[Federal Register Volume 66, Number 121 (Friday, June 22, 2001)]
[Rules and Regulations]
[Pages 33616-33618]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-15687]



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Part III





Department of Housing and Urban Development





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24 CFR Part 972



Voluntary Conversion of Developments From Public Housing Stock; 
Required Initial Assessments; Final Rule

  Federal Register / Vol. 66, No. 121 / Friday, June 22, 2001 / Rules 
and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 972

[Docket No. FR-4476-F-03]
RIN 2577-AC02


Voluntary Conversion of Developments From Public Housing Stock; 
Required Initial Assessments

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

ACTION: Final rule.

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SUMMARY: On July 23, 1999, HUD published for public comment a proposed 
rule to implement statutory changes authorizing Public Housing Agencies 
(PHAs) to convert a development to tenant-based assistance where the 
conversion would satisfy statutory objectives. The statute requires 
every PHA to conduct and submit to HUD an initial assessment for its 
development no later than October 1, 2001. Given this statutory 
deadline, HUD is issuing this final rule, which provides regulatory 
guidance on the preparation and submission of the required initial 
assessments in a streamlined, simplified form. The final rule also 
takes into consideration the public comments received on the initial 
assessment requirements contained in the July 23, 1999 proposed rule. 
HUD is currently developing its more comprehensive final rule on 
voluntary conversions, and expects to publish this final rule in the 
near future.

DATES: Effective Date: July 23, 2001.

FOR FURTHER INFORMATION CONTACT: Rod Solomon, Deputy Assistant 
Secretary for Policy, Program and Legislative Initiatives, Department 
of Housing and Urban Development, Office of Public and Indian Housing, 
451 Seventh Street, SW, Room 4116, Washington, DC 20410; telephone 
(202) 708-0713 (this is not a toll-free telephone number). Persons with 
hearing or speech disabilities may access this number via TTY by 
calling the free Federal Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    On July 23, 1999 (64 FR 40240), HUD published for public comment a 
proposed rule to implement section 22 of the United States Housing Act 
of 1937 (42 U.S.C. 1437 et seq.) (the ``1937 Act''), as amended by 
section 533 of the Quality Housing and Work Responsibility Act of 1998 
(Title V of the Fiscal Year 1999 HUD Appropriations Act; Public Law 
105-276, approved October 21, 1998) (``QHWRA''). Amended section 22 
authorizes Public Housing Agencies (PHAs) to convert a development to 
tenant-based assistance by removing the development (or a portion of a 
development) from its public housing inventory and providing for the 
relocation of, or the provision of tenant-based assistance to, the 
residents. This action is permitted only when that change would be cost 
effective, be beneficial to residents of the development and the 
surrounding area, and not have an adverse impact on the availability of 
affordable housing. The July 23, 1999 proposed rule would implement the 
voluntary conversion requirements through the creation of a new 24 CFR 
part 972, subpart B.
    Amended section 22 also requires every PHA to conduct and submit to 
HUD an initial assessment for its developments no later than October 1, 
2001 (see section 22(b)(2) of the 1937 Act and Sec. 972.207(a) of the 
July 23, 1999 proposed rule). However, the statute gives HUD the 
authority to exempt certain classes of developments from this 
requirement, or to streamline the requirements of the required initial 
assessment. In the proposed rule, HUD streamlined the requirements of 
the required initial assessment, but proposed to require that every PHA 
review and determine the best course of action with respect to each 
development that it operates as public housing.
    Given the statutory deadline for submission of the required initial 
assessments, HUD is issuing this final rule, which provides regulatory 
guidance on the preparation and submission of these assessments in a 
streamlined, simplified form. The final rule also takes into 
consideration the public comments received on the proposed initial 
assessment requirements. HUD is currently developing its more 
comprehensive final rule on voluntary conversions, which will address 
all other public comments received on the July 23, 1999 proposed rule. 
HUD expects to publish this final rule in the near future.
    Nothing in this final rule would preclude a PHA from converting a 
development (or portion of a development) at a later time, subject to 
the requirements that will be established in HUD's upcoming 
comprehensive final rule on voluntary conversions.

II. Significant Differences Between This Final Rule and July 23, 
1999 Proposed Initial Assessment Requirements

    For the convenience of readers, this section of the preamble 
briefly summarizes the most significant differences between the initial 
assessment requirements contained in the July 23, 1999 proposed rule 
and the initial assessment procedures contained in this final rule. 
These revisions are discussed in greater detail elsewhere in this 
preamble. The major changes made by this final rule to the proposed 
initial assessment requirements are as follows:

A. Reorganization of Required Initial Assessment Requirements

    For purposes of clarity, this final rule consolidates the 
regulatory provisions concerning the preparation and submission of the 
required initial assessments in a single section (Sec. 972.200). The 
July 23, 1999 proposed rule addressed these requirements in various 
sections (most significantly Secs. 972.207 and 972.211).

B. Exemption of Elderly/Disabled Developments From Initial Assessment 
Requirements

    The final rule exempts developments designated for occupancy by the 
elderly and/or persons with disabilities from the initial assessment 
requirements. HUD believes that few such developments are likely to be 
proposed for voluntary conversion, and that including such developments 
in the required initial assessment process is unnecessary and could be 
confusing to the public. The additional exemption also will alleviate 
burden on PHAs, and focus the initial assessments on family (i.e., 
general occupancy) developments which are more likely to merit 
consideration for voluntary conversion in some instances.

C. Further Streamlined Initial Assessment Procedures

    The final rule expands the availability of the streamlined initial 
assessment process to all PHAs, not just those that have received 
passing scores on the physical condition indicator of the Public 
Housing Assessment System (PHAS). This is necessary because of the 
advisory status of prior PHAS scores. The proposed rule would have 
required that PHAs failing the PHAs physical conditions indicator 
conduct cost analyses comparing the cost of continuing to operate their 
developments as public housing with the cost of providing tenant-based 
assistance.
    Irrespective of the results of the required initial assessments for 
particular developments, PHAs retain the discretion whether to propose 
any particular development for voluntary conversion at a later time.

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III. Overview of Final Rule

A. General

    This final rule implements the initial assessment requirements in a 
new Sec. 972.200. A PHA must conduct a required initial assessment once 
for each of its developments, unless the developments falls under one 
of the four following categories:
    1. The development is subject to required conversion under 24 CFR 
part 971;
    2. The development is the subject of an application for demolition 
or disposition that has not been disapproved by HUD;
    3. The development has been awarded a HOPE VI revitalization grant; 
or
    4. The development is designated for occupancy by the elderly and/
or persons with disabilities (i.e., is not a general occupancy 
development).

B. Certification Procedure

    The final rule requires that a PHA certify that it has reviewed 
each development's operation as public housing and considered the 
implications of converting the public housing to tenant-based 
assistance. Further, the PHA must certify that, based on its review, 
the PHA has concluded that conversion of the development is likely to 
be either appropriate or inappropriate. Conversion of a public housing 
development is appropriate only if the PHA concludes that conversion 
will: (1) Not be more expensive than continuing to operate the 
development (or portion of it) as public housing; (2) principally 
benefit the residents of the public housing development to be converted 
and the community; and (3) not adversely affect the availability of 
affordable housing in the community.

C. Timing of Submission

    The results of each required initial assessment (consisting of the 
certification described above) must be submitted to HUD as part of the 
next PHA Annual Plan after its completion. A PHA must maintain 
documentation of the reasoning with respect to each required initial 
assessment.
    As noted, the statute provides that each PHA must prepare and 
submit their required initial assessments by October 1, 2001. HUD 
appreciates the impact of the timing of today's publication on PHAs' 
ability to complete the required initial assessments by the statutory 
deadline. HUD expects PHAs now to proceed expeditiously and responsibly 
to complete the required initial assessments.

IV. Discussion of Public Comments On Proposed Initial Assessment 
Procedures

    The public comment period on the proposed rule closed on September 
21, 1999. By close of business on this date, HUD had received 6 public 
comments on the proposed rule. Comments were submitted by a private 
citizen; a PHA; two of the three main organizations representing PHAs; 
and two legal aid organizations. This section of the preamble presents 
a summary of the significant issues raised by the public commenters 
regarding the proposed initial assessment requirements and HUD's 
responses to these comments. HUD's comprehensive final rule on 
voluntary conversions will address the issues raised by the commenters 
on all other provisions of the July 23, 1999 proposed rule.
    Comment: PHAS should not be used in the required initial assessment 
process. Three commenters opposed the use of the PHAS in the required 
initial assessment process. The commenters wrote that the PHAS ``is not 
fully functional, and in many cases the results of the PHAS do not 
accurately reflect the quality of the building and its units.'' The 
commenters suggested that ``no workload or official determinations 
[should] be made on the basis of PHAS until such time as the system'' 
is fully in place. One of the commenters wrote that until the PHAS is 
finalized, all PHAs should be permitted to prepare fully streamlined 
assessments.
    HUD Response. HUD has revised the proposed rule to adopt the 
suggestion made by these public commenters. The final rule expands the 
availability of the streamlined initial assessment process to all PHAs, 
not just those that have received passing scores on the PHAS physical 
condition indicator. HUD believes that Congressional intent was to 
ensure that every PHA review the operations of developments operated as 
public housing, and determine if conversion would be appropriate. 
However, as noted elsewhere in this preamble, Congress did not intend 
for the initial assessment process to place an undue burden on PHAs, 
and therefore gave HUD broad authority to waive or provide for 
streamlined assessments. Allowing all PHAs to make use of the 
streamlined certification process for the one-time initial assessments 
will further both objectives. Although PHAs will no longer be required 
to conduct a full cost-analysis, each PHA must review and certify to 
the best course of action with respect to the developments that it 
operates as public housing.
    Comment: PHAs should be allowed to submit a streamlined initial 
assessment consisting of a basic market study assessing the viability 
of market units for possible Section 8 assistance. One commenter wrote 
that ``many smaller PHAs and market areas have little or no market 
units suitable or affordable for the Section 8 program.'' The commenter 
wrote that, under such circumstances, ``no conversion plan however well 
developed would have any basis in reality.'' Therefore, the commenter 
urged that these PHAs be given the option of submitting a streamlined 
assessment consisting solely of a basic market study assessing the 
viability of market units for possible Section 8 assistance. ``Given 
the nature of the localities and the PHA knowledge of the market, this 
assessment should not prove difficult as an option to the full cost 
analysis.''
    HUD Response. HUD has revised the proposed rule to be more 
sensitive to the concerns expressed by the commenter. As noted in the 
response to the preceding comments, HUD has streamlined the required 
initial assessment procedures for all PHAs.

V. Findings and Certifications

Public Reporting Burden

    The information collection requirements for the voluntary 
conversion program have been approved by the Office of Management and 
Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520) and assigned OMB Control Number 2577-0234. In accordance with the 
Paperwork Reduction Act, HUD may not conduct or sponsor, and a person 
is not required to respond to, a collection of information unless the 
collection displays a currently valid OMB control number.

Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)) (the RFA), has reviewed and approved this 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 entities that are subject to this rule are PHAs that administer 
public housing. Under the definition of ``Small governmental 
jurisdiction'' in section 601(5) of the RFA, the provisions of the RFA 
are applicable only to those PHAs that are part of a political 
jurisdiction with a population of under 50,000

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persons. The number of entities potentially affected by this rule is 
therefore not substantial.
    (2) No Significant Economic Impact. This rule requires PHAs to 
perform required initial assessments for their public housing 
developments using readily available data to determine whether those 
developments should be converted to tenant-based assistance. HUD has 
used its broad statutory authority to streamline the content of the 
required initial assessments. This is a one-time requirement as 
contemplated by QHWRA. Smaller PHAs will have fewer developments to 
consider, and the burden on them should consequently be proportionally 
smaller. Ultimately, the goal of the rule is to promote more efficient 
delivery of affordable housing to residents of current public housing 
developments. This efficiency should benefit small PHAs and large PHAs 
alike. Accordingly, the economic impact of this rule will not be 
significant, and it will not affect a substantial number of small 
entities.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969 (42 U.S.C. 4223). The Finding of No Significant Impact is 
available for public inspection between the hours of 7:30 a.m. and 5:30 
p.m. weekdays in the Office of the Rules Docket Clerk, Office of 
General Counsel, Room 10276, Department of Housing and Urban 
Development, 451 Seventh Street, SW, Washington, DC 20410.

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 final rule does 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.

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 final rule does not impose any 
Federal mandates on any State, local, or tribal governments or the 
private sector within the meaning of Unfunded Mandates Reform Act of 
1995.

Regulatory Planning and Review

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

Catalog of Federal Domestic Assistance Number

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

List of Subjects in 24 CFR Part 972

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

    For the reasons discussed in the preamble, HUD amends chapter IX of 
title 24 of the Code of Federal Regulations by adding part 972 to read 
as follows:

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

Subpart A--[Reserved]
Subpart B--Voluntary Conversion of Public Housing Developments
Sec.
972.200   Required initial assessments.

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

Subpart A--[Reserved]

Subpart B--Voluntary Conversion of Public Housing Developments


Sec. 972.200  Required initial assessments.

    (a) General. A PHA must conduct a required initial assessment, in 
accordance with this section, once for each of its developments, 
unless:
    (1) The development is subject to required conversion under 24 CFR 
part 971;
    (2) The development is the subject of an application for demolition 
or disposition that has not been disapproved by HUD;
    (3) A HOPE VI revitalization grant has been awarded for the 
development; or
    (4) The development is designated for occupancy by the elderly and/
or persons with disabilities (i.e., is not a general occupancy 
development).
    (b) Certification procedure. For each development, the PHA shall 
certify that it has:
    (1) Reviewed the development's operation as public housing;
    (2) Considered the implications of converting the public housing to 
tenant-based assistance; and
    (3) Concluded that conversion of the development may be:
    (i) Appropriate because removal of the development would meet the 
necessary conditions for voluntary conversion described in paragraph 
(c) of this section; or
    (ii) Inappropriate because removal of the development would not 
meet the necessary conditions for voluntary conversion described in 
paragraph (c) of this section.
    (c) Necessary conditions for voluntary conversion. Conversion of a 
public housing development may be appropriate if the PHA concludes that 
conversion will:
    (1) Not be more expensive than continuing to operate the 
development (or portion of it) as public housing;
    (2) Principally benefit the residents of the public housing 
development to be converted and the community; and
    (3) Not adversely affect the availability of affordable housing in 
the community.
    (d) Documentation. A PHA must maintain documentation of the 
reasoning with respect to each required initial assessment.
    (e) Timing of submission. Consistent with statutory submission 
requirements, the results of each required initial assessment 
(consisting of the certification described in paragraph (b) of this 
section) must be submitted to HUD as part of the next PHA Annual Plan 
after its completion.

    Dated: June 12, 2001.
Mel Martinez,
Secretary.
[FR Doc. 01-15687 Filed 6-21-01; 8:45 am]
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