[Federal Register Volume 66, Number 3 (Thursday, January 4, 2001)]
[Proposed Rules]
[Pages 1008-1011]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-212]



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Part V





Department of Housing and Urban Development





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24 CFR Part 941



Public Housing Total Development Cost; Proposed Rule

  Federal Register / Vol. 66 , No. 3 / Thursday, January 4, 2001 / 
Proposed Rules  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 941

[Docket No. FR-4489-P-01]
RIN 2577-AC05


Public Housing Total Development Cost

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend HUD's regulations governing 
Total Development Cost (TDC) for the development of public housing. The 
amendments would implement statutory changes made to the statutory TDC 
requirements. Among other changes, this proposed rule would limit the 
amount of public housing funds that a public housing agency may use to 
pay for housing construction costs. The rule would also provide that 
demolition and environmental hazard remediation costs are included in 
TDC only to the extent that such costs are associated with the 
replacement of public housing units on the project site.

DATES: Comments Due Date: March 5, 2001.

ADDRESSES: Interested persons are invited to submit written comments 
regarding this proposed rule to the Rules Docket Clerk, Office of 
General Counsel, Room 10276, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC 20410. Comments 
should refer to the above docket number and title. A copy of each 
comment submitted will be available for public inspection and copying 
between 7:30 a.m. and 5:30 p.m. weekdays at the above address. 
Facsimile (FAX) comments will not be accepted.

FOR FURTHER INFORMATION CONTACT: William Flood, Office of Public and 
Indian Housing, Room 4134, U.S. Department of Housing and Urban 
Development, 451 Seventh St., SW., Washington, DC 20410; telephone 
(202) 708-1640 (this is not a toll-free telephone number). Hearing or 
speech-impaired individuals may access this number via TTY by calling 
the toll-free Federal Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Statutory Background

    The United States Housing Act (42 U.S.C. 1437 et seq.) (the 1937 
Act) establishes the statutory framework for HUD's public and assisted 
housing programs. The 1937 Act authorizes HUD to assist public housing 
agencies (PHAs) with the development and operation of public housing 
projects, and sets forth several requirements regarding public housing 
development. Two such statutory requirements regarding the development 
of public housing are found in sections 3(c)(1) and 6(b) of the 1937 
Act.
    Section 3(c)(1) of the 1937 Act (42 U.S.C. 1437a(c)(1)) defines the 
terms ``development'' and ``development cost.'' Specifically, section 
3(c)(1) defines development to mean ``any and all undertakings 
necessary for planning, land acquisition, demolition, construction, or 
equipment, in connection with a'' public housing project. Further, 
section 3(c)(1) specifies that development cost ``comprises the costs 
incurred by a [PHA] in such undertakings and their necessary financing 
(including the payment of carrying charges), and in otherwise carrying 
out the development of'' the public housing project.
    Section 6(b)(1) of the 1937 Act (42 U.S.C. 1437d(b)(1)) limits the 
amount of public housing funds provided by HUD that a PHA may use to 
pay for the costs of developing a public housing project, unless HUD 
provides otherwise. (For purposes of this preamble, the term ``public 
housing funds'' includes public housing Capital Funds, public housing 
development funds, modernization funds converted to development 
purposes, and HOPE VI program funds.)
    Section 6(b)(2) of the 1937 Act (42 U.S.C. 1437d(b)(2)) directs HUD 
to determine total development cost by multiplying the ``construction 
cost guideline'' for the project ``by averaging the current 
construction costs, as listed in not less than two nationally 
recognized residential construction cost indices, for publicly bid 
construction of a good and sound quality.'' The construction cost 
guideline is then multiplied by 1.6 for elevator type structures and by 
1.75 for non-elevator construction. The statutory total development 
cost (TDC) limit is calculated by adding the resulting amounts for all 
units in the public housing project.

II. Public Housing Reform

    On October 21, 1998, President Clinton signed into law HUD's fiscal 
year (FY) 1999 Appropriations Act, which includes the Quality Housing 
and Work Responsibility Act of 1998 (title V of the FY 1999 HUD 
Appropriations Act; Public Law 105-276; 112 Stat. 2461) (referred to in 
this preamble 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 Public Housing Reform Act enacts 
into law many of the reforms originally proposed in Secretary Andrew 
Cuomo's HUD 2020 Management Reform Plan, HUD's public housing bill and 
Congressional bills that are directed at revitalizing and improving 
HUD's public housing and Section 8 tenant-based programs.
    Section 520 of the Public Housing Reform Act (entitled ``Total 
Development Costs'') makes three revisions to the public housing 
development requirements set forth in the 1937 Act. First, section 
520(a) amends the statutory definition of ``development cost'' to 
specify that such cost ``does not include the costs associated with 
demolition of or remediation of environmental hazards associated with 
public housing units that will not be replaced on the project site, or 
other extraordinary site costs as determined by the Secretary'' of HUD.
    Section 520(b) of the Public Housing Reform Act amends section 6(b) 
of the 1937 Act to provide that the statutory TDC limit applies only to 
public housing funds provided by HUD for use in the development of 
public housing, and does not apply to other funding--such as funding 
under the HOME Investment Partnerships Program or funding under the 
Community Development Block Grants (CDBG) Program.
    Section 520(b) also provides that HUD may limit the amount of 
public housing funds that a PHA may use to pay for housing construction 
costs, including ``the actual hard costs for the construction of units, 
builder's overhead and profit, utilities from the street, and finish 
landscaping.''

III. This Proposed Rule

    HUD's regulations implementing the public housing development 
requirements of the 1937 Act are located at 24 CFR part 941. This 
proposed rule would update part 941 and incorporate the statutory 
amendments made by section 520 of the Public Housing Reform Act. The 
following summarizes the major amendments that would be made to part 
941 by this proposed rule:

A. Amendments to the Definition of TDC (Sec. 941.103)

    1. TDC sub-allocations. In order to better understand and control 
the actual costs involved in the development of a project, the proposed 
rule would amend the definition of TDC in Sec. 941.103 to provide that 
the maximum TDC allocation consists of two sub-

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allocations: housing construction costs and community renewal costs. 
This will enable HUD to identify the actual costs associated with the 
different aspects of the whole development program.
    Housing construction costs are the costs allocated to construct the 
dwelling units. The proposed rule would define the TDC housing 
construction sub-allocation to include costs attributable to:
     Dwelling unit hard costs (including construction and 
equipment);
     Builder's overhead and profit;
     On site streets and utilities from the street;
     Finish landscaping; and
     Davis-Bacon wage rates, as applicable.
    Community renewal costs are the balance of the development costs 
remaining within the TDC limit after the housing construction cost 
allocation is subtracted from the TDC limit. Community renewal costs 
include the costs allocated to renewal of the community, as well as 
certain other costs associated with the development of the public 
housing project. The proposed rule would define the community renewal 
sub-allocation to include costs attributable to:
     Planning (including proposal preparation);
     Administration;
     Site acquisition;
     Relocation;
     Demolition and site remediation of environmental hazards 
associated with public housing units that will be replaced on the 
project site;
     Interest and carrying charges;
     Off-site facilities;
     Community buildings and other HUD-approved non-dwelling 
facilities;
     A contingency allowance;
     Insurance premiums; and
     Any initial operating deficit.
    2. Demolition and site remediation costs. The proposed rule would 
revise the definition of TDC to provide that demolition and site 
remediation costs are included in TDC only to the extent that such 
costs are associated with the development of public housing units on 
the project site.
    3. Extraordinary site costs. In accordance with section 520 of the 
Public Housing Reform Act, the proposed rule would also specify that 
extraordinary site costs as approved by HUD are not included in TDC. 
The proposed rule provides that extraordinary site costs may include, 
but are not limited to: (1) removal or replacement of extensive 
underground utility systems; (2) extensive rock and/or soil removal and 
replacement; (3) construction of extensive street and other public 
improvements; and (4) dealing with unusual site conditions such as 
slopes, terraces, water catchments, and lakes. The proposed rule would 
require that extraordinary site costs be verified by an independent 
certified engineer and approved by HUD.
    4. TDC limit for purposes of the Annual Contributions Contract. 
Currently, the definition of TDC in Sec. 941.103 contains the following 
provision:

    The total development cost in the proposal, when reviewed and 
approved by HUD, becomes the maximum total development cost stated 
in the ACC. Upon completion of the project, the actual development 
cost is determined, and this becomes the maximum total development 
cost of the project for purposes of the ACC.

    For purposes of clarity, this proposed rule would relocate this 
provision to Sec. 941.306, which sets forth the maximum development 
cost requirements for public housing development.

B. Amendments to Maximum Development Cost Requirements (Sec. 941.306)

    The proposed rule would entirely revise Sec. 941.306, which 
establishes the maximum development cost requirements. The following 
summarizes the major changes that would be made to Sec. 941.306 by this 
proposed rule:
    1. Exceptions to TDC limit. Section 6(b) of the 1937 Act permits 
the Secretary of HUD to approve development costs higher than the TDC 
for a public housing project. Section 941.306(a) describes the 
conditions under which the Secretary would approve an exception to the 
TDC. HUD has recently undertaken an intensive process of analysis and 
consultation to establish appropriate cost limits and, therefore, does 
not foresee circumstances under which an exception would be warranted. 
Accordingly, this proposed rule would remove the regulatory language 
regarding exceptions to the TDC limits.
    2. Elaboration of TDC calculation procedures. Currently, 
Sec. 941.306(b) provides that ``HUD will determine the maximum * * * 
TDC in accordance with section 6 of the'' 1937 Act. For the convenience 
of readers, this proposed rule would revise Sec. 941.306(b) to provide 
greater detail regarding the procedures used by HUD in determining the 
TDC for a public housing project.
    In Senate colloquy before passage of the Public Housing Reform Act, 
Senator Mack noted that HUD ``should interpret [section 6(b)(2) of the 
1937 Act] as requiring the use of indices such as the R.S. Means cost 
index for construction of `average' quality and the Marshal & Swift 
cost index for construction of `good' quality'' (Congressional Record 
of October 8, 1998, S. 11840). Accordingly, the proposed rule would 
also specify that HUD will be using these two indices to calculate TDC. 
HUD has the discretion to change the cost indices to other such indices 
which reflect comparable housing construction quality.
    3. Limit on housing construction costs. In accordance with section 
520 of the Public Housing Reform Act, HUD has decided to limit the 
amount of public housing funds that a PHA may use to pay for housing 
construction costs.
    HUD will determine the limit on housing construction costs by 
averaging the housing construction costs listed in at least two 
nationally recognized residential housing construction cost indices for 
specific bedroom sizes and structure types. This formula is the same as 
that used in determining the project TDC, with the exception that the 
multipliers (for elevator type structures and non-elevator type 
structures) are not applied to the average of the two construction 
indices. HUD will use the R.S. Means cost index for construction of 
``average'' quality and the Marshall & Swift cost index for 
construction of ``good'' quality to calculate the limit on housing 
construction costs (HUD has the discretion to change the cost indices 
to other such indices which reflect comparable housing construction 
quality). The balance of the public housing funds provided by HUD for 
the development of the project (up to the maximum TDC allocation) may 
be used to pay for community renewal costs.
    4. TDC applicability to public housing funds. The proposed rule 
clarifies that the TDC limit applies only to costs paid from public 
housing funds provided by HUD to a PHA for use in the development of 
public housing. As provided in section 520 of the Public Housing Reform 
Act, the TDC limit does not apply to other funding provided by HUD to a 
PHA. A PHA may use funding sources not subject to the maximum TDC 
limitation (such as CDBG funds, HOME funds, low-income tax credits, 
private donations, and private financing) to cover project costs that 
exceed the housing cost cap or the maximum TDC amount.

IV. Findings and Certifications

Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under

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Executive Order 12866, Regulatory Planning and Review. OMB determined 
that this rule is a ``significant regulatory action'' as defined in 
section 3(f) of the Order (although not an economically significant 
regulatory action under the Order). Any changes made to this rule as a 
result of that review are 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.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
was made in accordance with HUD regulations in 24 CFR part 50 that 
implement section 102(2)(C) of the National Environmental Policy Act of 
1969 (42 U.S.C. 4223). The Finding is available for public inspection 
between 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

    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 proposed rule would not have 
federalism implications and does not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive Order.

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 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 proposed rule is exclusively concerned with public housing agencies 
that receive capital assistance provided by HUD for the development of 
public housing. The proposed rule would update HUD's public housing 
development regulations at 24 CFR part 941 to incorporate the statutory 
amendments made by section 520 of 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 proposed regulatory 
amendments will not change the amount of capital funding available to 
public housing agencies for the development of public housing. 
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.

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.

List of Subjects in 24 CFR Part 941

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

    For the reasons stated in the preamble, HUD proposes to amend 24 
CFR part 941 as follows:

PART 941--PUBLIC HOUSING DEVELOPMENT

    1. The authority citation for 24 CFR part 941 continues to read as 
follows:

    Authority: 42 U.S.C. 1437b, 1437c, 1437g, and 3535(d).

    2. Revise Sec. 941.102(b)(3) to read as follows:


Sec. 941.102  Development methods and funding.

* * * * *
    (b) * * *
    (3) Funds available to it from any other source, consistent with 
Sec. 941.306(e), or as may be otherwise approved by HUD.
* * * * *
    3. In Sec. 941.103 revise the definition of ``Total development 
cost (TDC)'' to read as follows:


Sec. 941.103  Definitions.

* * * * *
    Total Development Cost (TDC). (1) The sum of all HUD-approved:
    (i) Housing construction costs (as defined in paragraph (2) of this 
definition); and
    (ii) Community renewal costs (as defined in paragraph (3) of this 
definition).
    (2) Housing construction costs are the development costs 
attributable to:
    (i) The dwelling unit hard costs (including construction and 
equipment);
    (ii) Builder's overhead and profit;
    (iii) On-site streets and utilities from the street;
    (iv) Finish landscaping;
    (v) Davis-Bacon wage rates, as applicable.
    (3) Community renewal costs are the development costs attributable 
to:
    (i) Planning (including proposal preparation);
    (ii) Administration;
    (iii) Site acquisition;
    (iv) Relocation;
    (v) Demolition and site remediation of environmental hazards 
associated with public housing units that will be replaced on the 
project site;
    (vi) Interest and carrying charges;
    (vii) Off-site facilities;
    (viii) Community buildings and non-dwelling facilities;
    (ix) A contingency allowance;
    (x) Insurance premiums; and
    (xi) Any initial operating deficit.
    (4) TDC does not include extraordinary site costs, or demolition or 
environmental remediation costs associated with public housing units 
that will not be replaced on the site. Extraordinary site costs must be 
verified by an independent certified engineer and approved by HUD. 
Examples of extraordinary site costs include, but are not limited to:
    (i) Removal or replacement of extensive underground utility 
systems;
    (ii) Extensive rock and/or soil removal and replacement;
    (iii) Construction of extensive street and other public 
improvements; and
    (iv) Dealing with unusual site conditions such as slopes, terraces, 
water catchments, lakes, etc.
* * * * *
    4. Revise Sec. 941.306 to read as follows:


Sec. 941.306  Maximum development cost.

    (a) Limit on approved HUD funds to TDC. (1) No funds provided by 
HUD

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under the Act or the HOPE VI program may be used to pay development 
costs in excess of the TDC.
    (2) The total development cost in the proposal, when reviewed and 
approved by HUD, becomes the maximum TDC stated in the ACC. Upon 
completion of the project, the actual development cost is determined, 
and this becomes the maximum TDC of the project for purposes of the 
ACC.
    (b) Determination of maximum TDC. HUD will determine the maximum 
TDC for a public housing project as follows:
    (1) Step 1: Unit construction cost guideline. HUD will first 
determine the ``construction cost guideline'' for the project by 
averaging the current construction costs as listed in two nationally 
recognized residential construction cost indices for publicly bid 
construction of a good and sound quality for specific bedroom sizes and 
structure types. The two indices HUD will use for this purpose are the 
R.S. Means cost index for construction of ``average'' quality and the 
Marshal & Swift cost index for construction of ``good'' quality. HUD 
has the discretion to change the cost indices to other such indices 
which reflect comparable housing construction quality.
    (2) Step 2: Bedroom size and structure types. The construction cost 
guideline is then multiplied by the number of units for each bedroom 
size and structure type.
    (3) Step 3: Elevator and non-elevator type structures. HUD will 
then multiply the resulting amounts from step 2 by 1.6 for elevator 
type structures and by 1.75 for non-elevator type structures.
    (4) Step 4: Maximum TDC. The maximum TDC for a project is 
calculated by adding the resulting amounts from step 3 for all units in 
the project.
    (c) Limit on housing construction costs. (1) General. As described 
in the definition of TDC in Sec. 941.103, the maximum TDC allocation is 
composed of two sub-allocations: housing construction costs and 
community renewal costs. A PHA may not use funds provided by HUD under 
the Act to pay housing construction costs in excess of the ``housing 
cost cap'' established by HUD.
    (2) Determination of housing cost cap. HUD will determine the 
housing cost cap by averaging the housing construction costs listed in 
at least two nationally recognized residential housing construction 
cost indices for specific bedroom sizes and structure types. The two 
indices HUD will use for this purpose are the R.S. Means cost index for 
construction of ``average'' quality and the Marshal & Swift cost index 
for construction of ``good'' quality. HUD has the discretion to change 
the cost indices to other such indices which reflect comparable housing 
construction quality.
    (3) Balance of TDC allocation. The balance of the funds provided by 
HUD under the Act for the development of the project (up to the maximum 
TDC allocation) may be used to pay for community renewal costs.
    (d) Funds not subject to TDC limit. (1) As noted in paragraph (a) 
of this section, the maximum TDC limit applies only to funds provided 
by HUD under the Act or the HOPE VI program to a PHA and used for the 
development of public housing.
    (2) A PHA may use funding sources not subject to the maximum TDC 
limitation (such as CDBG funds, HOME funds, low-income tax credits, 
private donations, and private financing) to cover project costs that 
exceed the housing cost cap or the maximum TDC amount. The added 
funding, however, may not be used for items that would result in 
substantially increased operating, maintenance or replacement costs, 
and must meet the requirements of section 102 of the HUD Reform Act (42 
U.S.C. 3545).
    (3) Although certain funding sources are not subject to the TDC 
limitations or housing cost cap described in paragraphs (a) and (c) of 
this section, these funds must be included in the project development 
cost budget, and legally acceptable written commitments for such funds 
must be provided by the PHA for HUD approval.

    Dated: December 8, 2000.
Harold Lucas,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 01-212 Filed 1-3-01; 8:45 am]
BILLING CODE 4210-33-P