[Federal Register Volume 64, Number 203 (Thursday, October 21, 1999)]
[Rules and Regulations]
[Pages 56882-56888]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27445]



[[Page 56881]]

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Part IV





Department of Housing and Urban Development





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24 CFR Part 982



Renewal of Expiring Annual Contributions Contracts in the Tenant-Based 
Section 8 Program; Formula for Allocation of Housing Assistance; Final 
Rule

  Federal Register / Vol. 64, No. 203 / Thursday, October 21, 1999 / 
Rules and Regulations  

[[Page 56882]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 982

[Docket No. FR-4459-F-03]
RIN 2577-AB96


Renewal of Expiring Annual Contributions Contracts in the Tenant-
Based Section 8 Program; Formula for Allocation of Housing Assistance

AGENCY: Office of Public and Indian Housing, HUD.

ACTION: Final rule.

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

SUMMARY: This rule specifies the method HUD will use in allocating 
housing assistance available to renew expiring contracts with public 
housing agencies (PHAs) for Section 8 tenant-based housing assistance. 
As required by statute, this rule is the product of a negotiated 
rulemaking, following implementation, as further required by statute, 
of a HUD notice on this subject.

EFFECTIVE DATE: November 22, 1999.

FOR FURTHER INFORMATION CONTACT: Robert Dalzell, Office of Public and 
Indian Housing, Department of Housing and Urban Development, 451 
Seventh Street, SW, Room 4204, Washington, DC 20410; telephone (202) 
708-1380. (This is not a toll-free number.) Persons with hearing or 
speech impairments may access that number via TTY by calling the 
Federal Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    The statutory provision that provides the foundation for this rule 
is section 8(dd) of the United States Housing Act of 1937 (the 1937 
Housing Act)(42 U.S.C. 1437(dd)), as added by section 556(a) of the 
Quality Housing and Work Responsibility Act of 1998 (Pub. L. 105-276, 
112 Stat. 2461, approved October 21, 1998) (``Public Housing Reform 
Act''). The new section 8(dd) directs HUD to establish an allocation 
baseline amount of assistance (budget authority) to cover the renewals, 
and to apply an inflation factor (based on local or regional factors) 
to the baseline. The new provision states as follows:

    (dd) Tenant-Based Contract Renewals.--Subject to amounts 
provided in appropriation Acts, starting in fiscal year 1999, the 
Secretary shall renew all expiring tenant-based annual contribution 
contracts under this section by applying an inflation factor based 
on local or regional factors to an allocation baseline. The 
allocation baseline shall be calculated by including, at a minimum, 
amounts sufficient to ensure continued assistance for the actual 
number of families assisted as of October 1, 1997, with appropriate 
upward adjustments for incremental assistance and additional 
families authorized subsequent to that date.

    Section 556(b) of the Public Housing Reform Act required the 
Department to implement section 8(dd) of the 1937 Housing Act through 
notice not later than December 31, 1998, and to issue final regulations 
on the allocation of tenant-based Section 8 annual contributions 
contract renewal funding that are developed through the negotiated 
rulemaking process no later than October 21, 1999.
    On December 30, 1998, the Department issued HUD Notice 98-65 to 
implement the provision, satisfying the requirement of section 556(b) 
to implement the new provision through Notice not later than December 
31, 1998. The Department published a notice in the Federal Register on 
February 18, 1999, advising the public of the provisions of HUD Notice 
98-65. The Department has developed this final rule implementing the 
requirements of section 8(dd) of the 1937 Housing Act through a 
negotiated rulemaking process, in accordance with the statutory 
requirements of section 556.

II. Negotiated Rulemaking

    HUD convened a negotiated rulemaking advisory committee to assist 
in developing this final rule--the Section 8 Housing Certificate Fund 
Negotiated Rulemaking Committee. (See publication of notice of 
establishment of the Committee on April 26, 1999, 64 FR 20232.) The 
charter for the Committee stated: ``The purpose of the Committee is to 
discuss and negotiate a rule that would change the current method of 
distributing funds to public housing agencies (PHAs) for purposes of 
renewing assistance contracts in the tenant-based Section 8 program. 
The committee will consist of persons representing stakeholder 
interests in the outcome of the rule.'' Records of the advisory 
committee's deliberations can be found at http://www.hud.gov/pih/
pih.html.
    The members of the advisory committee were as follows:

Housing Agencies

Massachusetts Department of Housing and Community Development, 
Boston, MA
New Jersey Department of Community Affairs, Trenton, NJ
Southeastern Minnesota Multi-County Housing and Redevelopment 
Authority, Wabasha, MN
Oklahoma Housing Finance Agency, Oklahoma City, OK
Fort Worth Housing Authority, Fort Worth TX
Minneapolis Metropolitan Council Housing and Redevelopment Agency, 
Saint Paul, MN
Santa Cruz County Housing Authority, Santa Cruz, CA
Burlington Housing Authority, Burlington, VT
Michigan State Housing Development Authority, Lansing, MI
New York City Housing Authority, NY, NY
Atlanta Housing Authority, Atlanta, GA
Cincinnati Metropolitan Housing Authority, Cincinnati, OH
Housing Authority of the City of Los Angeles, Los Angeles, CA
Stillwater Housing Authority, Stillwater, OK
Spokane Housing Authority, Spokane, WA
Jacksonville Housing Authority, Jacksonville, FL
Panama City Housing Authority, Bay County, FL
Alameda County Housing Authority, Hayward, CA
Housing Authority of New Orleans, New Orleans, LA
Stustman County Housing Authority, Stustman County, ND

Public Interest Groups

Center on Budget and Policy Priorities, Washington, DC
New Community Corporation, Newark, NJ
Disability Rights Action Coalition for Housing
Section 8 Resident Council of New Orleans, Inc., New Orleans, LA

Independent Accounting and Consulting Firms

Fenton, Ewald & Associates, PC
IMRglobal--Orion Consulting, Inc.

National/Regional PHA Associations

National Leased Housing Association (NLHA)
National Association of Housing and Redevelopment Officials (NAHRO)
Council of Large Public Housing Authorities (CLPHA)
Public Housing Authority Directors Association (PHADA)

(Note that 1. Fenton, Ewald & Associates, PC was made an alternate 
due to its representative's time constraints and that the Southeast 
Regional Section Eight Housing Association (SERSHA) was added as a 
member of the Committee)

Federal Government

U.S. Department of Housing and Urban Development

    The Committee met in Washington, DC, on April 27 and 28, 1999, on 
June 2 and 3, 1999, on June 21 and 22, 1999, on July 19 and 20, 1999, 
on August 19 and 20, 1999 and on September 28 and 29th, 1999. (See 
notices of meetings: 64 FR 26923, May 18, 1999 and 64 FR 30450, June 8, 
1999.) These Committee meetings were led by Larry Susskind and David 
Fairman of the Consensus Building Institute (``CBI''), as facilitators/
mediators. Tom Fee and Michael Lewis, also of CBI, assisted in the 
facilitation/mediation. Kelly

[[Page 56883]]

Davenport of CBI provided further assistance, taking minutes of the 
meetings.
    HUD appreciates the active participation in this negotiated 
rulemaking process by such knowledgeable groups. The participants spent 
many days reviewing materials, working with others in small groups to 
prepare draft position papers, attended meetings of the Committee, and 
participated in teleconferences. Ultimately, the members reached 
consensus on the content of this rule. During the course of their 
deliberations, they provided valuable advice to the Department on 
broader issues, not reflected in this rule.

III. Discussion of Comments

A. General

    This section provides a brief overview of the most important issues 
discussed in the meetings of the Committee over the course of its 
deliberations. This overview of the issues is not a detailed recitation 
of the more than 12 days of meetings or the multiple additional work 
group meetings/conference calls that took place during the term of the 
Committee's charter but rather highlights the significant issues 
considered by the Committee. In addition to providing HUD with 
recommendations related to this regulation on the methodology for 
allocating Section 8 renewal funding, the Committee also provided 
recommendations on related issues (including policy on ACC reserves) 
that HUD intends to implement through a Federal Register Notice. This 
overview of the discussion of the Committee focuses only on the issues 
related to the regulation itself and not on the issues discussed in 
conjunction with developing separate Notice(s).

B. Establishing the Baseline

    To initiate discussion of housing assistance allocation methods, 
HUD staff provided background information to the Committee regarding 
the various methods used over time to calculate renewals. An 
explanation of the current renewal funding Notice, PIH 98-65 (HA), 
including the process for setting the baseline and awarding renewal 
funding for Fiscal Year 1998, was reviewed by HUD staff.
    Issue. The Committee discussed specific details regarding 
accounting rules and anomalies of the current method of calculating the 
allocation of renewal funding. Several members expressed concern that 
there was the possibility of discrepancies between historical 
documented unit counts and the unit counts in HUD's data systems. 
Members questioned whether a crosscheck of the data in the HUDCAPS 
system against their own data was possible. Some members felt that the 
October 1, 1997 baseline data were somewhat arbitrary and could 
adversely impact agencies. Members suggested alternative ways to 
setting the baseline units, such as choosing dates other that October 
1, 1997. Concerns about using October 1, 1997 included that this date 
``freezes'' many inequities among PHAs (e.g., rewarding those who 
continued leasing during the 90-day freeze period declared by HUD). A 
suggestion was made to use October 1, 1998 as the baseline date, 
because at this time all PHAs would have had time to adjust to HUD 
interim rules and guidelines on baseline accounting and renewal 
funding.
    Response. HUD noted that it had confidence that data discrepancies 
in HUDCAPS are minor, and that most of the discrepancies between 
HUDCAPS and PHA data would be attributable to data entry problems, or 
differences in interpretations of unit or project classifications. HUD 
representatives stated that they would check the kinds of information 
that could be shared and how this information could be shared. HUD 
representatives stated that they had revised the baseline determination 
method to ensure that each PHA would receive the higher of the number 
contracted or the number leased on October 1, 1997. HUD indicated that 
the statute required a focus on the state of housing authorities as of 
October 1, 1997 and that using other dates would not satisfy the 
statutory mandate.
    Conclusion: The Committee reached consensus that the baseline 
number of units should be the higher of the number of units leased as 
of October 1, 1997 or the number of units reserved by HUD as of October 
1, 1997. The Department has added approximately 19,000 units to its 
previously reserved number of units as a result of the comparison. This 
increase in the number of units as well as transactions that have taken 
place since October 1, 1997 will be reflected in the baseline 
established as of December 31, 1999, in accordance with the rule. In 
response to the Committee's recommendation, HUD will establish a 
mechanism for PHAs to request an adjustment of the baseline unit number 
assigned to them if they can demonstrate that the number in HUD's 
system is inaccurate.

C. Unit-Based vs. Dollar Based Funding Allocation

    Issue. The Committee discussed moving from the current ``unit-
based'' funding system (using units multiplied by an adjusted per unit 
cost as the basis for determining annual funding amounts) to a 
``dollar-based'' system: A dollar-based system would fund PHAs by 
adjusting their previous year's dollar grant amount to account for 
changes in local rental costs, without considering how many units were 
rented through the program in the previous year. Initially there 
appeared to be a preference for a dollar-based system, for reasons of 
administrative simplicity and ability to serve more households if costs 
are contained. Some Committee members raised concerns regarding 
switching to a dollar-based system, because it might lead to 
significant swings in the number of families assisted year-to-year.
    The Committee extensively explored possible adjustment factors that 
would be applied to PHA's previous year grant amount in a dollar-based 
system. The Committee reviewed data analysis from Andersen Consulting 
Corporation that compared the accuracy of different adjustment factors 
against the actual experience of approximately 400 housing authorities 
over the course of 3 years (1995-1997) for which reliable historical 
data was available. The most reliable predictor of future costs proved 
to be changes in a housing authority's most recent year's actual costs 
in HUDCAPS. The analysis uncovered significant problems in using MTCS 
data for the purpose of calculating renewals at this time.
    Response. HUD indicated that it is cognizant of its obligation to 
protect existing assisted families from losing their assistance due to 
a shortfall in funding. In addition a number of the reasons why per 
unit costs might vary would not be related to the PHA's discretionary 
actions (e.g., the need to meet new income targeting requirements).
    Conclusion: After much discussion, the Committee and HUD reached 
consensus that the Department should have authority to use the current 
unit-based method for the next several years. Given the limitations of 
current data systems and adjustment factors, the unit-based system has 
the best potential to predict fluctuations in per unit costs and to 
ensure reasonably adequate funding to support the reserved number of 
units in a housing authority's inventory.
    Issue. Some members of the Committee, including HUD, expressed 
concern that the current method creates a disincentive for PHAs to 
contain per-unit costs, because the higher a PHA's per-unit costs, the 
higher its funding for the next year. Additionally, the current

[[Page 56884]]

system creates a disincentive for PHAs to lease more than their 
contracted number of units, because their funding allocations are 
determined based on the number of reserved units, not the leased number 
of units.
    Other members of the Committee asserted that costs are largely 
outside of the control of a PHA. Rents are set by the local market and 
the size of the family. The PHA does not control the local rental 
market and has little control over the family size, because it has to 
follow the waiting list. Tenant contributions are affected for the most 
part by tenant incomes. Again, this factor is largely controlled by 
residents themselves, as well as the local job market. However, in some 
important instances, a PHA can influence the per-unit cost. These 
instances include, but are not limited to, rent reasonableness, subsidy 
standards, and payment standards. (For this purpose, ``subsidy 
standards'' refer to a PHA's policy for determining the appropriate 
unit size for a particular household.)
    Committee members also made the point that PHAs themselves do not 
benefit from an increase in the grant amount for renewals, because 
their administrative fee is not tied to the grant amount used to 
subsidize families. The administrative fee formula actually provides an 
incentive for cost containment, because a PHA would benefit from being 
able to lease more units--which could only be accomplished by lower 
per-unit costs.
    Members of the Committee also emphasized how difficult it would be 
to isolate how much of a change in per-unit costs was attributable to 
actions taken by a PHA as opposed to market/demographic changes totally 
outside the control of the PHA.
    Response. HUD is concerned that the regulation's methodology not 
create an incentive or bias toward higher per-unit costs as a result of 
PHA policies that can affect per-unit costs. Such a bias can result 
both from the current rule's characteristic of adapting to higher costs 
over time without penalty and from its subtraction of funding to 
support additional units that a PHA is able to put under lease because 
of cost saving measures. HUD acknowledged that there are very 
significant difficulties administratively in isolating the effects of 
PHA policies on cost per unit. HUD proposed that the rule give it 
flexibility to put in place checks and balances that would offset the 
impact of PHA policies on per-unit costs and ultimately the allocation 
amount.
    Conclusion: HUD's proposed mechanism for addressing cost 
containment is embodied in paragraph (g) of the rule. Paragraph (g)(1) 
permits HUD to put in place mechanisms to step in to prevent a PHA from 
becoming overextended and exceeding its allocated funding. Paragraph 
(g)(2) gives HUD the ability to act on either a case-by-case or a 
systemic basis. If the Department's analysis of the program costs and 
related factors determines that systemic adjustments, including cost 
containment and other cost adjustments, to the program are necessary 
because of threats to the future availability of funding, HUD has 
agreed that it would consult with PHA representatives and other 
relevant stakeholders before putting such a policy in place. HUD 
further indicated that any such cost adjustment would be consistent 
with the legitimate program goals. These goals are:
    (1) Deconcentration of poverty and expanding housing opportunities;
    (2) Not imposing unreasonable rent burdens on residents;
    (3) Compliance with the income targeting requirements of the Public 
Housing Reform Act;
    (4) Consistency with applicable consolidated plan(s);
    (5) Assuring rent reasonableness;
    (6) Maintaining program efficiency and economy;
    (7) Providing service to additional households within budgetary 
limitations; and
    (8) Providing service to the adjusted baseline number of families.
    Paragraph (g)(3) gives HUD the flexibility to keep PHAs with 
declining per unit costs from losing funding under the regulation and 
to allow additional households to be served if costs are contained. 
Many factors are intersecting to influence per unit costs at this time 
(including the merger of the certificate and voucher program, the 
requirement for income targeting, the requirement that payment 
standards not impose unreasonable rent burdens, the flexibility of 
housing authorities to set payment standards between 90% and 110% of 
FMR on their own as well as the continued implementation of this rule's 
methodology that indexes funding closely to per unit costs). HUD will 
gain program experience as it monitors program costs and analyzes the 
reasons for fluctuations in costs.

D. Inflation Factors

    Issue: The Committee considered other more up-to-date measurement 
of rents, or weighting the Annual Adjustment Factor so that the most 
recent inflation data count for more than older data. Additionally, the 
Committee recommended that inflation factors be more closely attuned to 
individual PHAs' housing markets: examples included local rents, and 
the use of local government or real estate agency data on rents.
    Response: Based on its program experience, HUD staff advised that 
some of these options could work, but that the smaller the sample area, 
the higher the cost to obtain statistically valid data on costs. 
Sometimes the more accurate the Annual Adjustment Factors (AAFs) could 
produce lower rather than higher inflation factors for some PHAs. A 
review and comparison of the Annual Adjustment Factor and the National 
Inflation Factor were presented.
    Conclusion: The Committee agreed to keep the AAF as it exists in 
the rule for the time being. HUD will examine whether it can get better 
data and more predictable information in the future. At the Committee's 
request, HUD added a provision that will allow it to consider requests 
from PHAs on a case-by-case basis in instances where because of special 
circumstances the AAF is not accurately predicting per unit cost.

IV. Renewal Funding Level Consideration

    The renewal formula included in this regulation assumes 
continuation of the current system, in which the Department allocates 
sufficient funds to renew 100 percent of the units reserved for a PHA, 
even though many PHAs do not use all of the allocated funds. The 
Department subsequently recaptures funds that PHAs do not use after the 
end of their fiscal years. This system of initially overfunding on a 
national basis and then recapturing, has the advantage of assuring that 
each PHA will have the necessary renewal funds, but it also has created 
some confusion in Congress and elsewhere.
    At the end of the fiscal year 2000 appropriations process, the 
Senate Appropriations Committee raised substantial concerns about the 
tenant-based assistance program that appear to be partly related to 
this system. The Administration is exploring the feasibility and 
desirability of an approach that would minimize overfunding and 
subsequent recapture, while still meeting the basic requirement that 
each PHA have the necessary funding for timely renewals. The evaluation 
and any Administration proposals will be mindful of the consensus 
reached by the negotiated rulemaking committee.

V. Explanation of Rule Text

Renewal Units

    This rule revises part 982, governing tenant-based assistance. It 
adds a new

[[Page 56885]]

defined term, ``renewal units'' to the definitions found at Sec. 982.4. 
This rule also adds a new Sec. 982.102 to outline a multi-step process 
for calculating the number of units that constitute ``renewal units.'' 
The total number of renewal units will be assigned to one or more (if 
applicable) of a housing agency's funding increments. Ultimately, the 
Department will multiply the number of renewal units times the adjusted 
per unit cost to calculate the amount of funding a housing agency will 
receive to renew a given funding increment.

Applicability

    This rule will apply to the renewal of funding increments that 
expire in calendar year 2000 and thereafter (the initial increments 
covered by the regulation would be those that expire on January 31, 
2000). The Department adjusted to a calendar year basis for allocating 
renewal funding in the first quarter of 1999. The Department adjusted 
to a calendar year basis to ensure that it would have adequate time to 
process renewal funding in advance of expirations even if 
appropriations are not finalized until late in a given fiscal year or 
early in a subsequent fiscal year. The regulation also makes it clear 
that it applies to units that a housing agency project bases pursuant 
to regulatory flexibility to project base up to 15% of the tenant-based 
units that are reserved for it.

Renewal Methodology

    The new Sec. 982.102 outlines the method for calculating renewal 
funding. The Department does have the ability to adjust the amounts 
allocated if the Department's appropriation is not sufficient to fully 
fund all housing agencies pursuant to the regulation.
Determining the Amount of Budget Authority Allocated for Renewal of an 
Expiring Funding Increment
    The basic calculation the Department performs to determine the 
renewal funding for an expiring increment is multiplication of the 
number of renewal units assigned to the increment by the adjusted per 
unit cost.
    For example, the Department calculated the adjusted baseline number 
of units for the Main Street Housing Authority to be 115 for the year 
2000. It then multiplied the adjusted baseline number of units (115) by 
the final per unit cost ($4979) to calculate the gross amount of 
renewal funding for the housing authority, $572,585.
Determining the Number of Renewal Units
    The Department will determine the number of renewal units for each 
calendar year as of the last day of the previous calendar year through 
a 3-step process.
    Step 1--The Department will calculate the initial baseline. It will 
be set at the reserved number of units (the number of units awarded to 
the housing agency during the history of the program) as of December 
31, 1999. The statute requires that the Department ensure, at a 
minimum, sufficient funding for the number of families assisted as of 
October 1, 1997. The Department has already compared the number of 
reserved units as of October 1, 1997 with the number of program 
families assisted as of that date. In instances in which the number of 
program families exceeded the reserved units as of October 1, 1997, the 
Department reserved additional units to account for the difference. 
These additional units were awarded to housing agencies in or before 
September of 1999. Because of the actions the Department has taken to 
account for the October 1, 1997 statutory minimum, it believes the 
number of reserved units will already have taken into account the 
statutory October 1, 1997 requirement when it sets the initial baseline 
as of December 31, 1999. In the event the Department has made an error 
in its analysis to ensure adherence to the statutory minimum, the 
Department has the ability to correct for such an error in 
982.102(d)(3).
    For example, on December 31, 1999, the Department's records 
indicated that it had reserved 110 units for the housing authority. The 
Department would set the initial baseline at 110 units.
    Step 2--Each calendar year, the Department will review all of the 
transactions that have altered the number of reserved units since it 
set the initial baseline. The Department will make adjustments to add 
to the initial baseline any additional units awarded to the housing 
authority by the Department supported from additional funding reserved 
since setting of the initial baseline. Adjustments to the baseline 
number of units will include units supported by incremental funding as 
well as other funding such as that awarded to provide continued 
assistance to assisted families pursuant to the conversion of project 
based assistance to tenant-based assistance. The Department also will 
include adjustments for budget authority reallocated from one housing 
authority to others. In this case, the adjusted baseline of the PHA 
whose budget authority is being reallocated would decrease, reflecting 
the decrease in budget authority, and the adjusted baseline of PHAs to 
which the budget authority is being reallocated would increase.
    For example, in calendar year 2000, the Main Street Housing 
Authority received 10 incremental units in the Family Unification 
Program. In 2000, the authority also had 10 units added to its 
inventory as a result of the conversion of a property from project 
based to tenant-based assistance. All 20 of these additional units 
would be added to the initial baseline to calculate the adjusted 
baseline number of units, 130 for the year 2001.
    Step 3--In its final step in determining the number of renewal 
units that will be used to calculate renewal funding, the Department 
will further adjust the baseline number by subtracting the number of 
units supported by contracts that are not scheduled to expire until 
after the end of the calendar year. The baseline number of units 
includes such non-expiring units; however, the Department has 
previously allocated sufficient budget authority to support such units 
beyond the time period for which it is allocating renewal funding.
    For example, the Department's records indicate that the Main Street 
Housing Authority has 15 units in its Initial Baseline number of units 
that are not scheduled to expire until 2002. The Department would then 
subtract 15 units from the Main Street Housing Authority's 130 units to 
revise the Adjusted Baseline Number of Units to 115. Similarly, in the 
event that the Department awarded budget authority for 50 incremental 
units for Welfare to Work in 2000 that would not expire until 2001, the 
Department would subtract the 50 units from the baseline in 2000 
because they would not expire during that year.
Determining the Adjusted per Unit Cost
    The Department will derive an annual actual per unit cost using a 3 
step process.
    Step 1--The Department will extract the total expenditures for all 
of the housing authority's Section 8 tenant-based assistance programs 
and the unit months leased information from the most recent approved 
year end statement (Form HUD-52681) that each housing authority has 
filed with the Department. The Department will divide the total 
expenditures for all of the housing authority's Section 8 tenant-based 
assistance programs by the unit

[[Page 56886]]

months leased to derive an average monthly per unit cost.
    Step 2--The Department will multiply the monthly per unit cost by 
12 (months) to obtain an annual per unit cost.
    Step 3--The Department will then multiply the result of step 2 
above by the Section 8 Housing Assistance Payments Program Contract 
Rent Annual Adjustment Factors (table 1 amount with the highest cost 
utility included) for the applicable intervening Federal Fiscal Years 
between the time of the last year end statement and the time of the 
renewal to generate an adjusted annual per unit cost.
    For example, the Main Street Housing Authority's 1998 Year End 
Statement (the most recent one approved) indicated that it expended 
$120,000 in its tenant-based Section 8 assistance programs and that it 
achieved 300 unit months leased. The Department would take the total 
expenditure ($120,000) and divide it by the unit months leased (300) to 
calculate the monthly per unit cost ($400) and then multiply the result 
by 12 months to obtain an actual annual per unit cost ($4,800).
    To continue the example, the Annual Adjustment Factors for the Main 
Street Housing Authority were 1.5% in 1999 and 2.2% for 2000. The 
Department would take the original annual per unit cost ($4,800) and 
adjust it by 1.5% ($4,872) and then again by 2.2% to obtain the 
resulting adjusted per unit cost ($4,979).
    Many housing agencies have jurisdictions that cover multiple rental 
markets with separate AAFs. In such instances, the Department will use 
the highest AAF that applies to a portion of the housing agency's units 
and use it as the adjustment factor.
    For example, the Main Street Housing Authority is a regional agency 
that covers a metropolitan area with an AAF for 1999 set at 2.1% and 
for 2000 set at 1.9%. The housing authority's jurisdiction also covers 
several non-metropolitan counties outside of the metropolitan area 
assigned an AAF for 1999 of 1.5% and for 2000 set at 2.0%. In this 
instance, the Department will use the higher metropolitan area AAF for 
1999 (2.1%) and the higher non-metropolitan area AAF for 2000 (2.0%).
CACC Amendment To Add Renewal Funding
    The Department intends to process renewal funding if possible at 
least a month before a given funding increment is due to expire. A 
normal renewal will extend the expiration date for one year.
Modification of Allocation of Budget Authority
    The regulation permits HUD to address the issue of cost containment 
through this provision. Paragraph (g)(1) permits HUD to put in place 
mechanisms to step in to prevent a PHA from becoming overextended and 
exceeding its allocated funding. Paragraph (g)(2) gives HUD the ability 
to act on either a case-by-case or a systemic basis. If the 
Department's analysis of the program costs and related factors 
determines that systemic adjustments to the program, including cost 
containment and other cost adjustments, are necessary because of 
threats to the future availability of funding, HUD has agreed that it 
would consult with PHA representatives and other relevant stakeholders 
before putting such a policy in place. Paragraph (g)(3) gives HUD the 
flexibility to keep PHAs with declining per unit costs from losing 
funding under the regulation and to allow additional households to be 
served if costs are contained.
Ability To Prorate and Synchronize Contract Funding Increments
    Notwithstanding the formula amount that HUD derives pursuant to the 
regulation, the Department is permitted to prorate the renewal of units 
that expire on different dates throughout the year in order to have 
their expiration date match the expiration of other units within the 
housing authority's inventory and/or a given point in time in relation 
to the housing authority's fiscal year. The Department will consider 
using this flexibility in order to merge the multiple sets of units for 
the purpose of allocating renewal funding in the future. The Department 
desires to consolidate increments as much as possible in order to 
reduce the tracking required for thousands of separate increments. The 
Department will endeavor to synchronize and/or merge all increments so 
as to expire 6 months after the housing agency's fiscal year. Such a 
schedule would permit the Department to use a year end statement that 
is less than a year old to calculate current per unit costs at the time 
of the renewal.
    For example, the Main Street Housing Authority has 115 units that 
require renewal on April 1, 2000 and also has 20 units that were 
awarded to it on August 1, 1999 that would require renewal on August 1, 
2000. If the Department decided to merge the two sets of units for 
future renewals, it would have the ability to prorate the renewal of 
the 20 units so that they would expire on April 1, 2001, simultaneously 
with the expiration of the other 115 units. The Department would be 
able to merge the two sets of units into one set of 135 units for the 
purpose of calculating future renewal funding.
Reallocation of Renewal Units
    This provision gives HUD the ability by Federal Register notice to 
permanently de-reserve units and their associated budget authority from 
a PHA with performances deficiencies (particularly underleasing) and to 
reallocate the budget authority to other PHAs. The reallocation would 
not preclude a PHA from being awarded new units in the future.

VI. Findings and Certifications

Impact on Small Entities

    The Regulatory Flexibility Act, 5 U.S.C. 601-612, requires that an 
agency analyze the impact of a rule on small entities whenever it 
determines that the rule is likely to have a significant impact on a 
substantial number of small entities. Most small PHAs do not qualify as 
``small governmental entities'' under the Act. However, this rule, 
developed in consultation with a negotiated rulemaking committee 
including representatives of small PHAs, will not be likely to have a 
significant impact on a substantial number of small PHAs or on the few 
of them that qualify as ``small governmental entities.'' Therefore, no 
further analysis is required under the Act.

Environmental Impact

    This final rule does not direct, provide for assistance or loan and 
mortgage insurance for, or otherwise govern or regulate, real property 
acquisition, disposition, leasing (other than tenant-based rental 
assistance), rehabilitation, alteration, demolition, or new 
construction. This rule also does not establish, revise or provide for 
standards for construction or construction materials, manufactured 
housing, or occupancy. Accordingly, under HUD regulations (24 CFR 
50.19(c)(1)), this rule is categorically excluded from the requirements 
of the National Environmental Policy Act of 1969 (42 U.S.C. 4321) and 
is not subject to environmental review under related laws and 
authorities (24 CFR 50.4).

Federalism Impact

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this rule will not have substantial direct effects on 
states or their political

[[Page 56887]]

subdivisions, or the relationship between the federal government and 
the states, or on the distribution of power and responsibilities among 
the various levels of government. As a result, the rule is not subject 
to review under the order.

Unfunded Mandates

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532) 
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 a Federal 
mandate that will result in the expenditure by State, local, or tribal 
governments in the aggregate, or by the private sector, of $100 million 
or more in any one year.

Regulatory Review

    The Office of Management and Budget (OMB) has reviewed this 
proposed rule under Executive Order 12866, Regulatory Planning and 
Review, issued by the President on September 30, 1993. Any changes made 
in this proposed rule after its submission to OMB are identified in the 
docket file, which is available for public inspection during regular 
business hours in the Regulations Division, Office of General Counsel, 
Room 10276, U.S. Department of Housing and Urban Development, 451 
Seventh Street, SW, Washington, DC 20410.

Catalog

    The Catalog of Federal Domestic Assistance numbers for these 
programs are 14.855 and 14.857.

List of Subjects in 24 CFR Part 982

    Grant programs--housing and community development, Housing, Rent 
subsidies.

    Accordingly, HUD amends part 982 of title 24 of the Code of Federal 
Regulations as follows:

PART 982--SECTION 8 TENANT-BASED ASSISTANCE: HOUSING CHOICE VOUCHER 
PROGRAM

    1. The authority citation for part 982 continues to read as 
follows:

    Authority: 42 U.S.C. 1437f and 3535(d).

    2. Amend Sec. 982.4(b) by adding the definition of Renewal units, 
in alphabetical order, to read as follows:


Sec. 982.4  Definitions.

* * * * *
    (b) * * *
    Renewal units. The number of units, as determined by HUD, for which 
funding is reserved on HUD books for a PHA's program. This number is 
used is calculating renewal budget authority in accordance with 
Sec. 982.102.
* * * * *


Secs. 982.102 and 982.103  [Redesignated as Secs. 982.103 and 982.104]

    3. Redesignate Secs. 982.102 and 982.103 as Secs. 982.103 and 
982.104, respectively.
    4. Add a new Sec. 982.102 to read as follows:


Sec. 982.102  Allocation of budget authority for renewal of expiring 
CACC funding increments.

    (a) Applicability. This section applies to the renewal of CACC 
funding increments in the program (as described in Sec. 982.151(a)(2)) 
that expire after December 31, 1999 (including any assistance that the 
PHA has attached to units for project based assistance under part 983 
of this title). This section implements section 8(dd) of the 1937 Act 
(42 U.S.C. 1437f(dd)),
    (b) Renewal Methodology. HUD will use the following methodology to 
determine the amount of budget authority to be allocated to a PHA for 
the renewal of expiring CACC funding increments in the program, subject 
to the availability of appropriated funds. If the amount of 
appropriated funds is not sufficient to provide the full amount of 
renewal funding for PHAs, as calculated in accordance with this 
section, HUD may establish a procedure to adjust allocations for the 
shortfall in funding.
    (c) Determining the amount of budget authority allocated for 
renewal of an expiring funding increment. Subject to availability of 
appropriated funds, as determined by HUD, the amount of budget 
authority allocated by HUD to a PHA for renewal of each program funding 
increment that expires during a calendar year will be equal to:
    (1) Number of renewal units. The number of renewal units assigned 
to the funding increment (as determined by HUD pursuant to paragraph 
(d) of this section); multiplied by
    (2) Adjusted annual per unit cost. The adjusted annual per unit 
cost (as determined by HUD pursuant to paragraph (e) of this section).
    (d) Determining the number of renewal units.--(1) Number of renewal 
units. HUD will determine the total number of renewal units for a PHA's 
program as of the last day of the calendar year previous to the 
calendar year for which renewal funding is calculated. The number of 
renewal units for a PHA's program will be determined as follows:
    (i) Step 1: Establishing the initial baseline. HUD will establish a 
baseline number of units (``baseline'') for each PHA program. The 
initial baseline equals the number of units reserved by HUD for the PHA 
program as of December 31, 1999.
    (ii) Step 2: Establishing the adjusted baseline. The adjusted 
baseline equals the initial baseline with the following adjustments 
from the initial baseline as of the last day of the calendar year 
previous to the calendar year for which renewal funding is calculated:
    (A) Additional units. HUD will add to the initial baseline any 
additional units reserved for the PHA after December 31, 1999.
    (B) Units removed. HUD will subtract from the initial baseline any 
units de-reserved by HUD from the PHA program after December 31, 1999.
    (iii) Step 3: Determining the number of renewal units. The number 
of renewal units equals the adjusted baseline minus the number of units 
supported by contract funding increments that expire after the end of 
the calendar year.
    (2) Funding increments. HUD will assign all units reserved for a 
PHA program to one or more funding increment(s).
    (3) Correction of errors. HUD may adjust the number of renewal 
units to correct errors.
    (e) Determining the adjusted per unit cost. HUD will determine the 
PHA's adjusted per unit cost when HUD processes the allocation of 
renewal funding for an expiring contract funding increment. The 
adjusted per unit cost calculated will be determined as follows:
    (1) Step 1: Determining monthly program expenditure.--(i) Use of 
most recent HUD-approved year end statement. HUD will determine the 
PHA's monthly per unit program expenditure for the PHA certificate and 
voucher programs (including project-based assistance under such 
programs) under the CACC with HUD using data from the PHA's most recent 
HUD-approved year end statement.
    (ii) Monthly program expenditure. The monthly program expenditure 
equals:
    (A) Total program expenditure. The PHA's total program expenditure 
(the total of housing assistance payments and administrative costs) for 
the PHA fiscal year covered by the approved year end statement; divided 
by
    (B) Total unit months leased. The total of unit months leased for 
the PHA fiscal year covered by the approved year end statement.
    (2) Step 2: Determining annual per unit cost. HUD will determine 
the PHA's annual per unit cost. The annual per unit cost equals the 
monthly program expenditures (as determined

[[Page 56888]]

under paragraph (e)(1)(ii) of this section) multiplied by 12.
    (3) Step 3: Determining adjusted annual per unit cost. (i) HUD will 
determine the PHA's adjusted annual per unit cost. The adjusted annual 
per unit cost equals the annual per unit cost (as determined under 
paragraph (e)(2) of this section) multiplied cumulatively by the 
applicable published Section 8 housing assistance payments program 
annual adjustment factors in effect during the period from the end of 
the PHA fiscal year covered by the approved year end statement to the 
time when HUD processes the allocation of renewal funding.
    (ii) Use of annual adjustment factor applicable to PHA 
jurisdiction. For this purpose, HUD will use the annual adjustment 
factor from the notice published annually in the Federal Register 
pursuant to part 888 that is applicable to the jurisdiction of the PHA. 
For a PHA whose jurisdiction spans multiple annual adjustment factor 
areas, HUD will use the highest applicable annual adjustment factor.
    (iii) Use of annual adjustment factors in effect subsequent to most 
recent Year End Statement. HUD will use the Annual Adjustment Factors 
in effect during the time period subsequent to the time covered by the 
most recent HUD approved Year End Statement and the time of the 
processing of the contract funding increment to be renewed.
    (iii) Special circumstances. At its discretion, HUD may modify the 
adjusted annual per unit cost based on receipt of a modification 
request from a PHA. The modification request must demonstrate that 
because of special circumstances application of the annual adjustment 
factor will not provide an accurate adjusted annual per unit cost.
    (4) Correction of errors. HUD may correct for errors in the 
adjusted per unit cost.
    (f) CACC amendment to add renewal funding. HUD will reserve 
allocated renewal funding available to the PHA within a reasonable time 
prior to the expiration of the funding increment to be renewed and 
establish a new expiration date one-year from the date of such 
expiration.
    (g) Modification of allocation of budget authority.--(1) HUD 
authority to conform PHA program costs with PHA program finances 
through Federal Register notice. In the event that a PHA's costs 
incurred threaten to exceed budget authority and allowable reserves, 
HUD reserves the right, through Federal Register notice, to bring PHA 
program costs and the number of families served, in line with PHA 
program finances.
    (2) HUD authority to limit increases of per unit cost through  
Federal Register notice. HUD may, by Federal Register notice, limit the 
amount or percentage of increases in the adjusted annual per unit cost 
to be used in calculating the allocation of budget authority.
    (3) HUD authority to limit decreases to per unit costs through 
Federal Register notice. HUD may, by Federal Register notice, limit the 
amount or percentage of decreases in the adjusted annual per unit cost 
to be used in calculating the allocation of budget authority.
    (4) Contents of Federal Register notice. If HUD publishes a Federal 
Register notice pursuant to paragraphs (g)(1), (g)(2) or (g)(3) of this 
section, it will describe the rationale, circumstances and procedures 
under which such modifications are implemented. Such circumstances and 
procedures shall, be consistent with the objective of enabling PHAs and 
HUD to meet program goals and requirements including but not limited 
to:
    (i) Deconcentration of poverty and expanding housing opportunities;
    (ii) Reasonable rent burden;
    (iii) Income targeting;
    (iv) Consistency with applicable consolidated plan(s);
    (v) Rent reasonableness;
    (vi) Program efficiency and economy;
    (vii) Service to additional households within budgetary 
limitations; and
    (viii) Service to the adjusted baseline number of families.
    (5) Public consultation before issuance of Federal Register notice. 
HUD will design and undertake informal public consultation prior to 
issuing Federal Register notices pursuant to paragraphs (g)(1) or 
(g)(2) of this section.
    (h) Ability to prorate and synchronize contract funding increments. 
Notwithstanding paragraphs (c) through (g) of this section, HUD may 
prorate the amount of budget authority allocated for the renewal of 
funding increments that expire on different dates throughout the 
calendar year. HUD may use such proration to synchronize the expiration 
dates of funding increments under the PHA's CACC.
    (i) Reallocation of budget authority. If a PHA has performance 
deficiencies, such as a failure to adequately lease units, HUD may 
reallocate some of its budget authority to other PHAs. If HUD 
determines to reallocate budget authority, it will reduce the number of 
units reserved by HUD for the PHA program of the PHA whose budget 
authority is being reallocated and increase the number of units 
reserved by HUD for the PHAs whose programs are receiving the benefit 
of the reallocation, so that such PHAs can issue vouchers. HUD will 
publish a notice in the Federal Register that will describe the 
circumstances and procedures for reallocating budget authority pursuant 
to this paragraph.

    Dated: October 15, 1999.
Deborah Vincent,
General Deputy Assistant, Secretary for Public and Indian Housing.
[FR Doc. 99-27445 Filed 10-20-99; 8:45 am]
BILLING CODE 4210-33-P