[Federal Register Volume 64, Number 141 (Friday, July 23, 1999)]
[Proposed Rules]
[Pages 40232-40237]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18773]



[[Page 40231]]

_______________________________________________________________________

Part VII





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Part 972



Required Conversion of Developments From Public Housing Stock; Proposed 
Rule

  Federal Register / Vol. 64, No. 141 / Friday, July 23, 1999 / 
Proposed Rules  

[[Page 40232]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 972

[Docket No. FR-4475-P-01]
RIN 2577-AC01


Required Conversion of Developments From Public Housing Stock

AGENCY: Office of Public and Indian Housing, HUD.

ACTION: Proposed rule.

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

SUMMARY: This proposed rule implements a recent revision to the statute 
that authorizes the public housing and Section 8 housing assistance 
programs. The revision requires Public Housing Agencies (PHAs) to 
identify distressed public housing developments that must be converted 
to tenant-based assistance. If it would be more expensive to modernize 
and operate a distressed development for its remaining useful life than 
to provide tenant-based assistance to all residents, or the PHA cannot 
assure the long-term viability of a distressed development, then it 
must develop and carry out a five-year plan to remove the development 
from its public housing inventory, and convert it to tenant-based 
assistance.

DATES: Comments Due Date: September 21, 1999.

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

FOR FURTHER INFORMATION CONTACT: Rod Solomon, Deputy Assistant 
Secretary for Policy, Program and Legislative Initiatives, Department 
of Housing and Urban Development, Office of Public and Indian Housing, 
451 Seventh Street, SW, Washington, DC 20410, telephone (202) 708-0713. 
(This is not a toll-free telephone number.) Persons with hearing or 
speech disabilities may access this number via TTY by calling the free 
Federal Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Statutory Basis

    Section 202 of the Departments of Veterans Affairs and Housing and 
Urban Development and Independent Agencies Appropriations Act, 1996 (42 
U.S.C. 1437l note) provided for a program of required conversion of 
distressed public housing. HUD implemented that statute by issuing the 
regulations now found at 24 CFR part 971. Section 33 of the United 
States Housing Act of 1937 (hereafter Section 33), added by the Quality 
Housing and Work Responsibility Act of 1998 (hereafter the Public 
Housing Reform Act), adds provisions for required conversion of 
distressed public housing to tenant-based assistance. In addition to 
creating new section 33, section 537 of the Public Housing Reform Act 
repealed section 202. However, developments that were identified by 
PHAs or by HUD--before the enactment of the Public Housing Reform Act--
for conversion, or for assessment of whether such conversion is 
required, continue to be subject to the requirements of section 202 and 
the part 971 regulations implementing that section.
    To implement the provisions for required conversions established by 
the new section 33 of the 1937 Act, this rule would place implementing 
provisions in a new 24 CFR 972, subpart A.

II. Relationship of Voluntary Conversions to Required Conversions

    The same statute that revised this program of required conversions 
created the provisions for voluntary conversions. Section 533 of the 
Public Housing Reform Act revised section 22 of the United States 
Housing Act of 1937, entitled ``Authority to Convert Public Housing to 
Vouchers.'' A separate rulemaking is underway to implement those 
provisions through a new 24 CFR 972, subpart B.

III. Description of Specific Sections

A. Identification of Developments Subject to Required Conversion

    Under this proposed rule, PHAs are required to identify 
developments that must be converted to tenant-based assistance. Under 
the Public Housing Reform Act, developments are subject to required 
conversion if they are (1) on the same or contiguous sites; (2) are 
distressed, in accordance with guidelines established by HUD that take 
into account the criteria established in the Final Report of the 
National Commission on Severely Distressed Public Housing (hereafter, 
``the Commission'') published in August 1992 by the Government Printing 
Office; and (3) are either identified as distressed housing for which 
the PHA cannot assure long term viability, or are more expensive than 
tenant-based assistance.
    In this proposed rule, HUD has repeated portions of the regulations 
from 24 CFR 971. In identifying units as distressed for which the PHA 
cannot assure long term viability, the standard used to make this 
determination remains the same. In addition, the cost test (the 
methodology for comparing the cost of public housing with the cost of 
tenant-based assistance) is basically the same test as that used in the 
current regulation (part 971). The cost test methodology is found in 
the Appendix to this part, Part 972. HUD is considering the use of a 
web-based cost comparison calculator on HUD's internet homepage that 
would reduce the calculation burden on PHAs. HUD is also considering a 
refinement of the existing cost calculation in the appendix to part 972 
to include a more precise net present value calculation.
    In this rule, HUD has established certain criteria that a 
development has to meet in order to be identified as ``distressed.'' In 
shaping these criteria, HUD took into account the guidelines 
established by the Commission (see Appendix B of its final report, 
referenced above). Under this proposed rule, a distressed development 
is defined as a development predominantly occupied by families that has 
250 units or more and has a vacancy rate of at least 10 percent for 
each of the last three years, where the vacancy rate has not 
significantly decreased over these years.
    Under the superseded provision for required conversion (section 
202), only developments with over 300 units were affected. Under the 
new section 33, there is no such size limit on what developments are 
subject to required conversion. To reflect this change, this proposed 
rule decreases the number of units that a development must have in 
order to be subject to required conversion to 250 dwelling units. HUD 
invites public comment on the inclusion at a later date of developments 
smaller than 250 units and developments not predominantly occupied by 
families. Some of these developments may be suitable for required 
conversion, even though the incidence is less than with respect to 
large family developments. HUD did not include such developments in 
this proposed rule, so that the large family developments would 
continue to receive HUD's administrative resource priority. We believe 
that the smaller and not predominantly family developments are more 
likely to be found viable after conversion assessments and that they do 
not raise financial issues of the same

[[Page 40233]]

magnitude as the larger family developments. We also believe that 
serious problems with respect to the smaller and not predominantly 
family developments are more likely to be addressed locally, without 
enforcement action by HUD.
    You are invited to comment on whether the required conversion 
program should be expanded later to include the developments not 
included in this proposed rule. If so, to what extent? Are there ways 
of accomplishing any necessary actions with respect to these 
developments in a manner that assures reasonable commitment of HUD 
administrative resources relative to the likely benefits?
    In determining what factors to use when defining a development as 
distressed, HUD reviewed all of the factors identified by the 
Commission as having an impact on whether a development is severely 
distressed. The criteria that HUD uses in defining distress in this 
section are identified by the Commission as factors contributing to the 
distress of public housing--high vacancy rate, high modernization 
needs, predominantly family developments. Although there are other 
factors that the Commission identified as contributing to the 
likelihood of distress, many of these factors are not feasible as 
criteria for purposes of this section, because data is not readily 
available to HUD in all cases. This is the case for information such as 
the crime rate in the development as compared to the city crime rate 
and relative school dropout rates.
    One factor that the Commission used to identify distressed 
developments was very low median income as compared to the average 
median income in the City. The Commission's definition gave this factor 
the most weight, and found that housing was at the greatest risk of 
being distressed where the average median income in the development was 
less than 20 percent of the average local median income. HUD 
specifically invites comments on whether a comparison of the average 
median income at the development with the average median income in the 
area (MSA), or another measure of tenant income, should be included in 
the identification of developments as distressed.

B. Contents of the Conversion Plan

    Once a development is identified as subject to required conversion, 
the PHA must develop a conversion plan. This conversion plan outlines 
the PHA's plan to remove the units from the inventory, and to provide 
tenant-based or project-based assistance for the residents that will be 
displaced as a result of conversion to comparable housing. In 
developing a conversion plan, the PHA should consider any existing 
consent orders.
    The conversion plan is a five year plan, which may be extended by 
not more than an additional 5 years if HUD determines the 5-year 
deadline is impracticable. HUD will allow longer than five years (up to 
10 years) for units to be taken out of the public housing inventory in 
recognition of new statutory language that indicates that the cost 
comparison should be based on the remaining useful life of the public 
housing. HUD believes that the cost test, comparing the costs of 
continued operation of public housing with providing tenant-based 
assistance, generally should continue to be based on the twenty year 
time frame in the existing regulation (or thirty years for 
rehabilitation equivalent to new construction). This conclusion is 
based on the statute's requirement of long-term viability if required 
conversion is to be avoided. However, in order to ensure that public 
housing that has a remaining useful life of less than twenty or thirty 
years, as applicable, is put to the best use, HUD will allow a PHA up 
to ten years to take the units out of the public housing inventory in 
exceptional circumstances where this would be the most beneficial means 
of providing subsidized housing over that time period.
    A description and analysis regarding developments subject to 
required conversion must be submitted to HUD as part of the PHA Annual 
Plan. However, HUD approval of the conversion plan is separate from HUD 
approval of the PHA Annual Plan. A separate approval is required 
because the standards for approval under the PHA Plan differ from the 
standards for approval of a conversion plan.

C. Actions After Submission of a Conversion Plan

    A PHA may not demolish or dispose of units or property until 
completion of the required environmental review under 24 CFR part 58 
(if a responsible entity has assumed environmental responsibility for 
the project) or 24 CFR part 50 (if HUD is performing the environmental 
review). Further, HUD will not approve a conversion plan until 
completion of the required environmental review. However, before 
completion of the environmental review, HUD may approve the targeted 
units for deprogramming and may authorize the PHA to undertake other 
activities proposed in the conversion plan that do not require 
environmental review (such as certain activities related to the 
relocation of residents), as long as the buildings in question are 
adequately secured and maintained.
    Once a conversion plan is approved, the PHA may relocate residents 
using tenant-based assistance. A PHA must apply for Section 8 tenant-
based assistance, and HUD will give a PHA with an approved conversion 
plan priority for receiving tenant-based assistance. As the development 
is removed from the public housing inventory, public housing operating 
subsidy and modernization funding will phase out under the usual 
process. HUD may require that funding for the initial year of tenant-
based assistance be provided from the public housing Capital Fund, 
Operating Fund, or both.

IV. Findings and Certifications

A. Public Reporting Burden

    The information collection requirements contained in Secs. 972.107, 
972.109, and 972.110 have been submitted to the Office of Management 
and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501-3520). In accordance with the Paperwork Reduction Act, HUD may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless the collection displays a currently 
valid OMB control number.
    If you have comments regarding the information collections 
contained in the rule, submit them by September 21, 1999. Please refer 
to the title of this rule and send the comments to:

Joseph F. Lackey, Jr., HUD Desk Officer, Office of Management and 
Budget, New Executive Office Building, Washington, DC 20503;
      and to
Millie Hamman, Reports Liaison Officer, Department of Housing and Urban 
Development, 451 Seventh Street, SW, Washington, DC 20410.

    Although the information collections are largely specified by 
section 33 of the United States Housing Act of 1937, we are nonetheless 
interested in receiving comments on the most efficient way to collect 
information necessary to reviewing the necessary elements of this 
conversion program. We invite comments that do the following: (1) 
Evaluate whether the proposed collection of information is necessary 
for the proper performance of HUD's functions, including whether the 
information will have practical utility; (2) Evaluate the accuracy of 
the agency's estimate of the burden of the proposed collection of 
information; (3) Enhance the quality, utility, and clarity of the

[[Page 40234]]

information to be collected; and (4) Minimize the burden of the 
information collection on the PHAs, including use of appropriate 
automated collection techniques or other forms of information 
technology, e.g., permitting electronic submission of responses.
    The burden of the information collections in subpart A of part 972 
is estimated as follows:

----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Number of
                 Section number                      Number of     Responses per     hours per     Burden hours
                                                    respondents     respondent       response
----------------------------------------------------------------------------------------------------------------
972.107 Conversion Plan.........................             330            *1.5              *8           3,960
972.110 Consultation............................             330            *1.5              20          9,900
----------------------------------------------------------------------------------------------------------------
* The number of responses and times estimated are averages.

    The total burden hours for new information collections contained in 
this rule is 13,860 hours.

B. Impact on Small Entities

    Under the Regulatory Flexibility Act (5 U.S.C. 605(b)), HUD is 
required to determine whether this rule will have a significant 
economic impact on a substantial number of small entities. If the rule 
would have such impact, the Department is obligated to perform an 
initial regulatory flexibility analysis to consider alternative ways of 
achieving the objective of the rule. The entities that are subject to 
this rule are public housing agencies that administer public housing. 
PHAs protected by the Act are those that are organizationally part of a 
city or county political jurisdiction with less than 50,000 in 
population.
    This rule requires PHAs to determine whether any of their 
developments must be converted to tenant-based assistance. If a 
development is distressed and not viable in the long term or is more 
expensive for the PHA to operate as public housing as compared to 
providing tenant-based assistance, a PHA may be required to develop a 
conversion plan for removal of the development. Ultimately, the goal of 
the rule is to promote more efficient delivery of affordable housing to 
residents of current public housing developments. This efficiency 
should benefit small PHAs and large PHAs alike. HUD concludes that this 
rule will not have a significant economic impact on a substantial 
number of small entities.
    HUD anticipates that no more than 10 percent of all PHAs will be 
subject to the requirements of required conversion. A large portion of 
the PHAs that will be subject to required conversion will be large, 
troubled PHAs. This is a result of the statutory direction to identify 
units subject to the requirements based on the criteria established by 
the National Commission on Severely Distressed Public Housing, which 
focused on large troubled agencies.
    The conversion plan will involve a one-time cost, and this cost can 
vary from development to development, depending on the scope of the 
assessment, location of the property, and other factors. A mitigating 
factor concerning the cost for PHAs whose properties are potentially 
subject to the requirements of required conversion is that they may 
request assistance from HUD in conducting the required analyses in 
order to offset the costs. HUD has provided such assistance in the past 
and intends to continue to do so, if resources are available. 
Therefore, the cost burden on small entities is not likely to be great.
    Despite HUD's determination that the rule does not have a 
substantial impact on a significant number of small entities, we 
specifically invite comments regarding alternatives to provisions of 
this rule that would meet the statutory objectives, while mitigating 
the impact on small entities.

C. Environmental Impact

    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 between the hours of 7:30 a.m. and 5:30 p.m. weekdays 
in the Regulations Division at the above address.

D. Federalism Impact

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that this rule 
does not have substantial direct effects on the States or on the 
relationship, or the distribution of power and responsibilities, 
between the Federal government and the States. The rule merely states 
the conditions under which a PHA is required to convert a public 
housing development to tenant-based assistance.

E. Unfunded Mandates Reform Act

    This rule does not impose a Federal mandate that will result in the 
expenditure by State and local governments, in the aggregate, or by the 
private sector, of $100 million or more in any one year.

F. Regulatory Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, Regulatory Planning and Review. OMB determined 
that this rule is a ``significant regulatory action'' as defined in 
section 3(f) of the Order (although not an economically significant 
regulatory action under the Order). Any changes made to this rule as a 
result of that review are clearly identified in the docket file, which 
is available for public inspection in the Regulations Division of the 
Office of General Counsel, Room 10276, 451 Seventh Street, SW, 
Washington, DC 20410-0500.

G. Catalog

    The Catalog of Federal Domestic Assistance number for the program 
affected by this rule is 14.850.

List of Subjects in 24 CFR 972

    Grant programs--housing and community development, low and moderate 
income housing, public housing.

    Accordingly, HUD proposes to add part 972, subpart A, to title 24 
of the Code of Federal Regulations as follows:

PART 972--CONVERSION OF PUBLIC HOUSING TO TENANT-BASED ASSISTANCE

Subpart A--Required Conversion of Public Housing Developments

Sec.
972.101  What is the definition of ``conversion''?
972.102  What is the purpose of this subpart?
972.103  To what developments is this subpart applicable?
972.104  What are the standards for identifying which public housing 
developments must be converted?

[[Page 40235]]

972.105  How does a PHA determine if a property is viable in the 
long term?
972.107  What does a conversion plan contain?
972.109  When does a PHA submit a conversion plan to HUD?
972.110  What is the public and resident consultation process for 
developing a conversion plan?
972.112  What is the effect of conversion on operating subsidy?
972.113  How does the conversion plan relate to a demolition/
disposition plan?
972.114  How are HOPE VI developments treated?
972.116  How does a PHA obtain funding to assist residents of the 
units being converted?
972.118  What actions can HUD take with respect to required 
conversion?
972.120  What environmental reviews are required?
972.122  When may a PHA proceed with converting a public housing 
development?

Subpart B--[Reserved]

    Authority: 42 U.S.C. 1437t, 1437z-5, and 3535(d).

Subpart A--Required Conversion of Public Housing Developments


Sec. 972.101  What is the definition of ``conversion''?

    For purposes of this subpart, the term ``conversion'' means the 
removal of public housing units from the inventory of a PHA, and the 
provision of tenant-based or project-based assistance for the residents 
of the public housing that is being removed. The term ``conversion,'' 
as used in this subpart, does not necessarily mean the physical removal 
of the public housing development.


Sec. 972. 102  What is the purpose of this subpart?

    The purpose of this subpart is to implement section 33 of the 
United States Housing Act of 1937 (42 U.S.C. 1437z-5), which requires 
PHAs to review their public housing inventory and identify 
developments, or parts of developments, which must be removed from its 
stock of public housing operated under an Annual Contributions Contract 
with HUD. This subpart provides the procedures a PHA must follow to 
develop and carry out a conversion plan to remove the units from the 
public housing inventory, including how to provide for the transition 
for residents of these developments to other affordable housing.


Sec. 972.103  To what developments is this subpart applicable?

    (a) This subpart is applicable to developments not considered for 
conversion or for assessment for conversion before October 21, 1998, 
for conversion or for assessment of whether such conversion is 
required. The developments to which this subpart is applicable are 
subject to the requirements of section 33 of the United States Housing 
Act of 1937 (42 U.S.C. 1437z-5).
    (b) The provisions of this subpart cease to apply when the units in 
a development that are subject to the requirements of this subpart have 
been demolished.
    (c) This subpart is not applicable to any development identified 
before October 21, 1998 by HUD or a PHA for conversion or for 
assessment of whether such conversion is required (in accordance with 
section 202 of the Omnibus Consolidated Rescissions and Appropriations 
Act of 1996 (Pub. L. 104-134, approved April 26, 1996, 110 Stat. 1321-
279--1321-281)). See part 971 of this title for regulations applicable 
to such a development.


Sec. 972.104  What are the standards for identifying which public 
housing developments must be converted?

    The development, or portions thereof, must be converted if it is a 
predominantly family development of 250 or more dwelling units and it 
meets the following criteria:
    (a) The development is on the same or contiguous sites. This refers 
to the actual number and location of units, irrespective of HUD 
development project numbers.
    (b) The development has a vacancy rate of at least 10 percent for 
dwelling units not in funded, on-schedule modernization, for each of 
the last three years, and the vacancy rate has not significantly 
decreased in those three years. For the determination of vacancy rates, 
you must use the data you relied upon for your last Public Housing 
Assessment System (PHAS) or Public Housing Management Assessment 
Program (PHMAP) certification, as reported on the Form HUD-51234 
(report on Occupancy). Units in the following categories must not be 
included in this calculation:
    (1) Vacant units in an approved demolition or disposition program;
    (2) Vacant units in which resident property has been abandoned, but 
only if State law requires the property to be left in the unit for some 
period of time, and only for the period of time stated in the law;
    (3) Vacant units that have sustained casualty damage, but only 
until the insurance claim is adjusted; and
    (4) Units that are occupied by your employees and units that are 
used for resident services; and
    (c) The development either is distressed housing for which you 
cannot assure the long-term viability as public housing, or more 
expensive for you to operate as public housing than providing tenant-
based assistance.
    (1) The development is distressed housing that you cannot assure 
the long-term viability as public housing through reasonable 
revitalization, density reduction, or achievement of a broader range of 
household income. (See Sec. 972.105)
    (i) Properties meeting the standards set forth in paragraphs (a)(1) 
and (2) of this section will be assumed to be ``distressed.''
    (ii) A development satisfies the long-term viability test only if 
it is probable that, after reasonable investment, for at least twenty 
years (or at least 30 years for rehabilitation equivalent to new 
construction) 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 that clearly should 
disqualify the site from continuation as public housing.
    (2) The development is more expensive for you to operate as public 
housing than to provide tenant-based assistance if it has an estimated 
cost, during the remaining useful life of the project, of continued 
operation and modernization of the development 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).
    (i) For purposes of this determination, the costs used for public 
housing must be those necessary to produce a revitalized development as 
described in the paragraph (c)(1) of this section.
    (ii) These costs, including estimated operating costs, 
modernization costs and accrual needs must be used to develop a per 
unit monthly cost of continuing the development as public housing.
    (iii) That per unit monthly cost of public housing must be compared 
to the per unit monthly Section 8 cost.
    (iv) Both the method to be used and an example are included in the 
Appendix to this part.

[[Page 40236]]

Sec. 972.105  How does a PHA determine if a property is viable in the 
long term?

    In order for a property to meet the standard of long-term 
viability, as discussed in Sec. 972.104, the following criteria must be 
met:
    (a) The investment to be made in the development is reasonable. (1) 
Proposed revitalization costs for viability must be reasonable. 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 
any ``infill'' new construction subject to this regulation). The 
revitalization cost estimate used in your most recent comprehensive 
plan for modernization is to be used for this purpose, unless you 
demonstrate or HUD determines that another cost estimate is clearly 
more realistic to ensure viability and to sustain the operating costs 
that are described in paragraph (a)(2) of this section.
    (2) The overall projected cost of the revitalized development must 
not exceed the Section 8 cost under the method contained in the 
Appendix to this part, even if the cost of revitalization is a lower 
percentage of the TDC than the limits stated in paragraph (a)(1) of 
this section.
    (3) The source of funding for such a revitalization program must be 
identified and available. In addition to other resources already 
available to you, you may assume that future formula funds provided 
through the Capital Fund over five years are available for this 
purpose.
    (b) Appropriate density is achieved. The resulting public housing 
development must have a density which is comparable that which prevails 
in or is appropriate for the community for similar types of housing 
(typically family). The PHA must consider the full range of density 
options and objectives, including the need to reduce density at the 
site and the need to confine urban sprawl.
    (c) A greater income mix can be achieved. (1) Measures generally 
will be required to broaden the range of resident incomes over time to 
include a significant mix of households with at least one full-time 
worker (for example, at least 20 percent with an income at least 30 
percent of median area 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.
    (2) For purposes of judging appropriateness of density reduction 
and broader range of income measures, overall size of the public 
housing site and its number of dwelling units will be considered. The 
concerns these measures would address generally are greater as the 
site's size and number of dwelling units increase.


Sec. 972.107  What does a conversion plan contain?

    (a) With respect to any development that is identified under 
Sec. 972.103, you must develop a 5-year plan for removal of the 
affected public housing units from the inventory. The plan must 
consider relocation alternatives for households in occupancy, including 
other public housing and Section 8 tenant-based assistance, and must 
provide for relocation from the units as soon as possible. For planning 
purposes, you must assume that HUD will be able to provide in a timely 
fashion any necessary Section 8 rental assistance. The plan must 
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 
modernization, reconstruction, or other capital funds for the 
distressed development and your recommendations concerning transfer of 
these funds to Section 8 or alternative public housing 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, 
90 days prior to displacement that:
    (i) The development must be removed from the public housing 
inventory;
    (ii) Such families will receive comparable housing in the form of 
tenant-based or project-based assistance;
    (iii) Any necessary counseling with respect to the relocation will 
be provided;
    (iv) Such families will be relocated to other decent, safe, 
sanitary and affordable housing that is, to the maximum extent 
possible, housing of their choice; and
    (v) If the development is used as housing after conversion, you 
must ensure each resident the right to remain in the housing, using 
tenant-based assistance towards rent;
    (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, as set forth in Sec. 972.110; and
    (8) A description of the plans for demolition or disposition of the 
public housing units.
    (b) Generally, the conversion plan may not be more than a five year 
plan. However, HUD may allow you up to ten years to remove the units 
from the inventory, in exceptional circumstances where HUD determines 
that this is clearly the most cost effective and beneficial means of 
providing housing assistance over that same period. For example, HUD 
may allow a longer period of time to remove the units from the public 
housing inventory, where more than one development is being converted, 
and a larger number of families require relocation than can easily be 
absorbed into the rental market at one time, provided the housing has a 
remaining useful life of longer than five years and the longer time 
frame will assist in relocation.


Sec. 972.109  When does a PHA submit a conversion plan to HUD?

    The requirements of this section are on-going requirements. If you 
must submit a plan for conversion, you must submit it as part of your 
Annual Plan.


Sec. 972.110  What is the public and resident consultation process for 
developing a conversion plan?

    (a) You must consult with appropriate public officials and with the 
appropriate public housing residents in developing your conversion 
plan.
    (b) You may satisfy the requirement for consultation with public 
officials by obtaining a certification from the appropriate government 
official that your conversion plan is consistent with the applicable 
Consolidated Plan. This may be the same certification as is required 
for your PHA Annual Plan that includes the conversion plan, if the 
certifying official is the same for both and the certification 
specifically addresses the conversion plan.
    (c) To satisfy the requirement for consultation with the 
appropriate public housing residents, in addition to the public 
participation requirements for the PHA Annual Plan, you must:
    (1) Hold a meeting with the residents of the affected sites at 
which you must:
    (i) Explain the requirements of this section, especially as they 
apply to the residents of the affected developments; and
    (ii) Provide draft copies of the conversion plan to the residents;

[[Page 40237]]

    (2) Provide a reasonable comment period for residents; and
    (3) Summarize the resident comments for HUD, in the conversion 
plan, and consider these comments in developing the final conversion 
plan.


Sec. 972.112  What is the effect of conversion on operating subsidy?

    For purposes of determining operating subsidy eligibility, HUD will 
consider the conversion plan you submit to be the equivalent of a 
formal request to remove dwelling units from your inventory and ACC. 
HUD will notify you in writing whether it has approved the conversion 
plan. Units that are vacant or vacated on or after the written 
notification date will be treated as approved for deprogramming under 
Sec. 990.108(b)(1) of this title and also will be provided the phase-
down of subsidy pursuant to Sec. 990.114 of this title.


Sec. 972.113  How does the conversion plan relate to a demolition/
disposition plan?

    Section 18 of the United States Housing Act of 1937 does not apply 
to demolition of developments removed from your inventory under this 
section. However, with respect to any such demolition, you must comply 
with the requirements for environmental review found at part 58 of this 
title. Section 18 does apply to any disposition of developments removed 
from your inventory under this section. Therefore, you must submit a 
disposition application under section 18. HUD's review of any such 
disposition application will take into account that the development has 
been required to be converted.


Sec. 972.114  How are HOPE VI developments treated?

    Developments with HOPE VI implementation grants that have approved 
HOPE VI revitalization plans on September 30, 1999 will not be subject 
to the requirements of this section. Future HUD actions to approve or 
deny proposed HOPE VI implementation grant revitalization plans must be 
consistent with the requirements of this section. Developments with 
HOPE VI planning or implementation grants, but without approved HOPE VI 
revitalization plans, are fully subject to required conversion 
standards under this part.


Sec. 972.116  How does a PHA obtain funding to assist residents of the 
units being converted?

    (a) You may apply for tenant-based assistance in accordance with 
Section 8 program requirements, and HUD will give you a priority for 
receiving tenant-based assistance to replace the public housing units. 
It is HUD's policy to provide funds for one-for-one replacement housing 
with either public housing or tenant-based assistance, if funds are 
available.
    (b) HUD may require that funding for the initial year of tenant-
based assistance be provided from the public housing Capital Fund, 
Operating Fund, or both.


Sec. 972.118  What actions can HUD take with respect to required 
conversion?

    (a) HUD will take appropriate actions to ensure that certain 
distressed developments are properly identified and converted.
    (b) HUD may take any or all of the following actions:
    (1) Direct you to cease additional spending in connection with a 
development that meets, or is likely to meet the statutory criteria, 
except to the extent that failure to expend such amounts would endanger 
health or safety;
    (2) Identify developments that fall within the statutory criteria 
where you have failed to do so properly;
    (3) Take appropriate actions to ensure the conversion of 
developments where you have failed to adequately develop or implement a 
conversion plan;
    (4) Require you to revise the conversion plan, or prohibit 
conversion, where HUD has determined that you have erroneously 
identified a development as being subject to the requirements of this 
section; or
    (5) Authorize or direct the transfer of capital or operating funds 
committed to or on behalf of the development (including comprehensive 
improvement assistance, comprehensive grant or Capital Fund 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.


Sec. 982.120  What environmental reviews are required?

    You may not demolish or dispose of units or property until 
completion of the required environmental review under part 58 of this 
title (if a responsible entity has assumed environmental responsibility 
for the project) or part 50 of this title (if HUD is performing the 
environmental review). Further, HUD will not approve a conversion plan 
until completion of the required environmental review. However, before 
completion of the environmental review, HUD may approve the targeted 
units for deprogramming and may authorize you to undertake other 
activities proposed in your conversion plan that do not require 
environmental review (such as certain activities related to the 
relocation of residents), as long as the buildings in question are 
adequately secured and maintained.


Sec. 972.122  When may a PHA proceed with converting a public housing 
development?

    You may proceed to convert a development covered by a conversion 
plan only after receiving written approval from HUD. This approval will 
be separate from the approval that you receive for your PHA Annual 
Plan.

    Dated: July 16, 1999.
Harold Lucas,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 99-18773 Filed 7-22-99; 3:35 pm]
BILLING CODE 4210-33-P