[Federal Register Volume 61, Number 141 (Monday, July 22, 1996)]
[Rules and Regulations]
[Pages 38014-38022]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18356]



[[Page 38013]]


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Part V





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Part 941



Office of the Assistant Secretary for Public and Indian Housing; 
Regulatory Reinvention: Streamlining the Public Housing Development 
Regulations; Interim Rule

  Federal Register / Vol. 61, No. 141 / Monday, July 22, 1996 / Rules 
and Regulations  
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[[Page 38014]]

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 941

[Docket No. FR-3569-I-01]
RIN 2577-AB37


Office of the Assistant Secretary for Public and Indian Housing; 
Regulatory Reinvention: Streamlining the Public Housing; Development 
Regulations

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

ACTION: Interim rule.

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SUMMARY: This rule amends HUD's regulations for the Public Housing 
Development program. In an effort to comply with the President's 
regulatory reform initiatives, this rule streamlines these regulations 
by eliminating provisions that repeat statutory provisions or are 
otherwise unnecessary, as well as revising provisions to allow greater 
flexibility to PHAs in carrying out development programs, allowing them 
to certify compliance with some requirements. This interim rule will 
make the Public Housing Development regulations clearer and more 
concise.

DATES: Effective Date: August 21, 1996, except that Secs. 941.101, 
941.205, 941.301, 941.303, 941.304, and 941.404 shall not become 
effective until the OMB approval of the information collections 
contained in those sections are announced by a separate publication in 
the Federal Register.
    Comments due date: September 20, 1996.

ADDRESSES: Interested persons are invited to submit comments regarding 
this interim rule to the Rules Docket Clerk, Office of General Counsel, 
Room 10278, Department of Housing and Urban Development, 451 Seventh 
Street, S.W., Washington, D.C. 20410. Communications should refer to 
the above docket number and title. A copy of each communication 
submitted will be available for public inspection and copying between 
7:30 a.m. and 5:30 p.m. weekdays at the above address. FAXED comments 
will not be accepted.

FOR FURTHER INFORMATION CONTACT: William J. Flood, Director, Office of 
Capital Improvements, Department of Housing and Urban Development, 451 
Seventh Street, SW., Washington, DC 20410, telephone number (202) 708-
1640 (this is not a toll-free number). For hearing-and speech-impaired 
persons, this number may be accessed via text telephone by dialing the 
Federal Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

Information Collection Requirements

    The information collection requirements contained in this rule, as 
described in Sec. 941.101, are the subject of OMB control numbers 2577-
0024, 2577-0033, 2577-0036, and 2577-0039. All of these approval 
numbers are currently under review, under the Paperwork Reduction Act 
of 1995 (42 U.S.C. 3501-3520), except for 2577-0036, for which a 90-day 
extension was granted, effective through 8/31/96. The information 
collection notices for these requirements were published on April 4, 
1996 (61 FR 15081 and 15101) and on May 9, 1996 (61 FR 21202).
    In accordance with the Paperwork Reduction Act, 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.

I. Background

    On March 4, 1995, President Clinton issued a memorandum to all 
Federal departments and agencies regarding regulatory reinvention. In 
response to this memorandum, the Department of Housing and Urban 
Development conducted a page-by-page review of its regulations to 
determine which can be eliminated, consolidated, or otherwise improved. 
HUD has determined that the regulations for the public housing 
development program can be improved and streamlined by eliminating 
unnecessary provisions.
    Although current funding for public housing development is limited, 
the regulations for the program are still needed to govern the current 
pipeline of projects for which funds have been obligated. In addition, 
current legislation allows modernization funds to be used for 
developing new units, which requires public housing development 
regulations for implementation.
    Several provisions in the regulations repeat statutory language 
from the U.S. Housing Act of 1937. It is unnecessary to maintain 
statutory requirements in the Code of Federal Regulations (CFR), since 
those requirements are otherwise fully accessible and binding. 
Furthermore, if regulations contain statutory language, HUD must amend 
the regulations whenever Congress amends the statute. Therefore, this 
interim rule removes repetitious statutory language and replaces it 
with a citation to the specific statutory section for easy reference.
    Several other provisions in the regulations apply to more than one 
program, and these provisions have been in different subparts. This 
repetition is unnecessary, and updating these scattered provisions is 
cumbersome and often creates confusion. Therefore, this interim rule 
consolidates these duplicative provisions, maintaining appropriate 
cross-references for the reader's convenience.
    Some provisions in the regulations are now obsolete and have been 
removed. Lastly, some provisions in the regulations are not regulatory 
requirements. For example, several sections in the regulations contain 
nonbinding guidance or explanations. While this information is very 
helpful to recipients, HUD will more appropriately provide this 
information through guidance or other materials rather than maintain it 
in the CFR.
    The major changes to the rule were made in order to further the 
Department's determination that newly developed public housing units 
should be attractive and marketable and should assist PHAs to end the 
social and economic isolation of low income people and to promote 
economic independence.

II. Specific changes

A. Expansion of Development Methods

    Language that has limited development methods to the conventional, 
turnkey, and acquisition methods is being removed, and PHAs are being 
authorized to use any generally accepted method of development.
    Two methods described, in addition to the three authorized in the 
current regulation, are the force account method and the mixed-finance 
method (see new Sec. 941.102). With respect to a PHA that proposes to 
develop public housing units using the force account method, the rule 
specifies that HUD must determine, before development of a full 
proposal, that the PHA has the capability to develop successfully the 
public housing units using the force account method. A PHA using the 
mixed-finance method must submit and implement its proposal in 
accordance with subpart F of this part, which deals only with that 
development method. This expansion of development methods gives more 
flexibility to PHAs in the development of public housing units.

B. Expansion of Funding Sources

    This rule adds reference to the use of modernization funds as a new 
funding

[[Page 38015]]

source for development, under certain circumstances (see new 
Sec. 941.102(b)). A provision is also added requiring execution of an 
Annual Contributions Contract to govern the use of federal funds used, 
including modernization funds (see new Sec. 941.302). Donations are 
also specifically referenced as a possible funding source for PHA 
public housing development.

C. Flexibility for Approval of Replacement Housing Sites

    This rule (at new Sec. 941.202(c)(2)) specifically authorizes 
construction of public housing units following demolition of public 
housing units, on the original site or in the same neighborhood, 
exempting such construction from the review concerning minority or 
poverty concentration (that otherwise would be required by 
Sec. 941.202(c)) if one of several criteria are satisfied:
    (1) The number of public housing units to be constructed is no more 
than 50 percent of the number of units in the original project;
    (2) In the case of replacement of a currently occupied project, the 
number of public housing units being constructed is the minimum number 
needed to house current residents who want to remain at the site; or
    (3) The public housing units being constructed constitute no more 
than twenty-five units.
    The Department believes that addition of these first two criteria 
is desirable to permit the demolition and reconstruction of replacement 
units on sites that are readily available, but at lower density levels 
than the original project. That policy has been endorsed by language in 
the Fiscal Year 1995 Rescission Act, Pub. L. No. 104-19, 104 Stat. 194, 
approved July 27, 1995. The inclusion of the third criterion will 
permit replacement on site where the number of units being demolished 
is itself small, in which case the Department would not expect that 
replacement of twenty-five of the units would have an effect of 
concentrating low-income or minority families in the area.

D. Site Acquisition Requirements

    This rule eliminates the ``limited proposal'' (under existing 
Sec. 941.404(n)), which has been used by PHAs as an expedited means of 
acquiring HUD/VA/RTC and certain other scattered site properties. The 
Department believes that its adoption in this rulemaking of a 
streamlined procedure for the development of all public housing (and 
not just certain types of housing), renders obsolete the separate 
limited proposal procedure. HUD also has added a new, optional 
provision, at Sec. 941.303, that authorizes a PHA to acquire land on 
which to construct a project following submission and approval of an 
abbreviated ``site acquisition'' proposal. However, HUD must approve 
all contracts for the purchase of property, regardless of the amount 
involved or the development method being used.

E. PHA Certifications

    PHAs with a satisfactory record of performance are permitted to 
certify compliance with certain HUD requirements under this rule, in 
order to reduce the amount of HUD review required (see new 
Sec. 941.402). For example, a PHA is permitted to certify that the 
design and construction plans are in accordance with HUD's design and 
construction standards, and that the bidding procedures are in 
accordance with Federal procurement requirements.

F. Consolidation of Application and Proposal Provisions

    The provisions of Subparts C and D concerning applications and 
proposals are consolidated into a new Subpart C. Detail in the current 
regulations on selection of applications is removed, substituting a 
reference to publication of information pertaining to fund allocation, 
application deadlines, selection criteria and procedures through 
publication of a Notice of Funding Availability, should new funding 
become available (see new Secs. 941.301 through 941.306). [Subpart E on 
project development is consequently redesignated as Subpart D.]
    The information sought from HAs concerning costs at the proposal 
stage is being modified to request that information about demolition 
and associated relocation costs be separately identified with respect 
to a site that is being acquired for public housing and a site of 
existing public housing. This will allow HUD to make appropriate 
comparisons with private market development costs.

G. HUD Review of Performance

    A new process for HUD review of PHA performance and sanctions for 
poor performance is added (see new Sec. 941.501), which parallels that 
being used in the Modernization Program. These new provisions place the 
emphasis on isolating poor performance and providing technical 
assistance where it is needed as the initial HUD response. The rule 
gives HUD authority to establish certain review thresholds through 
notice of deficiency or corrective action order procedures.

H. Subpart F

    Subpart F, which was first authorized in an interim rule published 
on May 2, 1996 (61 FR 19708) specifies the conditions and procedures 
for the mixed-finance development method. Since this rule revises many 
of the sections to which Sec. 941.602 of that rule referred, this rule 
revises those cross-references. In addition, the Department anticipates 
making additional changes in subpart F to streamline its provisions 
further. That action may be taken in a combined final rule issued to 
conclude the rulemaking initiated by both that interim rule and this 
interim rule.

III. Justification for Interim Rulemaking

    HUD generally publishes a rule for public comment before issuing a 
rule for effect, in accordance with its own regulations on rulemaking 
in 24 CFR part 10. However, part 10 provides for exceptions to the 
general rule if 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 10.1). HUD finds that good cause exists 
to publish this rule for effect without first soliciting public 
comment. HUD believes that it would be contrary to the public interest 
to delay the effectiveness of the rule to solicit comment, since it 
will streamline numerous existing HUD requirements and delegate 
significant responsibility to PHAs with respect to implementation of 
their development programs.
    Delegation of responsibility to PHAs is fully consistent with the 
policy and objectives of the United States Housing Act of 1937, as set 
forth in section 2 of that Act, which states in relevant part: ``It is 
the policy of the United States * * * to assist the several States and 
their political subdivisions * * * to remedy the acute shortage of 
decent, safe, and sanitary dwellings for families of lower income and, 
consistent with the objectives of this Act, to vest in local public 
housing agencies the maximum amount of responsibility in the 
administration of their housing programs * * *.'' The streamlining 
changes to the development program are designed primarily to eliminate 
multiple layers of HUD reviews for those PHAs that HUD believes can 
develop public housing units without the need for detailed HUD 
oversight. Troubled PHAs and other PHAs that HUD believes would benefit 
from more detailed oversight would remain subject to existing HUD 
review and approval

[[Page 38016]]

requirements for their development programs.
    By revising the program, in this matter, HUD believes that 
competent PHAs will be able to more expeditiously develop public 
housing units and, accordingly, to more efficiently respond to the 
housing needs of low income families in their jurisdictions. Troubled 
PHAs and other PHAs that may benefit from more detailed HUD oversight 
will continue to be subject to existing HUD review and approval 
requirements for their development programs. HUD believes that this 
dichotomy in the development process will significantly benefit low-
income families.
    Although issuing the rule for effect, HUD is soliciting public 
comment concerning these changes, and the comments will be reviewed for 
possible future changes to the rule in a final version.

IV. Other Matters

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this interim rule, and in so 
doing certifies that this rule will not have a significant economic 
impact on a substantial number of small entities. HUD believes that 
this rule will further the public interest since the rule will 
streamline numerous existing HUD requirements and delegate significant 
responsibility to PHAs with respect to implementation of their 
development programs.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
was made in accordance with HUD regulations in 24 CFR part 50 that 
implement section 102(2)(C) of the National Environmental Policy Act of 
1969 (42 U.S.C. 4332). This Finding is available for public inspection 
between 7:30 a.m. and 5:30 p.m. weekdays in the Office of the Rules 
Docket Clerk, Office of General Counsel, Room 10276, Department of 
Housing and Urban Development, 451 Seventh Street, SW, Washington, DC.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that 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. To the extent that the programmatic 
changes that will result from this rule will have any effect, they will 
positively affect the relationship between the Federal Government and 
State and local governments in that the rule delegates to the PHA (a 
creature of state law) greater responsibility with respect to 
implementation of its development program.

Executive Order 12606, The Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this rule will not have 
the potential for significant impact on family formation, maintenance, 
or general well-being, and thus is not subject to review under the 
Order. The only effect that the rule is likely to have on families is 
that it may expedite replacement of public housing units that cannot be 
maintained as decent, safe, and sanitary housing.

Regulatory Review

    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 for this interim rule, which is 
available for public inspection in the HUD's Office of the Rules Docket 
Clerk, Room 10276, 451 Seventh Street, SW., Washington, DC 20410-0500.

List of Subjects in 24 CFR Part 941

    Grant programs--housing and community development, Loan programs--
housing and community development, Public housing.

Catalog

    The Catalog of Federal Domestic Assistance number for the program 
affected by this rule is 14.850.
    Accordingly, 24 CFR part 941 is amended as follows:

PART 941--PUBLIC HOUSING DEVELOPMENT

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

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

    2. Sections 941.101 and 941.102 are revised to read as follows:


Sec. 941.101   Purpose and scope.

    (a) Purpose. The U.S. Housing Act of 1937 (Act), 42 U.S.C. 1437, 
authorizes HUD to assist public housing agencies (PHAs) with the 
development and operation of low-income housing projects and financial 
assistance in the form of grants (42 U.S.C. 1437c, 1437g, and 1437l). 
The purpose of the program is to develop units which serve the needs of 
public housing residents over the long term and have the lowest 
possible life cycle costs, taking into account future operating and 
replacement costs, as well as original capital investments.
    (b) Scope. This part is the regulation under which a PHA develops 
low-income housing (excluding Indian housing), herein called public 
housing.
    (c) Approved information collections. The following sections of 
this part have been approved by the Office of Management and Budget in 
accordance with the Paperwork Reduction Act of 1995 (42 U.S.C. 3501-
3520) and assigned the OMB approval numbers indicated:

------------------------------------------------------------------------
  Approval                                                              
    No.                                Sections                         
------------------------------------------------------------------------
2577-0024..  941.304(j).                                                
2577-0033..  941.301, 941.303, 941.304 except para. (j), 941.402,       
              941.606, 941.610.                                         
2577-0036..  941.304, except para. (j).                                 
2577-0039..  941.205, 941.404.                                          
------------------------------------------------------------------------

Sec. 941.102   Development methods and funding.

    (a) Methods. A PHA may use any generally accepted method of 
development including, but not limited to, conventional, turnkey, 
acquisition with or without rehabilitation, mixed-finance, and force 
account.
    (1) Conventional. Under this method, the PHA is responsible for 
selecting a site or property and designing the project. The PHA 
advertises for competitive bids to build or rehabilitate the 
development on the PHA-owned site. The PHA awards a construction 
contract in accordance with 24 CFR part 85. The contractor receives 
progress payments from the PHA during construction or rehabilitation 
and a final payment upon completion of the project in accordance with 
the construction contract. The conventional method may be used for 
either new construction or rehabilitation.
    (2) Turnkey. The turnkey method involves the advertisement and 
selection of a turnkey developer by the PHA, based on the best housing 
package for a site or property owned or to be purchased by the 
developer. Following HUD approval of the PHA's full proposal, the 
developer prepares the design and construction documents. The PHA and 
the developer execute the contract of sale to implement the PHA's full 
proposal. The developer is responsible for providing a completed

[[Page 38017]]

housing project, which includes obtaining construction financing. Upon 
completion of project construction or rehabilitation in accordance with 
the contract of sale, the PHA purchases the development from the 
developer. This method may be used for either new construction or 
rehabilitation.
    (3) Acquisition. The acquisition method involves a purchase of 
existing property that requires little or no repair work. Any needed 
repair work is completed after acquisition, either by the PHA 
contracting to have the work done or by having the staff of the PHA 
perform the work.
    (4) Mixed-finance. This method involves financing from both public 
and private sources and may involve ownership of the public housing 
units by an entity other than the PHA. This method of development may 
be carried out by a PHA only in accordance with the requirements set 
forth in subpart F.
    (5) Force account. The force account method involves use of PHA 
staff to carry out new construction or rehabilitation. A PHA may only 
develop a full proposal based on the force account method if HUD has 
determined that the PHA has the capability to develop successfully the 
public housing units using this method.
    (b) Funding. A PHA may develop public housing with:
    (1) Development funds reserved by HUD for that purpose;
    (2) Modernization funds under section 14 of the Act (42 U.S.C. 
1437l), to the extent authorized by law and under procedures approved 
by HUD; and/or
    (3) Funds available to it from any other source, consistent with 
Sec. 941.306(c), or as may be otherwise approved by HUD.
    (c) Limit on number of units. (1) General. A PHA may not develop 
public housing pursuant to this part beyond the lesser of the number of 
units that the PHA had under ACC on August 21, 1996, or the number of 
units for which it was receiving operating subsidy on that date, unless 
authorized by HUD. HUD may condition such authorization on the PHA's 
agreement that such incremental units, once developed, will be 
ineligible for capital and/or operating subsidies from HUD.
    (2) Replacement housing units. With respect to units constructed to 
replace public housing units that were demolished or disposed of, a PHA 
may use (in whole or in part) funding from non-HUD sources or from HUD 
funding not provided under the Act. However, development of such units 
must be approved by HUD in advance for them to be eligible for 
inclusion under the ACC.
    3. Section 941.103 is amended as follows:
    a. By removing the definitions of ``Allocation area'', 
``Application'', ``Central city allocation area'', ``Community'', 
``Field Office'', ``Housing Assistance Plan'', ``Household type'', and 
``Housing type''.
    b. By removing the parenthetical phrase ``(in the form prescribed 
by HUD)'' from the definitions of ``Construction Contract'' and 
``Contract of sale'';
    c. By revising the definition of ``Proposal'' to read as set forth 
below; and
    d. By removing from the definition of ``Total development cost 
(TDC)'' the term ``the Field Office'' and adding in its place the term 
``HUD'', and by removing from that definition the parenthetical 
sentence at the end ``(See 24 CFR 941.204)''.


Sec. 941.103   Definitions.

* * * * *
    Proposal. A document submitted by a PHA to HUD, in accordance with 
subpart C of this part, for approval of the development of a public 
housing project. As used in this part, ``proposal'' refers to both the 
``site acquisition proposal'' (Sec. 941.303), and the ``full proposal'' 
(Sec. 941.304), unless specifically indicated otherwise.
* * * * *
    4. Section 941.201 is amended as follows:
    a. By removing from paragraph (a) the term ``The field office'' and 
adding in its place the term ``HUD'';
    b. By redesignating paragraph (c) as paragraph (d); and
    c. By adding a new paragraph (c), to read as follows:


Sec. 941.201   PHA eligibility.

* * * * *
    (c) Troubled PHAs. Unless HUD determines that a PHA that has been 
classified as troubled or modernization-troubled, in accordance with 24 
CFR part 901, has adequate capacity to develop public housing units, 
the PHA so classified shall engage a HUD-approved program manager to 
develop and implement the PHA's proposal. HUD shall review the 
solicitation and the selection before award of a contract is made by 
such a PHA.
* * * * *
    5. Section 941.202 is amended:
    a. By redesignating paragraphs (c)(1) introductory text, (c)(1)(i), 
(c)(1)(ii), and (c)(2), as paragraphs (c)(1)(i) introductory text, 
(c)(1)(i)(A), (c)(1)(i)(B), and (c)(1)(ii), respectively;
    b. By redesignating the introductory text of paragraph (c) as the 
introductory text of paragraph (c)(1);
    c. By adding a new paragraph (c)(2) to read as set forth below;
    d. Removing paragraph (c)(3); and
    e. In paragraph (f), by removing the phrase ``local housing 
assistance plan approved by the field office'' and adding in its place 
the phrase ``local plan approved by HUD''.


Sec. 941.202   Site and neighborhood standards.

* * * * *
    (c) * * *
    (2) Notwithstanding any other provision of this paragraph (c), 
public housing units constructed after demolition of public housing 
units may be built on the original public housing site, or in the same 
neighborhood, if one of the following criteria is satisfied:
    (i) The number of public housing units being constructed is no more 
than 50 percent of the number of units in the original project;
    (ii) In the case of replacement of a currently occupied project, 
the number of public housing units being constructed is the minimum 
number needed to house current residents who want to remain at the 
site; or
    (iii) The public housing units being constructed constitute no more 
than twenty-five units.
* * * * *
    6. Section 941.203 is revised to read as follows:


Sec. 941.203   Design and construction standards.

    (a) Physical structures shall be designed, constructed and equipped 
so as to improve or harmonize with the neighborhoods they occupy, meet 
contemporary standards of modest comfort and liveability, promote 
security, and be attractive and marketable to the people they are 
intended to serve. Building design and construction shall strive to 
encourage in residents a proprietary sense, whether or not 
homeownership is intended or contemplated.
    (b) Projects must comply with:
    (1) A national building code, such as Uniform Building Code, 
Council of American Building Officials Code, or Building Officials 
Conference of America Code;
    (2) Applicable State and local laws, codes, ordinances, and 
regulations; and
    (3) Other Federal requirements, including any Federal fire-safety 
requirements and HUD minimum property standards (e.g., 24 CFR part 200, 
subpart S, and Sec. 941.208).
    (c) Projects for families with children shall consist to the 
maximum extent

[[Page 38018]]

practicable of low-density housing (e.g., non-elevator structures, 
scattered sites or other types of low-density developments appropriate 
in the community).
    (d) High-rise elevator structures shall not be provided for 
families with children regardless of density, unless the PHA 
demonstrates and HUD determines that there is no practical alternative. 
High-rise buildings for the elderly may be used if the PHA demonstrates 
and HUD determines that such construction is appropriate, taking into 
consideration land costs, the safety and security of the prospective 
occupants, and the availability of community services.


Sec. 941.204   [Removed]

    7. Section 941.204 is removed.
    8. Section 941.205 is revised to read as follows:


Sec. 941.205   PHA contracts.

    (a) ACC requirements. In order to be considered as eligible project 
expenses, all development related contracts entered into by the PHA 
shall provide for compliance with the provisions of the ACC.
    (b) Contract forms. HUD may prescribe the form of any development 
related contracts, and the PHA shall use such forms. If a form is not 
prescribed, the PHA may develop its own form; however, it must contain 
all applicable federal requirements.
    (c) When HUD approval is required. The PHA is authorized to execute 
all development-related contracts without prior HUD review or approval 
with the exception of:
    (1) All forms of site or property acquisition contracts regardless 
of development method; and
    (2) Contracts whose amount exceeds a contract approval threshold 
established by HUD for that PHA; and
    (3) A contract for the selection of a program manager to develop 
and implement the PHA's proposal (see Sec. 941.201(c)).
    (d) Each PHA shall certify before executing any contract with a 
contractor that the contractor is not suspended, debarred, or otherwise 
ineligible under 24 CFR part 24. The PHA also shall ensure that all 
subgrantees, contractors, and subcontractors select only contractors 
who are not listed as suspended, debarred, or otherwise ineligible 
under 24 CFR part 24.


Sec. 941.206   [Removed]

    9. Section 941.206 is removed.
    10. Section 941.208 is revised to read as follows:


Sec. 941.208   Other Federal requirements.

    (a) General. The PHA shall be subject to all statutory, regulatory, 
and executive order requirements applicable to public housing 
development (see, e.g., 24 CFR parts 5, 8, 35, 50, and 965), as may be 
more fully described by HUD in notices, handbooks, or other guidance.
    (b) Lead-based paint. In addition to the applicable requirements of 
24 CFR part 35, all existing properties constructed prior to 1978 and 
proposed to be acquired for family projects under this part shall be 
tested for lead-based paint on applicable surfaces, as defined in 24 
CFR part 965. If lead based paint is found, the cost of testing and 
abatement shall be considered when justifying new construction or 
meeting maximum total development cost limitations. For any units 
containing lead-based paint, compliance with 24 CFR part 965, subpart 
H, is required, and abatement shall be completed prior to occupancy.
    11. Subpart C is revised to read as follows:

Subpart C--Application and Proposal

Sec.
941.301  Application.
941.302  Annual contributions contract; drawdowns and advances.
941.303  Site acquisition proposal.
941.304  Full proposal content.
941.305  Technical processing and approval.
941.306  Maximum development cost.

Subpart C--Application and Proposal


Sec. 941.301   Application.

    If funding is made available for public housing development, HUD 
will provide information about fund allocation, application deadline, 
and selection criteria and procedures through a Notice of Funding 
Availability (NOFA).


Sec. 941.302   Annual contributions contract; drawdowns and advances.

    (a) A PHA wishing to develop public housing shall execute an ACC or 
ACC amendment covering the entire amount of reserved development funds 
or the amount of modernization funds (under section 14 of the Act, 42 
U.S.C. 1437l) it proposes to use in accordance with this part. This ACC 
or ACC amendment must be executed by both the PHA and HUD before funds 
can be provided to the PHA.
    (b) Until HUD has approved a PHA's full proposal, a PHA may only 
draw down funds under the ACC for pre-development costs for materials 
and services related to proposal preparation and submission. 
Expenditures for pre-development costs shall not exceed three percent 
of the total development cost stated in the executed ACC.
    (c) HUD may approve the following in writing:
    (1) Amounts in excess of three percent of TDC for pre-development 
costs; and/or
    (2) Drawdown of funds to enable a PHA to acquire a site after 
approval by HUD of the PHA's site acquisition proposal, in accordance 
with Sec. 941.303.
    (d) After HUD approval of the full proposal, the PHA may draw down 
additional funds under the ACC to develop the public housing units in 
accordance with the approved full proposal.


Sec. 941.303   Site acquisition proposal.

    When a PHA determines that it is necessary to acquire land for 
development through new construction, it may spend funds authorized 
under this part to acquire development sites. HUD must approve a PHA's 
proposed use of funds before it may acquire sites in this manner. A PHA 
must submit the following documents for HUD review and approval, in 
accordance with the standards set forth in Sec. 941.305:
    (a) Justification. A justification for acquiring land prior to PHA 
proposal approval;
    (b) Site information. An identification and description of the 
proposed site, site plan, neighborhood, and evidence of PHA control of 
the site for at least sixty (60) days after proposal submission.
    (c) Zoning. 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 the project.
    (d) Development schedule. A copy of the PHA development schedule, 
including the PHA architect estimates of the time required to complete 
each major development stage.
    (e) Environmental assessment. All available environmental 
information on the proposed development (to expedite the HUD 
environmental review).
    (f) Appraisal. An appraisal of the proposed site by an independent, 
state-certified appraiser.


Sec. 941.304   Full proposal content.

    Each full proposal shall include at a minimum the following:
    (a) Project description. A description of the housing, including 
the number of units, schematic drawings of the proposed building and 
unit plans, outline specifications or rehabilitation work write-ups, 
and the types and amounts of non-dwelling space to be provided;

[[Page 38019]]

    (b) Description of development method. A description of the PHA's 
proposed development method, and a demonstration by the PHA that it 
will be able to use this method successfully to develop the public 
housing units. If the PHA proposes to use the turnkey method, it must 
submit a Board-approved certification that the developer was selected 
as the result of a public solicitation for proposals and that the 
selection was based on an objective rating system, using such factors 
as site location, project design, price, and developer experience. If 
the PHA proposes to use the acquisition method, the PHA must submit a 
certification by the PHA and owner that the property was not 
constructed with the intent that it would be sold to the PHA. If the 
PHA proposes to use the mixed-finance method, it should have consulted 
with HUD on its plans. If the PHA proposes to use the force account 
method to develop the public housing units, it must have already 
received approval from HUD of its capability to carry out the 
development successfully in this manner;
    (c) Site information. An identification and description of the 
proposed site, site plan, neighborhood, and evidence of PHA or turnkey 
developer control of the site for at least sixty (60) days after 
proposal submission;
    (d) Project costs. (1) Categories of cost. The detailed budget of 
the costs of developing the project, in accordance with the form 
prescribed by HUD. With respect to costs of demolition and relocation, 
the description must distinguish between costs related to existing 
public housing property and costs related to acquisition of a new 
public housing site;
    (2) Budget and payment schedule. A budget that identifies the 
sources of funding for relocation benefits, and a payment schedule 
anticipated to be provided under a construction contract;
    (e) Appraisal. An appraisal of the proposed site or property by an 
independent, state-certified appraiser;
    (f) Financial feasibility. Identification of funds sufficient to 
complete the development, including a reasonable contingency;
    (g) Zoning. 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 the project;
    (h) Facilities. A statement addressing the adequacy of existing 
facilities and services for the prospective occupants of the project, a 
description of public improvements needed to ensure the viability of 
the proposed project with a description of the sources of funds 
available to carry out such improvements, and, if applicable, a 
statement addressing the minority enrollment and capacity of the school 
system to absorb the number of school-aged children expected to reside 
in the project;
    (i) Relocation. A certification by the PHA that it will comply with 
all applicable Federal relocation requirements;
    (j) Life-cycle analysis. For new construction and substantial 
rehabilitation, the criteria to be used in equipping the proposed 
project(s) with heating and cooling systems, and 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);
    (k) Project development schedule. A copy of the PHA development 
schedule, including the PHA architect or turnkey developer estimates of 
the time required to complete each major development stage;
    (l) Environmental assessment. All available environmental 
information on the proposed development (to expedite the HUD 
environmental review);
    (m) Occupancy and operation policies. Statement of all PHA policies 
and practices that will be used in occupancy and operation that 
contribute to an overall objective of ending the social and economic 
isolation of low income people and promoting their economic 
independence;
    (n) New construction certification. If a PHA's proposal involves 
new construction, evidence of compliance with section 6(h) of the Act 
in one of the following two ways:
    (1) Submission of a PHA comparison of the cost of new construction 
in the neighborhood where the PHA proposes to construct the housing and 
the cost of acquisition of existing housing (with or without 
rehabilitation) in the same neighborhood; or
    (2) Certification by the PHA, accompanied by supporting 
documentation, that there is insufficient existing housing in the 
neighborhood to develop public housing through acquisition; and
    (o) Additional HUD-requested information. Any additional 
information that may be needed for HUD to determine whether it can 
approve the proposal pursuant to Sec. 941.305.


Sec. 941.305   Technical processing and approval.

    (a) Standards. HUD shall review the full proposal, submitted in 
accordance with Sec. 941.304, and the site acquisition proposal, 
submitted in accordance with Sec. 941.303, to determine whether each 
proposal complies with all statutory, executive order, and regulatory 
requirements applicable to public housing development including, if 
applicable, the comments received as a result of Intergovernmental 
Review. In addition, HUD shall carry out any necessary statutory and 
executive order reviews with respect to the proposal under review. If 
HUD determines that the proposal under review is acceptable, it shall 
notify the PHA in writing and shall forward to it for execution an ACC 
(or ACC amendment). If the PHA already has executed an ACC (or ACC 
amendment) for the entire reserved amount, HUD shall notify the PHA 
that it is authorized to draw down funds in accordance with 
Sec. 941.302.
    (b) Approved proposal. Units developed under this part shall be 
developed only in accordance with an approved proposal.
    (c) Approved amendments. Material changes in the approved proposal, 
including any increase in the budget or any change in the payment 
schedule, require an amendment to the proposal, which must be approved 
by HUD. The determination of what constitutes a material change will be 
made by HUD.


Sec. 941.306   Maximum development cost.

    (a) Limit on approved HUD funds to Total Development Cost. No funds 
provided by HUD pursuant to the Act may be used to pay costs in excess 
of the TDC without the written approval of HUD. Approval of a higher 
project cost will only be given upon the following demonstration by the 
PHA:
    (1) That the excess costs are reasonable and necessary to develop a 
modest non-luxury project consistent with the standards set forth in 
this part, providing for efficient project design, durability, energy 
conservation, safety, security, economical maintenance, and healthy 
family life in a neighborhood environment; and
    (2) That the PHA has the funds available to pay for such excess 
costs.
    (b) Determination of maximum TDC. HUD will determine the maximum 
total development cost (TDC) in accordance with section 6 of the Act. 
The maximum TDC for a development is calculated by multiplying the 
number of units for each bedroom size and structure type in the project 
times the applicable unit TDC limit for the bedroom size and structure 
type and adding the resulting amounts for all units in the project.
    (c) Donations. Donations from other funding sources may be obtained 
by the PHA to supplement project costs which otherwise could not be 
included,

[[Page 38020]]

provided that the added funds are not used for items that would result 
in substantially increased operating, maintenance or replacement costs, 
and the HUD certification required under section 102 of the HUD Reform 
Act (42 U.S.C. 3545) can be made in accordance with 24 CFR part 12 
(subpart D). Although donations are not subject to the TDC limitations 
set forth in paragraph (a) of this section, donations must be included 
in the project development cost budget, and legally acceptable written 
commitments for such donations must be provided by the PHA for HUD 
approval.
    12. Subpart D is revised to read as follows:

Subpart D--Project Development

Sec.
941.401  Site and property acquisition.
941.402  Project design and construction.
941.403  Acceptance of work and contract settlement.
941.404  Completion of development.

Subpart D--Project Development


Sec. 941.401   Site and property acquisition.

    (a) Applicability. The provisions of this section apply to projects 
being developed under the conventional, acquisition, and force account 
methods, and may apply to other development methods, as deemed 
appropriate by HUD.
    (b) Purchase agreement. The purchase agreement shall reflect any 
conditions established by HUD, such as the site engineering studies 
that must be completed to determine whether the site is suitable for 
development of the project.
    (c) Title.--(1) General. After HUD approves the site or property 
acquisition contract and notifies the PHA that it is authorized to take 
title, the PHA shall obtain title in accordance with the following 
certification. The PHA shall certify to HUD that it obtained a title 
insurance policy that guaranteed that the title was good and marketable 
before taking title and that it promptly recorded the deed and 
declaration of trust in the form prescribed by HUD.
    (2) Limitation. After HUD notifies a PHA that has been determined 
to be troubled or modernization troubled in accordance with part 901 of 
this chapter, or a PHA that has for other reasons been notified in 
writing that it may not use the procedure specified in paragraph (c)(1) 
of this section, that the site or property acquisition contract has 
been approved, the PHA shall submit to HUD evidence that title to the 
site or property is good and marketable. If HUD approves the title 
evidence, it will inform the PHA that it is authorized to acquire title 
to the site or property. The PHA shall record promptly the deed and 
declaration of trust in the form prescribed by HUD, and HUD may require 
the PHA to submit evidence of such recordation.


Sec. 941.402   Project design and construction.

    (a) Compliance with HUD construction standards and Federal 
procurement requirements.
    (1) General. A PHA may certify that its proposed design and 
construction plans for the development are in accordance with HUD's 
design and construction standards at Sec. 941.203, and that its bidding 
procedures are in accordance with Federal procurement requirements.
    (2) Limitation. In the case of a PHA determined to be troubled or 
modernization troubled in accordance with part 901 of this chapter or a 
PHA that has for other reasons been notified in writing that it may not 
use the procedure specified in paragraph (a)(1) of this section, the 
PHA must submit the proposed design and construction plans and its 
bidding procedures (unless HUD notifies the PHA that it may use the 
certification procedure specified in paragraph (a)(1) of this section).
    (b) Contract administration. The PHA shall be responsible for 
contract administration and shall contract for the services of an 
architect, or other person licensed under State law, to assist and 
advise the PHA in contract administration and inspections to assure 
that the work is done in accordance with HUD requirements. A HUD 
representative may periodically visit the project site to monitor PHA 
contract administration.
    (c) Prevailing wage rates. See Sec. 965.101 of this chapter.


Sec. 941.403  Acceptance of work and contract settlement.

    (a) Notification of completion. The contractor or developer shall 
notify the PHA in writing when the contract work, including any 
approved off-site work, will be completed and ready for inspection.
    (b) Acceptance. (1) General. A PHA may carry out the final 
inspection of the work and may accept the completed work. If, upon 
inspection, the PHA determines that the work is complete and 
satisfactory, except for work that is appropriate for delayed 
completion, the work shall be accepted by the PHA. The PHA shall 
certify to HUD before it pays the contractor or developer that it has 
inspected the work and determined that it is acceptable and in 
compliance with the construction contract or contract of sale and HUD 
requirements. The PHA shall determine any hold-back for items of 
delayed completion, and the amount due and payable for the work that 
has been accepted including any conditions precedent to payment that 
are stated in the construction contract or contract of sale. The 
contractor or developer shall be paid for items of delayed construction 
only after inspection and acceptance of this work by the PHA.
    (2) Limitation. In the case of a PHA determined to be troubled or 
modernization troubled in accordance with part 901 of this chapter or a 
PHA that has for other reasons been notified in writing that it may not 
use the procedure specified in paragraph (b)(1) of this section, the 
procedure described in paragraph (b)(1) of this section will be 
followed, except that HUD must concur in the necessary PHA 
determinations and approvals.
    (c) Guarantees and warranties. The construction contract or 
contract of sale shall specify the project guaranty period and amounts 
to be withheld and shall provide for assignment to the PHA of all 
manufacturer and supplier warranties required by the construction 
documents. The PHA shall inspect each dwelling unit and the overall 
project approximately three months after the beginning of the project 
guaranty period and three months before its expiration and also as may 
be necessary to exercise its rights before expiration of any 
warranties. The PHA shall require repair or replacement, prior to the 
expiration of the guaranty or warranty periods, of any defective items.
    (d) Title to turnkey projects. (1) General. When the work has been 
inspected and accepted on a turnkey project, in accordance with 
paragraph (b) of this section, the PHA is authorized to take title to 
the completed project in accordance with the following certification. 
The PHA shall certify to HUD that it obtained a title insurance policy 
that guaranteed that the title was good and marketable before taking 
title and that it promptly recorded the deed and declaration of trust 
in the form prescribed by HUD.
    (2) Limitation. After inspection and acceptance of the work in 
accordance with paragraph (b) of this section, a PHA that has been 
determined to be troubled or modernization troubled in accordance with 
part 901 of this chapter, or a PHA that has for other reasons been 
notified in writing that it may not use the procedure specified in 
paragraph (d)(1) of this section shall submit to HUD evidence that 
title to the completed project is good and marketable. If HUD approves 
the title evidence, it will inform the PHA that it

[[Page 38021]]

is authorized to acquire title to the completed project. The PHA shall 
record promptly the deed and declaration of trust in the form 
prescribed by HUD, and HUD may require submission of evidence of such 
recordation.


Sec. 941.404  Completion of development.

    (a) When all development has been completed and paid for, but not 
later than 12 months after the end of the initial operating period 
unless a longer period is approved by HUD, the PHA shall submit a 
statement of the actual development cost. For this purpose, the initial 
operating period with respect to each project is the period commencing 
with the date of initiation of the project and ending with the earliest 
of the following three dates: the end of the calendar quarter in which 
ninety-five percent of the dwelling units in the project are occupied; 
the end of the calendar quarter that is six, seven, or eight months 
after the date of full availability of the project; or the end of the 
calendar quarter next preceding the date of physical completion of the 
project.
    (b) HUD shall review the statement and establish the actual 
development cost of the project, which becomes the maximum total 
development cost for purposes of the ACC.
    13. Subpart E is revised to read as follows:

Subpart E--Performance Review


Sec. 941.501  HUD review of PHA performance; sanctions.

    (a) HUD determination. HUD shall carry out such reviews of the 
performance of each PHA as may be necessary or appropriate to make the 
determinations required by this paragraph (a), taking into 
consideration all available evidence.
    (1) Conformity with PHA proposal. HUD shall determine whether the 
PHA has carried out its activities under this subpart in a timely 
manner and in accordance with its approved proposal.
    (i) In making this determination, HUD shall review the PHA's 
performance under previous inspections, audit findings and other 
sources to determine whether the development activities undertaken 
during the period under review conform substantially to the activities 
specified in the approved PHA proposal. HUD also shall review a PHA's 
development schedule to determine whether the PHA has carried out its 
development activities in a timely manner;
    (ii) HUD shall review a PHA's performance to determine whether the 
activities carried out comply with the requirements of the Act, and 
other applicable laws and regulations.
    (2) Continuing capacity. HUD shall determine whether the PHA has a 
continuing capacity to carry out its development plan in a timely 
manner. The primary factors to be considered in arriving at a 
determination that a PHA has a continuing capacity are those described 
in paragraph (a)(1) of this section (``conformity with PHA proposal''). 
HUD shall give particular attention to PHA efforts to accelerate the 
progress of the program and to prevent the recurrence of past 
deficiencies or noncompliance with applicable laws and regulations.
    (b) Notice of deficiency. Based on HUD reviews of PHA performance 
and findings of any of the deficiencies in paragraph (d) of this 
section, HUD may issue to the PHA a notice of deficiency stating the 
specific program requirements that the PHA has violated and requesting 
the PHA to take any of the actions specified in paragraph (e) of this 
section.
    (c) Corrective action order. (1) Based on HUD reviews of PHA 
performance and findings of any of the deficiencies in paragraph (d) of 
this section, HUD may issue to the PHA a corrective action order, 
whether or not a notice of deficiency has been issued previously with 
respect to the specific deficiency on which the corrective action order 
is based. HUD may order corrective action at any time by notifying the 
PHA of the specific program requirements that the PHA has violated, and 
specifying that any of the corrective actions listed in paragraph (e) 
of this section must be taken. HUD shall design corrective action to 
prevent a continuation of the deficiency, mitigate any adverse effects 
of the deficiency to the extent possible, or prevent a recurrence of 
the same or similar deficiencies;
    (2) Before ordering corrective action, HUD shall notify the PHA and 
give it an opportunity to consult with HUD regarding the proposed 
action;
    (3) Any corrective action ordered by HUD shall become a condition 
of the grant agreement (ACC);
    (d) Basis for corrective action. HUD may order a PHA to take 
corrective action only if it determines:
    (1) The PHA has not carried out its activities under the 
development program in a timely manner and in accordance with its 
approved proposal, or HUD requirements, as determined in paragraph 
(a)(l) of this section;
    (2) The PHA does not have a continuing capacity to carry out its 
proposal in a timely manner or in accordance with its proposal or HUD 
requirements, as determined in paragraph (a)(2) of this section;
    (3) The PHA has failed to repay HUD for amounts awarded under the 
development programs that were improperly expended;
    (e) Types of corrective action. HUD may direct a PHA to take one or 
more of the following corrective actions:
    (1) Submit additional information:
    (i) Concerning the PHA's administrative, planning, budgeting, 
accounting, management, and evaluation functions to determine the cause 
for a PHA not meeting the standards in paragraphs (a)(1) or (a)(2) of 
this section;
    (ii) Explaining any steps the PHA is taking to correct the 
deficiencies;
    (iii) Documenting that PHA activities were not inconsistent with 
the PHA's proposal or other applicable laws, regulations or program 
requirements; and
    (iv) Demonstrating that the PHA has a continuing capacity to carry 
out the proposal in a timely manner;
    (2) Submit schedules for completing the work identified in its 
proposal and report periodically on its progress in meeting the 
schedules;
    (3) Notwithstanding 24 CFR 941.205(c), 24 CFR 941.402(a) and 24 CFR 
85.36(g), submit to HUD documents for prior approval, which may 
include, but are not limited to:
    (i) Complete design, construction and bid documents (prior to 
soliciting bids);
    (ii) Complete rehabilitation drawings/specifications or work write-
ups;
    (iii) Development budgets, including modifications;
    (iv) Proposed award of contracts, including construction contracts, 
turnkey contracts of sale, letters of commitment, and contracts with 
the architect/engineer (prior to execution);
    (4) Submit additional material in support of one or more of the 
statements, resolutions, and certifications submitted as part of the 
PHA proposal, or periodic performance report;
    (5) Not incur financial obligations, or to suspend payments for one 
or more activities;
    (6) Reimburse, from non-HUD sources, one or more program accounts 
for any amounts improperly expended;
    (f) Failure to take corrective action. In cases where HUD has 
ordered corrective action and the PHA has failed to take the required 
actions within a reasonable time, as specified by HUD, HUD may take one 
or more of the following steps:
    (1) Terminate future draw downs and/or advances to the PHA. In such 
case, the amount of advances made to the PHA shall be repaid by the PHA 
from

[[Page 38022]]

any funds or assets available for that purpose;
    (2) Require alternative management of development functions by an 
entity other than the PHA;
    (3) Cancel the fund reservation if the PHA fails to start (begin 
construction or rehabilitation), or complete (acquisition) within 30 
months from the date of the fund reservation pursuant to section 5(k) 
of the Act;
    (4) Recapture for good cause any grant amounts previously provided 
to a PHA, based upon a determination that the PHA has failed to comply 
with the requirements of the development program.
    (g) Right to appeal. Before taking any of the actions described in 
paragraph (f) of this section, HUD shall notify the PHA and give it an 
opportunity, within a prescribed period of time, to present any 
arguments or additional facts and data concerning the proposed action.
    14. Section 941.602(a) is revised to read as follows:


Sec. 941.602  Applicability of other requirements.

    (a) Relationship of this subpart to other requirements in 24 CFR 
part 941. 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 941.205 (``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'');
    (6) Section 941.207 (``Relocation and acquisition'');
    (7) Section 941.208 (``Other Federal requirements'');
    (8) Section 941.209 (``Audit'');
    (9) Section 941.306 (``Maximum development cost'');
    (10) Section 941.402 (``Project design and construction'');
    (11) Section 941.403 (``Acceptance of work and contract 
settlement'');
    (12) Section 941.404 (``Completion of development''); and
    (13) Section 941.501 (``HUD review of PHA performance; 
sanctions'').
* * * * *
    Dated: June 11, 1996.
Kevin Emanuel Marchman,
Acting Assistant Secretary for Public and Indian Housing.
[FR Doc. 96-18356 Filed 7-17-96; 3:59 pm]
BILLING CODE 4210-33-P