[Federal Register Volume 68, Number 180 (Wednesday, September 17, 2003)]
[Rules and Regulations]
[Pages 54600-54612]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-23026]



[[Page 54599]]

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

Part IV





Department of Housing and Urban Development





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



24 CFR Part 972



Required and Voluntary Conversion of Developments From Public Housing 
Stock; Final Rules and Proposed Rule

  Federal Register / Vol. 68, No. 180 / Wednesday, September 17, 2003 / 
Rules and Regulations  

[[Page 54600]]


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

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 972

[Docket No. FR-4475-F-02]
RIN 2577-AC01


Required Conversion of Developments From Public Housing Stock

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

ACTION: Final rule.

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

SUMMARY: This final rule implements section 537 of the Quality Housing 
and Work Responsibility Act of 1998. Section 537 requires Public 
Housing Agencies (PHAs) to identify distressed public housing 
developments that must be converted to tenant-based assistance. If it 
would be more expensive to modernize and operate a distressed 
development for its remaining useful life than to provide tenant-based 
assistance to all residents, or the PHA cannot assure the long-term 
viability of a distressed development, then it must develop and carry 
out a plan to remove the development from its public housing inventory 
and convert it to tenant-based assistance. Since the cost methodology 
necessary to conduct the cost comparisons for required conversions has 
not yet been finalized, PHAs are not required to undertake conversions 
under this final rule until the effective date of the cost methodology. 
HUD is publishing a proposed rule elsewhere in today's Federal Register 
to provide the public with an opportunity to comment on the methodology 
that HUD proposes be used for the required cost comparisons. This final 
rule follows publication of a July 23, 1999, proposed rule and takes 
into consideration the public comments received on the proposed rule.

DATES: Effective Date: March 15, 2004.

FOR FURTHER INFORMATION CONTACT: Bessy Kong, Acting 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 20410-5000; 
telephone (202) 708-0713 (this is not a toll-free telephone number). 
Persons with hearing or speech impairments may access this number via 
TTY by calling the toll-free Federal Information Relay Service at 1-
800-877-8339.

SUPPLEMENTARY INFORMATION: 

I. Background

A. The July 23, 1999, Proposed Rule

    On July 23, 1999 (64 FR 40232), HUD published for public comment a 
proposed rule implementing section 537 of the Quality Housing and Work 
Responsibility Act of 1998 (Title V of the Fiscal Year 1999 HUD 
Appropriations Act; Pub. L. 105-276, approved October 21, 1998) 
(QHWRA). Section 537 of QHWRA added a new section 33 to the United 
States Housing Act of 1937 (42 U.S.C. 1437 et seq.) (1937 Act). Section 
33 requires Public Housing Agencies (PHAs) to annually review their 
public housing inventory and identify distressed developments that must 
be converted to tenant-based assistance. If it would be more expensive 
to modernize and operate a distressed development for its remaining 
useful life than to provide tenant-based assistance to all residents, 
or the PHA cannot assure the long-term viability of a distressed 
development, then it must develop and carry out a plan to remove the 
development from its public housing inventory and convert it to tenant-
based assistance. In the July 23, 1999, proposed rule HUD proposed to 
implement the provisions for required conversions through the creation 
of a new 24 CFR part 972, subpart A.

B. Relationship to Required Conversion Under Section 202 of the FY 1996 
HUD Appropriations Act

    Section 537 of QHWRA also repealed section 202 of the Fiscal Year 
1996 HUD Appropriations Act (42 U.S.C. 1437l note). Section 202 
provided for a program of required conversion of distressed public 
housing. HUD implemented section 202 by issuing the regulations located 
at 24 CFR part 971. Although section 202 has been repealed, 
developments that were identified by PHAs or by HUD--before the 
enactment of QHWRA--for conversion, or for assessment of whether such 
conversion is required, continue to be subject to the requirements of 
section 202 and the part 971 regulations implementing that section 
until such requirements are satisfied. Thereafter, the provisions of 
this final rule apply to any remaining public housing on the sites of 
those developments.

C. Relationship to Voluntary Conversion

    In addition to revising the statutory provisions for required 
conversions, QHWRA created a program of voluntary conversions. Section 
533 of QHWRA revised section 22 of the 1937 Act, entitled ``Authority 
to Convert Public Housing to Vouchers.'' A separate proposed rule was 
published on July 23, 1999 (64 FR 40240), to implement these provisions 
through a new 24 CFR part 972, subpart B. The final rule that will make 
these amendments effective is published elsewhere in today's Federal 
Register.

II. This Final Rule

    This final rule establishes regulatory policies and procedures for 
the program of required conversions authorized under section 33 of the 
1937 Act. The final rule follows publication of the July 23, 1999, 
proposed rule and takes into consideration the public comments received 
on the proposed rule. The major changes made by this final rule to the 
July 23, 1999, proposed rule are summarized below.

A. General Changes

    1. Reorganization and clarification of required conversion 
requirements. For purposes of clarity, this final rule reorganizes and 
consolidates several of the regulatory provisions contained in the 
proposed rule. For example, the final rule now groups all regulatory 
provisions concerning similar subject matter (such as the required 
conversion process and conversion plans) under headings that identify 
the subject of the related requirements. In addition, the final rule 
replaces the question and answer format used in the proposed rule with 
standard section headings that identify the subject of the regulatory 
provisions. Further, a new section (Sec.  972.106) has been added, 
which summarizes the required conversion process.
    2. Applicability of the Uniform Relocation Act. The final rule adds 
a new Sec.  972.118, which affirms that, to the extent that tenants are 
displaced as a direct result of the demolition, acquisition, or 
rehabilitation of federally-assisted property converted pursuant to 
this final rule, the requirements of the Uniform Relocation Assistance 
and Real Property Acquisition Policies Act of 1970 (42 U.S.C. 4601) 
(URA), and the implementing regulations issued by the Department of 
Transportation at 49 CFR part 24, apply.

B. Changes Regarding Identification of Developments Subject to Required 
Conversion

    1. Revised vacancy rate for purposes of determining distress. HUD 
has revised the rule to provide that, for the first five years 
following the effective date of this final rule, a 15 percent vacancy 
rate will be used for purposes of determining whether a development is 
subject to required conversion. A 12

[[Page 54601]]

percent vacancy rate will be used after the expiration of this five-
year period. The use of the 15 percent vacancy rate will allow PHAs and 
HUD to focus their conversion efforts on the most distressed public 
housing during the initial implementation of the final rule.
    2. Prevention of intentional vacancies. The final rule adds a new 
provision that prevents the intentional creation of vacancies by PHAs 
for purposes of triggering a required conversion. Specifically, the 
final rule provides that vacant units will not be considered in the 
determination of distress if HUD, in its sole discretion, determines 
that the vacancies were created intentionally and do not indicate 
continued distress.
    3. Standards for distressed properties. The final rule provides 
that a property that meets the standards for a distressed development 
will not be considered to be distressed if HUD determines that the 
reasons the property meets such standards are temporary in duration and 
are unlikely to recur.
    4. Income-mix standard. HUD has revised the income-mix component of 
the long-term viability test to more closely track the statutory 
language of section 33. Specifically, the final rule provides that a 
development satisfies the income-mix requirements if, after reasonable 
investment for the specified period of time, it is probable that the 
development ``can achieve a broader range of family income.''
    5. Reasonableness of proposed revitalization costs for viability. 
In order for a development to satisfy the long-term viability test, the 
proposed revitalization costs for viability must be reasonable. The 
proposed rule provided that the revitalization cost estimate contained 
in the PHA's most recent comprehensive plan for modernization should be 
used for this purpose. However, since HUD no longer requires 
comprehensive plans for modernization, this final rule provides that a 
PHA shall use the revitalization cost estimate contained in the PHA's 
most recent Annual Plan or 5-Year Plan, unless the PHA demonstrates, or 
HUD determines, that another cost estimate is clearly more realistic to 
ensure viability and to sustain the operating costs.

C. Changes Regarding Conversion Plan Requirements

    1. Relocation Plan. The final rule provides that the relocation-
related requirements of a conversion plan must be contained in a 
relocation plan, which must include a budget for carrying out 
relocation activities.
    2. Schedule for the provision of moving expenses. The final rule 
clarifies that any required conversion plan must also include a 
schedule for providing actual and reasonable relocation expenses, as 
determined by the PHA, to families displaced by the conversion.
    3. URA notices of displacement. For purposes of clarity, HUD has 
revised the rule to more closely conform to the notice requirements of 
the URA and the implementing regulations at 49 CFR part 24. As required 
by 49 CFR 24.203, if a required conversion is subject to the URA, PHAs 
must provide families scheduled to be displaced with a General 
Information Notice, a Notice of Relocation Eligibility or Notice of 
Non-displacement (as applicable), and a 90-day advance notice of the 
earliest date by which a resident may be required to move.
    The General Information Notice provides families subject to 
displacement with certain information regarding their rights under URA. 
Under the URA regulation at 49 CFR 24.203, persons subject to 
displacement must be provided with the General Information Notice ``as 
soon as feasible.'' Accordingly, this final rule requires that the PHA 
provide families with the General Information Notice no later than the 
date the conversion plan is submitted to HUD.
    The Notice of Relocation Eligibility advises families subject to 
displacement that they are eligible for relocation assistance as of a 
certain date that agencies are free to define (called the ``date of 
initiation of negotiations'' in the URA regulations). This final rule 
provides that, for purposes of required conversions, the ``date of 
initiation of negotiations'' shall be the date that HUD approves the 
conversion plan.
    HUD Handbook 1378.0, ``Tenant Assistance, Relocation and Real 
Property Acquisition'' (issued on March 28, 1996), provides additional 
details and helpful information regarding the basic statutory and 
regulatory requirements that must be followed by an agency that carries 
out real property acquisition or the displacement of a person for a 
project or program for which HUD financial assistance is provided, 
including the notice requirements discussed above. Interested persons 
may download a copy of Handbook 1378.0 through HUD's Client Information 
and Policy System (HUDCLIPS) Web page at http://www.hudclips.org.
    4. Provision of voucher assistance used for relocation. The final 
rule provides that, where Section 8 voucher assistance is being used 
for relocation, the vouchers must be provided to the family at least 90 
days before conversion.
    5. Comparable housing in the form of tenant-based assistance. The 
final rule revises the ``comparable housing'' requirements of the 
proposed rule to more closely track the statutory language of section 
33 of the 1937 Act. Specifically, the final rule provides that families 
displaced as a result of conversion be offered comparable housing, 
which may include tenant-based or project-based assistance, or 
occupancy in a unit operated or assisted by the PHA. Further, if 
tenant-based assistance is used, the comparable housing requirement is 
fulfilled only upon relocation of the family into such housing.
    6. Mobility counseling. For purposes of clarity, this final rule 
specifies that the required PHA counseling to displaced families must 
include appropriate mobility counseling. The PHA may finance the 
mobility counseling using Operating Fund, Capital Fund, or Section 8 
administrative fee funding.
    7. Certification of consistency with Consolidated Plan. The final 
rule clarifies that if a PHA elects to satisfy the consultation 
requirements by certifying that its conversion plan is consistent with 
the Consolidated Plan, this certification may be the same certification 
as is required for the PHA Annual Plan that includes the conversion 
plan, so long as the certification specifically addresses the 
conversion plan.
    8. Clarification of consultation requirements. The final rule 
clarifies that the PHA must hold at least one meeting with the 
residents of the affected sites. The language of the proposed rule 
would have required one meeting between the PHA and residents, but was 
silent regarding the possibility of the PHA sponsoring additional 
meetings. This final rule also clarifies that the PHA must meet to 
discuss the required conversion with any duly elected resident council 
that covers the development in question.
    9. Incorporation of conversion plan in PHA Plan. As provided in the 
July 23, 1999, proposed rule, this final rule requires that a PHA must 
submit any required conversion plan as part of the PHA's Annual Plan. 
Since the cost methodology necessary to conduct the required cost 
comparisons has not yet been finalized, this final rule provides that 
this requirement will not become effective until PHA fiscal years 
commencing six months after the effective date of the cost methodology. 
A proposed cost methodology was contained in HUD's July 23, 1999, 
proposed rule on voluntary conversions (although the methodology also 
applies

[[Page 54602]]

to required conversions). HUD has decided to significantly revise the 
cost methodology, based both on the public comments received on the 
voluntary conversion proposed rule and upon further consideration of 
the cost factors that should be assessed by PHAs in making conversion 
determinations. Accordingly, HUD has decided to issue a new proposed 
rule published elsewhere in today's Federal Register, which provides 
the public with an additional opportunity to comment on the methodology 
that will be used for the required cost comparisons.
    Since the cost methodology necessary to conduct the required cost 
comparisons has not yet been finalized, HUD is delaying the effective 
date of this rule for a period of six months (180 days) following 
publication (as opposed to the customary 30-day period). HUD's goal is 
to have a final rule establishing the cost methodology in effect by 
this date. Delaying the effective date of this rule for six months will 
permit the final rule to take effect as close as possible to the 
targeted effective date for the cost methodology.
    While the cost methodology is being completed, PHAs may wish to 
prepare for required conversions by using the proposed methodology 
contained in the HUD proposed rule being published today. However, 
because the final methodology may differ from what is contained in the 
proposed rule, PHAs should not assume that the proposed cost test will 
be final with respect to possible required or voluntary conversions. 
HUD will revise the PHA Plan instructions to accommodate submission of 
any required conversion plan.

D. Change Regarding HUD Actions With Respect to Required Conversions

    1. Clarification of HUD Actions with Respect to Required 
Conversions. The final rule clarifies the actions HUD will take if a 
PHA fails to properly identify a development for required conversion, 
or does not submit a conversion plan for a development in the PHA 
Annual Plan following the Annual Plan in which the development was 
identified as subject to required conversion. Specifically, the final 
rule provides that HUD will disqualify the PHA from HUD funding 
competitions and direct the PHA to cease additional spending in 
connection with a development that meets, or is likely to meet, the 
statutory criteria, except to the extent that failure to expend such 
amounts would endanger health or safety. HUD may also take any or all 
of the following actions: (1) Identify developments that fall within 
the statutory criteria where the PHA has failed to do so properly; (2) 
take appropriate actions to ensure the conversion of developments where 
the PHA has failed to adequately develop or implement a conversion 
plan; (3) require the PHA to revise the conversion plan, or prohibit 
conversion, where HUD has determined that the PHA has erroneously 
identified a development as being subject to the requirements of this 
section; (4) authorize or direct the transfer of capital or operating 
funds committed to or on behalf of the development (including 
comprehensive improvement assistance, comprehensive grant or Capital 
Fund amounts attributable to the development's share of funds under the 
formula, and major reconstruction of obsolete projects funds) to 
tenant-based assistance or appropriate site revitalization for the 
agency; and (5) any other action that HUD determines appropriate and 
has the authority to undertake.
    2. HUD review of conversion plans. The final rule clarifies that 
HUD anticipates that its review of a conversion plan will ordinarily 
occur within 90 days following submission of a complete plan by the 
PHA. A longer process may be required where HUD's initial review of the 
plan raises questions that require further discussion with the PHA. In 
any event, HUD will provide all PHAs with a preliminary response within 
90 days following submission of a conversion plan.

III. Discussion of Public Comments Received on the July 23, 1999, 
Proposed Rule

    The public comment period closed on September 21, 1999. By close of 
business on this date, HUD had received five public comments. Comments 
were submitted by 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 on the July 23, 1999, proposed rule and HUD's 
responses to these comments.

A. Comments Regarding Standards for Identifying Public Housing 
Developments Subject to Required Conversion (Sec.  972.04 of the 
Proposed Rule; Sec.  972.124 of This Final Rule)

    The proposed rule at Sec.  972.104 described the standards for 
identifying public housing developments subject to required conversion.
1. Comments Regarding the Required Vacancy Rate
    Comment: Proposed definition of ``distressed housing'' failed to 
consider factors that may be relevant to conversion. Three commenters 
wrote that the proposed vacancy rate was overly inclusive and did not 
comport with the guidelines established by the Commission on Severely 
Distressed Public Housing (hereafter ``the Commission''). The 
commenters were concerned that viable developments would unfairly be 
required to conduct the required cost analysis. One of the commenters 
wrote that the proposed rule did not consider current market and 
employment conditions that affect the vacancy rate. The commenter also 
wrote that the proposed rule failed to address the fact that 
developments may become distressed due to lack of modernization 
funding. Another commenter wrote that the proposed 10 percent vacancy 
rate was too low, and noted that the Commission used a 15 percent 
vacancy rate.
    HUD Response. HUD has revised the rule to be more sensitive to the 
concerns expressed by the commenters. Specifically, the final rule 
raises the vacancy rate used for purposes of determining distress from 
10 percent to 15 percent for the first five years following the 
effective date of the final rule. A 12 percent vacancy will be used 
following the expiration of this five-year period. The purpose of the 
required conversion program is to identify those developments whose 
non-viability and cost, relative to vouchers, merit their permanent 
removal from public housing stock, even though the PHA did not 
previously decide to take this step on its own. The use of a higher 
vacancy rate better focuses required conversion on the situations where 
this step is most clearly needed.
    Comment: Final rule should require that a PHA take remedial steps 
in those cases where the PHA has intentionally created vacancies. Two 
commenters wrote that the proposed vacancy criterion failed to consider 
whether a PHA has intentionally or artificially created vacancies at 
the development. According to the commenters, a PHA could create such 
vacancies by failing to make timely repairs or failing to lease 
available units. The commenters agreed that to ``the extent that a PHA 
intentionally or artificially creates vacancies at a development, HUD 
should require the PHA to take corrective actions necessary to lease 
the units.'' One of the commenters suggested that HUD include an 
additional category of units that will not be considered in the vacancy 
determination--units that are intentionally vacant as a result of a 
PHA's desire to trigger mandatory conversion.

[[Page 54603]]

    HUD response. HUD agrees that a rule change is required to prevent 
the intentional creation of vacancies. In response to these public 
comments, the final rule provides that vacant units will not be 
considered in the determination of distress if HUD determines, in its 
sole discretion, that the vacancies were created intentionally and do 
not indicate continued distress.
2. Comments Regarding the Long-term Viability Test
    Comment: Requiring that PHAs meet all four long-term viability 
factors contradicts statute. Under the proposed rule, a PHA must meet 
four regulatory factors in order for a development to satisfy the long-
term viability test. Specifically, the development, after reasonable 
investment for at least 20 years, must: (1) Be able to sustain 
structural/system soundness and full occupancy; (2) not be excessively 
densely configured relative to other similar (typically family) housing 
in the community; (3) be able to achieve a broader range of family 
income; and (4) have no other site impairments that clearly should 
disqualify the site from continuation as public housing. Two commenters 
wrote that this requirement is in direct conflict with section 
33(a)(3)(A) of the 1937 Act. According to the commenters, the statute 
only requires that a development meet one of three statutory factors. 
The commenters urged that the final rule provide that a PHA may satisfy 
the long-term viability test if it meets any one of the regulatory 
factors.
    HUD response. HUD does not agree with these commenters. The 
regulatory language is nearly identical to the statutory language of 
section 33(a)(3)(A). The regulatory provisions opposed by the 
commenters merely interpret and clarify this statutory language. The 
final rule continues to provide, as authorized by the statutory 
language of section 33, that a PHA must meet all the regulatory factors 
to satisfy the long-term viability test. Each of the factors measures a 
different and important aspect of a development's viability. Relying on 
only one of the factors, as the commenters suggest, would ignore the 
other elements necessary for an accurate assessment of a development's 
long-term integrity as public housing. Further, HUD believes that the 
factors are sufficiently flexible to address the concerns raised by the 
commenters regarding the strictness of the long-term viability test.
    Comment: Density standard exceeds statutory language. The proposed 
rule provided that a development satisfies the long-term viability test 
if it is not ``excessively densely configured relative to standards for 
similar (typically family) housing in the community.'' One commenter 
wrote that the proposed standard exceeded the standard established 
under section 33(a)(3)(A) of the 1937 Act. The statute provides that 
the long-term viability test may be satisfied by ``density reduction.'' 
The commenter wrote that the ``statute does not authorize a test that 
compares the relative densities of the development and the surrounding 
neighborhood, but merely requires the current density of the 
development to be reduced.''
    HUD response. The use of relative density levels is consistent with 
the recommendations made by the Commission. The density reduction 
efforts of a PHA cannot be accurately evaluated without considering the 
density of comparable housing. For example, housing density varies 
among communities due to differences in local conditions, such as 
population, geography, and location of employment. Accordingly, this 
final rule continues to require that the density of a development be 
measured against the density of other similarly situated housing.
    Comment: Income mix standard exceeds statutory standard. The 
proposed rule provided that a development satisfies the long-term 
viability test if it ``will not constitute an excessive concentration 
of very low-income families.'' Two commenters wrote that the proposed 
standard exceeded the statutory standard set forth in section 
33(a)(3)(A) of the 1937 Act. The statute provides that the long-term 
viability test may be satisfied by ``the achievement of a broader range 
of family income.'' One of the commenters wrote that the ``distinction 
is critical because a PHA can meaningfully broaden the income range and 
still have a resident population that is primarily very low-income.'' 
The second commenter wrote that ``[g]iven that the analysis must 
project over a 20-year period, it is mere speculation to maintain that 
the site will be a candidate for additional mixing.''
    HUD response. In response to these public comments HUD has revised 
the income-mix component of the long-term viability test to more 
closely track the statutory language of section 33. Specifically, the 
final rule provides that a development satisfies the income-mix 
requirements if, after reasonable investment for the specified period 
of time, it is probable that the development ``can achieve a broader 
range of family income.''
    Comment: ``More expensive'' criterion should be removed. A 
development must be converted if it would be more expensive to 
modernize and operate the development for its remaining useful life 
than to provide tenant-based assistance to all residents. One commenter 
objected to this criterion for conversion. The commenter wrote that 
section 33 cites only to ``reasonable modernization expenses.'' ``There 
is nothing in the statute that suggests a development must be cheaper 
than Section 8 assistance in order to be viable in the long term.''
    HUD response. The regulatory language closely tracks the statutory 
language of section 33. Specifically, section 33(a)(3) provides that a 
development is subject to required conversion if the development is 
identified as distressed housing by the PHA, in accordance with HUD 
guidelines, and either: (1) The PHA cannot assure long-term viability; 
or (2) the development has an estimated cost (during its remaining 
useful life) of continued operation and modernization as public housing 
that exceeds the estimated cost (during its remaining useful life) of 
providing voucher tenant-based assistance for all families in occupancy 
based on appropriate indicators of cost (such as the percentage of 
total development costs required for modernization). Accordingly, HUD 
has not revised the proposed rule to adopt the suggestions made by the 
commenter.
3. Comments Regarding Issues for Which HUD Specifically Invited Public 
Comment
    Although HUD invited public comments on all aspects of the June 23, 
1999, proposed rule, the preamble to the proposed rule specifically 
solicited comments on two issues related to the standards for 
identifying developments subject to required conversion. HUD solicited 
comments on:
    1. Whether the definition of ``distressed housing'' should include 
developments with less than 250 units or that are not primarily 
occupied by families; and
    2. Whether a comparison of the average median income at a 
development with the average median income in the development's area, 
or other measure of tenant income, should be included in the 
identification of developments as distressed.
    Comment: Final rule should not require conversion for developments 
with less than 250 units or that are not primarily occupied by 
families. Four commenters made this recommendation. According to one of 
the commenters, including developments with less than 250 units,

[[Page 54604]]

would impede local decision-making and further drain HUD resources. In 
addition, the commenter wrote that including smaller developments is 
unnecessary due to the voluntary conversion provisions of section 533 
of QHWRA. Smaller developments would be able to convert using the 
voluntary procedures of section 533 and HUD's implementing regulations.
    HUD response. HUD agrees with the commenters. Accordingly, the 
final rule adopts the proposed rule provisions exempting developments 
with less than 250 units, or that are not primarily occupied by 
families, from the required conversion requirements. However, a PHA may 
elect to voluntarily convert such a development under the voluntary 
conversion program established by separate final rule published 
elsewhere in today's Federal Register (so long as the development 
satisfies the criteria for voluntary conversion).
    Comment: Average median income comparison should not be required. 
One commenter objected to requiring PHAs to compare the average median 
income at a development with the average median income in the 
development's area. The commenter recognized that the Commission found 
this ratio highly significant. However, the commenter wrote that the 
measures included in the proposed rule are ``more than sufficient for a 
reasonable person to draw the conclusions necessary.'' The commenter 
recommended that any use of the income ratio analysis should be at the 
option of the PHA. In addition, the commenter recommended that a PHA 
should be given the flexibility to gather and present such data using 
the methods and formats most useful to the PHA.
    HUD response. HUD agrees with the commenter and has not revised the 
proposed rule to require a comparison of average median income.

B. Comments Regarding Standards for Determining Whether a Property is 
Viable in the Long Term (Sec.  972.105 of the Proposed Rule; Sec.  
972.127 of This Final Rule)

    The proposed rule at Sec.  972.105 described the conditions that a 
development must meet in order to satisfy the long-term viability 
standard.
    Comment: PHAs should not be required to identify sources of 
funding. A PHA must identify the sources of funding for a 
revitalization program. One commenter wrote that this requirement is 
``unreasonable'' because the ``revitalization may be several years down 
the road and the PHA cannot determine what its annual appropriations 
will be or how much money will be needed.'' The commenter suggested 
that the requirement be eliminated.
    HUD response. HUD believes that an estimate of available funding is 
necessary to accurately assess the probable success of a revitalization 
plan. In recognition that PHAs receive capital funds by formula, the 
final rule permits PHAs to ``assume that future formula funds provided 
through the Capital Fund over five years are available for this 
purpose'' (see Sec.  972.127(a)(3)). Nothing in this final rule 
prevents PHAs from applying for HOPE VI or other additional funding to 
assist in the revitalization or replacement of a development during the 
5-year phase-out period. PHAs, however, may not assume that they will 
be successful in discretionary grant competitions, such as for HOPE VI 
funding. PHAs may apply for HOPE VI and other discretionary grants 
during the 5-year phase-out period, provided the use of such grants 
will be consistent with the requirements of this final rule.

C. Comments Regarding Conversion Plan Components (Sec.  972.107 of the 
Proposed Rule; Sec.  972.130 of This Final Rule)

    The proposed rule at Sec.  972.107 described the various components 
of a conversion plan.
    Comment: More notice of displacement should be required. The 
proposed rule would have required a PHA to notify families residing in 
the development 90 days before displacement. Two commenters wrote that 
if ``displacement'' is synonymous with a family vacating the unit, the 
90-day notice is inadequate. The commenters wrote that a family may 
need more than 90 days to find and relocate to other affordable 
housing. The commenters also wrote that, under the Section 8 rental 
voucher program, families generally have 120 days to locate housing. 
Further, for families with school-age children, relocation during the 
school term will seriously disrupt the children's education and 
jeopardize related child-care arrangements. One of the commenters 
recommended that the final rule require PHAs to provide families with 
six months advance notice of their relocation rights, wherever 
feasible.
    HUD response. In accordance with URA, this final rule provides that 
a family will not be required to move without at least 90-days advance 
written notice of the earliest date by which the family may be required 
to move, and that the family will not be required to move permanently 
until the family is offered comparable housing, in accordance with the 
final rule. In addition, the final rule provides that, where Section 8 
voucher assistance is being used for relocation, the vouchers must be 
provided to the family at least 90 days before conversion. PHAs should 
consider all relevant factors that might affect a family's ability to 
relocate (such as school age children) in determining the appropriate 
timeframes and should ensure that families are provided with adequate 
time to locate new housing.
    Comment: Final rule should reference applicability of URA. One 
commenter suggested that the final rule should provide that URA applies 
to families displaced pursuant to a required conversion.
    HUD response. HUD has adopted the commenter's suggestion. The final 
rule adds a new Sec.  972.118, which affirms that, to the extent that 
tenants are displaced as a direct result of the demolition, 
acquisition, or rehabilitation of federally-assisted property converted 
pursuant to this final rule, the requirements of the URA, and the 
implementing regulations issued by the Department of Transportation at 
49 CFR part 24, apply. Further, for purposes of clarity, HUD has 
revised the rule to more closely conform to the notice requirements of 
the URA and the implementing regulations. As required by 49 CFR 24.203, 
if a required conversion is subject to the URA, PHAs must provide 
families scheduled to be displaced with a General Information Notice, a 
Notice of Relocation Eligibility or Notice of Non-displacement (as 
applicable), and a 90-day advance notice of the earliest date by which 
a resident may be required to move.
    Comment: Final rule should clarify what constitutes housing choice 
for relocated families. Families have the right to be relocated to 
``other decent, safe, and sanitary and affordable housing that is, to 
the maximum extent possible, housing of their choice.'' Two commenters 
recommended that the final rule clarify that a family may choose ``to 
lease any PHA rental unit of appropriate size, provided the rental unit 
is vacant or will be vacant before the date on which the tenant must 
vacate the converted rental unit.''
    HUD response. The regulatory language adequately protects a 
displaced family's right to relocate to comparable housing, while also 
providing for circumstances that may limit the availability of a 
particular unit. For example, a PHA may need to reserve a public 
housing unit for medical transfer purposes. The broad language 
suggested by the commenter fails to provide for such necessary 
exceptions.

[[Page 54605]]

Accordingly, HUD has not adopted the commenter's recommended change.
    Comment: Standard for extension is overly restrictive. Generally, a 
conversion plan may not be more than a 5-year plan. However, HUD is 
authorized to provide a 5-year extension ``in exceptional 
circumstances, where HUD determines that this is clearly the most cost-
effective and beneficial means of providing housing over that same 
period.'' One commenter wrote that this is too restrictive, and 
inconsistent with section 33(c)(3) of the 1937 Act, which provides that 
HUD may grant an extension if it ``determines that the deadline is 
impracticable.''
    HUD response. HUD does not agree that the regulatory language 
contradicts the statutory language of section 33. The statute provides 
HUD with broad authority to determine what circumstances make the 5-
year deadline ``impracticable'' for a PHA. The final rule is consistent 
with the statutory goal of ensuring that most conversions be completed 
within the prescribed 5-year period, but grants HUD the necessary 
flexibility to address exceptional circumstances.
    Comment: A fair housing impact assessment should be required. Two 
commenters recommended that the final rule should require the 
conversion plan to include an analysis of the effects of conversion on 
persons protected by the Fair Housing Act. The commenters wrote that 
even if a PHA is statutorily required to convert a particular 
development, HUD and the PHA have an obligation to avoid discriminatory 
impacts and to affirmatively further fair housing. One of the 
commenters suggested that the fair housing analysis should:
    1. Consider the impact of conversion on each protected group: 
racial and ethnic minorities, persons with disabilities, and families 
with children;
    2. Consider the impact not only on current residents, but also on 
persons likely to apply for housing;
    3. Determine whether the proposed conversion will increase fair 
housing choice for each protected class, or perpetuate segregation;
    4. Determine whether the proposed conversion will decrease fair 
housing choice (according to the commenter this would generally be true 
if the overall amount of assisted housing is reduced or if public 
housing units located outside high poverty areas with concentrations of 
minorities are converted);
    5. Analyze the rate at which minority families and other protected 
groups are able to find housing under the Section 8 voucher program in 
areas that are racially integrated and have low poverty rates; and
    6. Analyze whether all families in housing proposed to be converted 
will receive housing assistance and be able to remain in the area if 
they choose.
    HUD response. HUD has determined that the proposed rule adequately 
addressed fair housing considerations, and that a regulatory change is 
unnecessary. The conversion plan must be part of the PHA's Annual Plan. 
HUD's PHA Plan regulations require that a PHA certify that it will 
carry out its Annual Plan and 5-Year Plan in conformity with applicable 
statutory fair housing and nondiscrimination requirements and must 
affirmatively further fair housing. This, of course, includes any 
required conversion activities. As noted above, HUD has also added 
language to the final rule further emphasizing the need for adequate 
mobility counseling.
    Comment: Conversion plan should include a well funded mobility 
program to ensure fair housing objectives are met. One commenter wrote 
that without such a program, most families will find themselves 
relocated to highly segregated communities with high levels of poverty.
    HUD response. The final rule clarifies that a PHA must provide any 
appropriate mobility counseling in providing the required counseling to 
residents displaced by a conversion. The PHA may finance the mobility 
counseling using Operating Fund, Capital Fund, or Section 8 
administrative fee funding.

D. Comments Regarding the Public and Resident Consultation Process for 
Developing a Conversion Plan (Sec.  972.110 of the Proposed Rule; Sec.  
972.133 of This Final Rule)

    The proposed rule at Sec.  972.110 required that a PHA consult with 
public officials and the residents of the affected sites in the 
development of the PHA's conversion plan.
    Comment: Final rule should expand the resident and public 
participation process. One commenter recommended that the minimum 
standards for public and resident participation should be expanded. The 
commenter made various specific suggestions, including:
    1. Requiring the PHA to consult with the development's resident 
council and the PHA-wide resident advisory board;
    2. Requiring that the required meeting with residents take place at 
least 45 days before the PHA submits the conversion plan to HUD; and
    3. Requiring that the consultation process include adequate notice 
to residents and an opportunity for residents to comment. Further, HUD 
should require that a PHA give due consideration to all comments from 
residents and the public.
    Another commenter emphasized the third suggestion made by the 
commenter above--that PHAs should be required to give due consideration 
to resident comments. The commenter wrote that this is necessary to 
allow the possibility that, based on resident comments, the PHA will 
determine that conversion is inappropriate. Further, if the PHA decides 
to proceed with conversion, then it should be required to consider the 
resident comments in the development of the final conversion plan.
    HUD response. HUD agrees that meaningful public and resident input 
is essential to the success of the required conversion process. HUD 
does not believe that it is necessary to revise the proposed rule to 
adopt the suggestions made by these commenters. Existing regulatory 
requirements already ensure meaningful and timely public input in the 
development of the conversion plans. For example, the conversion plan 
must be part of the PHA's Annual Plan. The conversion plans, therefore, 
are subject to the extensive public participation requirements for the 
development of the PHA Annual Plans (see 24 CFR part 903). The 
consultation procedures established by this final rule supplement the 
PHA Plan consultation requirements; they do not replace them.
    Among other requirements, the PHA Plan regulations require that 
PHAs establish Resident Advisory Boards to assist and make 
recommendations in the development of the PHA Annual Plans (see 24 CFR 
903.13). PHAs are also required to conduct a public hearing in 
developing their Annual Plans, and to conduct reasonable outreach 
activities to encourage broad public participation in the PHA Plans 
(see 24 CFR 903.17). Considered in their totality, the consultation 
procedures contained in both the required conversion and PHA Plan 
regulations require that a PHA undertake good faith efforts to ensure 
that residents understand and have a voice in the implementation of 
required conversions.
    For purposes of clarity, HUD has made two changes to the 
consultation requirements of the rule. Specifically, the final rule 
clarifies that the PHA must hold at least one meeting with the 
residents of the affected sites. The language of the proposed rule 
would have required one meeting between the PHA and residents, but was 
silent regarding the possibility of the PHA sponsoring additional 
meetings. The final rule also clarifies that the public

[[Page 54606]]

housing residents with whom the PHA must meet include any duly elected 
resident council that covers the development in question.
    Comment: Consolidated Plan requirements are inconsistent with 
statute. The proposed rule provided that a PHA ``may satisfy the 
requirement for consultation with public officials by submitting a 
certification from the appropriate government official that the 
conversion plan is consistent with the applicable Consolidated Plan.'' 
The rule also provided that ``[t]his may be the same certification as 
is required for [the] PHA Annual Plan that includes the conversion 
plan.'' According to one commenter this contradicts the statutory 
language of section 33. According to the commenter, section 33(c)(2)(B) 
requires that the PHA submit a separate certification from the relevant 
local official that specifically addresses the conversion plan. This 
certification is in addition to the certification that is part of the 
PHA Annual Plan (which is already required under section 33(c)(2)(A)).
    HUD response. The final rule clarifies that if a PHA elects to 
satisfy the consultation requirements by certifying that its conversion 
plan is consistent with the Consolidated Plan, this certification may 
be the same certification as is required for the PHA Annual Plan that 
includes the conversion plan, so long as the certification specifically 
addresses the conversion plan.

E. Comments Regarding Relationship Between Required Conversion and 
Demolition/Disposition Requirements (Sec.  972.113 of the Proposed 
Rule; Sec.  972.112 of This Final Rule) Application

    The proposed rule at Sec.  970.113 described the applicability of 
the demolition/disposition requirements of section 18 of the 1937 Act 
to the required conversion process.
    Comment: PHAs should be permitted to submit the conversion plan and 
disposition application at a later date than the PHA Annual Plan. One 
commenter wrote that requiring a PHA to simultaneously submit a PHA 
Annual Plan, conversion plan, and disposition application is 
unnecessarily burdensome and will not produce the best results. The 
commenter recommended that a PHA be allowed to submit the conversion 
plan and the disposition application at a later date than the PHA 
Annual Plan--either as a separate submission or as addenda to the 
Annual Plan.
    HUD response. HUD has not revised the proposed rule to adopt the 
commenter's suggestion. The regulatory language closely tracks the 
statutory requirements of section 33. Specifically, section 33(h)(2) 
provides that the disposition requirements of section 18 of the 1937 
Act apply to required conversions. Further, section 33(c)(2)(A) 
requires that a conversion plan be submitted as part of the PHA's 
Annual Plan. However, neither section 33, or this final rule, requires 
a PHA to submit any required disposition application as part of the 
conversion plan or the Annual Plan. A PHA may elect to submit any 
disposition application subsequent to submission of the conversion 
plan. HUD may approve the conversion plan, even if the PHA has not yet 
submitted the required disposition application under section 18. 
However, the PHA may not proceed with the disposition until the 
required disposition application has been approved by HUD.
    Comment: PHAs should not be required to submit separate disposition 
approval request. One commenter questioned the requirement for a 
separate disposition approval for required conversion, when HUD does 
not require it for voluntary conversions under section 533 of QHWRA. In 
particular, the commenter objected to the requirement in those cases 
where: (1) The development has had its debt forgiven; (2) there have 
been no additional capital investments; and (3) the subsidy has been 
removed in the conversion process. ``It would seem that under the 
circumstances, the property would be the PHA's to deal with as it sees 
fit.''
    HUD response. As noted in HUD's response to the preceding comment, 
section 33 provides that the disposition requirements of section 18 of 
the 1937 Act apply to the required conversion program. The regulatory 
language of this final rule tracks this statutory requirement.
    The final rule should clarify that HUD's approval of a conversion 
plan is contingent on HUD's approval of any disposition application for 
the converted units. One commenter wrote that it is unclear whether the 
proposed rule permits HUD to approve a conversion plan if the PHA's 
disposition application does not comply with the requirements of 
section 18 of the 1937 Act. The commenter suggested that, to encourage 
compliance with section 18, the final rule should clarify that HUD's 
approval of a conversion plan is contingent on approval of the PHA's 
disposition application.
    HUD response. As noted above, a PHA may elect to submit any 
disposition application subsequent to submission of the conversion 
plan. HUD may approve the conversion, even if the PHA has not yet 
submitted the required disposition application. However, the PHA may 
not proceed with the conversion until its disposition application has 
been approved by HUD.

F. Comments Regarding the Relationship Between Required Conversion and 
HOPE VI Developments (Sec.  972.114 of the Proposed Rule; Sec.  972.115 
of This Final Rule)

    The proposed rule at Sec.  972.114 described the applicability of 
the required conversion requirements to HOPE VI developments.
    Comments: HOPE VI recipients without an approved revitalization 
plan should not be required to conduct a viability assessment. HOPE VI 
developments without an approved revitalization plan are fully subject 
to the required conversion standards of 24 CFR part 972. One commenter 
objected to this requirement. The commenter wrote that requiring these 
HOPE VI developments to conduct a viability assessment is 
``extraordinarily redundant'' because ``each HOPE VI recipient was 
approved based on an application [that] included the number of units 
removed.'' ``Another evaluation is unnecessary, redundant, and impedes 
the implementation of HOPE VI.''
    HUD response. Section 33 does not exempt HOPE VI developments from 
the required conversion requirements. Accordingly, HUD does not have 
the statutory authority to adopt the commenter's suggestion. HUD will 
only approve HOPE VI revitalization plans that satisfy the conversion 
plan requirements.

G. Comments Regarding Funding To Assist Residents of Units Being 
Converted (Sec.  972.116 of the Proposed Rule; Sec.  972.109 of This 
Final Rule)

    The proposed rule at Sec.  972.116 described how a PHA obtains 
funding to assist the residents of public housing developments 
converted to tenant-based assistance.
    Comment: HUD should not require that funding for the first year of 
tenant-based assistance be provided from the Capital or Operating 
Funds. Two commenters objected to this provision. One of the commenters 
wrote that it would be unfair for HUD to expect PHAs to pay for one 
year of tenant-based assistance from the Capital and Operating Funds, 
since formula funding will have been reduced subsequent to the removal 
of the development from public housing inventory. The second commenter 
wrote that ``[t]he effect of siphoning off and further reducing

[[Page 54607]]

public housing funds for tenant-based assistance will be the continued 
deterioration of public housing.'' ``[O]perating and capital funds are 
appropriated to ensure the preservation of public housing as an 
affordable housing resource and, as such, any funds attributable to 
developments identified for conversion should be re-invested in the 
public housing stock.''
    HUD response. HUD has not adopted the change requested by the 
commenters. The final rule does not mandate that the initial year of 
tenant-based assistance be provided from the Capital and Operating 
Funds. Rather, the final rule, as did the proposed rule before it, 
merely provides for this possibility.
    HUD should provide additional guidance regarding post-conversion. 
One commenter wrote that it would be helpful for HUD to clarify the 
timing of the phased process for substituting tenant-based assistance 
for assistance provided from the Capital and Operating Funds. Rather, 
the final rule, as did the proposed rule before it, merely provides for 
this subsidy for the units being converted.
    HUD response. Converted public housing would be phased-out using 
currently applicable procedures. Subject to appropriations, new Section 
8 funding would be committed and provided to PHAs for the provision of 
tenant-based voucher assistance.

H. Comments Regarding the Timing of Conversion (Sec.  972.122 of the 
Proposed Rule; Sec.  972.109 of This Final Rule)

    The proposed rule at Sec.  972.122 provided that a PHA may proceed 
to convert a development only after receiving written approval from 
HUD. The approval will be separate from the one provided for the PHA 
Annual Plan.
    Comment: HUD should establish a reasonable time frame for providing 
approval of a conversion plan. One commenter suggested that the final 
rule establish a 75-day period for HUD review and approval of 
conversion plans. According to the commenter, this ``will enable PHAs 
to better plan relocation activities with residents and make 
adjustments necessary for the loss of subsidy.'' The commenter wrote 
that a 75-day period would conform to the time frame established for 
HUD approval of the PHA Annual Plan.
    HUD response. HUD has revised the rule to be more sensitive to the 
concerns raised by the commenter. The final rule clarifies that HUD 
anticipates that its review of a conversion plan will ordinarily occur 
within 90 days following submission of a complete plan by the PHA. A 
longer process may be required where HUD's initial review of the plan 
raises questions that require further discussion with the PHA. In any 
event, HUD will provide all PHAs with a preliminary response within 90 
days following submission of a conversion plan.

IV. Findings and Certifications

Public Reporting Burden

    The information collection requirements contained in Sec. Sec.  
972.130, 970.133, and 972.136 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 public housing agencies 
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 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. HUD anticipates that no more 
than 10 percent of all PHAs will be subject to the requirements of 
required conversion. Most PHAs with developments large enough to be 
subject to this final rule are located in larger political 
jurisdictions. This is a result of the statutory direction to identify 
units subject to the requirements based on the criteria established by 
the National Commission on Severely Distressed Public Housing, which 
focused on larger troubled agencies.
    (2) No Significant Economic Impact. The conversion plan will 
involve a one-time cost, and this cost can vary from development to 
development, depending on the scope of the assessment, location of the 
property, and other factors. A mitigating factor concerning the cost 
for PHAs whose properties are potentially subject to the requirements 
of required conversion is that they may request assistance from HUD in 
conducting the required analyses in order to offset the costs. HUD has 
provided such assistance in the past and intends to continue to do so, 
if resources are available. Therefore, the cost burden on small 
entities is not likely to be great.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
was made at the proposed rule stage, in accordance with HUD regulations 
at 24 CFR part 50, which implement section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4223). That Finding remains 
applicable to this final rule and is available for public inspection 
between the hours of 7:30 a.m. and 5:30 p.m. weekdays in the Office of 
the Rules Docket Clerk, Office of General Counsel, Room 10276, U.S. 
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 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

[[Page 54608]]

``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, U.S. Department of Housing and Urban Development, 
451 Seventh Street, SW., Washington, DC 20410-0500.

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.


0
For the reasons discussed in the preamble, HUD amends title 24 of the 
Code of Federal Regulations, chapter IX, part 972 as follows:

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

0
1. The authority citation for part 972 continues to read as follows:

    Authority: 42 U.S.C. 1437t, 1437z-5, and 3535(d).
0
2. Subpart A is added to read as follows:

Subpart A--Required Conversion of Public Housing Developments

Purpose; Definition of ``Conversion''

Sec.
972.100 Purpose.
972.103 Definition of ``conversion.''

Required Conversion Process

972.106 Procedure for required conversion of public housing 
developments to tenant-based assistance.
972.109 Conversion of developments.
972.112 Relationship between required conversion and demolition/
disposition requirements.
972.115 Relationship between required conversion and HOPE VI 
developments.
972.118 Applicability of Uniform Relocation Act.

Identifying Developments Subject To Required Conversion

972.121 Developments subject to this subpart.
972.124 Standards for identifying public housing developments 
subject to required conversion.
972.127 Standards for determining whether a property is viable in 
the long term.

Conversion Plans

972.130 Conversion plan components.
972.133 Public and resident consultation process for developing a 
conversion plan.
972.136 Timing of submission of conversion plans to HUD.

HUD Actions With Respect To Required Conversions

972.139 HUD actions with respect to required conversions.

Subpart A--Required Conversion of Public Housing Developments

Purpose; Definition of Conversion


Sec.  972.100  Purpose.

    The purpose of this subpart is to implement section 33 of the 
United States Housing Act of 1937 (42 U.S.C. 1437z-5), which requires 
PHAs to annually review their public housing inventory and identify 
developments, or parts of developments, which must be removed from its 
stock of public housing operated under an Annual Contributions Contract 
(ACC) with HUD.
    This subpart provides the procedures a PHA must follow to develop 
and carry out a conversion plan to remove the units from the public 
housing inventory, including how to provide for the transition for 
residents of these developments to other affordable housing.


Sec.  972.103  Definition of ``conversion.''

    For purposes of this subpart, the term ``conversion'' means the 
removal of public housing units from the inventory of a PHA, and the 
provision of tenant-based or project-based assistance for the residents 
of the public housing units that are being removed. The term 
``conversion,'' as used in this subpart, does not necessarily mean the 
physical removal of the public housing development.

Required Conversion Process


Sec.  972.106  Procedure for required conversion of public housing 
developments to tenant-based assistance.

    (a) A PHA must annually review its public housing inventory and 
identify developments, or parts of developments, which must be 
converted to tenant-based assistance, in accordance with Sec. Sec.  
972.121-972.127.
    (b) With respect to any public housing development that is 
identified under paragraph (a) of this section, the PHA generally must 
develop a 5-year plan for removal of the affected public housing units 
from the inventory, in accordance with Sec. Sec.  972.130-972.136.
    (c) The PHA may proceed to convert the development if HUD approves 
the conversion plan.


Sec.  972.109  Conversion of developments.

    (a)(1) The PHA may proceed to convert the development covered by a 
conversion plan after receiving written approval from HUD. This 
approval will be separate from the approval that the PHA receives for 
its Annual Plan.
    (2) HUD anticipates that its review of a conversion plan will 
ordinarily occur within 90 days following submission of a complete plan 
by the PHA. A longer process may be required where HUD's initial review 
of the plan raises questions that require further discussion with the 
PHA. In any event, HUD will provide all PHAs with a preliminary 
response within 90 days following submission of a conversion plan.
    (b) The PHA may not demolish or dispose of units or property until 
completion of the required environmental review under part 58 of this 
title (if a responsible entity has assumed environmental responsibility 
for the project) or part 50 of this title (if HUD is performing the 
environmental review). Further, HUD will not approve a conversion plan 
until completion of the required environmental review. However, before 
completion of the environmental review, HUD may approve the targeted 
units for removal from the PHA's inventory and may authorize the PHA to 
undertake other activities proposed in its conversion plan that do not 
require environmental review (such as certain activities related to the 
relocation of residents), as long as the buildings in question are 
adequately secured and maintained.
    (c) For purposes of determining operating subsidy eligibility, HUD 
will consider the conversion plan the PHA submits to be the equivalent 
of a formal request to remove dwelling units from the PHA's inventory 
and ACC. HUD will notify the PHA in writing whether it has approved the 
conversion plan. Units that are vacant or vacated on or after the 
written notification date will be treated as approved for deprogramming 
under Sec.  990.108(b)(1) of this title and also will be provided any 
phase-down of subsidy to which the PHA is entitled pursuant to Sec.  
990.114 of this title.
    (d) The PHA may apply for tenant-based assistance in accordance 
with Section 8 program requirements, and HUD will give the PHA a 
priority for receiving tenant-based assistance to replace the public 
housing units. It is HUD's policy to provide funds for one-for-one 
replacement housing with either public housing or tenant-based 
assistance, if funds are available. HUD

[[Page 54609]]

may require that funding for the initial year be provided from the 
public housing Capital Fund, Operating Fund, or both.


Sec.  972.112  Relationship between required conversion and demolition/
disposition requirements.

    (a) Section 18 of the United States Housing Act of 1937 does not 
apply to demolition of developments removed from the inventory of the 
PHA under this subpart. Demolition of these developments is therefore 
not subject to section 18(g), which provides an exclusion from the 
applicability of the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970 (42 U.S.C. 4601) (URA). Accordingly, 
the URA will apply to the displacement of tenants as the direct result 
of the demolition of a development carried out pursuant to this 
subpart, in accordance with Sec.  972.118. With respect to any such 
demolition, the PHA must comply with the requirements for environmental 
review found at part 58 of this title.
    (b) Section 18 of the United States Housing Act of 1937 does apply 
to any disposition of developments removed from the inventory of the 
PHA under this subpart. Therefore, to dispose of property, the PHA must 
submit a disposition application under section 18. HUD's review of any 
such disposition application will take into account that the 
development has been required to be converted.


Sec.  972.115  Relationship between required conversions and HOPE VI 
developments.

    HUD actions to approve or deny proposed HOPE VI revitalization 
plans must be consistent with the requirements of this subpart. 
Developments with HOPE VI revitalization grants, but without approved 
HOPE VI revitalization plans, are fully subject to required conversion 
standards under this subpart.


Sec.  972.118  Applicability of Uniform Relocation Act.

    To the extent that tenants are displaced as a direct result of the 
demolition, acquisition, or rehabilitation of federally-assisted 
property converted pursuant to this subpart, the requirements of the 
Uniform Relocation Assistance and Real Property Acquisition Policies 
Act of 1970 (42 U.S.C. 4601) (URA), and the implementing regulations 
issued by the Department of Transportation at 49 CFR part 24, apply.

Identifying Developments Subject To Required Conversion


Sec.  972.121  Developments subject to this subpart.

    (a) This subpart is applicable to any development not identified 
before October 21, 1998, for conversion, or for assessment of whether 
such conversion is required, in accordance with section 202 of the 
Omnibus Consolidated Rescissions and Appropriations Act of 1996 (Pub. 
L. 104-134, approved April 26, 1996, 110 Stat. 1321-279--1321-281). 
Developments identified before October 21, 1998, continue to be subject 
to the requirements of section 202 and part 971 of this chapter until 
these requirements are satisfied. Thereafter, the provisions of this 
subpart apply to any remaining public housing on the sites of those 
developments.
    (b) The developments to which this subpart is applicable are 
subject to the requirements of section 33 of the United States Housing 
Act of 1937 (42 U.S.C. 1437z-5).
    (c) The provisions of this subpart cease to apply when the units in 
a development that are subject to the requirements of this subpart have 
been demolished.


Sec.  972.124  Standards for identifying public housing developments 
subject to required conversion.

    The development, or portions thereof, must be converted if it is a 
general occupancy development of 250 or more dwelling units and it 
meets the following criteria:
    (a) The development is on the same or contiguous sites. This refers 
to the actual number and location of units, irrespective of HUD 
development project numbers.
    (b) The development has a vacancy rate of at least a specified 
percent for dwelling units not in funded, on-schedule modernization, 
for each of the last three years, and the vacancy rate has not 
significantly decreased in those three years. (1) For a conversion 
analysis performed on or before March 16, 2009, the specified vacancy 
rate is 15 percent. For a conversion analysis performed after that 
date, the specified vacancy rate is 12 percent.
    (2) For the determination of vacancy rates, the PHA must use the 
data it relied upon for the PHA's latest Public Housing Assessment 
System (PHAS) certification, as reported on the Form HUD-51234 (report 
on Occupancy). Units in the following categories must not be included 
in this calculation:
    (i) Vacant units in an approved demolition or disposition program;
    (ii) Vacant units in which resident property has been abandoned, 
but only if state law requires the property to be left in the unit for 
some period of time, and only for the period of time stated in the law;
    (iii) Vacant units that have sustained casualty damage, but only 
until the insurance claim is adjusted;
    (iv) Units that are occupied by employees of the PHA and units that 
are used for resident services; and
    (v) Units that HUD determines, in its sole discretion, are 
intentionally vacant and do not indicate continued distress.
    (c) The development either is distressed housing for which the PHA 
cannot assure the long-term viability as public housing, or more 
expensive for the PHA to operate as public housing than providing 
tenant-based assistance. (1) The development is distressed housing for 
which the PHA cannot assure the long-term viability as public housing 
through reasonable revitalization, density reduction, or achievement of 
a broader range of household income. (See Sec.  972.127)
    (i) Properties meeting the standards set forth in paragraphs (a) 
and (b) of this section will be assumed to be ``distressed,'' unless 
HUD determines that the reasons a property meets such standards are 
temporary in duration and are unlikely to recur.
    (ii) A development satisfies the long-term viability test only if 
it is probable that, after reasonable investment, for at least 20 years 
(or at least 30 years for rehabilitation equivalent to new 
construction) the development can sustain structural/system soundness 
and full occupancy; will not be excessively densely configured relative 
to other similar rental (typically family) housing in the community; 
can achieve a broader range of family income; and has no other site 
impairments that clearly should disqualify the site from continuation 
as public housing.
    (2) The development is more expensive for the PHA to operate as 
public housing than to provide tenant-based assistance if it has an 
estimated cost, during the remaining useful life of the project, of 
continued operation and modernization of the development as public 
housing in excess of the cost of providing tenant-based assistance 
under section 8 of the United States Housing Act of 1937 for all 
families in occupancy, based on appropriate indicators of cost (such as 
the percentage of total development cost required for modernization).
    (i) For purposes of this determination, the costs used for public 
housing must be those necessary to produce a revitalized development as 
described in paragraph (c)(1) of this section.

[[Page 54610]]

    (ii) These costs, including estimated operating costs, 
modernization costs, and accrual needs must be used to develop a per 
unit monthly cost of continuing the development as public housing.
    (iii) That per unit monthly cost of public housing must be compared 
to the per unit monthly Section 8 cost.
    (iv) The cost methodology necessary to conduct the cost comparisons 
for required conversions has not yet been finalized. PHAs are not 
required to undertake conversions under this subpart until six months 
after the effective date of the cost methodology, which will be 
announced in the Federal Register. Once effective, the cost methodology 
will be codified as an appendix to this part.


Sec.  972.127  Standards for determining whether a property is viable 
in the long term.

    In order for a property to meet the standard of long-term 
viability, as discussed in Sec.  972.124, the following criteria must 
be met:
    (a) The investment to be made in the development is reasonable. (1) 
Proposed revitalization costs for viability must be reasonable. Such 
costs must not exceed, and ordinarily would be substantially less than, 
90 percent of HUD's total development cost (TDC) limit for the units 
proposed to be revitalized (100 percent of the total development cost 
limit for any ``infill'' new construction subject to this regulation). 
The revitalization cost estimate used in the PHA's most recent Annual 
Plan or 5-Year Plan is to be used for this purpose, unless the PHA 
demonstrates, or HUD determines, that another cost estimate is clearly 
more realistic to ensure viability and to sustain the operating costs 
that are described in paragraph (a)(2) of this section.
    (2) The overall projected cost of the revitalized development must 
not exceed the Section 8 cost under the method contained in the 
Appendix to this part, even if the cost of revitalization is a lower 
percentage of the TDC than the limits stated in paragraph (a)(1) of 
this section.
    (3) The source of funding for such a revitalization program must be 
identified and available. In addition to other resources already 
available to the PHA, it may assume that future formula funds provided 
through the Capital Fund over five years are available for this 
purpose.
    (b) Appropriate density is achieved. The resulting public housing 
development must have a density which is comparable to that which 
prevails in or is appropriate for assisted rental housing or for other 
similar types of housing in the community (typically family).
    (c) A greater income mix can be achieved. (1) Measures generally 
will be required to broaden the range of resident incomes over time to 
include a significant mix of households with at least one full-time 
worker. Measures to achieve a broader range of household incomes must 
be realistic in view of the site's location. Appropriate evidence 
typically would include census or other recent statistical evidence 
demonstrating some mix of incomes of other households located in the 
same census tract or neighborhood, or unique advantages of the public 
housing site.
    (2) For purposes of judging appropriateness of density reduction 
and broader range of income measures, overall size of the public 
housing site and its number of dwelling units will be considered. The 
concerns these measures would address generally are greater as the 
site's size and number of dwelling units increase.

Conversion Plans


Sec.  972.130  Conversion plan components.

    (a) With respect to any development that is identified under 
Sec. Sec.  972.121 through 972.127, the PHA generally must develop a 5-
year plan for removal of the affected public housing units from the 
inventory. The plan must consider relocation alternatives for 
households in occupancy, including other public housing and Section 8 
tenant-based assistance, and must provide for relocation from the units 
as soon as possible. For planning purposes, the PHA must assume that 
HUD will be able to provide in a timely fashion any necessary Section 8 
rental assistance. The plan must include:
    (1) A listing of the public housing units to be removed from the 
inventory;
    (2) Identification and obligation status of any previously approved 
modernization, reconstruction, or other capital funds for the 
distressed development and the PHA's recommendations concerning 
transfer of these funds to Section 8 or alternative public housing 
uses;
    (3) A record indicating compliance with the statute's requirements 
for consultation with applicable public housing tenants of the affected 
development and the unit of local government where the public housing 
is located, as set forth in Sec.  972.133;
    (4) A description of the plans for demolition or disposition of the 
public housing units; and
    (5) A relocation plan, in accordance with paragraph (b) of this 
section.
    (b) Relocation plan. The relocation plan must incorporate all of 
the information identified in paragraphs (b)(1) through (b)(4) of this 
section. In addition, if the required conversion is subject to the URA, 
the relocation plan must also contain the information identified in 
paragraph (b)(5) of this section. The relocation plan must incorporate 
the following:
    (1) The number of households to be relocated, by bedroom size, and 
by the number of accessible units.
    (2) The relocation resources that will be necessary, including a 
request for any necessary Section 8 funding and a description of actual 
or potential public or other assisted housing vacancies that can be 
used as relocation housing and budget for carrying out relocation 
activities.
    (3) A schedule for relocation and removal of units from the public 
housing inventory (including the schedule for providing actual and 
reasonable relocation expenses, as determined by the PHA, for families 
displaced by the conversion).
    (4) Provide for issuance of a written notice to families residing 
in the development in accordance with the following requirements:
    (i) Timing of notice. If the required conversion is not subject to 
the URA, the notice shall be provided to families at least 90 days 
before displacement. If the required conversion is subject to the URA 
the written notice shall be provided to families no later than the date 
the conversion plan is submitted to HUD. For purposes of a required 
conversion subject to the URA, this written notice shall constitute the 
General Information Notice (GIN) required by the URA.
    (ii) Contents of notice. The written notice shall include all of 
the following:
    (A) The development must be removed from the public housing 
inventory and that the family may be displaced as a result of the 
conversion;
    (B) The family will be offered comparable housing, which may 
include tenant-based or project-based assistance, or occupancy in a 
unit operated or assisted by the PHA (if tenant-based assistance is 
used, the comparable housing requirement is fulfilled only upon the 
relocation of the family into such housing);
    (C) Any necessary counseling with respect to the relocation will be 
provided, including any appropriate mobility counseling (the PHA may 
finance the mobility counseling using Operating Fund, Capital Fund, or 
Section 8 administrative fee funding);
    (D) Such families will be relocated to other decent, safe, 
sanitary, and

[[Page 54611]]

affordable housing that is, to the maximum extent possible, housing of 
their choice;
    (E) If the development is used as housing after conversion, the PHA 
must ensure that each resident may choose to remain in the housing, 
using tenant-based assistance towards rent; and
    (F) Where section 8 voucher assistance is being used for 
relocation, the family will be provided with the vouchers at least 90 
days before displacement.
    (5) If the required conversion is subject to the URA, the written 
notice described in paragraph (b)(4) must also provide that:
    (i) The family will not be required to move without at least 90-
days advance written notice of the earliest date by which the family 
may be required to move, and that the family will not be required to 
move permanently until the family is offered comparable housing, as 
provided in paragraph (b)(4)(ii)(B) of this section;
    (ii) Any person who is an alien not lawfully present in the United 
States is ineligible for relocation payments or assistance under the 
URA, unless such ineligibility would result in exceptional and 
extremely unusual hardship to a qualifying spouse, parent, or child, as 
provided in the URA regulations at 49 CFR 24.208;
    (iii) The family has a right to appeal the PHA's determination as 
to the family's application for relocation assistance for which the 
family may be eligible under this subpart and URA;
    (iv) Families residing in the development will be provided with the 
URA Notice of Relocation Eligibility or Notice of Non-displacement (as 
applicable) as of the date HUD approves the conversion plan (for 
purposes of this subpart, the date of HUD's approval of the conversion 
plan shall be the ``date of initiation of negotiations'' as that term 
is used in URA and the implementing regulations at 49 CFR part 24); and
    (v) Any family that moves into the development after submission of 
the conversion plan to HUD will also be eligible for relocation 
assistance, unless the PHA issues a written move-in notice to the 
family prior to leasing and occupancy of the unit advising the family 
of the development's possible conversion, the impact of the conversion 
on the family, and that the family will not be eligible for relocation 
assistance.
    (c) The conversion plan may not be more than a 5-year plan, unless 
the PHA applies for and receives approval from HUD for a longer period 
of time. HUD may allow the PHA up to 10 years to remove the units from 
the inventory, in exceptional circumstances where HUD determines that 
this is clearly the most cost effective and beneficial means of 
providing housing assistance over that same period. For example, HUD 
may allow a longer period of time to remove the units from the public 
housing inventory, where more than one development is being converted, 
and a larger number of families require relocation than can easily be 
absorbed into the rental market at one time, provided the housing has a 
remaining useful life of longer than five years and the longer time 
frame will assist in relocation.


Sec.  972.133  Public and resident consultation process for developing 
a conversion plan.

    (a) The PHA must consult with appropriate public officials and with 
the appropriate public housing residents in developing the conversion 
plan.
    (b) The PHA may satisfy the requirement for consultation with 
public officials by obtaining a certification from the appropriate 
government official that the conversion plan is consistent with the 
applicable Consolidated Plan. This may be the same certification as is 
required for the PHA Annual Plan that includes the conversion plan, so 
long as the certification specifically addresses the conversion plan.
    (c) To satisfy the requirement for consultation with the 
appropriate public housing residents, in addition to the public 
participation requirements for the PHA Annual Plan, the PHA must:
    (1) Hold at least one meeting with the residents of the affected 
sites (including the duly elected Resident Council, if any, that covers 
the development in question) at which the PHA must:
    (i) Explain the requirements of this section, especially as they 
apply to the residents of the affected developments; and
    (ii) Provide draft copies of the conversion plan to the residents;
    (2) Provide a reasonable comment period for residents; and
    (3) Summarize the resident comments for HUD, in the conversion 
plan, and consider these comments in developing the final conversion 
plan.


Sec.  972.136  Timing of submission of conversion plans to HUD.

    The requirements of this section are on-going requirements. If the 
PHA must submit a plan for conversion, it must submit the conversion 
plan as part of the PHA's Annual Plan, beginning with PHA fiscal years 
that commence six months after the effective date of HUD's final rule 
establishing the cost methodology for required conversions.

HUD Actions With Respect to Required Conversions


Sec.  972.139  HUD actions with respect to required conversions.

    (a) HUD will take appropriate steps to ensure that distressed 
developments subject to this subpart are properly identified and 
converted. If a PHA fails to properly identify a development for 
required conversion, or does not submit a conversion plan for a 
development in the PHA Annual Plan following the Annual Plan in which 
the development was identified as subject to required conversion, HUD 
will take the actions described in paragraph (b) of this section, and 
may also take any or all of the actions described in paragraph (c) of 
this section.
    (b) If a PHA fails to take the conversion activities described in 
paragraph (a) of this section, HUD will:
    (1) Disqualify the PHA from HUD funding competitions; and
    (2) Direct the PHA to cease additional spending in connection with 
a development that meets, or is likely to meet the statutory criteria, 
except to the extent that failure to expend such amounts would endanger 
health or safety.
    (c) If a PHA fails to take the conversion activities described in 
paragraph (a) of this section, HUD may also take any or all of the 
following actions:
    (1) Identify developments that fall within the statutory criteria 
where the PHA has failed to do so properly;
    (2) Take appropriate actions to ensure the conversion of 
developments where the PHA has failed to adequately develop or 
implement a conversion plan;
    (3) Require the PHA to revise the conversion plan, or prohibit 
conversion, where HUD has determined that the PHA has erroneously 
identified a development as being subject to the requirements of this 
section;
    (4) Authorize or direct the transfer of capital or operating funds 
committed to or on behalf of the development (including comprehensive 
improvement assistance, comprehensive grant or Capital Fund amounts 
attributable to the development's share of funds under the formula, and 
major reconstruction of obsolete projects funds) to tenant-based 
assistance or appropriate site revitalization for the agency; and
    (5) Any other action that HUD determines appropriate and has the 
authority to undertake.


[[Page 54612]]


    Dated: August 11, 2003.
Michael M. Liu,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 03-23026 Filed 9-16-03; 8:45 am]
BILLING CODE 4210-33-P