[Federal Register Volume 61, Number 188 (Thursday, September 26, 1996)]
[Notices]
[Pages 50632-50638]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24659]



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Part V





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Assistant Secretary for Public and Indian Housing; 
Assessment of the Reasonable Revitalization Potential of Certain Public 
Housing Required by Law; Notice

  Federal Register / Vol. 61, No. 188 / Thursday, September 26, 1996 / 
Notices  

[[Page 50632]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4120-N-01]


Office of the Assistant Secretary for Public and Indian Housing; 
Assessment of the Reasonable Revitalization Potential of Certain Public 
Housing Required by Law

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

ACTION: Notice.

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

SUMMARY: This notice implements section 202 of the Omnibus Consolidated 
Rescissions and Appropriations Act of 1996. Section 202 requires PHAs 
to identify certain distressed public housing developments that will be 
required to be replaced with tenant-based assistance if they cannot be 
revitalized by any reasonable means. In that eventuality, households in 
occupancy would be offered tenant-based or project-based assistance and 
would be relocated, if sufficient housing will not be maintained, 
rehabilitated, or replaced on the current site, to other decent, safe, 
sanitary, and affordable housing which is, to the maximum extent 
practicable, housing of their choice.

DATES: Effective date: September 30, 1996.
    Comment due date: November 25, 1996. HUD expects to receive 
significant comments. HUD may determine to make changes in the Notice 
based upon comments received, but the Notice will go into effect 
September 30, 1996. This is in keeping with the directive in Section 
202 that HUD establish standards to permit implementation in Fiscal 
1996.

ADDRESSES: Interested persons are invited to submit comments regarding 
this notice 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.

FOR FURTHER INFORMATION CONTACT: Rod Solomon, Director, Special 
Actions, Public and Indian Housing, Room 4116, Department of Housing 
and Urban Development, 451 7th Street, SW, Washington, DC 20410, 
telephone (202) 708-0713. For hearing or speech impaired persons, this 
number may be accessed via TTY by contacting the Federal Information 
Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

Information Collection Requirements

    The information collection requirements contained in this notice 
have been approved by the Office of Management and Budget (OMB) in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520), and assigned OMB control number 2577-0210. 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.

General Requirement and Scope

    Section 202 of the Omnibus Consolidated Rescissions and 
Appropriations Act of 1996 (Pub.L. 104-134, approved April 26, 1996) 
(``OCRA'') requires PHAs to identify certain distressed public housing 
developments that will be required to be addressed. Households in 
occupancy would be offered tenant-based or project-based assistance 
(that can include other public housing units) and would be relocated, 
if sufficient housing will not be maintained, rehabilitated, or 
replaced on the current site, to other decent, safe, sanitary, and 
affordable housing which is, to the maximum extent practicable, housing 
of their choice. After residents are relocated, the distressed 
developments (or affected buildings) for which no reasonable means of 
revitalization exists will be removed from the public housing 
inventory.
    As explained further below, this requirement covers developments 
that (1) are on the same or contiguous sites, (2) contain at least 300 
units, (3) have a vacancy rate of at least ten percent for units not in 
funded, on-schedule modernization programs, (4) are more expensive than 
tenant-based assistance, and (5) cannot be revitalized through 
reasonable programs. These developments must be removed from the public 
housing inventory within five years, or up to ten years where HUD 
extends the deadline because five years is impracticable. Plans to do 
so must be developed in consultation with affected public housing 
residents and the local government containing the public housing. The 
term ``developments,'' as used in the statute and in this Notice, 
includes applicable portions of developments. Tenant-based assistance 
or relocation to other public or assisted housing (of the tenant's 
choice) must be offered to public housing residents whose developments 
will be removed from the inventory.
    HUD field offices will assist PHAs by notifying them which, if any, 
of their developments, according to HUD records, contain at least 300 
units and 10 percent vacancies not in funded, on-schedule 
modernization. HUD's records indicate that approximately 130 
developments across the country meet this description, including a 
significant number that already are taking necessary revitalization 
actions. Notwithstanding HUD's determination of a list of developments 
and notification to PHAs or lack thereof, however, PHAs are responsible 
for determining all developments or portions of developments that fall 
within the definition contained in section 202.

Purpose and Overview

    Section 202 expresses Congress' intent that the continued operation 
of large, obsolete public housing developments which provide unfit 
living environments for families will not be tolerated where these 
developments are more costly than tenant-based assistance and no 
reasonable revitalization program can be carried out. For various 
reasons, including previous Federal rules such as the one-for-one 
replacement law and also because of local factors, some public housing 
developments with excessive costs, obsolete designs, and unsuitable 
environments remain in operation today. Section 202 requires that 
appropriate action be taken with respect to such developments by PHAs 
or, if necessary, as required by HUD.
    Section 202 includes both a ``cost relative to tenant-based 
assistance'' test and a ``susceptible to reasonable revitalization 
program'' test. The Department recognizes that any projected cost 
comparison between public housing and tenant-based assistance is 
inexact, and that the viability and susceptibility to revitalization of 
particular properties may depend on many factors which vary greatly by 
locality. HUD will administer this mandate accordingly.
    Costs of tenant-based assistance are compared to public housing 
operating costs per occupied unit. The most recent actual costs 
initially are to be used, rather than projections of such costs per 
unit after reductions in density and modernization. As noted above, a 
development is subject to required removal from the public housing 
inventory only if its costs are higher than tenant-based assistance 
costs and it cannot be made viable with a reasonable

[[Page 50633]]

revitalization plan. Thus, a development with excessive current costs 
per occupied unit might still pass the ``reasonable revitalization'' 
test by a strong indication that revitalization can be accomplished 
within reasonable cost constraints, can be funded from a realistic 
source of funds, can sustain structural soundness and full occupancy 
for at least twenty years, will not exceed reasonable standards of 
density and concentration of extremely low-income families, and will 
not suffer from site impairments that should disqualify the site's 
continued use as public housing.
    HUD expects that the various objective and subjective tests 
regarding costs and viability will improve as experience grows, and 
this will be taken into account in the initial administration of 
section 202. However, where a development's costs are clearly excessive 
and its living environment not likely to be made acceptable through a 
reasonable and realistic revitalization plan, as discussed later, PHAs 
and HUD must promptly take the necessary conversion steps.

Time Frames

    Section 202 requires HUD to establish standards to permit 
implementation in fiscal year 1996. Accordingly, this Notice contains 
standards which HUD will require for assessments under this section 
until such time as HUD decides to take further regulatory action. These 
standards track section 202(a) of the Act.
    During the next sixty days, HUD will accept public comments which 
may be used in connection with further regulatory action. 
Notwithstanding the above, the standards in this Notice are effective 
September 30, 1996.
    In keeping with the directive regarding implementation in fiscal 
1996, the following deadlines will apply. PHAs shall take not more than 
90 days from September 30, 1996 (i.e., until December 29, 1996) to 
accomplish Standards A to D set out below to identify developments or 
portions thereof covered by this section, and PHAs shall take not more 
than 150 days from September 30, 1996 (i.e., until February 27, 1997) 
to accomplish Part E of the Standards set out below to identify 
developments or portions thereof covered by this section. PHAs shall 
submit applicable tenant-based assistance conversion plans within an 
additional 180 days (i.e., as soon as practicable thereafter, but at 
least by August 26, 1997).

Standards for Identifying Developments

    Until further notice, PHAs shall use the following standards for 
identifying developments or portions thereof which are subject to 
section 202's requirement that PHAs develop and carry out plans for the 
removal over time from the public housing inventory. These standards 
track section 202(a) of the Act; the Act's language is italicized. The 
development or portions thereof must:
    (A) Be on the same or contiguous sites. This standard and standard 
(B) refer to the actual number and location of units, irrespective of 
HUD development project numbers. (OCRA Sec. 202(a)(1)).
    (B) Total 300 or more dwelling units. (OCRA Sec. 202(a)(2)).
    (C) Have a vacancy rate of at least ten percent for dwelling units 
not in funded, on-schedule modernization. For this purpose, PHAs and 
HUD shall use the data the PHA relied upon for its last Public Housing 
Management Assessment Program (PHMAP) certification, except in 
exceptional circumstances that are brought to HUD's attention by the 
PHA. (OCRA Sec. 202(a)(3)).
    (D) Have an estimated cost of continued operation and modernization 
of the developments as public housing in excess of the cost of 
providing tenant-based assistance under section 8 of the United States 
Housing Act of 1937 for all families in occupancy, based on appropriate 
indicators of cost (such as the percentage of total development cost 
required for modernization). (OCRA Sec. 202(a)(5)).
    The estimated cost of the continued operation and modernization as 
public housing shall be calculated as the sum of total operating, 
modernization (backlog), and accrual costs, with costs expressed on a 
monthly per occupied unit basis for the most recent period for which 
reliable data are available (typically, the most recent period with 
actual operating cost data). This shall be compared to the estimated 
Section 8 monthly cost per unit of providing the same bedroom 
distribution of occupied units. The Section 8 cost shall be the unit-
weighted average of the Fair Market Rents plus the administrative fee 
during the period of the cost comparison. At the end of this Notice, 
the required methodology for the cost comparison of paragraph D is 
detailed in an appendix (``Appendix: Detailing the Cost Comparison of 
Part D'').
    If the cost of continuing to administer the development as public 
housing exceeds the Section 8 cost, as calculated under the required 
methodology, then the development must undergo a further test, as 
described in (E), below.
    (E) Be identified as distressed housing that the PHA cannot assure 
the long-term viability as public housing through reasonable 
revitalization, density reduction, or achievement of a broader range of 
household income. (OCRA Sec. 202(a)(4)).
    A fundamental aspect of this standard is the definition of long-
term viability. For this purpose, HUD will consider twenty years to be 
``long term''. Twenty years is in keeping with the expected life of 
modernization improvements, as reflected by the length of annual 
contributions contracts covering modernization grant awards. See 
section 14(b)(2) of the United States Housing Act, as amended.
    The term ``viability'' is defined in current modernization 
regulations as including achievement of structural/system soundness and 
full occupancy at reasonable cost. See 24 CFR 968.315(e)(4). Experience 
has shown, however, that achievement of physical soundness and full 
occupancy is not always enough to achieve the housing program's goal, 
as stated in the Housing Act of 1949, of ``a decent home and a suitable 
living environment''. Section 202's inclusion of ``density reduction'' 
and ``achievement of a broader range of household income'', as measures 
to be taken in pursuit of long-term viability, indicate Congress' 
understanding that excessive density and concentration of very-low-
income households are additional serious impediments to the viability 
of public housing.
    Accordingly, section 202(a)(4) shall be applied in the following 
fashion:
    PHAs are charged with identifying ``distressed housing''. For this 
purpose, all developments (including portions thereof) that meet the 
standards of paragraphs (A), (B), and (C) above (at least 300 units on 
contiguous sites with at least 10% vacancies in units not in funded, 
on-schedule modernization) shall be considered ``distressed housing'', 
unless the PHA demonstrates and HUD approves that any such developments 
are not ``distressed''. Therefore, PHAs must conduct the analysis 
required by this paragraph for all developments that meet the standards 
of paragraphs (A), (B), and (C) above.
    PHAs will meet the test for assuring long-term viability of 
identified housing only if it is probable that, after reasonable 
investment, for at least twenty years the development can sustain 
structural/system soundness and full occupancy; will not be excessively 
densely configured relative to standards for similar (typically family) 
housing in the community; will not constitute an excessive 
concentration of very low-income families; and has no other site 
impairments which clearly should disqualify the site from continuation 
as

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public housing (taking into account the liberalized standards for 
location of replacement housing authorized by Congress in section 18(f) 
of the U.S. Housing Act of 1937, added by the fiscal 1995 rescissions 
act (Public Law 104-19) and continued in effect by the OCRA).
    PHAs will be able to show that distressed developments can achieve 
long-term viability through reasonable revitalization, density 
reduction, or achievement of a broader range of household income if 
such proposed actions meet the following requirements.
    Proposed revitalization costs must be reasonable. First, such costs 
must not exceed, and ordinarily would be substantially less than, 90 
percent of HUD's total development cost limit for the units proposed to 
be revitalized (100 percent of the total development cost limit for new 
construction initiatives), unless HUD approves in extraordinary 
circumstances a higher cost as reasonable. Of course, costs approaching 
this magnitude only would be considered either for new construction or 
where the resulting quality will approach new construction. The 
revitalization cost estimate used in the PHA's most recent 
comprehensive plan for modernization is to be used for this purpose, 
unless a PHA demonstrates or HUD determines that another cost estimate 
is clearly more realistic.
    Second, the proposed revitalization plan must indicate how 
unusually high current operating expenses (e.g. security, supportive 
services, maintenance, utilities) will be reduced as a result of post-
revitalization changes in occupancy, density and building 
configuration, income mix and management. The plan must make a 
realistic projection of overall operating costs per occupied unit in 
the revitalized development, and use this estimate together with the 
estimate of modernization costs and accrual needs to develop a per unit 
monthly cost of continuing the development as public housing. That per 
unit monthly cost of public housing must be compared to the Section 8 
cost for the same number of units, using the method provided in the 
Appendix.
    If the overall projected cost of the revitalized development 
substantially exceeds the Section 8 cost (even if the cost of 
revitalization is a lower percentage of the TDC than the limits stated 
above), the PHA must be able to demonstrate that the revitalization 
plan meets the other standards contained in this Notice and that there 
are special circumstances why keeping the revitalized development as 
public housing is desirable despite its cost relative to tenant-based 
assistance. Such special circumstances must include at least some 
elements of the following: substantial leveraging of private investment 
that will benefit the community; acute need for replacement housing or 
its equivalent to create a viable neighborhood on the public housing 
site; creation of a substantially better living environment for very 
low-income households than tenant-based assistance could provide; and 
development of housing likely to remain viable for far past twenty 
years.
    The source of funding for such a revitalization program must be 
identified within the PHA's five-year comprehensive plan for 
modernization, or from other resources already available or likely to 
be available to the PHA within the necessary time frame. If the 
resources assumed are rehabilitation with HOPE VI grants, this 
assumption must be stated and shown to be reasonable. Where more than 
one development in a Housing Authority is being reviewed at this stage, 
the sources of funding of each of these developments should be shown 
side-by-side and relative to total funding resources.
    Density reduction measures would have to result in a public housing 
community with a density approaching that which prevails in the 
community for similar types of housing, or a lower density.
    Measures generally will be required to broaden the range of 
resident incomes to include over time a significant number of working 
households (for example, at least twenty-five percent in the 30-50% of 
median area income range) when the site (1) is large in terms of units 
or acreage and (2) exclusively or predominantly serves families with 
extremely low incomes (not significantly above the median for the 
public housing program, or 17% of the area median income). Measures to 
achieve a broader range of household incomes must be realistic in view 
of the site's location. Evidence of such realism typically would 
include some mix of incomes of other households located in the same 
census tract or neighborhood, or unique advantages of the public 
housing site.
    For purposes of judging appropriateness of density reduction and 
broader range of income measures, PHAs should consider the overall size 
of the public housing site and its number of dwelling units. The 
concerns these measures would address generally are greater as the 
site's size and number of dwelling units increases.
    Developments with HOPE VI implementation grants that have approved 
HOPE VI revitalization plans will be treated as having shown the 
ability to achieve long-term viability with reasonable revitalization 
plans. Future HUD actions to approve or deny proposed HOPE VI 
implementation grant revitalization plans will be taken with 
consideration of the standards for section 202. Developments with HOPE 
VI planning grants are fully subject to section 202 standards and 
requirements.
    When a future (not yet funded) HOPE VI grant is the projected major 
source of revitalization funding and when a substantial portion of the 
units under the revitalization plan will be demolished, the Housing 
Authority should proceed with the next stage of the notice, which is 
the plan for removal of development units from the public housing 
inventory, unless the Housing Authority provides an alternative 
deadline for implementation and reasons for delay that HUD approves.

Plan for Removal of Units From Public Housing Inventories; 
Implementation

    With respect to identified developments, within the time frame 
stated at the beginning of this Notice, PHAs must develop the required 
plan for removal of units from the public housing inventory. The plan 
should consider relocation alternatives for households in occupancy, 
including other public housing and Section 8 tenant-based assistance, 
and shall provide for relocation from the units as soon as practicable. 
For planning purposes, PHAs shall assume that HUD will be able to 
provide in a timely fashion any necessary Section 8 certificates. The 
plan shall include:
    (1) a listing of the public housing units to be removed from the 
inventory;
    (2) the number of households to be relocated, by bedroom size;
    (3) identification and obligation status of any previously approved 
CIAP, modernization, or major reconstruction funds for the distressed 
development and PHA recommendations concerning transfer of these funds 
to Section 8 or use for on-site rehabilitation or alternative uses;
    (4) the relocation resources that will be necessary, including a 
request for any necessary Section 8 and a description of actual or 
potential public or other assisted housing vacancies that can be used 
as relocation housing;
    (5) a schedule for relocation and removal of units from the public 
housing inventory;
    (6) provision for notifying families residing in the development, 
in a timely fashion, that the development shall be

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removed from the public housing inventory; informing such families that 
they will receive tenant-based or project-based assistance; providing 
any necessary counselling with respect to the relocation, including a 
request for any necessary counseling funds; and assuring that such 
families are relocated as necessary to other decent, safe, sanitary and 
affordable housing which is, to the maximum extent possible, housing of 
their choice; and
    (7) a record indicating compliance with the statute's requirements 
for consultation with applicable public housing tenants of the affected 
development and the unit of local government where the public housing 
is located.
    Section 18 of the United States Housing Act of 1937 shall not apply 
to demolition of developments removed from PHA inventories under this 
section, but shall apply to any proposed dispositions of such 
developments or their sites. HUD's review of any such disposition 
application will take into account that the development has been 
required to be removed from the PHA's inventory.

HUD Enforcement Authority

    Section 202 provides HUD authority to ensure that certain 
distressed developments are properly identified and removed from PHA 
inventories. Specifically, HUD may direct a PHA to cease additional 
spending in connection with a development which meets or is likely to 
meet the statutory criteria, except as necessary to ensure decent, safe 
and sanitary housing until an appropriate course of action is approved; 
identify developments which fall within the statutory criteria where a 
PHA has failed to do so properly; take appropriate actions to ensure 
the removal of developments from the inventory where the PHA has failed 
to adequately develop or implement a plan to do so; and authorize or 
direct the transfer of capital funds committed to or on behalf of the 
development (including comprehensive improvement assistance, 
comprehensive grant amounts attributable to the development's share of 
funds under the formula, and major reconstruction of obsolete projects 
funds) to tenant-based assistance or appropriate site revitalization 
for the agency. Because the greatest short-term financial risk to the 
government would be a PHA's commitment of substantial additional 
capital funds to developments required by section 202 to be removed 
from the inventory (e.g., for substantial rehabilitation that is far 
beyond measures needed to ensure decent, safe and sanitary housing 
until an appropriate course of action is approved), HUD expects that if 
any of the enforcement mechanisms are used in the coming months the 
limitation on spending commitments is the most likely. HUD field 
offices are being directed to undertake reviews of the developments 
preliminarily subject to section 202 to determine whether (1) the 
developments are likely to meet the standards of section 202 for 
required conversion to tenant-based assistance and (2) there are 
proposed capital commitments in the immediate future that require 
further scrutiny in this regard.
    In addition, HUD will be deploying teams of consultants to make 
independent viability assessments of approximately fifty of the 
Nation's most problematic developments. The consultants will be 
directed to consider the views of affected PHAs, residents and others, 
but to form their own conclusions.
    A substantial number of developments covered by this section are 
likely to be assessed by the consultants. PHA responsibilities under 
this section are independent of any activities of the consultants. HUD 
may make adjustments to the timing requirements of this notice, 
however, where this would accommodate a PHA's request and commitment to 
rely on the work of the consultants and would not delay the development 
identification and planning process substantially.

Source of Funding for Conversions of Distressed Public Housing to 
Vouchers or Certificates During FY 1996

    Section 202 specifies that CIAP, Comprehensive Grant modernization, 
and major reconstruction funds previously obligated for the public 
housing development subject to removal from the inventory may be 
transferred to the Section 8 certificate and voucher programs or used 
for appropriate revitalization.
    There may be limited additional Fiscal 1996 certificate or voucher 
funds available for this purpose (the original Notice of FY 1996 
Funding for the Section 8 Rental Voucher Program and Rental Certificate 
Program, was published on July 19, 1996, 61 FR 37756). PHAs may apply 
for any such funds, notwithstanding the timing of this Notice, by 
requesting a specific number of certificates in connection with a 
particular development, certifying that the development will be subject 
to section 202 and certifying that the certificates will be needed 
because at least that many units in the development will be required to 
be converted to certificates, by October 21, 1996. Any required 
resolution by the Board of Directors can be submitted subsequent to the 
application. To expedite the application process, PHAs are encouraged 
to submit a letter from the Chief Executive Officer of the unit of 
general local government commenting on the PHA application in 
accordance with 213 (c) of the Housing and Community Development Act of 
1974 (Pub.L. 93-383). Because HUD cannot approve an application until 
the 30-day comment period is closed, the 213 letter should state that 
no additional comments will be forthcoming from the unit of general 
local government.
    Conversions to the certificate or voucher program will be funded 
from the public housing CIAP, Comprehensive Grant modernization, and 
major reconstruction funds committed to distressed developments if HUD 
determines that new Section 8 funding is inadequate or inappropriate. 
Procedures for conversion of public housing funds to the Section 8 
program will be provided to field offices at a later date. HUD may 
leave funds with the original PHA for modernization at other 
developments or replacement housing if HUD determines that adequate 
Section 8 resources are otherwise available and the PHA has a need for 
the funds. Under no circumstances will PHAs that choose to demolish 
housing that would be required to be converted to certificates or 
otherwise addressed under section 202 be left worse off than if HUD 
must require conversion.

PHA Records; Updates

    PHAs shall keep records sufficient to indicate that they have 
reviewed all developments with at least 300 dwelling units on 
contiguous sites and vacancy rates of ten percent or higher, and have 
identified any developments that meet the standards contained in 
section 202(a). PHAs shall submit to HUD field offices the development-
by-development results of their reviews and planning on the following 
schedule:
    Results of reviews relative to standards A-D above: on or before 
December 29, 1996.
    Results of reviews relative to standard E above: on or before 
February 27, 1997.
    Conversion plans: on or before August 26, 1997.
    PHAs shall conduct an annual review and certify with their 
Comprehensive Plan Annual Updates that they have reviewed updated 
information regarding the applicability of these standards on their 
developments, and submitted to the field offices any necessary 
supplemental information. Such supplemental information shall include 
information regarding all developments

[[Page 50636]]

newly subject to review in that year under this section, or newly 
subject to review under part E above, and any changes in the outcome of 
reviews with respect to any development.

Findings and Certifications

Environmental Finding

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

Federalism Impact

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this notice will not have substantial direct effects on 
States or their political subdivisions, or the relationship between the 
federal government and the States, or on the distribution of power and 
responsibilities among the various levels of government. As a result, 
the notice is not subject to review under the Order. This notice 
pertains to the administration of certain distressed public housing 
developments and does not substantially alter the established roles of 
the Department, the States, and local governments.

The Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers for this program 
are 14.850, 14.855, and 14.857.

Impact on the Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this notice does not have 
potential for significant impact on family formation, maintenance, and 
general well-being within the meaning of the Executive Order and, thus, 
is not subject to review under the Order. This notice pertains to the 
administration of certain distressed public housing developments and 
does not substantially alter the requirements of eligibility for the 
programs involved.

    Dated: September 19, 1996.
Kevin Emanuel Marchman,
Acting Assistant Secretary for Public and Indian Housing.

Appendix: Detailing the Cost Comparison of Part D

    This Appendix details the required methodology for the cost 
comparison between public housing and Section 8 assistance. First, the 
methods of estimating the cost of operating the development as public 
housing will be detailed, after which the methods of estimating the 
Section 8 cost of operating the occupied units will be detailed. The 
text will use a consistent example and a summary table at the end to 
illustrate the methods.
    HUD field offices will provide or arrange for assistance for any 
PHA that requests assistance to carry out the required calculations. 
The calculations can be done promptly once operating cost, 
modernization cost, and occupancy information as described in the rule 
are made available by the PHA.
    The estimated cost of the continued operation and modernization as 
public housing shall be calculated as the sum of total operating, 
modernization, and accrual costs, expressed on a monthly per occupied 
unit basis for the most recent period for which reliable data are 
available (typically, the most recent period for which actual operating 
cost data are available).
    The development's operating cost (including all overhead costs pro-
rated to the development and including utilities and utility 
allowances) shall be expressed as total operating costs per month, 
divided by the current number of units occupied by households. For 
example, if a development currently has 1,000 units occupied by 
households (out of 1,250 units available under contract) and has 
$400,000 monthly in non-utility costs (including pro-rated overhead 
costs) and $200,000 monthly in utility costs paid by the authority and 
$50,000 monthly in utility allowances that are deducted from tenant 
rental payments to the authority because tenants paid some utility 
bills directly to the utility company, then the development's monthly 
operating cost per occupied unit is $650--the sum of $400, $200, and 
$50.
    PHAs generally have been required to have development-based 
operating costs for several years under section 6(b)(4)(E) of the 
United States Housing Act. Where a PHA does not have this information 
or where HUD or the PHA determine that the per unit operating costs 
from development-specific data seem unduly low relative to the costs of 
comparable developments or relative to other evidence, the 
development's operating cost shall be estimated by first computing the 
Housing Authority's monthly operating cost per occupied unit and then 
multiplying that figure by two measures: (1) the ratio of the Housing 
Authority's occupancy rate to the occupancy rate of the development and 
(2) the ratio of the bedroom adjustment factor of the development to 
the bedroom adjustment factor of the Housing Authority. The bedroom 
adjustment factor, which is based on national rent averages for units 
grouped by the number of bedrooms and which has been used by HUD to 
adjust for costs of units when the number of bedrooms vary, assigns to 
each unit the following factors: .70 for 0-bedroom units, .85 for 1-
bedroom units, 1.0 for 2-bedroom units, 1.25 for 3-bedroom units, 1.40 
for 4-bedroom units, 1.61 for 5-bedroom units, and 1.82 for 6 or more 
bedroom units. The bedroom adjustment factor is the unit-weighted 
average of the distribution. For instance, if the development with one 
thousand occupied units had in occupancy 500 two-bedroom units and 500 
three-bedroom units, then its bedroom adjustment factor would be 
1.125--500 times 1.0 plus 500 times 1.25, the sum divided by 1,000). 
Where necessary, HUD field offices will arrange for assistance in the 
calculation of the bedroom adjustment factors of the Housing Authority 
and its affected developments.
    As an example of estimating development operating costs from PHA 
operating costs, suppose that the Housing Authority had a total monthly 
operating cost per occupied unit of $400 and an occupancy rate of 96 
percent and a bedroom adjustment factor of .90, and suppose that the 
Development had an occupancy rate of 80 percent and a bedroom 
adjustment factor of 1.125. Then, the development's estimated monthly 
operating cost per occupied unit would be $600--or $400 times 1.2 (the 
ratio of 96 to 80), times 1.25 (the ratio of 1.125 to .90). When there 
is reason to believe that the development has extremely high operating 
costs not captured by the estimating procedure of this paragraph, HUD 
may require additional data at the development level to estimate the 
per-unit operating costs of the development.
    The total cost of modernization for the development shall be the 
estimated cost contained in the PHA's comprehensive plan, unless HUD 
determines that another cost estimate is clearly more realistic. This 
total modernization cost is converted into a monthly per occupied unit 
basis by dividing the total cost by the number of occupied units to

[[Page 50637]]

be provided for after modernization and dividing this figure by 180 
(i.e. fifteen years of months, where fifteen results from an assumed 
life of twenty years for the capital investment amortized by a three 
percent annual rate of real interest to account for the cost of 
undertaking the capital improvements up front). For example, if the 
total modernization cost of a development is $30 million and its 
occupancy by households after modernization is to be 1200 units, its 
monthly per unit modernization cost will be $139 (i.e., $30 million 
divided by 1200, for a per unit cost of $25,000, and then divided by 
180 for a per unit monthly cost of $139).
    The monthly per occupied unit cost of accrual (i.e., replacement 
needs) will be estimated by using the latest published HUD unit total 
development cost limits and applying them to the development's 
location, structure type and bedroom distribution, then multiplying 
that figure by .02 ( representing a fifty year replacement cycle), and 
dividing this product by 12 to get a monthly cost. For example, if the 
development is a walkup structure containing five hundred two-bedroom 
occupied and five hundred three-bedroom occupied units and if HUD's 
Total Development Cost limit for the area is $70,000 for two-bedroom 
walkup structures and $92,000 for three-bedroom walkup structures, then 
the estimated monthly cost of accrual per occupied unit is $135 (the 
result of multiplying the cost guideline value of $81,000 by .02 and 
then dividing by 12).
    The overall current cost for continuing the development as public 
housing is the sum of its monthly operating cost per occupied unit, its 
monthly modernization cost per occupied unit, and its estimated monthly 
accrual cost per occupied unit. For example, if the operating cost per 
occupied unit month is $650 and the modernization cost is $139 and the 
accrual cost is $135, the overall monthly cost per occupied unit is 
$924.
    The overall post-revitalization cost for continuing the development 
as public housing would use the same methodology, but use post-
revitalization operating cost estimates per occupied unit.
    The estimated cost of providing tenant-based assistance under 
Section 8 for all households in occupancy shall be calculated as the 
unit-weighted averaging of the monthly Fair Market Rents for units of 
the applicable bedroom size plus the administrative fee applicable to 
newly funded certificates during the year used for calculating public 
housing operating costs (e.g., the administrative fee for units funded 
in FFY 1995 and 1996 is the monthly administrative fee amount in column 
C of the January 24, 1995 Federal Register). For example, if the 
development has five hundred occupied two-bedroom units and five 
hundred occupied three-bedroom units and if the Fair Market Rent in the 
area is $600 for two bedroom units and is $800 for three bedroom units 
and if the administrative fee comes to $46 per unit, then the per unit 
monthly cost of tenant based assistance is $746 ( $700 for the unit-
weighted average of Fair Market Rents, or 500 times $600 plus 500 times 
$800 with the sum divided by 1,000, plus $46 for the administrative 
fee). This Section 8 cost would then be compared to the cost of 
continuing the public housing development--in the example of this 
section, the current public housing cost of $924 monthly per occupied 
unit would exceed the Section 8 cost of $746 monthly per occupied unit 
and a viability test in Part E would be required.
    The cost comparison methods of Part D are summarized in the table 
below, which uses the example in the text.

Detailing the Cost Comparison of Part D: A Summary Table

    Key Data, Development: The development has 1250 units available, of 
which 1000 (or 80 percent) are occupied by households. All of the units 
are in walkup buildings. The 1000 occupied units consist of 500 two-
bedroom units and 500 three-bedroom units. The total current operating 
costs attributable to the development are $400,000 per month in non-
utility costs, $200,000 in utility costs paid by the PHA, and $50,000 
in utility allowance expenses for utilities paid directly by the 
tenants to the utility company. Also, the modernization cost in the 
Comprehensive Plan is $30,000,000 and is based upon 1200 occupied 
units.
    Key Data, Area: The unit total development cost limit is $70,000 
for two-bedroom walkups and $92,000 for three-bedroom walkups. The two-
bedroom Fair Market Rent is $600 and the three-bedroom Fair Market Rent 
is $800. The applicable monthly administrative fee amount, in column C 
of the January 24, 1995 Federal Register Notice, is $46.
    Preliminary Computation of the Per-Unit Average Total Development 
Cost of the Development: This results from applying the location's unit 
total development cost by structure type and number of bedrooms to the 
occupied units of the development. In this example, five hundred units 
are valued at $70,000 and five hundred units are valued at $92,000 and 
the unit-weighted average is $81,000.
    The Cost Comparison Can Now Proceed for Developments That Have 
Operating Cost Data (For developments without such data, the procedure 
is the same, except that a per-unit PHA-based operating cost estimate 
is initially used for operating costs. This PHA-based estimate is 
described after the basic example is given.)
Current Per Unit Monthly Occupied Costs of Public Housing
Operating Cost--$650 (total monthly costs divided by occupied units: in 
this example, the sum of $400,000 and $200,000 and $50,000--divided by 
1,000 units)
Amortized Backlog Modernization Cost--$139 (the modernization cost per 
unit divided by 180: in this example, $30,000,000 divided by 1200 units 
and then by 180.)
Estimated Accrual Cost--$135 (the per-unit average total development 
cost times .02 divided by 12 months: in this example, $81,000 times .02 
and then divided by 12)
Total Per Unit Public Housing Costs--$924
Current Per Unit Monthly Occupied Costs of Section 8
Unit-weighted Fair Market Rents--$700 (the unit-weighted average of the 
Fair Market Rents of occupied bedrooms: in this example, 500 times $600 
plus 500 times $800, divided by 1000)
Administrative Fee--$46
Total Per Unit Section 8 Costs--$746
Result: In this example, because current public housing costs exceed 
current Section 8 costs, a Part E viability test is required.

    If Development-Level Operating Costs Are Not Available:
    Key PHA Data: PHA total operating costs, the total number of 
available PHA units, the total number of PHA units occupied by 
households, and the PHA bedroom distribution of units occupied by 
households.
    Preliminary Computation of the Bedroom Adjustment Factor: This 
intermediate statistic is the weighted average of occupied units, where 
each bedroom has this value: .70 for zero-bedroom units, .85 for one 
bedroom units, 1.0 for two-bedroom units, 1.25 for three bedroom units, 
1.40 for four bedroom units, 1.61 for five-bedroom units, and 1.82 for 
six or more bedroom units. In the example, the bedroom adjustment 
factor of the development is 1.125: the result of multiplying 500 
occupied two-bedroom units by 1.0 and multiplying 500 occupied three-
bedroom units by 1.25, summing the products of 500 and 625 to 1125, and 
dividing this sum by the total of 1000

[[Page 50638]]

occupied units: 1125/1000 equals 1.125.)
    Estimate Development-level Operating Costs from PHA Costs: Multiply 
the monthly operating costs per occupied unit of the PHA times two 
ratios: (1) the ratio of the PHA occupancy rate to the development's 
occupancy rate and (2) the ratio of the development's bedroom 
adjustment factor to the PHA's adjustment factor. Suppose the PHA in 
this example has total monthly operating costs of $4,000,000 and has 
10,000 occupied units out of 10,417 available (or an occupancy rate of 
96%) and a bedroom adjustment factor of .90. Then the estimated per 
occupied unit operating costs of the development would be $600--$400 
per occupied unit ($4,000,000 divided by 10,000) times 1.20 (the ratio 
of the PHA occupancy rate of 96 percent to the development occupancy 
rate of 80 percent) times 1.25 (the ratio of the development's bedroom 
adjustment factor of 1.125 to the PHA's bedroom adjustment factor of 
.90). In some cases, HUD may require PHA-based estimates to be replaced 
by estimates using development-level cost data.
    This concludes the summary table for Part III's ``Appendix: 
Detailing the Cost Comparison of Part D.''

[FR Doc. 96-24659 Filed 9-25-96; 8:45 am]
BILLING CODE 4210-33-P