposed sources and uses of funds identified in the proposal 
are eligible and reasonable, and whether HUD's preliminary assessment 
of the financing and other documentation establishes to HUD's 
satisfaction that the mixed-finance development is viable and is 
structured so as to adequately protect the Federal investment of funds 
in the development; (3) if applicable, whether the public housing units 
in the proposed development will be comparable in size, location, 
external appearance and distribution within the development to the non-
public housing units; (4) if applicable, if public housing development 
funds are to be used to pay for more than the pro rata cost of common 
area improvements, whether the proposal complies with the specific 
requirements set forth in Sec. 941.608(b)(4) (i) and (ii); (5) the 
proposal complies with all program requirements including, if 
applicable, any comments received from the unit of general local 
government under section 213 (24 CFR part 791, subpart C); and (6) the 
proposal is approvable after conducting an environmental review in 
accordance with 24 CFR part 50.
    If HUD determines that the proposal can be approved, it will send a 
notification letter to the PHA indicating that its proposal has been 
approved and stating the approved total development cost of the public 
housing units in the development. HUD will also send to the PHA for 
execution an ACC amendment and/or grant agreement (or, if the PHA has 
previously executed a front-end ACC amendment, HUD will send to the PHA 
a special mixed-finance amendment to the ACC and/or a grant agreement). 
(The special amendment to the ACC (and/or grant agreement) contains 
additional requirements pertaining to the development and operation of 
the public housing units in the context of a mixed-finance 
development.) After the PHA executes these documents, it will return 
them to HUD for execution.

Section 941.610--Evidentiary Materials and Other Documents

    Before HUD will allow a PHA to draw down development funds pursuant 
to its approved proposal, the PHA must submit to HUD, within the 
prescribed timeframe, certain evidentiary materials and other 
documentation with respect to the proposed development. This 
documentation includes, but is not limited to: various certifications 
and assurances to ensure that the public housing units will be 
developed and operated by the owner entity in accordance with the ACC 
and other applicable Federal requirements for the maximum period 
required by law; copies of executed development-related contracts; 
agreements that are needed to implement the approved proposal; deed 
restrictions, covenants running with the land, etc.

Section 941.612--Disbursement of Grant Funds

    Paragraph (a) provides that a PHA may obtain front-end assistance 
under this subpart, and may use such funds to pay for: (1) The costs of 
materials and services related to the development of a proposal; (2) 
costs associated with the demolition of existing units on a proposed 
site; or (3) other preliminary development work.

[[Page 19712]]

    HUD will determine the maximum amount of public housing funds that 
may be drawn down by a PHA to pay for preliminary development costs 
based upon its review of the nature and scope of activities proposed to 
be carried out by the PHA. The Department emphasizes that it will 
scrutinize carefully any proposed request by a PHA to use public 
housing funds in such a manner as to benefit the non-public housing 
units in a development. HUD will not permit public housing development 
funds to be used to subsidize non-public housing units, or parts of the 
development, that do not meet the specific requirements set forth in 
this subpart.
    Paragraph (b) provides that HUD will review the evidentiary 
materials and other documents submitted pursuant to Sec. 941.610 and, 
upon determining that such documents are satisfactory, may approve a 
drawdown of development funds, consistent with the following 
requirements:
    First, a PHA may only draw down public housing development funds in 
an approved ratio to other public and private funds, in accordance with 
a schedule approved by HUD. The PHA and its partner must certify, in a 
form prescribed by HUD, prior to the initial drawdown of public housing 
development funds that the PHA will not draw down, and the partner will 
not request, more public housing grant funds than necessary to meet the 
PHA's pro rata share of the development costs. The PHA may draw down 
public housing development funds only when payment is due and after 
inspection and acceptance of work covered by the draw. The PHA is 
required to release funds promptly to its partner (or other designated 
third parties approved by HUD), normally within two working days of 
receipt of the funds from HUD. The PHA's partner is also required to 
take prompt action to distribute the funds (normally within two working 
days of receipt of the funds from the PHA).
    Second, the interim rule provides that each drawdown of public 
housing development funds constitutes a certification by the PHA that 
all the representations and warranties of the PHA, as submitted under 
subpart F, continue to be valid, true, and in full force and effect. 
The PHA's draw down of funds constitutes a certification that it is in 
full compliance with all of the PHA's obligations under this subpart 
that are applicable at the time the funds are draw down, and that the 
ratio for the draw down of funds is satisfied. Finally, the interim 
rule provides that the PHA's drawdown of funds constitutes a 
certification that all conditions precedent to the PHA's authority to 
draw down the public housing grant funds have been satisfied, and that 
the funds to be drawn down will be used only for eligible costs 
actually incurred, or that will be incurred, in accordance with the 
provisions of this subpart and the approved proposal.
    Paragraph (c) of this section clarifies that the standard drawdown 
requirements set forth in paragraph (b) (including the requirement that 
public housing development funds must be drawn down in an approved 
ratio to other public and private funds) do not apply to front-end 
assistance that is approved by HUD for drawdown under paragraph (a) of 
this section.

Section 941.614--(``HUD Monitoring and Review'')

    This section establishes the regulatory authority for HUD's ongoing 
monitoring and review of a PHA's approved proposal, and provides that 
the special mixed-finance amendment to the ACC (and/or grant agreement) 
will set forth specific monitoring and review requirements under this 
subpart.

Section 941.616--(``Sanctions'')

    This section establishes the regulatory authority for HUD's 
imposition of sanctions in the event the public housing units that are 
proposed to be developed under this subpart are not developed in 
accordance with the projected development schedule, the approved 
proposal, or all applicable Federal requirements, or if the units are 
not operated in accordance with applicable requirements. In addition, 
this section provides that HUD may impose sanctions on the PHA, and/or 
seek legal and equitable relief in accordance with requirements 
prescribed by HUD in the special mixed-finance amendment to the ACC 
and/or the grant agreement.

Section 970.2--(``Applicability'')

    HUD is amending 24 CFR Sec. 970.2 to carve out two additional 
exceptions to the applicability of 24 CFR part 970 (the Department's 
regulations implementing the demolition and disposition requirements of 
section 18 of the United States Housing Act of 1937 (``USHA'')). These 
exceptions are intended to clarify that a PHA is not required under 
certain circumstances to comply with the disposition requirements set 
forth in section 18 of the USHA.
    The first exception provides that a PHA is not required to comply 
with section 18 if the PHA conveys a project to the owner entity 
pursuant to an approved proposal under 24 CFR part 941, subpart F, 
before the determination of the Actual Development Cost to enable an 
owner entity to develop the project using the mixed-finance development 
method.
    The second exception provides that the requirements of section 18 
are inapplicable in the event of a reversion of the public housing 
units from the owner entity to the PHA (e.g., at the end of the low-
income housing tax credit term).
    However, section 18 does apply whenever the owner entity seeks to 
dispose of public housing units developed under subpart F to a non-PHA 
entity, or to demolish the units, or to operate the units in a manner 
inconsistent with public housing occupancy requirements. Section 18 
also applies to any disposition by the PHA of public housing units once 
the Actual Development Cost of the units is determined. Thus, a PHA 
that wants to convey existing public housing units to an owner entity 
for rehabilitation would have to comply with requirements set forth in 
section 18.

V. Other Matters

National Environmental Policy Act

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50 
implementing section 102(2)(C) of the National Environmental Policy Act 
of 1969, 42 U.S.C. 4332. The Finding of No Significant Impact is 
available for public inspection and copying between 7:30 a.m. and 5:30 
p.m. weekdays at the Office of Rules Docket Clerk, 451 Seventh Street, 
S.W., room 10276, Washington, D.C. 20410-0500.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this interim rule before publication and 
by approving it certifies that the interim rule will not have a 
significant impact on a substantial number of small entities.

Executive Order 12866

    This interim rule was reviewed by the Office of Management and 
Budget under Executive Order 12866 as a significant regulatory action. 
Any changes made in this interim rule as a result of that review are 
clearly identified in the docket file, which is available for public 
inspection in the Office of HUD's Rules Docket Clerk, room 10276, 451 
7th Street, S.W., Washington, D.C.
    Pursuant to Executive Order 12866, each Federal agency must provide 
a cost/benefit analysis with respect to

[[Page 19713]]

each rule that is determined to be a significant regulatory action. 
Accordingly, HUD sets forth the following cost/benefit analysis for 
this interim rulemaking:
    Mixed finance development is a new development method whereby 
existing public housing development funds can be used with other public 
and private funding sources. This interim rule will not result in any 
additional cost to the taxpayer, since it enables PHAs to combine their 
funding with private and other public sources, and to enter into 
partnerships with other entities for the development, ownership and/or 
management of public housing units. This financing mechanism will 
enable PHAs to locate public housing units in developments that may 
consist of public housing and non-public housing units.
    This interim rule provides that public housing units located within 
a development must be comparable to the non-public housing units with 
respect to size, location, external appearance and distribution within 
the development. In developments consisting solely of public housing 
units, the additional capital made available through other sources is 
expected to provide higher quality living environments than would be 
possible if the PHA used only public housing development funds to 
construct the development.
    Examples of this method of development under the HOPE VI Urban 
Revitalization Demonstration program are underway. Estimated private 
investment in these transactions range from one-half to twice the level 
of the public housing funds involved.
    Additional benefits to the public include ending the isolation and 
stigmatization of public housing residents. Moreover, the interim rule 
will enhance the ability of PHAs to collaborate substantially with 
other local institutions in the large-scale revitalization of 
neighborhoods containing public housing. Public housing created as part 
of mixed-finance transactions is subject to market forces, particularly 
when integrated with non-public housing units in a development.
    Finally, the interim rule provides for flexibility in transaction 
structures as well as development, ownership and management strategies 
for PHAs to craft the most advantageous proposal for their particular 
communities.

Executive Order 12606, the Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that the provisions of this 
interim rule will not have a significant impact on family formation, 
maintenance or well-being, except to the extent that the program 
authorized by the interim rule will provide increased opportunities for 
low-income families to live in public housing developments. The 
Department believes that these opportunities will increase the 
likelihood that low-income families will become more economically and 
racially integrated within the broader community, thereby providing 
positive benefits for families.

Executive Order 12611, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12611, Federalism, has determined that the policies 
contained in this interim rule will not have substantial direct effects 
on States or their political subdivisions, or on the relationship 
between the Federal government and the States, or on the distribution 
of power and responsibilities among the various levels of government.

Catalog of Federal Domestic Assistance.

    The Catalog of Federal Domestic Assistance number for this 
program is 14.850.

Paperwork Reduction Act Statement

    The information collection requirements contained in Secs. 941.606 
and 941.610 of this interim rule have been submitted to the Office of 
Management and Budget (OMB) for review under the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3501-3520). 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. The 
OMB control number, when assigned, will be announced by separate notice 
in the Federal Register.
    The public reporting burden for each of these collections of 
information 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 herein. Send comments regarding this 
burden estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden, to Kay Weaver, Reports 
Management Officer, Department of Housing and Urban Development, 45l 
Seventh Street, S.W., Room 10276, Washington, D.C. 20410; and to the 
Office of Management and Budget, Attention: Desk Officer for HUD, 
Washington, D.C. 20503.
    Information on the estimated public reporting burden is provided, 
as follows:

                               Annual Reporting Burden for Information Collection                               
                                                    [FR-3919]                                                   
----------------------------------------------------------------------------------------------------------------
                                  Number of            Frequency of           Hours per                         
           Section               respondents     x      responses      x       response      =     Burden hours 
----------------------------------------------------------------------------------------------------------------
941.606......................              35                     1                    48                 1,680 
941.610......................              20                     1                    64                 1,280 
                                                                                                ----------------
      Total Reporting Burden.  ...............  ...  ...............  ...  ...............  ...           2,960 
----------------------------------------------------------------------------------------------------------------

List of Subjects

 24 CFR Part 941

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

24 CFR Part 970

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

    In accordance with the reasons set forth in the preamble, 24 CFR 
part 941 and part 970 are amended as follows:

PART 941--PUBLIC HOUSING DEVELOPMENT

    1. The authority citation for 24 CFR part 941 continues to read as 
follows:

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


[[Page 19714]]


    2. Section 941.202 is amended by adding a new paragraph (c)(3), to 
read as follows:


Sec. 941.202  Site and neighborhood standards.

* * * * *
    (c) * * *
    (3) Notwithstanding any other provision of this part, and for 
purposes only of subpart F of this part, replacement public housing 
units for public housing units demolished may be built on the original 
public housing site, or in the same neighborhood, if the number of such 
replacement public housing units is significantly fewer than the number 
of public housing units demolished.
* * * * *
    3. A new subpart F is added to read as follows:
Subpart F--Public/Private Partnerships for the Mixed Finance 
Development of Public Housing Units
Sec.
941.600  Purpose.
941.602  Applicability of other requirements.
941.604  Definitions.
941.606  Proposal.
941.608  Technical processing and approval.
941.610  Evidentiary materials and other documents.
941.612  Disbursement of grant funds.
941.614  HUD monitoring and review.
941.616  Sanctions.

Subpart F--Public/Private Partnerships for the Mixed Finance 
Development of Public Housing Units


Sec. 941.600  Purpose.

    (a)(1) This subpart authorizes a PHA to use a combination of 
private financing and public housing development funds to develop 
public housing units, and is designed to enable PHAs and their partners 
to structure transactions that make use of private and/or public 
sources of financing. Many potential scenarios for ownership and 
transaction structures exist, ranging from the PHA or its partner(s) 
holding no ownership interest, a partial ownership interest, or 100 
percent of the ownership interest of the public housing units that are 
to be developed. PHAs and/or their partner(s) may choose to enter into 
a partnership or other contractual arrangement with a third-party 
entity for the mixed-finance development and/or ownership of public 
housing units. If this entity has primary responsibility along with the 
PHA for the development of these units, it is referred to for purposes 
of this subpart as the PHA's ``partner.'' The entity that ultimately 
owns the public housing units, whether or not the PHA retains an 
ownership interest, is referred to as the ``owner entity.'' The 
resulting ``mixed-finance'' developments may consist of 100 percent 
public housing units, or may consist of public housing and non-public 
housing units.
    (2) This subpart sets forth the requirements that must be met by 
the PHA and its partner(s) before HUD can approve a proposal for mixed-
finance development, and also sets forth continuing requirements that 
apply throughout the development and operation of the development by 
the owner entity.
    (b) Under this subpart, public housing units that are built in a 
mixed-finance development must be comparable in size, location, 
external appearance, and distribution to the non-public housing units 
within the development.


Sec. 941.602  Applicability of other requirements.

    (a) Relationship of this subpart to other requirements in this 
part. The requirements contained in this subpart apply only to the 
development of public housing units using mixed-finance development 
methods under this subpart and to the operation of public housing units 
that are owned, or that will be owned, by an owner entity under this 
subpart. Other requirements for the development of public housing, as 
set forth in subparts A through E of this part, shall not apply to the 
development of public housing units pursuant to this subpart, except as 
may be required by HUD. Applicable requirements include, but shall not 
be limited to, the following:
    (1) Section 941.103 (``Definitions'') (definitions of the following 
terms only shall apply to this subpart: ``Annual Contributions Contract 
(ACC),'' ``cooperation agreement,'' ``design documents,'' 
``reformulation,'' and ``Total Development Cost (TDC).''
    (2) Section 941.201 (``PHA eligibility'') (except that specific 
requirements governing the cooperation agreement, as set forth in 
Sec. 941.201(c), shall be determined in accordance with this subpart);
    (3) Section 941.202 (``Site and neighborhood standards'');
    (4) Section 941.203 (``Design and construction standards'');
    (5) Section 941.204 (``Cost guidelines'');
    (6) Section 941.205 (``PHA contracts'') (except that the reference 
to ``development related contracts entered into by the PHA'' shall be 
construed to mean ``development related contracts entered into by the 
PHA or the owner entity'');
    (7) Section 941.206 (``Eligible properties'');
    (8) Section 941.207 (``Relocation and acquisition'');
    (9) Section 941.208 (``Other Federal requirements'');
    (10) Section 941.209 (``Audit'');
    (11) Section 941.406 (``Maximum development cost and advances'') 
(except that paragraph (b) of that section, dealing with ``development 
advances,'' is not applicable to this subpart);
    (12) Section 941.503 (``Construction requirements'');
    (13) Section 941.504 (``Acceptance of work and contract 
settlement''); and
    (14) Section 941.505 (``Completion of development'').
    (b) Procedure in the event of a conflict between requirements. In 
the event of a conflict between a requirement contained in this subpart 
and an applicable requirement set forth in subparts A through E of this 
part, the requirements of this subpart shall apply, unless HUD 
otherwise so determines in writing.
    (c) HUD approval. For purposes of this subpart only, any action or 
approval that is required to be taken or provided by HUD or by the HUD 
field office, pursuant to a requirement set forth in subparts A through 
F of this part, shall be construed to mean that HUD Headquarters shall 
take such action or provide such approval, unless the field office is 
authorized in writing by Headquarters to carry out a specific function 
under this subpart.
    (d) Applicability of requirements pursuant to 24 CFR part 85. The 
requirements of 24 CFR part 85 are applicable to this subpart, subject 
to the following two provisos:
    (1) A PHA may select a partner using competitive proposal 
procedures for qualifications-based procurement (subject to negotiation 
of fair and reasonable compensation, including TDC and other applicable 
cost limitations);
    (2) An owner entity (which, as a private entity, would normally not 
be subject to part 24 CFR part 85) shall be required to comply with 24 
CFR part 85 if HUD determines that the PHA or PHA instrumentality 
exercises significant functions within the owner entity with respect to 
managing the development of the proposed units. HUD may, on a case-by-
case basis, exempt such an owner entity from the need to comply with 24 
CFR part 85 if it determines that the owner entity has developed an 
acceptable alternative procurement plan.

[[Page 19715]]

Sec. 941.604  Definitions.

    In addition to the definitions set forth in Sec. 941.602(a)(1), the 
following definitions are applicable to this subpart:
    Development. A housing facility consisting of public housing units, 
and that may also consist of non-public housing units, that has been 
developed, or that will be developed, using mixed-finance strategies 
under this subpart.
    Mixed-finance. The combined use of publicly and privately financed 
sources of funds for the development of public housing units under this 
subpart.
    Owner Entity. The entity that will own the public housing units, if 
the PHA holds less than one hundred percent of the ownership interest; 
or the lessee under a ground lease from the PHA. The owner entity may 
be a partnership that includes the PHA.
    Participating party. Any person, firm, corporation, or public or 
private entity that:
    (1) Agrees to provide financial or other resources to carry out the 
approved proposal, or specified activities contained in the proposal; 
or
    (2) Otherwise participates in the development and/or operation of 
the public housing units and will receive funds derived from HUD with 
respect to such participation. The term ``participating party'' 
includes an owner entity or partner.
    Partner. A third party entity with whom the PHA has entered into a 
partnership or other contractual arrangement to provide for the mixed-
finance development of public housing units pursuant to this subpart, 
and that has primary responsibility with the PHA for the development of 
the housing units under the terms of the approved proposal.
    Proposal. For purposes of this subpart only, the term ``proposal'' 
means a detailed PHA submission of information under Sec. 941.606.
    Public Housing Agency (PHA). Any State, county, municipality, or 
other governmental entity or public body (or agency or instrumentality 
thereof) which is authorized to engage in or assist in the development 
or operation of low-income housing under this part. For purposes of 
this subpart, the term ``PHA'' also encompasses any agency or 
instrumentality of the PHA.
    Public housing unit. A unit that is eligible to receive operating 
subsidy pursuant to section 9 of the Act (42 U.S.C. 1437g).


Sec. 941.606  Proposal.

    Each proposal shall be prepared in the form prescribed by HUD and 
shall include some or all of the following documentation, as deemed 
necessary by HUD. In determining the amount of information to be 
submitted by the PHA under this section, HUD shall consider whether the 
documentation is required for HUD to carry out mandatory statutory or 
executive order reviews, the quality of the PHA's past performance in 
implementing development projects under this part, and the PHA's 
demonstrated administrative capability, as demonstrated by its overall 
score on the PHMAP. The proposal includes:
    (a) Activities; relationship of participating parties. An 
identification of the participating parties and a description of the 
activities to be undertaken by each of the participating parties and 
the PHA, and the legal and business relationships between the PHA and 
each of the participating parties.
    (b) Financing. A detailed description of all financing (including 
public housing development funds) necessary for the implementation of 
the proposal, specifying the sources (with respect to each of the 
proposed categorical uses of all such financing), together with a ten-
year operating pro forma for the development (including all underlying 
assumptions). In addition, the PHA may be required to submit to HUD, 
for such review and approval as HUD deems necessary, all documents 
(including applications for financing) relating to the financing of the 
proposal, including, but not limited to, any loan agreements, notes, 
mortgages or deeds of trust, use restrictions, operating pro formas 
relating to the viability of the development, and other agreements or 
documents pertaining to the financing of the proposal.
    (c) Methodology. If the PHA proposes to provide public housing 
operating subsidy for the public housing units, it must submit a 
methodology acceptable to HUD for the distribution of a portion of its 
operating subsidy to such units;
    (d) Development description. A description of the housing, 
including the number and type (with bedroom count) of public housing 
units and, if applicable, the number and type of non-public housing 
units (with bedroom count) to be developed; schematic drawings and 
designs of the proposed building and unit plans; outline 
specifications; and the types and amounts of non-dwelling space to be 
provided.
    (e) Site information. An identification and description of the 
proposed site, site plan, and neighborhood.
    (f) Market analysis. An analysis of the projected market for the 
proposed development.
    (g) Development construction cost estimate. A preliminary 
development construction cost estimate based on the schematic drawings 
and outline specifications and current construction costs prevailing in 
the area. In addition, a copy of the PHA development schedule, 
including the architect or contractor estimate of the time required to 
complete each major development stage.
    (h) Facilities. A statement addressing the adequacy of existing or 
proposed facilities and services for the prospective occupants of the 
development.
    (i) Relocation. Information concerning any displacement of site 
occupants, including identification of each displacee, the distribution 
plan for notices, and the anticipated cost and source of funding for 
relocation benefits.
    (j) Operating feasibility. A demonstration of the operating 
feasibility of the development, which shall be accomplished by the 
PHA's showing that the estimated operating expenses of the development 
will not exceed its estimated operating income.
    (k) Life cycle analysis. For new construction and substantial 
rehabilitation, the criteria to be used in equipping the proposed 
development with heating and cooling systems, which shall include a 
life-cycle cost analysis of the installation, maintenance and operating 
costs of such systems pursuant to section 13 of the Act (42 U.S.C. 
1437k).
    (l) Section 213 clearance. To expedite processing of the proposal, 
a PHA may solicit, on behalf of HUD, comments under section 213 (24 CFR 
part 791, subpart C) from the chief executive officer (CEO) (or his or 
her designee) of the unit of general local government. In such case, 
the solicitation letter must state that comments should be sent 
directly to HUD within 30 calendar days of HUD's estimated date of 
receipt of the PHA's proposal. The local government's response must 
state that the comments are to be considered its only response under 24 
CFR part 791, subpart C. A copy of the solicitation letter must be 
included in the PHA's proposal.
    (m) New construction. If a proposal involves new construction, the 
PHA must comply with section 6(h) of the Act (42 U.S.C. 1437d). This 
may be accomplished by the PHA's submission of a comparison of the cost 
of new construction in the neighborhood where the housing is proposed 
to be constructed and the cost of acquisition of existing housing (with 
or without rehabilitation) in the same neighborhood (including 
estimated costs of lead-based paint testing and abatement). 
Alternatively, the PHA may submit a certification, accompanied by

[[Page 19716]]

supporting documentation, that there is insufficient existing housing 
in the neighborhood to develop public housing through acquisition.
    (n)(1) Certifications and assurances. The PHA shall submit, as part 
of its proposal, certifications and assurances warranting that it:
    (i) Has the legal authority under State and local law to develop 
public housing units through the establishment or selection of an owner 
entity, and to enter into all agreements and provide all assurances 
required under this subpart. In addition, the PHA shall warrant that it 
has the legal authority necessary to enter into any proposed 
partnership and to fulfill its obligations as a partner thereunder, and 
that it has obtained all necessary approvals for this purpose;
    (ii) Will use an open and competitive process to select the partner 
and/or the owner entity and shall ensure that there is no conflict of 
interest involved in the PHA's selection of the partner and/or owner 
entity to develop and operate the proposed public housing units. In 
addition, the PHA shall ensure that:
    (A) Any selected partner and/or owner entity complies with all 
applicable State and local procurement and conflict of interest 
requirements with respect to its selection of entities to assist in the 
development, and uses a competitive process consistent with the 
requirements set forth in this subpart; and
    (B) If the partner and/or owner entity (or any other entity with an 
identity of interests with such parties) wants to serve as the general 
contractor for the project or development, it may award itself the 
construction contract only if it can demonstrate to HUD's satisfaction 
that its bid is the lowest bid submitted in response to a public 
request for bids;
    (iii) Will be responsible to HUD for ensuring that the public 
housing units are developed and operated in accordance with all 
applicable public housing requirements, including the ACC, and all 
pertinent statutory, regulatory, and executive order requirements, as 
those requirements may be amended from time to time. The PHA must also 
warrant that it will provide for a mechanism to assure, to HUD's 
satisfaction, that the public housing units will remain available for 
use by low-income families for the maximum period required by law. In 
addition, the PHA must warrant that any agreement providing for the 
management of the public housing units by an entity other than the PHA 
shall require that the units be operated in accordance with all 
applicable requirements under this subpart for the full term of any 
low-income use restrictions.
    (2) The PHA shall submit a certification of previous participation 
in accordance with procedures set forth in 24 CFR part 200, subpart H, 
and shall ensure that a similar certification is submitted to HUD by 
the participating parties.


Sec. 941.608  Technical processing and approval.

    (a) Initial screening. HUD shall perform an initial screening to 
determine that all documentation required as part of the proposal under 
Sec. 941.606 has been submitted. HUD will advise the PHA of any 
deficiencies in the proposal and indicate that additional information 
will be accepted if it is received by a specified date.
    (b) Technical processing. Upon determining that a proposal is 
acceptable for technical processing, HUD will evaluate the proposal to 
determine:
    (1) Whether the PHA has the legal authority necessary to develop 
public housing units through the establishment of an owner entity and 
the use of mixed-finance strategies in accordance with this subpart;
    (2) Whether the proposed sources and uses of funds set forth in the 
proposal are eligible and reasonable, and whether HUD's preliminary 
assessment of the financing and other documentation establishes to 
HUD's satisfaction that the mixed-finance development is viable and is 
structured so as to adequately protect the Federal investment of funds 
in the development. For this purpose, HUD will consider (among other 
factors) the PHA's proposed methodology for allocating operating 
subsidies on behalf of the public housing units; the projected revenues 
to be generated by any non-public housing units in a mixed-finance 
development; and the l0-year operating pro forma and other information 
contained in the proposal;
    (3) If applicable, whether the public housing units in the proposed 
development will be comparable in size, location, external appearance 
and distribution within the development to the non-public housing 
units;
    (4) If public housing development funds are to be used to pay for 
more than the pro rata cost of common area improvements, whether the 
proposal ensures that:
    (i) On a per unit basis (taking into consideration the number of 
public housing units for which funds have been reserved) the PHA will 
not exceed TDC limits; and
    (ii) Any common area improvements will benefit all residents of the 
development;
    (5) Whether the proposal complies with all program requirements 
including, if applicable, any comments received from the unit of 
general local government pursuant to section 213 of the Housing and 
Community Development Act of 1974 (42 U.S.C. 1439) (see 24 CFR part 
791, subpart C); and
    (6) Whether the proposal is approvable following completion by HUD 
of an environmental review in accordance with the requirements of 24 
CFR part 50.
    (c) Proposal approval. HUD shall send a notification letter to the 
PHA stating that the proposal has been approved or disapproved. For 
approved proposals, the letter shall indicate the approved total 
development cost of the public housing units in the development. HUD 
will also send to the PHA for execution an ACC amendment and/or a grant 
agreement. If the PHA has already executed a front-end ACC amendment, 
HUD will send to the PHA for execution a special ACC amendment for the 
mixed-finance development (and/or a grant agreement). The PHA shall 
execute these documents and return them to HUD for execution.


Sec. 941.610  Evidentiary materials and other documents.

    (a) Submission of documents. As a condition of the release of grant 
funds under Sec. 941.612, the PHA shall submit to HUD, within the 
timeframe prescribed by HUD, evidentiary materials and other 
documentation, as more fully set forth in the special mixed-finance 
amendment to the ACC (and/or grant agreement). Such materials and 
documentation shall include, but shall not be limited to:
    (1) A copy of executed development-related contracts entered into 
by the PHA or owner entity with respect to the development, and the 
PHA-executed ACC amendment or special mixed-finance amendment to the 
ACC (and/or grant agreement);
    (2) Agreements that are necessary to implement the proposal and to 
ensure that all requirements of this subpart are satisfied. Such 
agreements must be submitted to HUD for review and approval and shall 
include, but shall not be limited to:
    (i) A deed restriction, covenant running with the land, ground 
lease, or other arrangement of public record, that will assure to HUD's 
satisfaction that the public housing units will be available for use by 
eligible low-income families in accordance with all

[[Page 19717]]

applicable public housing requirements for the maximum period required 
by law;
    (ii) A regulatory or operating agreement between the PHA and the 
owner entity that provides binding assurances that the operation of the 
public housing units will be in accordance with all applicable public 
housing requirements;
    (iii) An agreement between the PHA and the owner entity with 
respect to the provision of operating subsidy by the PHA in accordance 
with this subpart;
    (iv) A partnership agreement, development agreement, or other 
agreement entered into between the PHA and its partner, or any other 
participating party, that establishes the relationships between the 
parties with respect to the implementation of the proposal, including 
all rights and liabilities (financial and otherwise) of the parties, a 
development schedule, and the respective commitments of the parties 
with respect to the development of the public housing units. For 
developments involving public and non-public housing units only, the 
PHA shall also provide for an allocation with the owner entity of 
expenses and risks (e.g., fire, exhaustion of, or failure to receive, 
syndication funds, etc.) associated with the development and operation 
of the development. The allocation of expenses and risks shall be based 
upon a ratio that reflects the proposed bedroom mix of the public 
housing units as compared to the bedroom mix and unit count of the non-
public housing units in the development, or as otherwise approved by 
HUD;
    (v) Any agreement relating to the management of the public housing 
units by an entity other than the PHA;
    (vi) For developments consisting of public housing and non-public 
housing units, and in lieu of the standard cooperation agreement 
required under Sec. 941.201(c), the PHA shall submit a cooperation 
agreement with the applicable locality concerning PILOT payments, local 
tax exemption and local government services on behalf of the proposed 
public housing units. Such payments, exemption and services must be 
based upon a ratio reflecting the proposed bedroom mix of the public 
housing units as compared to the bedroom mix of the non-public housing 
units in the development, or as otherwise approved by HUD. For 
developments consisting only of public housing units, the PHA shall 
submit the standard cooperation agreement required under 
Sec. 941.201(c);
    (3) All private or public financing documents evidencing the 
availability of the participating party(ies)'s financing, the amount 
and source of financing committed to the proposal by the participating 
party(ies), and the irrevocability of those funds. HUD may require in 
lieu of, or in addition to the submission of these documents, an 
opinion of the PHA's and the owner entity's counsel (or other party 
designated by HUD) attesting that counsel has examined the availability 
of the participating party(ies)'s financing, and the amount and source 
of financing committed to the proposal by the participating party(ies), 
and has determined that such financing has been irrevocably committed 
by the participating party(ies) for use in carrying out the proposal, 
and that such commitment is in the amount required under the terms of 
the proposal;
    (4) The organizational documents of the owner entity, which shall 
be reviewed by HUD (together with all financing documents) to ensure 
that they do not provide equity investors, creditors, and any other 
parties, with rights that would be inconsistent with, or that could 
interfere with, HUD's interest in the proposed development;
    (5) Evidence that all necessary actions have been taken by the PHA 
and other participating parties to confer such legally enforceable 
rights as will enable HUD to protect its investment in the property and 
to ensure the availability of the public housing units for low-income 
persons for the maximum permissible period;
    (6) Evidence of control of the site by the PHA, partner, or owner 
entity following proposal submission, for such period of time as may be 
required by HUD;
    (7) Evidence that construction or rehabilitation is permitted by 
current zoning ordinances or regulations, or evidence to indicate that 
needed rezoning is likely and will not delay construction of the 
development;
    (8) In addition, the PHA shall submit the following certifications 
warranting that:
    (i) For PHAs receiving operating assistance, that:
    (A) There shall be no disposition of the public housing units 
without the prior written approval of HUD during and for ten years 
after the end of the period in which the public housing units receiving 
operating subsidy from the PHA; and
    (B) During a 40-year period (which may be extended for 10 years 
after the end of the period in which the public housing units receive 
operating subsidy from the PHA, or as may be otherwise required by 
law), the public housing units shall be maintained and operated in 
accordance with all applicable public housing requirements (including 
the ACC), as those requirements may be amended from time to time;
    (ii) The PHA will develop at least the same number of public 
housing units as were approved by HUD as part of the PHA's proposal. 
Where the PHA proposes to pay for more than its pro rata share of the 
cost of common area improvements, the PHA must also certify that:
    (A) It will develop the same number of public housing units as were 
approved by HUD as part of the PHA's proposal, and will do so within 
the TDC limits; and
    (B) The common area improvements will benefit all residents of the 
development. If the PHA's proposal provides that public housing units 
within a development will not be specifically designated as public 
housing units, but shall instead constitute a fixed percentage of the 
housing units and number of bedrooms developed under the proposal, the 
PHA must provide additional binding assurances that the percentage of 
public housing units and number of bedrooms, as approved by HUD, will 
be maintained as public housing by the owner entity, and that all of 
the requirements of this subpart will be satisfied with respect to 
those units;
    (iii) It will ensure that the requirements of this subpart are 
binding upon the owner entity and any partner of the PHA and, to the 
extent determined necessary by HUD, upon any other participating party. 
In addition, in the event of any noncompliance with the requirements of 
this subpart by any participating party, the PHA agrees to take all 
necessary enforcement action to ensure such compliance or, 
alternatively, to pursue any legal or equitable remedies that HUD deems 
appropriate;
    (iv) It will include in all agreements or contracts with the 
partner, owner entity, or any other participating parties receiving 
development funds under this subpart, an acknowledgement that a 
transfer of the development funds by the PHA to the partner, the owner 
entity, or other participating party, shall not be deemed to be an 
assignment of development grant funds and that, accordingly, the 
partner, the owner entity or other participating party shall not 
succeed to any rights to benefits of the PHA under the ACC, or ACC 
amendment, nor shall it attain any privileges, authorities, interests, 
or rights in or under the ACC or ACC amendment;
    (v) It will include, or cause to be included, in all its agreements 
or

[[Page 19718]]

contracts with the partner, the owner entity, or other participating 
parties, and in all contracts with any other party involving the use of 
development grant funds under this subpart, a provision stating that 
nothing in the ACC or ACC amendments providing such funds, nor any 
agreement or contract between the party(ies) shall be deemed to create 
a relationship of third-party beneficiary, principal and agent, limited 
or general partnership, joint venture, or any association or 
relationship involving HUD;
    (vi) It will ensure that the development of the public housing 
units will be in compliance with labor standards applicable to the 
development of public housing including, but not limited to, wage rates 
under the Davis-Bacon Act (40 U.S.C. 276a et seq.). If the proposed 
development will include public housing units that are not specifically 
designated units, the PHA shall ensure that such labor requirements are 
met with respect to the development of all units that may, at any time, 
be used as the public housing units;
    (vii) It will take all steps necessary to ensure that, in the event 
of a foreclosure or other adverse action brought against the owner 
entity with respect to the housing units (including, but not limited 
to, the public housing units), the operation of the public housing 
units developed under this subpart shall not be adversely affected.
    (9) Such additional documentation as may be required by HUD.
    (b) Subsidy layering analysis. After the PHA submits the 
documentation required under paragraph (a) of this section, HUD (or its 
designee) shall carry out a subsidy layering analysis pursuant to 
section 102(d) of the Department of Housing and Urban Development 
Reform Act of 1989 (42 U.S.C. 3545) (see 24 CFR part 4) to determine 
whether the amount of assistance being provided for the development is 
more than necessary to make the assisted activity feasible after taking 
into account the other governmental assistance.


Sec. 941.612  Disbursement of grant funds.

    (a) Front-end drawdowns. A PHA may request front-end assistance for 
both scattered or non-scattered site development in accordance with the 
following requirements:
    (1) Front-end assistance may be used to pay for materials and 
services related to proposal development, and may also be used to pay 
for costs related to the demolition of existing units on a proposed 
site or for preliminary development work;
    (2) HUD shall determine on a case-by-case basis the maximum amount 
that may be drawn down by a PHA to pay for preliminary development 
costs, based upon a consideration of the nature and scope of activities 
proposed to be carried out by the PHA;
    (3) Before a request for front-end assistance may be approved, the 
PHA must provide HUD with such information and documentation as HUD 
deems appropriate from the list set forth at Sec. 941.606. In 
determining the extent of the PHA's submissions under this paragraph 
(a), HUD shall ensure that it has adequate information or documentation 
to enable it to carry out any statutory, executive order, or other 
mandatory upfront reviews under this subpart. These reviews shall 
include, but shall not be limited to, environmental reviews (including 
NEPA and historic preservation), intergovernmental review, section 213 
clearance (24 CFR part 791, subpart C), and subsidy layering. If, upon 
completing these reviews, HUD determines that the proposed development 
is approvable, it may execute with the PHA a front-end ACC amendment 
and the special mixed-finance amendment to the ACC (and/or grant 
agreement) to provide advances for the purposes, and in the amounts, 
approved by HUD.
    (b) Standard drawdown requirements. HUD will review the evidentiary 
materials and other documents submitted pursuant to Sec. 941.610, and, 
upon determining that such documents are satisfactory, may approve a 
drawdown of development funds, consistent with the following 
requirements:
    (1) A PHA may only draw down public housing development funds in an 
approved ratio to other public and private funds, in accordance with a 
draw schedule prepared by the PHA and approved by HUD. The PHA and its 
partner shall certify, in a form prescribed by HUD, prior to the 
initial drawdown of public housing development funds that the PHA will 
not draw down and the partner will not request more public housing 
grant funds than necessary to meet the PHA's pro rata share of the 
development costs. The PHA shall draw down public housing development 
funds only when payment is due and after inspection and acceptance of 
work covered by the draw. The PHA shall release funds to its partner 
promptly, normally within two working days of receipt of the funds from 
HUD, and only in accordance with the ratio approved by HUD. The PHA's 
partner shall take prompt action to distribute the funds, normally 
within two working days of receipt of the funds from the PHA;
    (2) Each drawdown of public housing development funds constitutes a 
certification by the PHA that:
    (i) All the representations and warranties of the PHA, as submitted 
in accordance with this subpart, continue to be valid, true, and in 
full force and effect;
    (ii) The PHA is in full compliance with all of the PHA's 
obligations pursuant to this part which, by their terms, are applicable 
at the time of the drawdown of the public housing development funds, 
and that to the best of the PHA's knowledge, it is not in default under 
the ACC, as amended;
    (iii) All conditions precedent to the PHA's authority to draw down 
the public housing grant funds have been satisfied;
    (iv) The public housing grant funds to be drawn down will be used 
for eligible costs actually incurred or to be incurred in accordance 
with the provisions of this subpart and the approved proposal; and
    (v) The ratio for the draw down of funds is satisfied.
    (c) The standard drawdown requirements set forth in paragraph (b) 
of this section (including the requirement that public housing 
development funds must be drawn down in an approved ratio to other 
public and private funds) do not apply to front-end assistance approved 
by HUD pursuant to paragraph (a) of this section.


Sec. 941.614  HUD monitoring and review.

    HUD shall monitor and review the implementation of the PHA's 
approved proposal in accordance with requirements prescribed by HUD in 
a special mixed-finance amendment to the ACC (and/or grant agreement).


Sec. 941.616  Sanctions.

    In the event the public housing units that are proposed to be 
developed under this subpart are not developed in accordance with the 
projected development schedule, the approved proposal, and all 
applicable Federal requirements, or if the units are not operated in 
accordance with applicable requirements, HUD may impose sanctions on 
the PHA, and/or seek legal and equitable relief, in accordance with 
requirements prescribed by HUD in the special mixed-finance amendment 
to the ACC (and/or grant agreement).

[[Page 19719]]

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

    5. Section 970.2 is amended by removing the word ``and'' at the end 
of paragraph (a)(9); by removing the period at the end of paragraph 
(a)10); and by adding new paragraphs (a)(11) and (a)(12), to read as 
follows:


Sec. 970.2  Applicability.

    (a) * * *
    (11) A public housing development that is conveyed by a PHA to an 
owner entity pursuant to an approved proposal under 24 CFR part 941, 
subpart F and prior to the determination of the Actual Development Cost 
to enable an owner entity to develop the project using the mixed-
finance development method; and
    (12) Public housing units that are developed pursuant to the mixed-
finance development method at 24 CFR part 941, subpart F, and that are 
reconveyed by the owner entity to the PHA.
* * * * *
    Dated: January 16, 1996.
Kevin Emanuel Marchman,
Acting Assistant Secretary for Public and Indian Housing.
[FR Doc. 96-10445 Filed 5-1-96; 8:45 am]
BILLING CODE 4210-33-P