[Federal Register Volume 64, Number 141 (Friday, July 23, 1999)]
[Proposed Rules]
[Pages 40240-40248]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18774]



[[Page 40239]]

_______________________________________________________________________

Part VIII





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Part 972



Voluntary Conversion of Developments From Public Housing Stock; 
Proposed Rule

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

[[Page 40240]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 972

[Docket No. FR-4476-P-01]
RIN 2577-AC02


Voluntary Conversion of Developments From Public Housing Stock

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

ACTION: Proposed rule.

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

SUMMARY: This proposed rule implements a recent revision to the statute 
authorizing the public housing and Section 8 housing assistance 
programs to allow a Public Housing Agency (PHA) to convert any public 
housing project it owns to tenant-based assistance where the conversion 
would satisfy statutory objectives. If, after conducting a conversion 
assessment, the PHA determines that the following conditions are met, 
it may convert the project: Conversion will not be more expensive than 
continued operation of the project conversion will benefit residents 
and the community; and conversion will not adversely affect the 
availability of affordable housing in the community. The statute 
requires every PHA to conduct and submit to HUD a conversion assessment 
for its projects no later than October 1, 2001. However, HUD has the 
authority to exclude developments or categories of developments from 
the assessment requirement, or to streamline the conversion assessment 
requirements, and this rule does include streamlining for specified 
categories of developments.

DATES: Comments Due Date: September 21, 1999.

ADDRESSES: Interested persons are invited to 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. Communications should 
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, Room 4116, 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 22 of the United States Housing Act of 1937 (42 U.S.C. 1437 
et seq.) (the ``1937 Act''), as amended by section 533 of the Quality 
Housing and Work Responsibility Act of 1998 (title V of the FY 1999 HUD 
Appropriations Act; Public Law 105-276, approved October 21, 1998; 112 
Stat. 2518-2680) (the ``Public Housing Reform Act''), authorizes Public 
Housing Agencies (PHAs) to convert a development to tenant-based 
assistance by removing the development or a portion of a development 
from its public housing inventory and providing for relocation of the 
residents or provision of tenant-based assistance to them. This action 
is permitted only when that change would be economical, be beneficial 
to residents of the development and the surrounding area, and not have 
an adverse impact on the availability of affordable housing.
    The statute requires a PHA to perform a conversion assessment as 
the first step toward the change. If that produces support for 
converting the units, the PHA may develop, and submit, a conversion 
plan to HUD. A PHA may convert the public housing only if the 
conversion plan has been approved by HUD. The statute also requires 
certain assessment actions be taken before October, 1, 2001.

II. Relationship of Voluntary Conversions to Required Conversions

    This proposed rule would implement the voluntary conversion 
requirements set forth in section 22 of the 1937 Act through the 
creation of a new 24 CFR part 972, subpart B. Subpart A of new 24 CFR 
part 972 would implement section 537 of the Public Housing Reform Act, 
which added a new section 33 to the 1937 Act. New Section 33 sets forth 
provisions for the required conversion of distressed public housing to 
tenant-based assistance. HUD is implementing section 33 of the 1937 Act 
through a separate proposed rulemaking.
    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. In addition to creating new 
section 33, section 537 of the Public Housing Reform Act repealed 
section 202. However, those developments that have already been 
identified by PHAs or by HUD 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.

III. Description of Specific Sections

A. Conversion Assessment Requirements

    The Public Housing Reform Act requires that a PHA conduct a 
conversion assessment for each development that it operates as public 
housing. HUD is given the authority to exempt certain classes of 
developments from this requirement, or streamline the requirements of 
the conversion assessment. In this rule, HUD has streamlined the 
requirements of the conversion assessment, but requires that every PHA 
review and determine the best course of action with respect to each 
development that it operates as public housing.
    Any PHA that has passed the Public Housing Assessment System (PHAS) 
physical conditions indicator must either conduct a conversion 
assessment for each public housing development, or certify that it has 
reviewed the operations of the development, and has determined that a 
full conversion assessment is unnecessary. Any PHA that has failed the 
PHAS physical conditions indicator must conduct a conversion assessment 
for each public housing development; however, a streamlined assessment 
may be conducted. The streamlined conversion assessment for these PHAs 
must include the cost analysis, comparing the cost of providing tenant-
based assistance with the cost of continuing to operate the development 
as public housing, for each public housing development. This will 
ensure that the PHA, with respect to each development, at least makes 
and considers the threshold determination whether it is more economical 
to convert the public housing. Any PHA that intends to convert a 
development to tenant-based assistance must conduct the full conversion 
assessment, including all of the elements listed in Sec. 972.209.
    PHAs will be receiving their first PHAS scores at various times 
during the period for which conversion assessments are required. The 
last of

[[Page 40241]]

these scores would be received with ample time remaining in this period 
for PHAs to conduct the required streamlined assessments, in the event 
they fail the physical conditions indicator. PHAs that do not want to 
wait for PHAS scores, however, may fulfill the assessment requirement 
by conducting the streamlined assessments (cost test only) for each 
development.
    HUD believes that Congressional intent was to ensure that every PHA 
review the operations of developments operated as public housing, and 
determine if conversion would be appropriate. The Senate Committee 
Report (S. Rep. No. 105-21, at 27 (1997)) states that this section 
``provides a framework for assessing the relative costs of tenant-based 
assistance and public housing so that PHAs can make informed judgements 
about their policies.'' At the same time, Congress did not intend for 
the requirements of a conversion assessment to place an undue burden on 
PHAs, and therefore gave HUD broad authority to waive or provide for 
streamlined assessments (S. Rep. No 105-21, at 27 (1997)).
    The certifications and streamlined assessments that HUD is 
proposing will fulfill both of these intentions. PHAs whose 
developments are most at risk, where HUD has found that the PHA's stock 
does not meet basic standards, must conduct a streamlined assessment, 
including the cost analysis. All others at least must consider the 
relative costs of public housing and vouchers with respect to each 
development. This will ensure that PHAs consider the most appropriate 
future action for all developments, and that PHAs with substandard 
physical conditions assess the relative costs of tenant-based 
assistance and public housing before determining the best course of 
action for each of these properties. 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.
    A conversion assessment, or certification with respect to any 
development for which a conversion assessment is not necessary, must be 
submitted to HUD no later than October 1, 2001. PHAs should include the 
conversion assessments, or certifications as part of the next PHA 
Annual Plan to be submitted to HUD, after their completion. If the next 
PHA Annual Plan submission will not be submitted to HUD by October 1, 
2001, a PHA must have the conversion assessment on file by October 1, 
2001, and include it in the next PHA Annual Plan submission. A PHA may 
otherwise elect to undertake a conversion assessment at any time for 
any or all of its developments, and submit it to HUD as part of its 
next PHA Annual Plan.
    Although HUD believes that it has streamlined the conversion 
assessment in such a way that PHAs will not be burdened by the 
requirements, HUD specifically invites any comments regarding how the 
requirements for conversion assessments can more efficiently fulfill 
the purposes of this section.
    A full conversion assessment is required for any PHA that seeks 
approval to convert a property to tenant-based assistance. A full 
conversion assessment includes the cost analysis, an analysis of the 
market value of the public housing, an analysis of the rental market 
conditions, an analysis of the likely impact of conversion on the 
neighborhood, and, if applicable, a description of any actions that 
will be taken to convert the public housing.
    The cost analysis, which is required as part of the full conversion 
assessment, and is necessary to implement a conversion plan, uses the 
methodology currently used for purposes of required conversion 
requirements (See Appendix to 24 CFR part 971). The appendix to new 
part 972 would retain this comparison on a monthly cost basis; the 
results would not change if one calculated a net present value for the 
remaining useful life of the public housing, because the monthly costs 
for both public housing and tenant-based assistance would be multiplied 
by the number of months in question. In response to statutory language 
that the cost of public housing must be based on ``the remaining useful 
life of the project,'' HUD has made one specific change to the 
methodology used for the cost analysis. This change is in the amount of 
time on which a PHA may amortize its modernization spending. In the 
current cost test, a PHA must use a time frame of twenty years in 
keeping with the expected life of the capital improvements (30 years if 
the work is equivalent to new construction). A PHA that is voluntarily 
conducting a conversion assessment and seeking approval for conversion 
may be permitted by HUD to use a time frame of less than 20 or 30 
years, so long as the time frame is chosen in five year intervals (i.e. 
5 years, 10 years, or 15 years), and the PHA provides HUD with a 
justification to why a shorter time frame is a reasonable estimate of 
the property's remaining useful life.
    The cost analysis compares the cost of operating a revitalized 
public housing development with the cost of providing tenant based 
assistance to the residents of the public housing development. HUD 
realizes, however, that those PHAs wishing to voluntarily convert a 
development may not have a proposed revitalization plan. Further, HUD 
is concerned that those PHAs wanting to voluntarily convert a public 
housing development may not have sufficient incentive to fully consider 
whether that development could be revitalized, and in particular may 
not fully consider whether vacancies and operating costs could be 
reduced through the reasonable investment of funds in the development. 
Therefore, HUD is seeking comments on whether to give a PHA the option 
to:
    1. Prepare a revitalization plan for the public housing development 
(for purposes of the cost analysis, the operating costs of the 
development would be based on the revitalization plan); or
    2. For purposes of the cost analysis, assume that a revitalized 
development would result in a 10% reduction in current operating costs 
(this option would only be available to those PHAs that calculate 
current operating costs based on no greater than a 10% vacancy rate).
    The statute states that the cost analysis should be conducted on 
both a net present value basis, and in terms of new budget authority. 
The appendix thus adds a calculation for new budget authority. The 
difference between that calculation and the calculation for net present 
value is that any capital investment in the public housing is not 
amortized over the remaining useful life in a manner that reflects the 
cost of expending the capital funds immediately. In order for a PHA to 
convert a public housing development, the cost of tenant-based 
assistance has to be less than the cost of public housing, both on a 
net present value basis, and based on new budget authority.
    The analysis of market value requires that a PHA purchase 
independent appraisals. Although Congress states that it did not intend 
for PHAs to need expensive, new appraisals (S. Rep. No. 105-21, at 27 
(1997)), under the proposed rule this part of the conversion assessment 
is not mandatory for any PHA except those that are planning to convert 
a public housing development to tenant-based assistance. HUD believes 
that appraisals are the most effective means to undertaking the 
required estimates of market value.

[[Page 40242]]

    An analysis of the rental market conditions, and an analysis of the 
impact of conversion on the neighborhood must be included in the 
conversion assessment as well. PHAs should rely, to the greatest extent 
possible, on existing data sources. In addition, PHAs that are 
conducting a conversion assessment for more than one property may be 
able to use the same information and analyses in the assessments 
submitted to HUD.
    HUD specifically invites comments on whether additional guidance 
should be given regarding how PHAs should conduct the analysis of 
rental market conditions and the analysis of the impact on the 
neighborhood and how these analyses relate to the PHA's obligation to 
affirmatively further fair housing.

B. Conversion Plan

    In order for a PHA to convert a public housing development to 
tenant-based assistance, a PHA must submit, and HUD must approve a 
conversion plan. A conversion plan must be consistent with any 
settlement agreement that the PHA has entered into. A conversion plan 
must be submitted to HUD as part of the PHA Annual Plan submission. 
Although the conversion plan will be part of a PHA Annual Plan 
submission, the conversion plan will be subject to a separate approval 
from HUD. A separate approval is required because the standards for 
approval of the conversion plan differ from the standards for approval 
of the PHA Annual plan submission. A PHA may not proceed with 
conversion until it receives a separate written approval of its 
conversion plan from HUD.
    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.
    If a conversion plan is approved by HUD, the PHA may remove the 
public housing from the inventory and relocate the residents using 
tenant-based or project-based assistance. If the PHA proposes in its 
conversion plan to demolish or dispose of the development, the 
conversion plan will serve as the demolition or disposition 
application, and a separate application will not be required by HUD. 
Alternatively, the PHA may retain ownership of the converted buildings 
as rental units or for other purposes.
    Once a conversion plan is approved, tenants may be relocated using 
tenant-based assistance. A PHA must apply for Section 8 tenant-based 
assistance and the PHA will be given a priority for receiving tenant-
based assistance. Although the statute also gives HUD the authority to 
consent to a transfer of the funds used for public housing to tenant-
based assistance, HUD believes that the most direct way to fund the 
Section 8 tenant-based assistance is through annual appropriations. 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 new public housing 
Capital Fund, Operating Fund, or both.

IV. Issues Highlighted for Public Comment

    Although HUD welcomes public comment on all aspects of this 
proposed rule, in particular it seeks comments on the following issues. 
Public comment is invited on this proposed rule in its entirety, 
including those issues discussed elsewhere in the preamble. All 
comments will be considered in the development of the final rule.

A. Use of Voluntary Conversion Process To Promote Housing 
Deconcentration

    HUD requests comments on the possible use of the voluntary 
conversion process to promote deconcentration of assisted housing, 
through partial conversion to vouchers of public housing developments, 
and subject to compliance with the standards of this regulation. For 
example, a PHA might decide to retain one third of a large public 
housing development as public housing, and leverage private financing 
to renovate the development. Two thirds of the public housing units 
would be replaced with vouchers to be used elsewhere. If successful, 
such an approach might result in public housing in a mixed-income 
setting, vouchers used in a manner that deconcentrates poverty and 
renovation of private market units in an area that needs revitalizing. 
Would such a result be desirable, financially feasible, or workable, in 
many situations? If such a result would be desirable, what would HUD 
need to do to promote it in appropriate situations?

B. Total Development Cost (TDC) Calculation

    Section 520 of the Public Housing Reform Act made several changes 
to the requirements governing the Total Development Cost (TDC) limit 
for public housing development. Due to these changes, it may no longer 
be appropriate to use full TDC for accrual. It may be more appropriate 
to use a housing construction cost component of TDC. This reflects the 
idea that accrual should primarily be based on the hard costs of 
revitalization. Unlike TDC, housing construction cost does not include 
the soft costs associated with redevelopment, and therefore HUD 
believes that using housing construction cost may yield a better 
estimate of accrual. HUD may make this change at the final rule stage 
and specifically requests comment on this issue.

C. Impact of Conversion on Minorities and Persons With Disabilities

    HUD requests comments on the best means to ensure that fair housing 
considerations are appropriately addressed during the voluntary 
conversion process. In particular, HUD requests comments on whether a 
description should be required, as part of a full conversion 
assessment, of the proposed conversion's impact on racial and ethnic 
minorities and persons with disabilities. This will assist the PHA to 
carry out its responsibilities under the nondiscrimination requirements 
of the Fair Housing Act (42 U.S.C. 3601 et seq.) to affirmatively 
further fair housing.

V. Findings and Certifications

Public Reporting Burden

    The information collection requirements contained in Secs. 972.209 
and 972.217 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.
    The burden of the information collections in this proposed rule is 
estimated as follows:

[[Page 40243]]



                                       Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
                                                                                     Estimated
                                                                    Number of      average time      Estimated
               Section reference                    Number of     responses per         for        annual burden
                                                     parties       respondent*      requirement     (in hours)
                                                                                    (in hours)*
----------------------------------------------------------------------------------------------------------------
972.209........................................             330              1                 8           2,640
972.217........................................             165              1.5              28           6,930
                                                ----------------------------------------------------------------
    Total Reporting and Recordkeeping Burden     ..............  ...............  ..............           9,570
     (Hours)...................................
----------------------------------------------------------------------------------------------------------------
* The number of responses and times estimated are averages.

    Although the information collections are largely specified by 
section 22 of the United States Housing Act of 1937, HUD is nonetheless 
interested in receiving comments on the most efficient way to collect 
information necessary to reviewing the necessary elements of this 
conversion program. In accordance with 5 CFR 1320.8(d)(1), HUD is 
soliciting comments from members of the public and affected agencies 
concerning this collection of information to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
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 information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond; including through the use of appropriate automated 
collection techniques or other forms of information technology, e.g., 
permitting electronic submission of responses.
    Interested persons are invited to submit comments regarding the 
information collection requirements in this proposal. Comments must be 
received within sixty (60) days from the date of this proposal. 
Comments must refer to the proposal by name and docket number (FR-4476) 
and must be sent to:

Joseph F. Lackey, Jr., HUD Desk Officer, Office of Management and 
Budget, New Executive Office Building, Washington, DC 20503;
        and
Mildred Hamman, Reports Liaison Officer, Office of the Assistant 
Secretary for Public and Indian Housing, Department of Housing and 
Urban Development, 451--7th Street, SW, Room 4244, Washington, DC 20410

Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)) (the RFA), has reviewed and approved this proposed rule, 
and in so doing certifies that this rule will not have a significant 
economic impact on a substantial number of small entities. The reasons 
for HUD's determination are as follows:
    (1) A Substantial Number of Small Entities Will Not be Affected. 
The entities that would be subject to this rule are public housing 
agencies that administer public housing. Under the definition of 
``Small governmental jurisdiction'' in section 601(5) of the RFA, the 
provisions of the RFA are applicable only to those few public housing 
agencies that are part of a political jurisdiction with a population of 
under 50,000 persons. The number of entities potentially affected by 
this rule is therefore not substantial.
    (2) No Significant Economic Impact. This rule requires PHAs to 
perform conversion assessments for certain developments using readily 
available data to determine whether those developments should be 
converted to tenant-based assistance. HUD has provided for streamlined 
assessments, including certifications for any PHA that has passed the 
Public Housing Assessment System (PHAS) physical conditions indicator 
and a conversion assessment limited to the cost analysis for other 
PHAs.
    This is a one-time requirement as contemplated by the Public 
Housing Reform Act. Smaller PHAs will have fewer developments to 
consider, and the burden on them should consequently be proportionally 
smaller. 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.
    Accordingly, the economic impact of this rule will not be 
significant, and it will not affect a substantial number of small 
entities. Notwithstanding HUD's determination that this rule will not 
have a significant economic effect on a substantial number of small 
entities, HUD specifically invites comments regarding any less 
burdensome alternatives to this rule that will meet HUD's objectives as 
described in this preamble.

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 (42 U.S.C. 4223). 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 Office of the Rules Docket Clerk, Office of 
General Counsel, Room 10276, Department of Housing and Urban 
Development, 451 Seventh Street, SW, Washington, DC.

Federalism Impact

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that this rule 
will not have federalism implications concerning the division of local, 
State, and Federal responsibilities. The rule merely states the 
preconditions for a PHA to voluntarily convert a public housing 
development to tenant-based assistance. No programmatic or policy 
change will result from this rule that will affect the relationship 
between the Federal government and State and local governments.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. This proposed rule does not impose 
any Federal mandates on any State, local, or tribal governments or the 
private sector within the meaning of Unfunded Mandates Reform Act of 
1995.

Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, Regulatory

[[Page 40244]]

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 identified in 
the docket file, which is available for public inspection in the office 
of the Department's Rules Docket Clerk, Room 10276, 451 Seventh Street, 
SW, Washington, DC 20410-0500.

Catalog of Federal Domestic Assistance Number

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

List of Subjects in 24 CFR Part 972

    Grant programs--housing and community development, Low and moderate 
income housing, Public housing.

    For the reasons discussed in the preamble, HUD proposes to amend 
title 24 of the Code of Federal Regulations as follows:
    1. Add part 972, subpart B and an appendix to part 972 to read as 
follows:

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

Subpart A--[Reserved]

Subpart B--Voluntary Conversion of Public Housing Developments

Sec.
972.201  What is the definition of ``conversion''?
972.203  What is the purpose of this subpart?
972.205  What is the procedure for a PHA to follow if it wants to 
convert a public housing project to tenant-based assistance?
972.207  For what developments must a PHA perform a conversion 
assessment?
972.209  What does a conversion assessment contain?
972.211  When does a PHA submit a conversion assessment to HUD?
972.213 What conditions must be addressed in the conversion 
assessment that will allow HUD to approve conversion?
972.215  What is the public and resident consultation process for 
developing a conversion plan?
972.217  What are the components of a conversion plan?
972.219  When does a PHA submit a conversion plan to HUD?
972.221  What is the HUD process for approving the conversion plan?
972.223  What action does HUD take with respect to a PHA's 
conversion plan?
972.225  When may a PHA proceed to convert a development?

Appendix to Part 972--Methodology of Comparing Cost of Public Housing 
With the Cost of Tenant-Based Assistance

    Authority: 42 U.S.C. 1437t, 14372-5, 3535(d).

Subpart A--[Reserved]

Subpart B--Voluntary Conversion of Public Housing Developments


Sec. 972.201  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 Public Housing 
Agency (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. 972.203  What is the purpose of this subpart?

    This subpart implements section 22 of the United States Housing Act 
of 1937 (42 U.S.C. 1437t). The purposes of this subpart are to:
    (a) Require PHAs to perform an assessment which considers 
developments for which conversion of public housing may be appropriate; 
and
    (b) Provide a basis for a PHA to take action for conversion on a 
voluntary basis.


Sec. 972.205  What is the procedure for a PHA to follow if it wants to 
convert a public housing project to tenant-based assistance?

    (a) A PHA must perform a full conversion assessment, in accordance 
with Secs. 972.209-972.211, and submit it to HUD as part of the next 
PHA Annual Plan submission.
    (b) A PHA must prepare a conversion plan, in accordance with 
Sec. 972.217, and submit it to HUD, as part of the next PHA Annual 
Plan, within one year after submitting the conversion assessment.
    (c) A PHA may proceed to convert the project if HUD approves the 
conversion plan.


Sec. 972.207  For what developments must a PHA perform a conversion 
assessment?

    (a) General rule. (1) Required initial conversion assessment. A PHA 
must conduct a full conversion assessment in accordance with 
Sec. 972.209 for each development once during the period of October 1, 
1999 through September 30, 2001, unless:
    (i) The development is subject to required conversion, under 
subpart A of this part or part 971 of this title;
    (ii) The development is the subject of a plan for demolition that 
has not been disapproved by HUD; or
    (iii) A HOPE VI revitalization grant has been awarded for the 
development.
    (2) Optional future conversion assessments. A PHA may otherwise 
elect to undertake a conversion assessment at any time for any or all 
of its developments, and submit it to HUD as part of its next PHA 
Annual Plan.
    (b) Streamlined Assessment. With respect to the required initial 
conversion assessment, the following streamlining will apply:
    (1) PHAs that have passed the Public Housing Assessment System 
(PHAS) physical conditions indicator. (i) Any PHA that passes the 
physical condition component of PHAS (part 902, subpart B, of this 
chapter) may designate developments for which it will not conduct a 
conversion assessment.
    (ii) In order not to assess a particular development, the PHA must 
certify that it:
    (A) Has reviewed the development's operation as public housing;
    (B) Considered converting the public housing to tenant-based 
assistance; and
    (C) Concluded that an assessment is unnecessary because conversion 
would not satisfy the three conditions necessary for voluntary removal 
set forth in Sec. 972.213(a).
    (iii) A PHA must maintain documentation of the reasoning with 
respect to each development for which it certifies that an assessment 
is unnecessary.
    (2) PHAs that fail the PHAS physical condition indicator. (i) Any 
PHA that does not receive a passing score on the PHAS physical 
conditions indicator must conduct an assessment for each development 
except those listed in paragraphs (a)(1)-(3) of this section.
    (ii) However, any PHA that is required to perform a conversion 
assessment for a development, may submit to HUD a streamlined 
conversion assessment that includes the cost analysis, comparing the 
cost of providing tenant-based assistance with the cost of continuing 
to operate the development as public housing, described at 
Sec. 972.209(a).
    (c) Full assessment required for conversion. A PHA must submit a 
full conversion assessment (not a streamlined assessment under 
paragraph (b) of this section) for any public housing project it wishes 
to convert to tenant-based assistance.


Sec. 972.209  What does a conversion assessment contain?

    The conversion assessment contains five elements, as described 
below:
    (a) Cost analysis. A PHA must conduct a cost analysis comparing the

[[Page 40245]]

cost of providing Section 8 tenant-based assistance with the cost of 
continuing to operate the development as public housing for the 
remainder of its useful life. See the Appendix to this part for the 
required methodology for this cost analysis.
    (b) Analysis of the market value. (1) A PHA must have an 
independent appraisal conducted to compare the market value of the 
development before and after rehabilitation. In both cases, the market 
value must be based on the use of the development as public housing.
    (2) In addition, the appraisal must compare:
    (i) The market value of the development before rehabilitation, 
based on the use of the development as public housing, with the market 
value of the development after conversion; with
    (ii) The market value of the development after rehabilitation, 
based on the use of the development as public housing, with the market 
value of the development after conversion.
    (3) A copy of the appraisal findings and the analysis of market 
value of the development in the conversion assessment must be provided 
in the conversion assessment.
    (c) Analysis of rental market conditions. (1) A PHA must conduct an 
analysis of the likely success of using tenant-based assistance for the 
residents of the public housing development. This analysis must include 
an assessment of the availability of decent and safe dwelling units 
rented at or below the payment standard established for Section 8 
tenant-based assistance.
    (2) In conducting this assessment, a PHA must take into account:
    (i) Its overall use of rental certificates or vouchers under lease 
and the success rates of using Section 8 tenant-based assistance in the 
community for the appropriate bedroom sizes; and
    (ii) Any particular characteristics of the specific residents of 
the public housing which may affect their ability to be housed.
    (d) Impact analysis. A PHA must describe the likely impact of 
conversion of the public housing development on the neighborhood in 
which the public housing is located. This should include:
    (1) The impact on the availability of affordable housing in the 
neighborhood; and
    (2) The impact on the concentration of poverty in the neighborhood.
    (e) Conversion implementation. If a PHA intends to convert the 
development (or a portion of it) to tenant-based assistance, the 
conversion assessment must include a description of any actions the PHA 
plans to take in converting the development. This must include a 
general description of the planned future uses of the development, and 
the means, and timetable for accomplishing such uses.


Sec. 972.211  When does a PHA submit a conversion assessment to HUD?

    (a) Required initial conversion assessment. (1) A PHA must submit a 
conversion assessment, or certification that a conversion assessment is 
unnecessary, for any development for which it is required under 
Sec. 972.207(a) no later than October 1, 2001. The conversion 
assessment, or the certification that a conversion assessment is 
unnecessary, must be submitted to HUD as part of the next PHA Annual 
Plan after its completion. If the next PHA Annual Plan submission will 
not be submitted to HUD by October 1, 2001, a PHA must have the 
conversion assessment on file by October 1, 2001, and include it in the 
next PHA Annual Plan submission.
    (b) Optional future conversion assessments. A PHA may otherwise 
elect to undertake a conversion assessment for any or all of its 
developments, and submit it to HUD as part of its next PHA Annual Plan.
    (c) Required updated conversion assessment. Where a PHA proposes to 
convert a development to tenant-based assistance, it must submit an 
updated conversion assessment if the conversion assessment otherwise 
would be more than one year older than the conversion plan to be 
submitted to HUD. To update a conversion assessment, a PHA must ensure 
that the analysis of rental market conditions is based on the most 
recently available data, and must include any data that have changed 
since the initial conversion assessment. A PHA may submit the initial 
cost analysis and comparison of the market value of the public housing 
before and after rehabilitation and/or conversion if there is no reason 
to believe that such information has changed significantly.


Sec. 972.213  What conditions must be addressed in the conversion 
assessment that will allow HUD to approve conversion?

    (a) Conditions. In order to convert a public housing development, 
the PHA must conduct a conversion assessment that demonstrates that the 
conversion of the development:
    (1) Will not be more expensive than continuing to operate the 
development (or portion of it) as public housing;
    (2) Will principally benefit the residents of the public housing 
development to be converted and the community; and
    (3) Will not adversely affect the availability of affordable 
housing in the community.
    (b) Evidence. (1) The relative expense of continuing operation as 
public housing or conversion to tenant-based assistance may be 
demonstrated by the cost analysis and market value analysis.
    (2) The benefit to residents and the community may be demonstrated 
in the rental market analysis, the analysis of the impact on the 
neighborhood, the market value analysis, and the proposed future use of 
the development.
    (3) The impact on affordable housing may be demonstrated in the 
rental market analysis and the analysis of the impact of conversion on 
the neighborhood.


Sec. 972.215  What is the public and resident consultation process for 
developing a conversion plan?

    (a) A conversion plan must be developed in consultation with 
appropriate public officials and with significant participation by 
residents of the development.
    (b) The requirement for consultation with public officials may be 
satisfied by obtaining a certification from the appropriate State or 
local officials that the conversion plan is consistent with that 
government's Consolidated Plan. This may be the same certification as 
is required for the PHA Annual Plan that includes the conversion plan, 
so long as the certification specifically addresses the conversion 
plan.
    (c) To satisfy the requirement for significant participation by 
residents of the development, in addition to the public participation 
requirements for the PHA Annual plan, a PHA must:
    (1) Hold a meeting with the residents of the affected sites at 
which the PHA:
    (i) Explain the requirements of section 22 of the United States 
Housing Act and these regulations, especially as they apply to 
residents of affected developments; and
    (ii) Provides draft copies of the conversion plan to them.
    (2) Provide a reasonable comment period for residents; and
    (3) Summarize the resident comments for HUD and consider these 
comments in developing the final conversion plan.


Sec. 972.217  What are the components of a conversion plan?

    A conversion plan must:
    (a) Describe the conversion and future use or disposition of the 
public housing development. If the future use of the development is 
demolition or disposition, the PHA is not required to submit a 
demolition or disposition application, so long as the PHA submits,

[[Page 40246]]

and HUD approves a conversion plan, which includes a description of the 
future uses of the development.
    (b) Include a timetable, showing when any actions will be taken in 
converting the development, relocating the tenants, and when the future 
use will take place.
    (c) Include an impact analysis of the conversion on the affected 
community. This may include the description that is required as part of 
the conversion assessment.
    (d) Include a summary of the resident comments received when 
developing the conversion plan.
    (e) Include the statement used to notify each family residing in 
the affected public housing 90 days before conversion that the 
development will no longer be used as public housing and to explain the 
benefits that will be offered, which must include at least the 
following information:
    (1) The PHA will offer the family comparable tenant-based or 
project-based assistance that meets the Housing Quality Standards (HQS) 
for decent, safe and sanitary housing, and that is located in an area 
that is generally not less desirable than the displaced person's 
original development;
    (2) The PHA will provide the family with actual and reasonable 
relocation expenses that they incur as a result of the conversion;
    (3) The PHA will provide any counseling the family needs as a 
result of being displaced by the conversion; and
    (4) If the development is used as housing after conversion, the PHA 
will ensure each resident may choose to remain in the housing, using 
tenant-based assistance towards rent.
    (f) Confirm that any proceeds received from the conversion are 
subject to the limitations under section 18(a)(5) of the United States 
Housing Act of 1937 (42 U.S.C. 1437p(a)(5)) applicable to proceeds 
resulting from demolition or disposition.
    (g) Summarize why the conversion assessment for the public housing 
project supports the three condition necessary for conversion described 
in Sec. 972.213(a).


Sec. 972.219  When does a PHA submit a conversion plan to HUD?

    A PHA that wishes to convert a public housing project to tenant-
based assistance must submit a conversion plan to HUD. A PHA must 
prepare a conversion plan, in accordance with Sec. 972.217, and submit 
it to HUD, as part of the next PHA Annual Plan within one year after 
submitting the conversion assessment.


Sec. 972.221  What is the HUD process for approving the conversion 
plan?

    Although a PHA will submit its conversion plan to HUD as part of 
the PHA Annual Plan, the conversion plan will be treated separately for 
purposes of HUD approval. A PHA needs a separate written approval from 
HUD in order to proceed with conversion. HUD will make reasonable 
efforts to respond to a conversion plan within 90 days.


Sec. 972.223  What action does HUD take with respect to a PHA's 
conversion plan?

    (a) When a PHA submits a conversion plan to HUD, HUD will review it 
to determine whether:
    (1) The conversion plan is complete and includes all of the 
information required under Sec. 972.217; and
    (2) The conversion plan is consistent with the conversion 
assessment the PHA submitted.
    (b) HUD will disapprove a conversion plan only if HUD determines 
that:
    (1) The conversion plan is plainly inconsistent with the conversion 
assessment;
    (2) There is reliable information and data available to the 
Secretary that contradicts the conversion assessment; or
    (3) The conversion plan is incomplete or otherwise fails to meet 
the requirements under Sec. 972.217.


Sec. 972.225  When may a PHA proceed to convert a development?

    (a) A PHA may proceed to convert a development covered by a 
conversion plan only after receiving written approval of the conversion 
plan from HUD. This approval will be separate from the approval that 
the PHA receives for its PHA Annual Plan. A PHA may apply for tenant-
based assistance in accordance with Section 8 program requirements, and 
will be given priority for receiving tenant-based assistance to replace 
the public housing units.
    (b) A PHA 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 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.
    (c) For purposes of determining operating subsidy eligibility, the 
submitted plan will be considered the equivalent of a formal request to 
remove dwelling units from the PHA's inventory and ACC and approval (or 
acceptance). Units that are vacant or are 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 will also be provided the 
phase down of subsidy pursuant to Sec. 990.114 of this title.
    (d) HUD may require that funding for the initial year of tenant 
based assistance be provided from the new public housing Capital Fund, 
Operating Fund, or both.

Appendix to Part 972--Methodology of Comparing Cost of Public 
Housing With the Cost of Tenant-Based Assistance

I. Public Housing-Net Present Value

    The costs used for public housing shall be those necessary to 
produce a revitalized development as described in the next 
paragraph. These costs, including estimated operating costs, 
modernization costs and costs to address accrual needs must be used 
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 per unit monthly Section 8 cost.
    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. The costs shall be expressed in current dollar 
terms for the period for which the most recent Section 8 costs are 
available.

A. Operating Costs

    1. 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, by relating those operating costs to 
the expected occupancy rate, tenant composition, physical 
configuration and management structure of the revitalized 
development. The projected costs should also address the comparable 
costs of buildings or developments whose siting, configuration, and 
tenant mix is similar to that of the revitalized public housing 
development.
    2. The development's operating cost (including all overhead 
costs pro-rated to the development--including a Payment in Lieu of 
Taxes (PILOT) or some other comparable payment, and including 
utilities and utility allowances) shall be expressed as total 
operating costs per month, divided by the

[[Page 40247]]

number of units occupied by households. For example, if a 
development will have 1,000 units occupied by households and will 
have $300,000 monthly in non-utility costs (including pro-rated 
overhead costs and appropriate P.I.L.O.T.) and $100,000 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 $450--the sum of $300 per unit in non-utility 
costs, $100 per unit in direct utility costs, and $50 per unit in 
utility allowance costs.
    3. In justifying the operating cost estimates as realistic, the 
plan should link the cost estimates to its assumptions about the 
level and rate of occupancy, the per-unit funding of modernization, 
any physical reconfiguration that will result from modernization, 
any planned changes in the surrounding neighborhood and security 
costs. The plan should also show whether developments or buildings 
in viable condition in similar neighborhoods have achieved the 
income mix and occupancy rate projected for the revitalized 
development. The plan should also show how the operating costs of 
the similar developments or buildings compare to the operating costs 
projected for the development.
    4. In addition to presenting evidence that the operating costs 
of the revitalized development are plausible, when the per-unit 
operating cost of the renovated development is more than ten percent 
lower than the current per-unit operating cost of development, then 
the plan should detail how the revitalized development will achieve 
its reduction in costs. To determine the extent to which projected 
operating costs are lower than current operating costs, the current 
per-unit operating costs of the development will be estimated as 
follows:
    a. If the development has reliable operating costs and if the 
overall vacancy rate is less than twenty percent, then these costs 
will be divided by the sum of all occupied units and vacant units 
fully funded under PFS plus fifty percent of all units not fully 
funded under PFS. For instance, if the total monthly operating costs 
of the current development are $6.6 million and it has 1,000 
occupied units and 200 vacant units not fully funded under PFS (or a 
17 percent overall vacancy rate), then the $6.6 million is divided 
by 1100--1000 plus 50 percent of 200--to give a per unit figure of 
$600 per unit month. By this example, the current costs of $600 per 
occupied unit are at least ten percent higher than the projected 
costs per occupied unit of $450 for the revitalized development, and 
the reduction in costs would have to be detailed.
    b. If the development currently lacks reliable cost data or has 
a vacancy rate of twenty percent or higher, then its current per 
unit costs will be estimated as follows. First, the per unit cost of 
the entire authority will be computed, with total costs divided by 
the sum of all occupied units and vacant units fully funded under 
PFS plus fifty percent of all vacant units not fully funded under 
PFS. Second, this amount will be multiplied by 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.
    c. As an example of estimating development operating costs from 
PHA operating costs, suppose that the Housing Authority had a total 
monthly operating cost per unit of $500 and a bedroom adjustment 
factor of .90, and suppose that the development had a bedroom 
adjustment factor of 1.125. Then, the development's estimated 
current monthly operating cost per occupied unit would be $625--or 
$500 times 1.25 (the ratio of 1.125 to .90).

B. Modernization

    The cost of modernization is the initial revitalization cost to 
meet viability standards, that cost amortized over twenty years 
(which is equivalent to fifteen years at a three percent annual real 
capital cost for the initial outlay). Expressed in monthly terms, 
the modernization cost is divided by 180 (or 15 years times 12 
months). Thus, if the initial modernization outlay to meet viability 
standards is $60 million for 1,000 units, then the per-unit outlay 
is $60,000 and the amortized modernization cost is $333 per unit per 
month (or $60,000 divided by 180). However, when revitalization 
would be equivalent to new construction and the PHA thus is 
permitted to amortize the proposed cost over thirty years (which is 
equivalent to twenty-two and one-half years at a three percent 
annual real capital cost to the initial outlay), the modernization 
cost will be divided by 270, the product of 22.5 and 12, to give a 
cost per unit month of $ 222.

C. Accrual

    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 for the area and applying them to the 
development's structure type and bedroom distribution after 
modernization, then subtracting from that figure half the per-unit 
cost of modernization, 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 
will remain a walkup structure containing five hundred two-bedroom 
occupied and five hundred three-bedroom occupied units, 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, 
and if the per unit cost of modernization is $60,000, then the 
estimated monthly cost of accrual per occupied unit is $85. This is 
the result of multiplying the value of $51,000--the cost guideline 
value of $81,000 minus half the modernization value of $60,000--by 
.02 and then dividing by 12.

D. Overall Cost

    The overall current cost for continuing the development as 
public housing is the sum of its monthly post-revitalization 
operating cost estimates, 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 
$450 and the amortized modernization cost is $333 and the accrual 
cost is $85, the overall monthly cost per occupied unit is $868.

E. Adjustment for Shorter Remaining Useful Life (Used Only for 
Voluntary Conversion--See Subpart B of This Part)

    Where a PHA demonstrates that it is reasonable to use a 
remaining useful life of five, ten or fifteen years rather than 
twenty or thirty years, the PHA shall divide total modernization 
costs by 45 to determine the monthly per unit cost if a five year 
remaining useful life is used, 90 if a ten year remaining useful 
life is used, and 135 if a fifteen remaining useful life is used.

II. Public Housing-New Budget Authority (Used Only for Voluntary 
Conversion--See Subpart B of This Part)

    This cost analysis shall be conducted in the same manner as the 
net present value analysis, with one exception. The total capital 
cost shall be divided by the total number of months in the remaining 
useful life used in the analysis (e.g. for a 20 year remaining 
useful life, divide the total capital cost by 240) rather than the 
lower denominator which reflects amortization of capital costs, 
taking into account the immediate expenditure of capital funds, in 
the net present value model.

III. Tenant-Based Assistance

    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 most recent administrative 
fee applicable to newly funded Section 8 rental assistance during 
the year used for calculating public housing operating costs (e.g., 
the administrative fee for units funded in fiscal years 1995 and 
1996 is the monthly administrative fee amount in column C of the 
January 24, 1995 Federal Register at 60 FR 4764); plus the amortized 
cost of demolishing the occupied public housing units, where the 
cost per unit is not to exceed ten percent of the TDC prior to 
amortization. For example, if the development has five hundred 
occupied two-bedroom units and five hundred occupied three-bedroom 
units and if the Fair Market

[[Page 40248]]

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, 
and if the cost of demolishing 1000 occupied units is $5 million, 
then the per unit monthly cost of tenant based assistance is $774 
($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; plus $28 for the amortized cost of 
demolition and tenant relocation (including any necessary 
counseling), or $5000 per unit divided by 180 in this example). In 
voluntary conversion, this Section 8 cost would then be compared to 
the cost of revitalized public housing development, both in terms of 
net present value and new budget authority--in the example of this 
section, both the revitalized public housing cost (net present 
value) of $868 monthly per occupied unit, and the revitalized public 
housing cost (new budget authority) of $785 monthly per occupied 
unit would exceed the Section 8 cost of $774 monthly per occupied 
unit. Therefore, the PHA would have the option of preparing a 
conversion plan for the development under subpart B of this part.
    In required conversion, the Section 8 cost would be compared 
with the cost of the revitalized public housing development on a net 
present value basis. In the example in this section, the revitalized 
public housing cost on a net present value basis of $868 per month 
would exceed the Section 8 cost of $774 monthly per occupied unit. 
Therefore the PHA would be required to convert the development under 
the requirements of subpart A of this part.

IV. Detailing the Section-8 Cost Comparison: A Summary Table

    The section 8 cost comparison methods are summarized, using the 
example provided in this section IV.

A. Key Data, Development

    The revitalized development has 1000 occupied units. All of the 
units are in walkup buildings. The 1000 occupied units will consist 
of 500 two-bedroom units and 500 three-bedroom units. The total 
current operating costs attributable to the development are $300,000 
per month in non-utility costs, $100,000 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 for revitalization is $60,000,000, or $60,000 per 
occupied unit. This will provide standards for viability but not 
standards for new construction. The cost of demolition and 
relocation of the 1000 occupied units is $5 million, or $5000 per 
unit, based on recent experience.

B. 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 the most recent 
Federal Register Notice, is $46.

C. 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.


D. Current Per Unit Monthly Occupied Costs of Public Housing (Net
 Present Value)
 
1. Operating Cost............  $450 (total monthly costs divided by
                                occupied units: in this example, the sum
                                of $300,000 and $100,000 and $50,000--
                                divided by 1,000 units).
2. Amortized Modernization     $333 ($60,000 per unit divided by 180 for
 Cost.                          standards less than those of new
                                construction).
3. Estimated Accrual Cost....  $85 (the per-unit average total
                                development cost minus half of the
                                modernization cost per unit, times .02
                                divided by 12 months: in this example,
                                $51,000 times .02 and then divided by
                                12).
4. Total Per Unit Public       $868.
 Housing Costs.
 
E. Per Unit Monthly Occupied Costs of Public Housing (New Budget
 Authority)
 
1. Operating Cost............  $450 (total monthly costs divided by
                                occupied units: in this example, the sum
                                of $300,000 and $100,000 and $50,000--
                                divided by 1,000 units).
2. Modernization Cost........  $250 ($60,000 per unit divided by 240 for
                                standards less than those of new
                                construction).
3. Estimated Accrual Cost....  $85 (the per-unit average total
                                development cost minus half of the
                                modernization cost per unit, times .02
                                divided by 12 months: in this example,
                                $51,000 times .02 and then divided by
                                12).
4. Total Per Unit Public       $785.
 Housing Costs.
 
F. Current per Unit Monthly Occupied Costs of Section 8
 
1. Unit-weighted Fair Market   $700 (the unit-weighted average of the
 Rents.                         Fair Market Rents of occupied bedrooms:
                                in this example, 500 times $600 plus 500
                                times $800, divided by 1000).
2. Administrative Fee........  $46.
3. Amortized Demolition and    $28 ($5000 per unit divided by 180).
 Relocation Cost.
4. Total Per Unit Section 8    $774.
 Costs.
 

G. Result

    In this example, because revitalized public housing costs, both 
on a net present value basis, and based on new budget authority, 
exceeds current Section 8 costs, a conversion plan would be 
permissible under voluntary conversion, Subpart B of this Section. 
Under required conversion, because revitalized public housing costs 
on a net present value basis exceed Section 8 costs, the PHA would 
be required to convert the public housing development under subpart 
A of this Section.

    Dated: June 23, 1999.
Harold Lucas,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 99-18774 Filed 7-22-99; 3:35 pm]
BILLING CODE 4210-33-P