[Federal Register Volume 65, Number 132 (Monday, July 10, 2000)]
[Rules and Regulations]
[Pages 42512-42515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17025]



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Part V





Department of Housing and Urban Development





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24 CFR Part 964



Direct Funding of Public Housing Resident Management Corporations; 
Final Rule

  Federal Register / Vol. 65, No. 132 / Monday, July 10, 2000 / Rules 
and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 964

[Docket No. FR-4501-F-02]
RIN 2577-AC12


Direct Funding of Public Housing Resident Management Corporations

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

ACTION: Final rule.

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SUMMARY: On October 21, 1999, HUD published a proposed rule to revise 
its regulations regarding resident participation and resident 
opportunities in public housing. The rule proposed that a resident 
management corporation (RMC) may receive capital and operating funds 
from HUD if the RMC has primary management responsibility for the 
public housing project and HUD determines that the RMC has the capacity 
to effectively discharge such responsibility. This rule makes final the 
policies and procedures contained in the October 21, 1999 proposed 
rule, and takes into consideration the public comments received on the 
proposed rule. After careful consideration of all the public comments 
received on the October 21, 1999 proposed rule, HUD has decided to 
adopt the proposed rule without change.

DATES: Effective Date: August 9, 2000.

FOR FURTHER INFORMATION CONTACT: Paula Blunt, Associate Deputy 
Assistant Secretary, Department of Housing and Urban Development, 
Office of Public and Indian Housing, 451 Seventh Street, SW, Room 4226, 
Washington, DC 20410; telephone (202) 619-8201 (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 Background

A. Resident Management of Public Housing

    Section 20 of the United States Housing Act of 1937 (42 U.S.C. 1437 
et seq.) (referred to as the ``1937 Act'') encourages resident 
management of public housing projects as a means of improving existing 
living conditions in public housing. HUD has implemented section 20 in 
its regulations at 24 CFR part 964 (entitled ``Tenant Participation and 
Tenant Opportunities in Public Housing'').
    Under section 20, and 24 CFR part 964, public housing residents may 
form resident management corporations (RMCs) for the purposes of 
managing public housing. The RMC enters into a management contract with 
the public housing agency (PHA) establishing the respective management 
rights and responsibilities of the RMC and the PHA. The contract may 
provide for the RMC to perform any or all of the management functions 
for which the PHA is responsible to HUD. The performance of the RMC is 
subject to periodic review by the PHA to ensure that the RMC complies 
with all applicable requirements and standards of performance.

B. Public Housing Reform

    On October 21, 1998, President Clinton signed into law the Quality 
Housing and Work Responsibility Act of 1998 (Title V of the Fiscal Year 
1999 HUD Appropriations Act; Public Law 105-276; 112 Stat. 2461, 2522) 
(referred to as the ``Public Housing Reform Act''). The Public Housing 
Reform Act constitutes a substantial overhaul of HUD's public housing 
and Section 8 assistance programs. The changes made by the Public 
Housing Reform Act are directed at revitalizing and improving HUD's 
public housing and Section 8 tenant-based programs. These changes are 
also designed to provide for more resident involvement, and to increase 
resident participation and awareness in creating and maintaining a 
positive living environment.

II. The October 21, 1999 Proposed Rule

    On October 21, 1999 (64 FR 56890), HUD published a proposed rule to 
amend 24 CFR part 964. The purpose of the proposed rule was to 
implement the statutory changes made to section 20 of the 1937 Act made 
by section 532 of the Public Housing Reform Act. Section 532 of the 
Public Housing Reform Act provides for the direct provision of capital 
and operating assistance to an RMC if: (1) The RMC petitions HUD for 
the release of the funds; (2) the management contract between the RMC 
and the PHA provides for the RMC to assume the primary management 
responsibilities of the PHA; and (3) HUD determines that the RMC has 
the capability to effectively discharge such responsibilities.
    The proposed rule provided that HUD would consider this third 
requirement to be satisfied if the RMC is designated at least a 
``standard performer'' under the Public Housing Assessment System 
(PHAS) (see 24 CFR part 902); and the RMC is not in violation of any 
financial, accounting, procurement, civil rights, fair housing, or 
other program requirements that HUD determines call into question the 
capability of the RMC to effectively discharge its responsibilities 
under the contract.
    In all other cases where direct funding to an RMC is not provided, 
operating and capital funding would be provided to the RMC by the PHA. 
If HUD provides direct funding to an RMC, the PHA would not be 
responsible for the actions of the RMC.
    In addition to implementing section 532 of the Public Housing 
Reform Act, the October 21, 1999 proposed rule also proposed to make 
one clarifying change to 24 CFR part 964. Specifically, the rule 
proposed to revise Sec. 964.225 (entitled ``Resident management 
requirements'') to clarify that an RMC must be in compliance with any 
local licensing requirement, or other local requirement governing the 
qualifications or operations of a property manager.
    The preamble to the October 21, 1999 proposed rule provides 
additional information regarding the changes to 24 CFR part 964.

III. This Final Rule

    This final rule makes effective the policies and procedures 
contained in the October 21, 1999 proposed rule. The public comment 
period for the proposed rule closed on December 20, 1999. HUD received 
three public comments on the proposed rule. Comments were submitted by 
a national RMC organization, a law firm representing several RMCs, and 
a public housing resident council. HUD appreciates the suggestions 
offered by the commenters and carefully considered the issues raised by 
them. For the reasons discussed below, however, HUD has chosen not to 
implement their suggestions. After careful consideration of the public 
comments, HUD has decided to adopt the October 21, 1999 proposed rule 
without change. This following section of the preamble presents a 
discussion of the significant issues raised by the public commenters 
and HUD's responses to their comments.

IV. Discussion of the Public Comments Received on the October 21, 
1999 Proposed Rule

A. Support for Proposed Rule

    One of the commenters expressed support for the proposed rule. The 
commenter wrote that it ``strongly support[s] the regulations to permit 
direct funding of resident management corporations by HUD.'' The 
commenter also wrote that the ``direct funding of resident management 
corporations is essential.''

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B. Comments Beyond Scope of Proposed Rule

    As discussed above, the purpose of the October 21, 1999 proposed 
rule was to implement section 532 of the Public Housing Reform Act. 
Several of the commenters submitted comments that did not concern the 
direct funding of RMCs and, therefore, were beyond the scope of the 
proposed rule. For example, one of the commenters recommended that HUD 
should clarify what comprises a duly constituted RMC. Two commenters 
suggested that the final rule should provide for RMC participation on 
the PHA's board of commissioners, or similar governing body. Another 
commenter suggested that public housing management contracts should be 
developed with the full participation of RMCs and their national 
organizations. There were also several other public comments that, 
although suggesting general changes to HUD's resident participation 
regulations at 24 CFR part 964, did not concern the proposed regulatory 
amendments described in the October 21, 1999 proposed rule.
    HUD thanks these commenters for their helpful comments and 
recommendations. However, since these comments do not concern the 
direct funding of RMCs, HUD has not revised the proposed rule to 
incorporate the suggestions made by the commenters. These comments will 
be taken into consideration during HUD's development of a future 
proposed rule that will implement the other resident related amendments 
made by the Public Housing Reform Act.
    In addition to providing for the direct funding of RMCs, the Public 
Housing Reform Act makes various other amendments to the statutory 
requirements regarding resident participation and resident 
opportunities in public housing. For example, the Public Housing Reform 
Act requires the participation of residents on the governing board of a 
PHA (section 505 of the Act) and provides for grant funding of services 
for public housing residents (section 538 of the Act).
    The resident board membership requirements established by section 
505 of the Act have been implemented through a separate final rule 
published on October 21, 1999 (64 FR 56870). The other changes made by 
the Public Housing Reform Act affecting the part 964 requirements will 
be the subject of a separate proposed rulemaking. HUD is committed to 
the development of this proposed rule with the active participation of 
public housing residents. HUD will solicit resident input through the 
scheduling of public forums, solicitations for written comments, and/or 
other appropriate means.
    HUD's goal in undertaking this future rulemaking is to develop a 
set of easy-to-understand regulations that reflect the meaningful 
contributions of public housing residents. Accordingly, the proposed 
rule will not only implement statutory amendments made by the Public 
Housing Reform Act, but will also streamline and reorganize 24 CFR part 
964 to simplify and improve the clarity of HUD's resident participation 
requirements.
    In addition to rulemaking, HUD is also taking several other steps 
to promote effective resident participation in public housing (see 
Section V. of this preamble, below).

C. Comments on the October 21, 1999 Proposed Rule

    Comment: Standards for determining RMC eligibility for direct 
funding should be revised to allow for innovative changes and concepts. 
Two commenters objected to the eligibility standards described in the 
proposed rule. The commenters suggested that the final rule should 
provide greater flexibility in determining RMC eligibility for direct 
funding.
    HUD Response. As noted above, section 532 of the Public Housing 
Reform Act establishes the conditions that an RMC must satisfy in order 
to receive direct funding. Specifically, the statute provides that an 
RMC may directly receive capital and operating assistance, if: (1) The 
RMC petitions HUD for the release of the funds; (2) the management 
contract between the RMC and the PHA provides for the RMC to assume the 
primary management responsibilities of the PHA; and (3) HUD determines 
that the RMC has the capability to effectively discharge such 
responsibilities. The language of the October 21, 1999 proposed rule, 
and this final rule, merely track the statutory language of section 
532.
    Only the third requirement described above provides HUD with 
discretion in determining whether an RMC is eligible to receive direct 
funding. This final rule provides that HUD will consider this third 
requirement to be satisfied if the RMC is designated at least a 
``standard performer'' under the PHAS, and the RMC is not in violation 
of any financial, accounting, procurement, civil rights, fair housing, 
or other program requirements that HUD determines call into question 
the capability of the RMC to effectively discharge its responsibilities 
under the contract.
    This third requirement will not impose any new requirements on 
RMCs. The final rule reflects existing performance measures and program 
requirements that RMCs must already comply with. For example, RMCs are 
already subject to the PHAS performance measures described in 24 CFR 
part 902. Further, RMCs are currently required to comply with all 
applicable program, civil rights, and financial requirements as a 
condition of assistance under HUD's public housing programs.
    Although HUD welcomes ``innovative changes and concepts'' in the 
development of its regulations, the commenters did not provide specific 
recommendations for HUD's consideration. Further, HUD believes that the 
use of the existing measures described above will allow HUD to 
accurately determine RMC management capability, while minimizing the 
burdens imposed on RMCs. Accordingly, the proposed rule has not been 
revised.
    Comment: Determination of eligibility for direct funding should be 
made in consultation with RMCs. One commenter suggested that HUD should 
be required to consult with RMCs currently receiving direct funding, or 
with an RMC national organization, before making a determination on an 
RMC's request to receive direct funding.
    HUD Response. Section 532 of the Public Housing Reform Act provides 
that an RMC is eligible for direct funding if (among other 
requirements) ``the Secretary determines that the [RMC] has the 
capability to effectively discharge'' the primary management 
responsibilities of the PHA. This statutory language makes clear that 
the responsibility for determining whether an RMC is eligible to 
receive direct capital and operating assistance rests with the 
Secretary.
    Further, as noted in the response to the preceding comment, section 
532 establishes very specific criteria that HUD must use in determining 
whether an RMC is eligible for direct funding. Where the statute 
provides HUD with discretion, HUD has chosen to rely on current and 
familiar requirements (such as compliance with the PHAS and applicable 
civil rights requirements). The use of already existing measures will 
allow HUD to accurately and expeditiously determine whether an RMC has 
the required management capability to directly receive funding. The 
establishment of an additional consultation procedure has the potential 
to unnecessarily delay HUD eligibility determinations. Accordingly, HUD 
has

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not adopted the suggestion made by the commenter.
    Comment: Final rule should establish time frame for HUD approval of 
direct funding requests. Two commenters suggested that the final rule 
should provide a time frame ``under which HUD must respond to a RMC's 
request for direct funding.'' One of the commenters recommended that 
the time period not be longer than thirty (30) days.
    HUD Response. HUD has not adopted the revision recommended by these 
commenters. HUD will endeavor to process all RMC petitions for direct 
funding as expeditiously as possible. As noted above, HUD will rely on 
current and well-known measures in determining whether an RMC is 
eligible for the direct receipt of capital and operating assistance. 
The use of these existing requirements will facilitate HUD's processing 
of RMC petitions, and help to ensure that HUD's eligibility 
determinations are made on a timely basis. Therefore, HUD believes that 
the establishment of the suggested deadline is unnecessary.
    Comment: The final rule should provide mechanism for an RMC to 
appeal a HUD denial of request for direct funding. Two commenters made 
this suggestion.
    HUD Response. HUD has not adopted the revision recommended by these 
commenters. HUD would prefer to solicit public comment before 
establishing the suggested appeals process, or any other similar 
procedural remedy available to an RMC that has been denied direct 
assistance. Rather than delay the effectiveness of this final rule in 
order to solicit additional public comment, HUD is proceeding to 
finalize the October 21, 1999 proposed rule without incorporating the 
commenter's recommendation. HUD will more fully consider the suggested 
appeals mechanism during its development of the future proposed rule 
amending 24 CFR part 964 in its entirety.

V. HUD's Ongoing Efforts To Promote Effective Resident 
Participation

    To further promote effective resident participation in public 
housing, HUD is taking various steps to promote resident involvement in 
creating and maintaining a positive living environment. As discussed 
above, HUD is developing a proposed rule that will implement the 
resident related amendments made by the Public Housing Reform Act. HUD 
is committed to developing this proposed rule with the active 
participation of public housing residents. HUD is taking several other 
steps to increase resident participation in public housing. For 
example, HUD will conduct training for resident organizations and PHAs 
on the new Public Housing Reform Act.

VI. Findings and Certifications

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
was made at the proposed rule stage 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). That Finding remains 
applicable to this final rule and 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.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)) (the RFA), has reviewed and approved this final 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 final rule is exclusively concerned with public housing agencies 
that contract with RMCs for the management and operation of specific 
public housing projects. Specifically, the rule would make various 
conforming amendments to 24 CFR part 964 (captioned ``Tenant 
Participation and Tenant Opportunities in Public Housing'') to reflect 
statutory changes made by the Public Housing Reform Act. 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. The Public Housing Reform Act 
improves and simplifies the way in which PHAs and RMCs are funded. 
Specifically, section 519 of the Public Housing Reform replaces funding 
under the existing Performance Funding System (PFS) with formula 
funding under the new Operating Fund and the Capital Improvement 
Assistance Program (CIAP) and the Comprehensive Grant Program with 
formula allocations under the new Capital Fund. The implementation of 
section 519 is beyond the scope of this proposed rule. Accordingly, the 
economic impact of this final rule is not significant, and it will not 
affect a substantial number of small entities.

Unfunded Mandates Reform Act

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

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on State and local 
governments and is not required by statute, or the rule preempts State 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive Order. This final rule will not have 
federalism implications and will not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive Order.

Regulatory Planning and Review

    The Office of Management and Budget has reviewed this rule under 
Executive Order 12866 (captioned ``Regulatory Planning and Review'') 
and 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 during regular business hours 
(7:30 a.m. to 5:30 p.m.) at the Office of the General Counsel, Rules 
Docket Clerk, Room 10276, U.S. Department of Housing and Urban 
Development, 451 Seventh Street, SW, Washington, DC 20410-0500.

List of Subjects in 24 CFR Part 964

    Grant programs--housing and community development, Public housing, 
Reporting and recordkeeping requirements.

    Accordingly, for the reasons described in the preamble, HUD amends 
24 CFR part 964 as follows:

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PART 964--TENANT PARTICIPATION AND TENANT OPPORTUNITIES IN PUBLIC 
HOUSING

    1. The authority citation for part 964 is revised to read as 
follows:

    Authority: 42 U.S.C. 1437d, 1437g, 1437r, 3535(d).


    2. Amend Sec. 964.225 as follows:
    a. Redesignate paragraphs (h), (i), (j), and (k) as paragraphs (i), 
(j), (k), and (l), respectively;
    b. Add new paragraph (h); and
    c. Revise newly designated paragraph (j).
    The addition and revisions to Sec. 964.225 read as follows:


Sec. 964.225  Resident management requirements.

* * * * *
    (h) Direct provision of operating and capital assistance to RMC. 
(1) Direct provision of assistance to RMC. The ACC shall provide for 
the direct provision of operating and capital assistance by HUD to an 
RMC if:
    (i) The RMC petitions HUD for the release of funds;
    (ii) The contract provides for the RMC to assume the primary 
management responsibilities of the PHA;
    (iii) The RMC has been designated as at least a ``standard 
performer'' under the Public Housing Assessment System (PHAS) (see 24 
CFR part 902); and
    (iv) The RMC is not in violation of any financial, accounting, 
procurement, civil rights, fair housing or other program requirements 
that HUD determines call into question the capability of the RMC to 
effectively discharge its responsibilities under the contract.
    (2) Use of assistance. Any direct capital or operating assistance 
provided to the RMC must be used for purposes of performing eligible 
activities with respect to public housing as may be provided under the 
contract.
    (3) Responsibilities of PHA. If HUD provides direct funding to a 
RMC under paragraph (h)(1) of this section, the PHA is not responsible 
for the actions of the RMC.
* * * * *
    (j) Bonding, insurance, and licensing. (1) Bonding and insurance. 
Before assuming any management responsibility under its contract, the 
RMC must provide fidelity bonding and insurance, or equivalent 
protection that is adequate (as determined by HUD and the PHA) to 
protect HUD and the PHA against loss, theft, embezzlement, or 
fraudulent acts on the part of the RMC or its employees.
    (2) Licensing and other local requirements. An RMC must be in 
compliance with any local licensing, or other local requirement, 
governing the qualifications or operations of a property manager.
* * * * *

    Dated: May 8, 2000.
Harold Lucas,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 00-17025 Filed 7-7-00; 8:45 am]
BILLING CODE 4210-33-P