[Federal Register Volume 67, Number 237 (Tuesday, December 10, 2002)]
[Rules and Regulations]
[Pages 76096-76102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-31080]



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Part VIII





Department of Housing and Urban Development





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24 CFR Part 941



Public Housing Total Development Cost; Final Rule

  Federal Register / Vol. 67, No. 237 / Tuesday, December 10, 2002 / 
Rules and Regulations  

[[Page 76096]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 941

[Docket No. FR-4489-F-02]
RIN 2577-AC05


Public Housing Total Development Cost

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

ACTION: Final rule.

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SUMMARY: This final rule amends HUD's regulations governing the Total 
Development Cost (TDC) limit for the development of public housing. The 
amendments implement statutory changes made to the TDC limit previously 
established by statute. Among other changes, this final rule limits the 
amount of public housing capital assistance that a public housing 
agency may use to pay for housing construction costs. The rule also 
provides that demolition and environmental hazard remediation costs are 
subject to the TDC limit only to the extent that such costs are 
associated with the replacement of public housing units on the project 
site. Further, the final rule provides that other extraordinary site 
costs, as determined by HUD, are not subject to the TDC limit. This 
rule follows publication of a January 4, 2001, proposed rule and takes 
into consideration the public comments received on the proposed rule.

DATES: Effective Date: January 9, 2003.

FOR FURTHER INFORMATION CONTACT: William C. Thorson, Director, Office 
of Capital Improvements, 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, extension 
4999 (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 of 1937 (42 U.S.C. 1437 et seq.) 
(1937 Act) establishes the statutory framework for HUD's public housing 
and various other 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 or all undertakings 
necessary for planning, land acquisition, demolition, construction, or 
equipment, in connection with a low-income housing project. The term 
``low-income housing project'' includes public housing assisted under 
the 1937 Act.
    (a) Prior to the enactment of the Quality Housing and Work 
Responsibility Act of 1998 (QHWRA) (Public Law 105-276, approved 
October 21, 1998), section 3(c)(1) defined the term ``development 
cost'' to mean:
    The costs incurred by a [PHA] in such [development] undertakings 
and their necessary financing (including the payment of carrying 
charges), and in otherwise carrying out the development of such [low 
income housing] project.
    (b) Following the enactment of section 520(a) of QHWRA, the 
definition of ``development cost'' was amended to exclude:
    The costs associated with the 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.
    This final rule amends the Department's public housing development 
regulations at 24 CFR part 941 to implement section 520(a) of QHWRA. 
Specifically, HUD has listed the excluded development costs referenced 
above in a newly defined term called ``Additional Project Costs.'' The 
rule then provides at Sec.  941.306(b)(3) that Additional Project Costs 
are not subject to the TDC limit.
    (a) Under section 6(b)(1) of the 1937 Act (42 U.S.C. 1437d(b)(1)), 
loans or other contributions provided under the 1937 Act for the 
development of public housing may not be used to pay a total 
``development cost'' in excess of the amount calculated under section 
6(b)(2), unless otherwise authorized by HUD. This amount determined 
under section 6(b)(2) is referred to as the total development cost 
(TDC) limit.
    (b) Section 520(b) of QHWRA added a new section 6(b)(3) to the 1937 
Act, which states that in calculating the TDC limit, HUD:
    Shall consider only capital assistance provided by the Secretary to 
a public housing agency that are [sic] authorized for use in connection 
with the development of public housing, and shall exclude all other 
amounts, including amounts provided under [the HOME or CDBG programs.]
    HUD has implemented the above amendment by adding a definition of 
the term ``public housing capital assistance'' to distinguish between 
those funds that are subject to the TDC limit, and other funding 
sources. HUD has defined the term ``public housing capital assistance'' 
to mean assistance provided by HUD under the 1937 Act or the HOPE VI 
program in connection with the development of public housing under 24 
CFR part 941, including Capital Funds provided under section 9(d) of 
the 1937 Act, public housing development funds under section 5 of the 
1937 Act, Operating Fund assistance used for capital purposes under 
section 9(g)(1) or 9(g)(2) of the 1937 Act, and HOPE VI grant funds.
    (c) Section 520(b) of QHWRA added a new section 6(b)(4) to the 1937 
Act, which provides that HUD may restrict the amount of capital funds 
that a PHA may use to pay for housing construction costs, including 
``the actual hard costs for the construction of units, builders'' 
overhead and profit, utilities from the street, and finish 
landscaping.''
    In this final rule, HUD has included definitions of the terms 
``Housing Construction Cost'' (HCC) and ``Community Renewal Cost'' 
(CRC) to clarify the relationship between these two separate 
subcategories of costs that are subject to the TDC limit. The 
definitions of HCC and CRC should also clarify the relationship between 
these costs and Additional Project Costs which, as noted earlier, are 
not subject to the TDC limit. Substantively, the definitions of Housing 
Construction Cost and Community Renewal Cost are almost identical to 
those previously subsumed under the definition of ``Total Development 
Cost'', as set forth in HUD's January 4, 2001, proposed rule (66 FR 
1008).
    The Department also has included a definition of the term ``Total 
Development Cost (TDC) limit'' rather than ``Total Development Cost'' 
as provided in the proposed rule. The TDC limit is defined to mean the 
maximum amount of public housing capital assistance that can be used to 
pay for Housing Construction Costs and Community Renewal Costs in 
connection with the development of a public housing project, as 
determined under Sec.  941.306(b)(2). The rule also provides that the 
TDC limit does not apply to Additional Project Costs. These 
modifications are intended merely to clarify the Department's existing 
policies with respect to the TDC limit, rather than to establish new 
policies.

[[Page 76097]]

II. This Final Rule

    As previously discussed, HUD published a proposed TDC rule on 
January 4, 2001 (66 FR 1008), that sought to amend the Department's 
public housing development regulations at 24 CFR part 941 relating to 
the calculation of TDC limits, in accordance with section 520 of QHWRA. 
This final rule implements section 520 of QHWRA after giving due 
consideration to comments received during the 60-day public comment 
period.
    The preamble of the proposed rule summarized the major amendments 
that would be made to part 941 by this final rule. The most significant 
changes made by this final rule to the January 4, 2001, proposed rule 
are discussed above in Section I of this preamble. The Department has 
also made the following changes in this final rule:
    1. Revision of the definition of Community Renewal Cost (CRC). This 
final rule includes on-site street improvements as a Community Renewal 
Cost, rather than as a Housing Construction Cost (HCC). It was a 
mistake in the proposed rule because site improvements are in the 
community renewal part of the TDC limit.
    2. Revision to HCC applicability. This final rule provides that 
acquisition with/without rehabilitation of existing homes is not 
subject to the HCC, although it is subject to the TDC limit. When a 
unit is acquired it is completely developed. There is no way to 
breakdown the HCC from the TDC limit.
    3. Revision to example of extraordinary site costs. This final rule 
removes construction of extensive street and other public improvements 
as an example of extraordinary site costs that are not subject to the 
TDC limit. These costs are included in the Community Renewal part of 
the TDC limit under site improvements.
    4. Clarification of HUD notification to changes to cost indices. 
This final rule also clarifies that any changes HUD makes to the cost 
indices as listed in Sec.  941.306 will be announced through a notice 
published in the Federal Register.
    5. Exceptions to TDC. This final rule clarifies that PHAs are 
eligible to request a TDC exception for public housing and HOPE VI 
funds awarded to HOPE VI grantees in FY 1996 and prior years. However, 
there will be no exceptions granted for the HCC component within the 
TDC limits. Also, HUD will not grant any exceptions to the TDC limits 
for public housing and HOPE VI funds awarded in FY 1997 and afterwards.

III. Public Comments Generally

    The public comment period for the proposed rule closed on March 5, 
2001. HUD received five comments. Three of the commenters expressed 
concern regarding the proposed changes to the TDC limit and that the 
changes may affect PHAs' ability to meet the supportive service needs 
of public housing households. All five commenters offered suggestions 
to further clarify and strengthen the rule in order to better serve the 
community. Supportive services are not a development cost that would be 
covered by the TDC in any case. The 15% cap on community and supportive 
services for the HOPE VI program is mandated by statute, and does not 
apply to non-HOPE VI programs, i.e., public housing development.

IV. Discussion of Public Comments Received on the January 4, 2001, 
Proposed Rule

    Comment: (a) The TDC cap should only apply to relocation costs 
associated with a pro-rata share of the units to be developed on site. 
(b) The rule should define fair housing-related relocation costs as 
extraordinary costs, subject to exclusion from the TDC under the 
definition of ``Total Development Cost'' in the proposed 24 CFR 
941.103. The commenter stated that the language of section 3(c)(1) 
gives considerable discretion to HUD to fashion such a rule. Another 
commenter stated that such a rule is well within the grant of statutory 
authority.
    HUD Response: Relocation costs are covered under the Community 
Renewal Cost subcategory. This is not a policy change because 
relocation costs have always been subject to the TDC limit. However, 
the statute mandates that HUD use a construction cost guideline based 
on the average of at least two nationally recognized construction cost 
indices for publicly bid construction of a good and sound quality. 
These cost guidelines (which take into account local adjustment 
factors), are then multiplied by a factor of 1.6 or 1.75 for elevator 
and non-elevator structures, respectively. The Department believes that 
these statutory multipliers are adequate to cover relocation costs. 
Therefore, HUD did not change how relocation costs are treated and 
these costs remain subject to the TDC limit. HUD also did not change 
the regulation to include fair housing-related relocation costs as 
extraordinary site costs and thus exclude them from the TDC limit. 
Unusual site conditions, such as extensive rock removal, are listed as 
an Additional Project Cost and, thus, are not subject to the TDC limit.
    Comment: (a) Although permitted by statute, HUD has decided to 
prohibit requests to exceed the TDC limits. HUD is using an arbitrary 
number, the statutory multipliers, to calculate the Community Renewal 
Cost. (b) HUD should retain provisions of existing rules that allow 
exceptions to the TDC limit, and use exception authority to approve a 
higher TDC limit for extraordinary fair housing-related relocation 
costs on a case-by-case basis. The commenter stated that HUD must be 
flexible towards housing authorities that have, for example, 
extraordinary costs for demolition and site remediation as a result of 
mandatory conversion, or extraordinary relocation costs. Another 
commenter suggested to review the current 24 CFR 941.306(a) and retain 
those provisions that allow exceptions to the TDC limit.
    HUD Response: In 1997-1998 HUD had undertaken an intensive process 
of analysis and consultation with construction industry groups. The 
participating groups consisted of the National Association of Housing 
and Redevelopment Officials (NAHRO), Public Housing Authorities 
Director Association (PHADA), and Council of Large Public Housing 
Authorities (CLPHA), to establish appropriate cost limits. This TDC 
limit represents true construction costs and, therefore, does not 
foresee circumstances under which an exception would be warranted.
    The rule does implement section 520 of QHWRA by revising the 
definition of the TDC limit to exclude the costs of demolition, or of 
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 HUD. For example, if a PHA is 
demolishing a 300-unit public housing project and putting only 100 new 
public housing units back on site, only one-third of the costs of 
demolition and site remediation will be used in calculating whether the 
development costs of the public housing units are within the TDC limit. 
Extraordinary site costs, such as removal of extensive underground 
utility systems, which have been verified by an independent engineer, 
are not included in the TDC. Also, the rule permits exceptions to be 
granted by the Secretary for HOPE VI grantees in Fiscal Year 1996 and 
earlier years. However, exceptions to the HCC limit within the TDC will 
not be granted.
    Comment: HUD should establish mechanisms for vigorous oversight of 
relocation requirements, including civil rights-related requirements, 
for all

[[Page 76098]]

public housing developments, including HOPE VI and non-HOPE VI 
development. The commenter wrote that the TDC limit might have 
important consequences in other contexts related to relocation. The 
commenter additionally stated that the formula potentially masks the 
actual costs of relocation, and it may result in a loss of hard units 
where the actual costs of conversion, including relocation, exceed the 
cost of keeping the public housing.
    HUD Response: The oversight of HUD relocation requirements is not 
part of this rulemaking. HUD does not believe an adjustment is merited 
for relocation. As noted, the Department believes that the statutory 
multipliers are adequate to cover relocation costs and, therefore, 
relocation costs remain subject to the TDC limit.
    Comment: (a) The broad wording of the proposed rule may have the 
unintended effect of subjecting two (if not more) important sources of 
supportive services and relocation funds to the TDC limit: grants 
received by PHAs from the Resident Opportunities and Self Sufficiency 
(ROSS) program, and Section 8 rental assistance. (b) HUD should amend 
the definition of ``Total Development Cost'' to state that the TDC does 
not include community and supportive services. The commenter noted that 
both programs use funds provided by HUD under the Act. Further, such a 
result conflicts with previous HUD practice. Additionally, if Section 8 
allocations and ROSS grants were subject to the TDC, the community 
renewal portion of the cap would be rapidly expended, leaving PHAs with 
few tools to adequately accomplish relocation or provide supportive 
services. Another commenter stated that examples of such services 
should include (a) job training activities, (b) day care, (c) 
transportation, (d) educational activities, (e) case management, (f) 
Section 8 counseling, (g) after school programs, and (f) health 
programs.
    HUD Response: HUD agrees with the commenter. The TDC limit, as 
stated in the proposed rule and in this final rule, does not include 
community and supportive services. The Department has clarified in this 
final rule that only public housing capital assistance (as defined at 
Sec.  941.103) is subject to the TDC limit. HOPE VI funds used for 
community and supportive services are capped at a percentage or amount 
as stated in the NOFA of the HOPE VI grant. This is the result of 
statutory requirements in the HOPE VI program and not this TDC 
rulemaking. Section 8 allocations and ROSS funds are not subject to the 
TDC limit.
    Comment: Section 6(b) of the U.S. Housing Act states that, ``[i]n 
calculating the total development cost of a project * * * the Secretary 
shall consider only capital assistance * * *'' 42 U.S.C. 1437d(b)(3). 
No funds for capital assistance provided by HUD under the Act or the 
HOPE VI program should be used to pay development costs in excess of 
the TDC. The commenter stated that the proposed rule is far broader, 
stating that any funds provided under the Act may not be expended in 
excess of the TDC limit. The commenter stated that this provision 
should be added as an amendment to 24 CFR 941.306(d). The only sources 
of financial support specifically exempted from the TDC limit involve 
funds not provided under the Act: Community Development Block Grants 
(CDBG), HOME funds, low-income housing tax credits, private donations 
and private funding. See, proposed 24 CFR 941.306(d).
    HUD Response: HUD agrees with the commenter that section 6(b)(1) of 
the 1937 Act extends the TDC limit to capital assistance under the Act 
provided by HUD in connection with the development of public housing. 
Accordingly, in this final rule, the Department defines the term 
``public housing capital assistance'' to mean assistance provided by 
HUD under the Act or the HOPE VI program in connection with the 
development of public housing under this part, including Capital Fund 
assistance provided under section 9(d) of the 1937 Act, public housing 
development assistance provided under section 5 of the 1937 Act, 
Operating Fund assistance used for capital purposes under section 
9(g)(1) or 9(g)(2) of the 1937 Act, and HOPE VI grant assistance.
    The Department has included all HOPE VI grant funds in the 
definition of ``public housing capital assistance,'' regardless of 
whether the funds are authorized and appropriated under the 1937 or 
under annual appropriations acts. Thus, all HOPE VI funds will be 
subject to the TDC limit. This position is consistent with HUD's policy 
that public housing units developed with HOPE VI funds--regardless of 
whether the funds are authorized and appropriated under the 1937 Act or 
under annual appropriations acts--must be developed in accordance with 
the requirements of the 1937 Act.
    However, in accordance with section 6(b)(3) of the 1937 Act (as 
added by section 520(b) of QHWRA), all other funds are excluded from 
the TDC limit, including funds from CDBG, HOME, low-income tax credits, 
private donations, and private financing. The Department implements 
this requirement at Sec.  941.306(b)(4) of this final rule.
    Comment: A PHA may use funding sources not subject to the TDC limit 
to cover project costs that exceed the Housing Construction Cost limit 
or the TDC limit. A commenter suggested this language as a clarifying 
revision to the proposed 24 CFR 941.306(d).
    HUD Response: HUD agrees with the commenter that a PHA may use 
funding sources not subject to the TDC limit (such as CDBG funds, HOME 
funds, low-income tax credits, private donations, and private 
financing) to cover project costs that exceed the Housing Construction 
Cost limit or the TDC limit. The rule at Sec.  941.306(b)(4) already 
states this.
    Comment: (a) HUD has not updated the current TDC limits in two 
years. (b) HUD should update its TDC at least annually based on 
appropriate cost indexes. The commenter stated that without more 
frequent updates PHAs are forced to comply with outdated TDC 
construction indices without the benefit of the previous method of 
adjusting for inflation by ``trending.'' Another commenter noted that 
the documents published in the Federal Register show figures from 1999 
or earlier. The commenter stated that agencies need up-to-date, 
competitive figures to develop projects with other public or private 
sectors partners. Another commenter wrote that the Department should 
also make available by advance notice the construction cost guidelines 
it will use each year to recalculate the TDC limits.
    HUD Response: HUD agrees that the schedule of unit TDC limits 
should be recalculated annually and it intends to do so based on 
revisions to the national indices. HUD will issue such updates through 
PIH notice, or other appropriate means.
    In a Senate colloquy before passage of the QHWRA 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 Marshall & Swift cost index 
for construction of ``good'' quality'' (Congressional Record of October 
8, 1998, S 11840). The rule specifies that HUD will be using these two 
indices to calculate the TDC limits. HUD expects to rely on these 
indices but will notify the public in advance through Federal Register 
notice if it changes the cost indices to other such indices that 
reflect comparable housing construction quality.
    Comment: HUD has not included in its policy a provision for 
acquisition of

[[Page 76099]]

units for public housing, with or without rehabilitation. The commenter 
asked how HUD would fit these activities into its TDC policy, as 
proposed.
    HUD Response: Acquisition of units of public housing is a 
development method that is covered under this rule (see Sec.  941.102) 
and, accordingly, is subject to the standard TDC limits set forth in 
this rule. However, as noted earlier, the Department has decided not to 
extend the Housing Construction Cost limit to such units, since these 
units have already been developed at the time of acquisition.
    Comment: HUD states it will be able to better understand and 
control the actual costs of the development if the TDC is divided into 
the Housing Construction Cost limit (HCC) and the Community Renewal 
Cost (CRC) limit. The commenter wrote that this suggests that HUD will 
be performing analysis of construction costs in some manner. The 
commenter further suggested that these studies be made available to 
housing agencies and other interested parties to ensure that the TDC 
policy remains a fair and equitable methodology, and that there is an 
opportunity for input into HUD's decision making.
    HUD Response: HUD believes that it will have better control of the 
actual costs of development by dividing the TDC into two components, 
i.e., the HCC and the CRC, and that by doing so housing construction 
costs can be monitored more closely. There is less chance of inflated 
construction costs if there is a check to limit the construction costs 
to the average quality of construction. HUD will be able to detect any 
cost inflation due to extraordinary structure design or amenities. HUD 
does not plan to do any analysis at this time but if it decides to do 
so at a later date the results will be made available to PHAs and other 
interested parties.
    Comment: (a) A workable TDC formula must be comprehensive, 
realistic, and flexible. The TDC must also be constructed to reflect 
the real context and environment in which capital construction and 
development occurs. (b) HUD's rule must incorporate the means to 
respond to the inherent differences and fluctuations that impact 
construction and development costs. The commenter wrote that in order 
to accommodate the wide spectrum of activities covered by the rule, the 
formula has to account for the full range of cost factors that are 
intrinsic to such activities, whether carried out by PHAs or private 
development entities. Another commenter wrote that the fluctuations 
should be considered given the breadth of the rule in terms of the 
activities covered and the various construction markets it covers.
    HUD Response: The TDC limits are developed in accordance with the 
statute. The statute mandates that HUD use a construction cost 
guideline based on the average of at least two nationally recognized 
residential construction cost indices for publicly bid construction of 
good and sound quality. Then, this construction cost guideline (which 
already takes into account local market and other adjustment factors) 
is multiplied by a factor of 1.6 or 1.75 for elevator and non-elevator 
structures, respectively, to establish the TDC limit. HUD has 
established 403 market areas nationwide for purposes of calculating the 
TDC limits. The use of multiple market areas ensures that local market, 
environment and other adjustment factors are reflected in the TDC 
limits for the particular area in which the units are to be 
constructed.
    Comment: The TDC calculation must be formulated in a manner that 
permits PHAs to be fairly compared to other affordable housing 
producers. The commenter wrote that this factor has been increasingly 
important, as the criticism of PHA housing costs have escalated over 
the past several years.
    HUD Response: The TDC limit is required by statute to be based on 
``not less than two nationally recognized residential construction cost 
indices, for publicly bid construction of a good and sound quality''. 
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 construction cost guideline. (HUD has 
the discretion to change the cost indices to other such indices that 
reflect comparable housing construction quality through Federal 
Register notice.) These indices will permit PHAs to be fairly compared 
to other affordable housing producers.
    Comment: The inclusion of planning costs in TDC is not appropriate. 
The commenter wrote that generally, owners do not include such 
predevelopment costs in their development costs pro formas. The 
commenter further noted that if the intent is to manage the cost of 
planning activities, which in some cases apparently have become 
exorbitant, then HUD should address this matter more directly.
    HUD Response: The Department disagrees with this comment, since it 
is inconsistent with the statutory definition of ``development'' in 
section 3(c)(1) of the 1937 Act, which expressly includes ``* * * all 
undertakings necessary for planning * * * [the public housing] 
project.'' In this final rule, such costs are covered as part of the 
Community Renewal Cost subcategory. Community Renewal Costs represent 
the difference between the Housing Construction Cost limit and the TDC 
limit.
    Comment: (a) The TDC formula does not take into consideration 
several significant and essential costs of capital improvement and/or 
redevelopment projects. (b) Dividing the TDC into ``housing 
construction costs'' and ``community renewal costs'' would restrict the 
ability to do development with HUD funding. The commenter wrote that 
the discussion of the elements included in ``housing construction'' or 
``community renewal'' costs include design fees, accounting and legal 
fees, financing fees, or marketing/lease-up costs. Additionally, absent 
from the list of costs is the reserve generally required due to the 
appropriation risk of the public housing operating subsidy. Another 
commenter wrote that its experience has been that the full TDC has not 
been adequate to cover all of development costs. If only a fraction of 
the TDC can be used in the future, then new development may not be 
possible.
    HUD Response: The TDC limit is a statutory cap on the amount of 
public housing capital assistance (as defined in this rule) that can be 
spent on identified development costs related to a public housing 
project. It is not intended to address operating costs, reserves, or 
other line items relating to the management phase of the project. The 
one exception to this relates to the funding of initial operating 
deficits incurred while the project is still in the development phase. 
These costs are considered to be a development cost and, as a result, 
are subject to the TDC limit (under the CRC subcategory). However, 
there is no limit on funds such as CDBG, HOME, low-income tax credits, 
private donations, and private financing to cover project costs that 
exceed the housing cost cap or the maximum TDC limit, or to fund costs 
related to the management phase of the project, e.g., funding of 
operating reserves.
    Comment: The language permitting waivers should not be deleted. The 
commenter wrote that HUD's failure to acknowledge that waivers may be 
necessary to accommodate the varying facts and circumstances of PHAs is 
extremely shortsighted.
    HUD Response: HUD disagrees with the commenter. HUD will not grant 
any exceptions to the TDC limits for public housing and HOPE VI funds 
awarded in FY 1997 and afterwards. By allowing exceptions or waivers, 
HUD will not

[[Page 76100]]

succeed in its mission of providing affordable housing to the maximum 
number of low-income families. A PHA can (under the circumstances 
stated in the rule) use non-public housing sources of funding to cover 
costs that exceed the TDC limit. Further, a PHA will be eligible to 
request a TDC exception for Public Housing and HOPE VI funds awarded to 
HOPE VI grantees in Fiscal Year 1996 and prior years. However, no 
exceptions to the HCC limits within TDC will be granted.
    Comment: In the proposed rule, HUD is decreasing the already-
insufficient amount of public housing funding that can be used for 
construction. The commenter wrote that HUD has arbitrarily divided the 
TDC amount into ``housing construction costs'' allocation and the 
``community renewal'' allocation. The costs for housing construction 
cannot exceed the average R.S. Means and Marshall & Swift estimated 
construction costs. The commenter noted that the community renewal 
allocation could not be used for construction.
    HUD Response: HUD disagrees with the commenter that it has 
arbitrarily divided the TDC limit into a HCC subcategory and a CRC 
subcategory. On the contrary, the Housing Construction Cost subcategory 
limit is derived by multiplying the construction cost guideline (which 
itself is determined by averaging two nationally recognized residential 
construction cost indices, as required by section 6(b)(2) of the 1937 
Act) by the number of public housing units for each bedroom size and 
structure type in the project and adding the resulting figures.
    The TDC limit is established by multiplying the Housing 
Construction Cost limit by the applicable multiplier (i.e., 1.6 or 1.75 
depending on whether the project is an elevator or non-elevator 
structure), as mandated by the statute. As previously noted, the CRC 
limit represents the difference between the HCC limit and the TDC 
limit. Community renewal allocations can be used for the construction 
of maintenance or management facilities for the project.
    Comment: The proposed rule removes what little flexibility was in 
the TDC process, by revoking HUD's authority to approve costs 5-10% 
above the TDC. The commenter noted that under the old regulations HUD 
allowed trending to adjust the TDC construction indices to compensate 
for inflation and allowed the TDCs to be exceeded by 5% at the field 
office level or exceed by up to 10% at the Secretary's level. The 
commenter further noted that flexibility is needed to adjust TDCs for 
inflation between the time of TDC publication and the initial fund 
reservation and the actual start of construction, and to compensate for 
unforeseen and unavoidable extra costs.
    HUD Response: HUD intends to transmit an updated schedule of unit 
TDC limits every year, thus there is no need for trending adjustments. 
A PHA is required to use the TDC limits in effect at the time of 
closing.
    Comment: The proposed rule does not clearly address and may prevent 
future development through direct acquisition of existing homes. One 
commenter wrote that the ``housing construction costs'' allocation of 
the TDC is too low to allow the purchase of existing homes in the Twin 
Cities housing market. The commenter noted further that even the full 
TDC is very hard to work with in this market.
    HUD Response: HUD agrees with the commenter that the HCC 
subcategory of the TDC limit should not be applicable to the 
acquisition of existing homes because items included in the sale of an 
existing home, like cost of land and other development costs, are 
included in the CRC subcategory limit. Therefore, HUD has amended the 
final rule at Sec.  941.306(c)(3) to state that for acquisition with or 
without rehabilitation of existing homes, only the overall TDC is 
applicable and not the HCC cost limit.
    Comment: The proposed rule would further concentrate low-income 
housing in impacted areas. The commenter wrote that the low funding 
levels provided by these TDC regulations would mean that the only 
vacant sites and existing homes that will be affordable for development 
would be in lower income census tracts.
    HUD Response: HUD disagrees. Based on the Department's experience 
with the HOPE VI program and other public housing development activity, 
units have been constructed in mixed-income communities since it first 
revised the TDC policy in 1999 through a HUD Notice.
    Comment: The Housing Construction Cost (HCC) subcategory of the TDC 
limit includes finish landscaping (trees, grass, fencing, walkways, 
etc.) in the per-unit cost equation; conversely, the two indices used 
to derive the HCC (RS Means and Marshall & Swift) exclude finish 
landscaping from the per unit cost equation. The commenter wrote that 
there should be categorizations of costs associated with finish 
landscaping as a Community Renewal Cost.
    HUD Response: HUD disagrees with the commenter because national 
construction cost indices include landscaping around the structure. 
Additional landscaping is included under the Community Renewal Cost 
subcategory of the TDC limit.
    Comment: The HCC subcategory of the TDC limit includes utilities 
from the street in the per-unit cost equation; conversely, the two 
indices used to derive the HCC (RS Means and Marshall & Swift) exclude 
utility tap fees from the per unit cost equation. The commenter wrote 
that there should be categorizations of the utility tap fees as a 
Community Renewal Cost or an extraordinary site cost.
    HUD Response: HUD disagrees with the commenter because the 
Community Renewal Cost subcategory of the TDC limit includes the cost 
of bringing the utilities from the street to the site, which covers 
utility tap fees. Therefore, no separate categorization of this item is 
necessary.
    Comment: The two indices used to derive the HCC (RS Means and 
Marshall & Swift) exclude the cost of on-site streets, driveways, and 
garages from the per-unit cost equation, yet many local jurisdictions 
require the provision of off-street parking. The commenter wrote that 
there should be categorization of any costs associated with the 
provision of jurisdictional mandated off-street parking as a Community 
Renewal Cost.
    HUD Response: The Community Renewal Cost subcategory of the TDC 
limit includes site improvements that cover site streets, driveways, 
curb and gutters, off-street parking and landscaping. Therefore, there 
is no need for separate categorization of these items as suggested by 
the commenter.
    Comment: The two indices used to derive the HCC (RS Means and 
Marshall & Swift) exclude any allowances for the extra cost associated 
with Americans with Disabilities Act (ADA) accessible and ADA adaptable 
units. The commenter suggested establishing an allowance for the added 
cost associated with ADA accessible and ADA adaptable units.
    HUD Response: Generally, only five percent of public housing units 
must meet accessibility and adaptable unit standards. Costs to meet 
these requirements generally fall within the TDC limit. For this 
reason, the Department has not modified the rule in response to this 
comment.
    Comment: The two indices used to derive the HCC (RS Means and 
Marshall & Swift) exclude any allowances for energy efficient windows, 
insulating building materials, and energy efficient mechanical systems. 
Additionally, the Marshall and Swift moderate climate energy package 
includes a ``weighting of single and double glazing.'' The use of 
single glazing and less efficient mechanical systems is in direct

[[Page 76101]]

opposition to Energy Conservation Measures outlined in 24 CFR 965.301. 
The commenter suggested including an allowance of between 5-10% of the 
HCC for the installation of energy efficient glazing, insulating 
building materials, and high-efficiency mechanical systems.
    HUD Response: HUD disagrees with the commenter because the national 
construction cost indices consider the National Building Codes, Fire 
and Safety codes, and Energy Codes in their construction cost 
determination. For this reason, the Department has not modified the 
rule in response to this comment.

V. Findings and Certifications

Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
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 Rules Docket 
Clerk, Office of General Counsel, Room 10276, Department of Housing and 
Urban Development, 451 Seventh Street, SW., Washington, DC 20410-0500.

Environmental Impact

    A Finding of No Significant Impact (FONSI) 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. 4332) at the proposed rule stage. That 
Finding remains applicable and 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 
20410-0500.

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 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 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 receive capital assistance provided by HUD for the development of 
public housing. The final 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 QHWRA. 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 
fewer than 50,000 persons. The number of entities potentially affected 
by this rule is therefore not substantial.
    (2) No Significant Economic Impact. The final 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.

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.

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.

    Accordingly, for the reasons stated in the preamble, HUD amends 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, add, in alphabetical order, definitions of the 
terms ``Additional Project Costs (APC)'', ``Community Renewal Cost 
(CRC)'', ``Housing Construction Cost (HCC)'', and ``Public housing 
capital assistance'' and revise the definition of ``Total development 
cost (TDC)'' to read as follows:


Sec.  941.103  Definitions.

* * * * *
    Additional Project Costs (APC) means the sum of the following HUD-
approved costs related to the development of a public housing project, 
which costs are not subject to the Total Development Cost limit but are 
included in the maximum project cost, as described in Sec.  941.306:
    (1) Demolition of, or remediation of environmental hazards 
associated with, public housing units that will not be replaced on the 
site; and
    (2) Extraordinary site costs that have been verified by an 
independent registered engineer (e.g., removal of underground utility 
systems, and replacement of off-site underground utility systems, 
extensive rock and/or soil removal and replacement, and amelioration of 
unusual site conditions such as unusual slopes, terraces, water 
catchments, lakes, etc.)
* * * * *
    Community Renewal Cost (CRC) means the sum of the following HUD-
approved costs related to the development of a public housing project: 
planning (including proposal preparation), administration, site 
acquisition, relocation, demolition of, 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 non-dwelling facilities, 
contingency allowance, insurance premiums, any

[[Page 76102]]

initial operating deficit, on-site streets, on-site utilities, and 
other costs necessary to develop the project that are not covered under 
APC or Housing Construction Cost.
* * * * *
    Housing Construction Cost (HCC) means the sum of the following HUD-
approved costs related to the development of a public housing project: 
dwelling unit hard costs (including construction and equipment); 
builder's overhead and profit; the cost of extending utilities from the 
street to the public housing project; finish landscaping; and the 
payment of Davis-Bacon wage rates.
* * * * *
    Public housing capital assistance means assistance provided by HUD 
under the Act or the HOPE VI program in connection with the development 
of public housing under this part, including: Capital Fund assistance 
provided under section 9(d) of the Act, public housing development 
assistance provided under section 5 of the Act, Operating Fund 
assistance used for capital purposes under section 9(g)(1) or (g)(2) of 
the Act, and HOPE VI grant assistance.
* * * * *
    Total Development Cost (TDC) limit. The maximum amount of public 
housing capital assistance that can be used to pay for Housing 
Construction Costs and Community Renewal Costs in connection with the 
development of a public housing project, as determined under Sec.  
941.306(b)(2). The TDC limit does not apply to Additional Project 
Costs.

    4. Revise Sec.  941.306 to read as follows:


Sec.  941.306  Maximum project cost.

    (a) Calculation of maximum project cost. The maximum project cost 
represents the total amount of public housing capital assistance used 
in connection with the development of a public housing project, and 
includes: (1) project costs that are subject to the TDC limit (i.e., 
Housing Construction Costs and Community Renewal Costs); and (2) 
project costs that are not subject to the TDC limit (i.e., Additional 
Project Costs). The total project cost to be funded with public housing 
capital assistance, as set forth in the proposal and as approved by 
HUD, becomes the maximum project cost stated in the ACC. Upon 
completion of the project, the actual project cost is determined based 
upon the amount of public housing capital assistance expended for the 
project, and this becomes the maximum project cost for purposes of the 
ACC.
    (b) TDC limit. (1) Public housing capital assistance may not be 
used to pay for Housing Construction Costs and Community Renewal Costs 
in excess of the TDC limit, as determined under paragraph (b)(2) of 
this section. However, HOPE VI grantees will be eligible to request a 
TDC exception for public housing and HOPE VI funds awarded in Fiscal 
Year 1996 and prior years. No exceptions to HCC limits will be granted 
within the TDC limit.
    (2) Determination of TDC limit. HUD will determine the TDC for a 
public housing project as follows:
    (i) Step 1: Unit construction cost guideline. HUD will first 
determine the applicable ``construction cost guideline'' 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 that 
reflect comparable housing construction quality through a notice 
published in the Federal Register.
    (ii) 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.
    (iii) 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.
    (iv) Step 4: TDC limit. The TDC limit for a project is calculated 
by adding the resulting amounts from step 3 for all the public housing 
units in the project.
    (3) Costs not subject to the TDC limit. Additional Project Costs 
are not subject to the TDC limit described in paragraph (b)(2) of this 
section.
    (4) Funds not subject to the TDC limit. A PHA may use funding 
sources not subject to the TDC limit (e.g., CDBG funds, HOME funds, 
low-income tax credits, private donations, private financing, etc.) to 
cover project costs that exceed the TDC limit or the Housing 
Construction Cost limit described in paragraph (c) of this section. 
Such funds, 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). 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.
    (c) Housing Construction Costs. (1) General. A PHA may not use 
public housing capital assistance to pay for Housing Construction Costs 
in excess of the amount determined under paragraph (c)(2) of this 
section.
    (2) Determination of Housing Construction Cost limit. HUD will 
determine the Housing Construction Cost limit as listed in at least 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 that reflect comparable housing construction 
quality through a notice published in the Federal Register. The 
resulting construction cost guideline is then multiplied by the number 
of public housing units in the project based upon bedroom size and 
structure type. The Housing Construction Cost limit for a project is 
calculated by adding the resulting amounts for all public housing units 
in the project.
    (3) The Housing Construction Cost limit is not applicable to the 
acquisition of existing housing, whether or not such housing will be 
rehabilitated. The Total Development Cost limit is applicable to such 
acquisition.
    (d) Community Renewal Costs. Public housing capital assistance may 
be used to pay for Community Renewal Costs in an amount equivalent to 
the difference between the Housing Construction Costs paid for with 
public housing capital assistance and the TDC limit.
    (e) Rehabilitation of existing public housing projects. The HCC 
limit is not applicable and the TDC limit for modernization of existing 
public housing is 90% of the TDC limit as determined under Sec.  
941.306(b)(2). This limitation does not apply to the rehabilitation of 
any property acquired pursuant to Sec.  941.102.

    Dated: December 3, 2002.
Michael M. Liu,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 02-31080 Filed 12-9-02; 8:45 am]
BILLING CODE 4210-33-P