[Federal Register Volume 68, Number 180 (Wednesday, September 17, 2003)]
[Rules and Regulations]
[Pages 54612-54623]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-23027]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 972

[Docket No. FR-4476-F-04]
RIN 2577-AC02


Voluntary Conversion of Developments From Public Housing Stock

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

ACTION: Final rule.

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SUMMARY: This final rule furthers HUD's implementation of section 533 
of the Quality Housing and Work Responsibility Act of 1998. Section 533 
authorizes Public Housing Agencies (PHAs) to convert a development to 
tenant-based assistance by removing the development or a portion of the 
development from its public housing inventory and providing for 
relocation of the residents or provision of tenant-based assistance to 
them. This action is permitted only when that change would be cost 
effective, be beneficial to residents of the development and the 
surrounding area, and not have an adverse impact on the availability of 
affordable housing. Since the cost methodology necessary to conduct the 
cost comparisons for voluntary conversions has not yet been finalized, 
PHAs may not 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. The July 23, 1999, Proposed Rule

    On July 23, 1999 (64 FR 40240), HUD published for public comment a 
proposed rule to implement section 533 of the Quality Housing and Work 
Responsibility Act of 1998 (Title V of the Fiscal Year 1999 HUD 
Appropriations Act; Public Law 105-276, approved October 21, 1998) 
(QHWRA).
    Section 533 of QHWRA amended section 22 of the United States 
Housing Act of 1937 (42 U.S.C. 1437 et seq.) (1937 Act). As amended, 
section 22 authorizes Public Housing Agencies (PHAs) to convert a 
development to tenant-based assistance by removing the development or a 
portion of a development from its public housing inventory and 
providing for relocation of the residents or provision of tenant-based 
assistance to them. This action is permitted only when that change 
would be cost effective, be beneficial to residents of the development 
and the surrounding area, and not have an adverse impact on the 
availability of affordable housing. In the July 23, 1999, proposed 
rule, HUD proposed to implement the voluntary conversion requirements 
through the creation of a new 24 CFR part 972, subpart B.
    In addition to permitting voluntary conversions, QHWRA revised the 
provisions governing the program of required conversions. Section 537 
of QHWRA added a new section 33 to the 1937 Act, entitled ``Required 
Conversion of Distressed Public Housing to Tenant-Based Assistance.'' A 
separate proposed rule was published on July 23, 1999 (64 FR 40232), to 
implement these provisions through a new 24 CFR 972, subpart A. The 
final rule that will make these proposed amendments effective is 
published elsewhere in today's Federal Register.

II. The June 22, 2001, Final Rule on Required Initial Assessments

    Section 22 of the 1937 Act also requires every PHA to conduct and 
submit to HUD an initial conversion assessment for its developments no 
later than October 1, 2001 (see section 22(b) of the 1937 Act). 
However, the statute gives HUD the authority to exempt certain classes 
of developments from this requirement, or streamline the requirements 
of the required initial assessment. On June 22, 2001 (66 FR 33616), HUD 
published a final rule providing regulatory guidance on the preparation 
and submission of these assessments in a streamlined, simplified form. 
The June 22, 2001, final rule also took into consideration the public 
comments received on the proposed initial assessment requirements 
contained in the July 23, 1999, proposed rule.
    For the convenience of readers, the regulatory text of this final 
rule repeats (but does not modify) the required initial assessment 
requirements contained in the June 22, 2001, final rule. However, 
interested readers should refer to the June 22, 2001, final rule for a 
detailed discussion of these requirements, and of HUD's responses to 
the public comments on the proposed initial assessment procedures.

III. Cost Methodology for Conversions

    This final rule does not address the cost methodology that PHAs 
must use for the required and voluntary conversion of public housing 
developments. Both conversion processes require that PHAs, before 
undertaking any conversion activity, compare the cost of providing 
tenant-based assistance with the cost of continuing to operate the 
development as public housing. This methodology was originally 
contained in HUD's July 23, 1999, proposed rule on voluntary 
conversions (although the methodology also applies to required 
conversions). HUD has decided to significantly revise the cost 
methodology, based on both the public comments received on the 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 voluntary 
conversions by using the proposed methodology contained in the HUD

[[Page 54613]]

proposed rule being published today. However, because 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.

IV. This Final Rule

    This final rule furthers HUD's implementation of the voluntary 
conversion program authorized by amended section 22 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 differences between this final rule and the July 23, 
1999, proposed rule are described below.

A. General Changes

    1. Initial assessment requirements not addressed in this final 
rule. As noted above in section II of this preamble, this final rule 
does not address the initial assessment requirements contained in the 
July 23, 1999, proposed rule. These requirements were the subject of a 
separate June 22, 2001, HUD final rule. Interested readers should refer 
to that final rule for a detailed discussion of the streamlined initial 
assessment requirements, and HUD's responses to the public comments 
received on the initial assessment procedures contained in the proposed 
rule. For the convenience of readers, the regulatory text of this final 
rule repeats the initial assessment requirements established by the 
June 22, 2001, final rule, but does not modify these requirements.
    2. Cost methodology subject of separate HUD rulemaking. As noted 
above in section III of this preamble, this final rule does not address 
the cost methodology that PHAs must use to compare the cost of public 
housing with the provision of tenant-based assistance. HUD has decided 
to significantly revise the cost methodology contained in the July 23, 
1999, proposed rule. HUD has, therefore, issued 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. PHAs may not 
undertake the cost test necessary for conversions until HUD's 
publication of the final rule establishing the cost methodology.
    3. Reorganization of voluntary conversion requirements. For 
purposes of clarity, this final rule reorganizes 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 voluntary conversion process or conversion 
plans) under undesignated 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.
    4. Applicability of the Uniform Relocation Act. This final rule 
adds a new Sec.  972.215, 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 Conversion Assessment Requirements

    1. Payment standard use for analysis of rental market conditions. 
This final rule continues to require that a PHA conduct an analysis of 
rental market conditions as part of a conversion assessment required 
for approval of voluntary conversion. This analysis must include an 
assessment of the availability of decent and safe dwelling units rented 
at or below the payment standard established for Section 8 tenant-based 
assistance. This final rule clarifies that the payment standard used 
for this determination is the applicable section 8 payment standard for 
the jurisdiction or designated part of the FMR area in which the 
development is located.
    2. Tenant-based success rates. This final rule continues to require 
that, as part of the analysis of rental market conditions, the PHA 
consider the success rate of using Section 8 tenant-based assistance in 
the community for the appropriate bedroom size. The final rule, 
however, clarifies that this determination includes recent success 
rates for units renting at or below the established payment standard.
    3. Characteristics that may affect a family's ability to be housed. 
This final rule continues to provide that, as part of the required 
analysis of rental market conditions, a PHA must consider any 
particular characteristics of the specific residents of the public 
housing that may affect their ability to be housed. For purposes of 
clarity, the regulatory text has been revised to provide two examples 
of such characteristics--large household size and the presence of an 
elderly or disabled family member. These examples are meant to 
illustrate the types of characteristics that a PHA should consider in 
making this determination. The examples do not preclude a PHA from 
considering other characteristics that may impact a family's ability to 
locate housing.
    4. Consideration of other substantial impacts. This final rule 
clarifies that, in addition to the identified potential impacts of 
conversion, the required impact analysis must also assess ``any other 
substantial impacts on the neighborhood.''
    5. Additional guidance on what it means to ``principally benefit'' 
residents, the PHA, and the community. This final rule clarifies that 
in determining whether conversion will principally benefit public 
housing residents, the PHA, and the community, the PHA must consider 
such factors as the availability of landlords providing section 8 
tenant-based assistance, as well as access to schools, jobs, and 
transportation. Further, the final rule provides that, in determining 
whether a conversion will principally benefit residents, the PHA, and 
the community, HUD will consider whether the conversion will conflict 
with any litigation settlement agreements, voluntary compliance 
agreements, or other remedial agreements signed by the PHA with HUD.
    6. Resident participation in development of conversion assessments. 
This final rule expands the resident participation process for 
developing a conversion assessment. The conversion assessment 
consultation process established by this final rule is similar to the 
consultation process for conversion plans. Specifically, the final rule 
requires a PHA to hold at least one public meeting with residents of 
the affected site (including the duly elected Resident Council, if any, 
that covers the development in question). At the meeting, the PHA must 
explain the voluntary conversion requirements (especially as they apply 
to residents of affected developments), and provide draft copies of the 
conversion assessment to the residents. The PHA must also provide the 
residents with a reasonable period of time to submit comments on the 
draft conversion assessment. The conversion assessment submitted to HUD 
must contain a summary of the resident comments, as well as the PHA 
responses to any significant issues raised by the commenters. (This 
process may be combined with the process for submitting a conversion 
plan if the PHA will submit the assessment and plan to HUD together, 
but otherwise must be

[[Page 54614]]

undertaken separately from the process for submitting a conversion 
plan.)

C. Changes Regarding Conversion Plan Requirements

    1. Required consultation with resident council. This final rule 
clarifies that the PHA must meet to discuss the proposed conversion 
with any duly elected resident council that covers the development in 
question.
    2. Conversion plan consistency with conversion assessment. This 
final rule requires that a conversion plan include a description of the 
plan's consistency with the findings of the conversion assessment.
    3. Relocation plan. This 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.
    4. Schedule for the provision of moving expenses. This final rule 
clarifies that a voluntary conversion plan must also include a 
timetable for the provision of moving services and/or expenses 
(including a description of the amounts).
    5. Consideration of resident comments received on conversion plan. 
This final rule clarifies that the conversion plan must not only 
include a summary of the resident comments received during the 
development of the plan, but must also contain the PHA responses to the 
comments (including a description of any actions taken by the PHA as a 
result of the comments).
    6. 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 voluntary 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 voluntary 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.
    7. Provision of voucher assistance used for relocation. This final 
rule provides that, where Section 8 voucher assistance is being used 
for relocation, the vouchers must be issued to the family at least 90 
days before conversion.
    8. Actual and reasonable relocation expenses. This final rule 
clarifies that the PHA has the discretion to define whether a 
relocation cost is actually or reasonably related to the family's 
relocation and, therefore, reimbursable.
    9. Mobility counseling. For purposes of clarity, this final rule 
specifies that the required PHA counseling to displaced families must 
include appropriate mobility counseling.
    10. Timing of submission of conversion plan. This final rule 
clarifies that a PHA must prepare a conversion plan, and submit it to 
HUD, as part of the next PHA Annual Plan, within one year after 
submitting the full conversion assessment, or as a significant 
amendment to that Annual Plan. The PHA may also submit the conversion 
plan in the same Annual Plan as the conversion assessment.
    11. HUD review of conversion plans. This 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. Lack of a HUD 
response within this time frame will constitute automatic HUD approval 
of the conversion plan.

V. 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 that date, HUD had received six public comments. Comments 
were submitted by a private citizen; a PHA; two of the three main 
organizations representing PHAs; and two legal aid organizations. This 
section of the preamble presents a summary of the significant issues 
raised by the public commenters on the July 23, 1999, proposed rule and 
HUD's responses to these comments.
    As noted above in this preamble, this final rule does not address 
the public comments received on the proposed initial assessment 
requirements (which were addressed as part of HUD's June 22, 2001, 
final rule on this subject) or on the conversion cost methodology 
(which is the subject of a separate proposed rule published elsewhere 
in today's Federal Register).

A. General Comments Not Related to a Specific Regulatory Section

    Comment: The voluntary conversion program will not work until HUD 
develops an effective way to enforce Housing Quality Standards (HQS). 
One commenter wrote that ``[s]o long as PHAs are not enforcing HQS, 
[and] so long as HUD has no capability to monitor the inspection of 
those properties in Section 8, the [voluntary conversion] process is 
flawed.''
    HUD Response. HUD's Section 8 Management Assessment Program (SEMAP) 
provides for the objective measurement of PHA performance in key areas 
of the Section 8 tenant-based assistance program (including PHA 
enforcement of HQS). SEMAP enables HUD to ensure program integrity and 
accountability by identifying PHA management capabilities and 
deficiencies and by improving risk assessment to effectively target 
monitoring and program assistance.
    HUD's final rule for the SEMAP was published on September 10, 1998 
(63 FR 48548). Most provisions of the final rule took effect on October 
13, 1998. The SEMAP regulations enable HUD to assess PHA enforcement of 
HQS using specific criteria, and to ensure that appropriate corrective 
action is taken when a PHA fails to adequately enforce HQS.

[[Page 54615]]

    Comment: Comments regarding internet cost calculator. The preamble 
to the proposed rule stated that HUD is considering establishing a web-
based cost comparison calculator on HUD's internet homepage to assist 
PHAs in conducting the cost comparisons required by the proposed rule. 
(See 64 FR 40241, first column.) Two commenters supported the idea of a 
web-based cost calculator, writing that it would reduce the workload on 
PHAs and provide consistency. Another commenter, however, wrote that it 
is not possible to comment on the web-based calculator until additional 
details are provided. The commenter also suggested that the methodology 
used by the web-based calculator should be subject to notice and 
comment rulemaking procedures.
    HUD Response. HUD agrees that an internet cost calculator will 
reduce PHA administrative burden. HUD also agrees that development of 
such a calculator will help to ensure the accuracy and consistency of 
the required cost comparisons. HUD intends to proceed with development 
of the web-based calculator. Short of a web-based calculator, HUD may 
post compilation worksheets on its Internet homepage (http://www.hud.gov), which will make these calculations easier.

B. Comments Regarding Conversion Assessment Components (Sec.  972.209 
of the Proposed Rule; Sec.  972.218 of This Final Rule)

    The proposed rule at Sec.  972.209 described the various components 
of a conversion assessment (the corresponding provisions of this final 
rule are located at Sec.  972.218).
    Comment: HUD should provide additional guidance regarding the 
conduct of the conversion assessment. In the preamble to the July 23, 
1999, proposed rule, HUD invited public comments on ``whether 
additional guidance should be given regarding how PHAs should conduct 
the analysis of rental market conditions and the analysis of the impact 
on the neighborhood and how these analyses relate to the PHA's 
obligation to affirmatively further fair housing'' (see 64 FR 40242, 
first column).
    Two commenters wrote that such guidance would be helpful. One of 
the commenters wrote that the templates developed for the five-year and 
annual PHA Plans have been a ``helpful addition to the process.'' The 
commenter suggested that ``[p]erhaps something similar could be 
developed for [the conversion assessment], and presented for public 
review and comment.'' The second commenter emphasized that HUD should 
not ``prescribe specific requirements for rental market or neighborhood 
impact analyses beyond those found in the statute.''
    HUD Response. HUD agrees that additional guidance regarding the 
conduct of the conversion assessment would be helpful. Where 
appropriate, HUD has revised the proposed rule to provide additional 
clarification and guidance on the conversion assessment requirements. 
For example, HUD has revised the proposed rule to provide examples of 
the types of characteristics that may impact a family's ability to be 
housed. The final rule also clarifies that, in considering the success 
rate of using Section 8 tenant-based assistance, PHAs must consider 
recent success rates for units renting at or below the established 
payment standard. HUD may develop further non-regulatory guidance on 
the voluntary conversion process.
    Comment: The impact analysis should include an analysis of the 
effect of conversion on schools and neighborhood businesses. One 
commenter made this suggestion.
    HUD Response. This final rule requires that the conversion 
assessment ``describe the likely impact of conversion of the public 
housing development on the neighborhood in which the public housing is 
located.'' Section 972.218(d) provides two examples of potential 
neighborhood impacts that should be included in the analysis: the 
impact on the availability of affordable housing in the neighborhood, 
and the impact on the concentration of poverty in the neighborhood. 
These examples are meant to illustrate the types of impacts on the 
neighborhood that must be analyzed by the PHA. The examples do not 
excuse a PHA from analyzing other likely impacts of the conversion, 
such as the impact on schools and neighborhood businesses. For purposes 
of clarity, HUD has revised the proposed rule to provide that the 
impact analysis must also include ``any other substantial impacts on 
the neighborhood.'' This change clarifies that a PHA may analyze the 
types of impacts identified by the commenter, as well as any other 
impacts on the neighborhood that the PHA determines are appropriate for 
inclusion in the required analysis.

C. Comments Regarding the Necessary Conditions for HUD Approval of 
Conversion (Sec.  972.213 of the Proposed Rule; Sec.  972.224 of This 
Final Rule)

    The proposed rule at Sec.  972.213 provided that a conversion 
assessment is required for any PHA that seeks approval to convert a 
property to tenant-based assistance. The assessment must demonstrate 
that the conversion of the development will: (1) Not be more expensive 
than continuing to operate the development (or a portion of it) as 
public housing; (2) principally benefit the residents of the public 
housing development (or portion thereof) to be converted, the PHA, and 
the community; and (3) not adversely affect the availability of 
affordable housing in the community. (The corresponding provisions of 
this final rule are located at Sec.  972.224.)
    Comment: HUD should provide additional guidance on what it means to 
``principally benefit'' residents of public housing, the PHA, and the 
community. Two commenters made this recommendation. One of the 
commenters wrote that, in determining whether conversion will 
principally benefit residents, HUD should consider such factors as the 
availability of participating Section 8 landlords, as well as access to 
schools, jobs, and transportation.
    HUD Response. HUD agrees with the commenters and has revised the 
rule accordingly. Specifically, this final rule clarifies that in 
determining whether conversion will principally benefit public housing 
residents, the PHA, and the community, the PHA must consider the 
availability of landlords providing Section 8 tenant-based assistance 
and access to schools, jobs, and transportation. Further, the final 
rule provides that, in determining whether a conversion will 
principally benefit residents, the PHA, and the community, HUD will 
consider whether the conversion will conflict with any litigation 
settlement agreements, voluntary compliance agreements, or other 
remedial agreements signed by the PHA with HUD.

D. Comments Regarding the Public and Resident Consultation Process for 
Developing a Conversion Plan (Sec.  972.215 of the Proposed Rule; Sec.  
972.227 of This Final Rule)

    The proposed rule at Sec.  972.215 provided that a conversion plan 
must be developed in consultation with appropriate public officials and 
with significant participation by residents of the development. (The 
corresponding provisions of this final rule are located at Sec.  
972.227.)
    Comment: Final rule should expand the resident and public 
participation process. Two commenters recommended the expansion of the 
public and resident participation standards. One of the commenters 
objected to the language of the proposed rule, which provided that a 
PHA could

[[Page 54616]]

satisfy the resident consultation requirement by holding a meeting with 
the residents. The commenter wrote that ``[h]olding one meeting to 
present a plan that has already been developed based on complex 
calculations and studies * * * is not `significant participation' in 
the development of the plan.'' Both commenters made various specific 
suggestions for enhancing the consultation process, 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;
    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;
    4. Providing resident access to independent technical assistance; 
and
    5. Requiring that any relevant documents be provided to residents 
at least six months in advance of the public meeting. According to the 
commenter making this suggestion, this is necessary due to the 
complexity of the issues related to voluntary conversion.
    HUD Response. 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 requirements at Sec.  972.227 
supplement the PHA Plan 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 meeting 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 voluntary 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 
voluntary conversions.
    For purposes of clarity, HUD has made one change to the proposed 
consultation requirements. Specifically, the final rule clarifies that 
the public housing residents with whom the PHA must meet include any 
duly elected resident council that covers the development in question.
    Although HUD has not adopted many of the suggestions made by the 
commenters, HUD agrees that meaningful public and resident 
participation is essential to the success of the voluntary conversion 
process. Accordingly, in addition to requiring consultation with 
residents during the development of a conversion plan, this final rule 
also requires that PHAs consult with residents during the preparation 
of the conversion assessment. The conversion assessment consultation 
process established by this final rule is similar to the consultation 
process for conversion plans. The new consultation requirements will 
help to ensure that PHAs solicit resident input as early as possible in 
the conversion process.
    The conversion assessment procedures at Sec.  972.224 require that 
a PHA hold at least one public meeting with residents of the affected 
site (including the duly elected Resident Council, if any, that covers 
the development in question). At the meeting, the PHA must explain the 
voluntary conversion requirements (especially as they apply to 
residents of affected developments), and provide draft copies of the 
conversion assessment to the residents. The PHA must also provide the 
residents with a reasonable period of time to submit comments on the 
draft conversion assessment. The conversion assessment submitted to HUD 
must contain a summary of the resident comments, as well as the PHA 
responses to any significant issues raised by the commenters.
    Comment: The final rule should clarify that a PHA may decide not to 
proceed with conversion based on comments from residents and the 
public. Two commenters made this suggestion.
    HUD Response. HUD does not believe that the requested change is 
necessary. This final rule requires that a PHA consider the resident 
comments in developing the conversion plan. A PHA may decide, based on 
its consideration of the comments, not to proceed with a proposed 
conversion. Further, HUD will also consider the public comments in its 
review of the conversion plan and will not approve a conversion plan 
unless it is satisfied that the concerns of residents and the public 
have been adequately addressed by the PHA.

E. Comments Regarding the Components of a Conversion Plan (Sec.  
972.217 of the Proposed Rule; Sec.  972.230 of This Final Rule)

    The proposed rule at Sec.  972.217 described the various elements 
that must be included in a conversion plan. (The corresponding 
provisions of this final rule are located at Sec.  972.230.)
    Comment: More notice of displacement should be required. The 
proposed rule would have required that a PHA notify families residing 
in the development 90 days before displacement. One commenter wrote 
that the 90-day notice is inadequate. The commenter wrote that, under 
the Section 8 rental voucher program, families generally have 120 days 
to locate housing. The commenter also wrote that, for families with 
school-age children, relocation during the school term will seriously 
disrupt the children's education and jeopardize related child-care 
arrangements.
    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 
time frames, and should ensure that families are provided with adequate 
time to locate new housing.
    Comment: Reimbursement of relocation expenses should include 
security deposits. The proposed rule would have required that a PHA 
reimburse a family for ``actual and reasonable relocation expenses that 
[the family] incur[s] as a result of the conversion.'' One commenter 
suggested that the final rule explicitly provide for reimbursement of 
security deposits.
    HUD Response. Utility and security deposits are not considered an 
eligible relocation cost under URA since these deposits are refundable 
and, therefore, not an expense. PHAs may elect to assist residents to 
pay any increased or additional deposits that may be required at their 
replacement unit by advancing funds under a repayment agreement.

[[Page 54617]]

HUD, however, does not believe it would be appropriate to identify by 
regulation all ``actual and reasonable'' relocation expenses. HUD 
believes that it is more appropriate to leave the definition of whether 
a relocation cost is ``actual and reasonable'' to the individual PHAs, 
who are more familiar with local circumstances and housing conditions. 
The final rule, therefore, clarifies that the PHA must reimburse a 
family for ``actual and reasonable relocation expenses, as determined 
by the PHA'' that the family incurs as a result of the conversion.
    Comment: Relocation requirements should be split off and set forth 
in a separate section. One commenter made this recommendation.
    HUD Response. HUD does not believe it would be reader-friendly to 
adopt the commenter's suggestion. It might be confusing to separate the 
required elements of the conversion plan into separate regulatory 
sections. Accordingly, the final rule continues to set forth all of the 
necessary components of the conversion plan, including the relocation 
requirements, in a single section (Sec.  972.230). The relocation 
requirements are all contained in paragraph (g) of Sec.  972.230.
    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 voluntary conversion.
    HUD Response. HUD has adopted the commenter's suggestion. The final 
rule adds a new Sec.  972.215, 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 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 proposed 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 voluntary 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.

F. Comments Regarding HUD Actions With Respect to Conversion Plans 
(Sec.  972.223 of the Proposed Rule; Sec.  972.239 of This Final Rule)

    The proposed rule at Sec.  972.223 described the standards that HUD 
will use to review a conversion plan submitted by a PHA, and the 
grounds for HUD disapproval of a conversion plan. (The corresponding 
provisions of this final rule are located at Sec.  972.239.)
    Comment: HUD grounds for disapproval should be expanded. Two 
commenters suggested that the final rule should provide additional 
reasons for HUD to disapprove a proposed voluntary conversion. 
Specifically, the commenters suggested that a conversion plan not be 
approved:
    1. Unless converted housing is replaced on a one-for-one basis.
    2. Unless the PHA has financing commitments in place for 
redevelopment of the housing to be converted.
    3. If conversion will result in reduction in fair housing choice.
    4. Unless the conversion plan is consistent with the Consolidated 
Plan.
    HUD Response. HUD does not believe it is necessary to revise the 
rule to adopt the suggestions made by these commenters. The regulatory 
provisions regarding HUD disapproval of conversion plans are identical 
to the statutory language of section 22 of the 1937 Act. Section 22 
provides that ``[t]he Secretary shall disapprove a conversion plan only 
if (1) the plan is plainly inconsistent with the conversion assessment 
* * *; (2) there is reliable information and data available to the 
Secretary that contradicts the conversion assessment; or (3) the plan 
otherwise fails to meet the requirements of this section.''
    HUD believes that the statutory language is sufficiently flexible 
to permit HUD to address the concerns raised by the commenters. The PHA 
is already required to consider most of the issues raised by the 
commenter (such as the impact of the conversion on fair housing choice 
and the availability of replacement housing) as part of the conversion 
assessment process. The broad disapproval authority granted to HUD by 
section 22 will allow it to disapprove a conversion plan that fails to 
adequately address these concerns when they rise to the level 
contemplated by the statute.

G. Comments Regarding the Timing of Voluntary Conversion (Sec.  972.225 
of the Proposed Rule; Sec.  972.212 of This Final Rule)

    The proposed rule at Sec.  972.225 provided that a PHA may proceed 
to convert a development covered by a conversion plan only after 
receiving written approval of the conversion plan from HUD. Once a 
conversion plan is approved, tenants may be relocated using tenant-
based assistance. A PHA must apply for Section 8 tenant-based 
assistance, and the PHA will be given a priority for receiving tenant-
based assistance. As the development is removed from the public housing 
inventory, public housing operating subsidy and modernization funding 
will phase out under the usual process. HUD might require that funding 
for the initial year of tenant-based assistance be provided from the 
public housing Capital Fund, Operating Fund, or both.
    Comment: HUD should not require that funding for the first year of 
tenant-based assistance be provided from the Capital or Operating 
Funds. Three commenters objected to this provision of the proposed 
rule. The commenters agreed that ``[t]he effect of siphoning off and 
further reducing 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.'' One of the commenters wrote 
that this provision contradicts the statutory language of section 533 
of QHWRA, which provides that ``the funds used by the [PHA] to provide 
tenant-based assistance shall be added to the annual contributions 
contract administered by the [PHA].''
    HUD Response. HUD has not adopted the change requested by the 
commenter. 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 continues to believe that the 
flexibility provided by this provision is necessary to ensure that 
adequate funding is available for voluntary conversions. HUD disagrees 
with the commenter who wrote that this provision contradicts the 
language of section 533 of QHWRA. The statute provides that the 
necessary funds will be added to the annual contributions contract only 
``[t]o the extent approved by the Secretary.'' Nothing in the statutory 
language prohibits the use of the Operating and Capital Funds for such 
purposes.
    Comment: HUD should provide additional guidance regarding post-
conversion funding. One commenter

[[Page 54618]]

wrote that it would be helpful for HUD to clarify the timing of the 
phased process for substituting assistance and, particularly, whether 
local funding would be applied before or after deducting 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 on Issues Highlighted for Public Comment

    Although HUD welcomed public comment on all aspects of the July 23, 
1999, proposed rule, the preamble to the proposed rule specifically 
invited comments on the following issues (see 64 FR 40242, beginning on 
the middle column):
    1. Whether the voluntary conversion process should be used to 
promote deconcentration; and
    2. Whether a description should be required, as part of a full 
conversion assessment, of the proposed conversion's impact on racial 
and ethnic minorities and persons with disabilities.
    In addition, the preamble solicited comments on a third issue 
regarding the cost methodology used for conversions. Specifically, HUD 
solicited comments on whether it is more appropriate to use a housing 
construction cost component of Total Development Cost (TDC) for 
purposes of calculating accrual. As noted above, HUD is issuing a 
separate proposed rule, published elsewhere in today's Federal 
Register, regarding the cost methodology. The proposed rule addresses 
the public comments received on whether PHA capital costs should be 
included as part of the cost-comparison between public housing and 
vouchers.
1. Comments Regarding Deconcentration
    Comment: Voluntary conversion process should not be used to promote 
deconcentration. Two commenters opposed the use of the voluntary 
conversion process to promote deconcentration. The commenters wrote 
that promoting deconcentration is not authorized by section 533 of 
QHWRA and that ``conversion to Section 8 vouchers decreases the amount 
of needed hard units for low-income tenants.'' One of the commenters 
also wrote that ``PHAs across the country have successfully used the 
mixed finance provisions to achieve income mix and improve public 
housing sites.'' This commenter believes that use of the voluntary 
conversion process to achieve the same goals ``will only complicate and 
confuse the HUD approval process.''
    HUD Response. After careful consideration, HUD has decided not to 
revise the proposed rule to specifically address the use of voluntary 
conversions to promote deconcentration. The rule provides PHAs with the 
flexibility to use the conversion process as a tool in their 
deconcentration efforts.
    Comment: Final rule should establish safeguards if HUD decides to 
use conversion to promote deconcentration. One commenter suggested that 
if HUD decides to use conversion to promote deconcentration, it should 
require that, ``at the very least,'' the conversion plan specify how 
deconcentration will occur. Further, the commenter wrote that the 
conversion plan should include a ``realistic mobility project, adequate 
funding for the project, and monitoring to make sure that the promised 
deconcentration actually occurs.'' The commenter suggested that HUD 
impose appropriate sanctions if the promised deconcentration does not 
occur, including the ``withdrawal of the approval for voluntary 
conversion, or a cessation of the conversion process until there is a 
substantial measurable progress on deconcentration.''
    HUD Response. HUD has not adopted the suggestions made by the 
commenter. As noted in the response to the previous comments, HUD has 
not revised the rule to specifically address the use of the voluntary 
conversion process to promote deconcentration.

2. Comments Regarding Fair Housing Assessment

    Two commenters opposed the preparation of a fair housing impact 
assessment. One of the commenters noted that no such analysis is 
required for mandatory conversions under section 537 of QHWRA. The 
commenter also wrote that much of the information generated by such an 
analysis would already have been captured in the neighborhood impact 
portion of the conversion assessment. The second commenter wrote that 
the ``statutory requirements for public notice and consultation, along 
with existing housing discrimination law, sufficiently protects 
vulnerable groups.''
    Two other commenters, however, recommended that the final rule 
should require the preparation of a fair housing impact analysis. The 
commenters wrote that HUD and PHAs have an obligation to avoid 
discriminatory impacts and to affirmatively further fair housing. One 
commenter suggested that the fair housing assessment and supporting 
data should be made available to the residents and the public for 
comment.
    The commenters suggested that the fair housing analysis should:
    1. Consider the impact of conversion on each protected class: 
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;
    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;
    7. Analyze the need and cost for higher payment standards in non-
poverty areas; and
    8. Analyze the availability of participating Section 8 landlords. 
The commenter suggested that a PHA should be required to provide an 
advance list of landlords willing to participate.
    HUD Response. After careful consideration, HUD has determined that 
the proposed rule adequately addresses fair housing considerations, and 
that a regulatory change is unnecessary. As part of their conversion 
assessments, PHAs are required to evaluate the rental market conditions 
for residents of the converted development, including ``any particular 
characteristics of the specific residents of the public housing which 
may affect their ability to be housed.'' This assessment should take 
into consideration the rental market conditions for ethnic and racial 
minorities and for persons with disabilities. PHAs are also required to 
analyze the impact of conversion on the neighborhood, which should 
include the potential impacts relevant to fair housing.
    Further, other regulatory requirements help to ensure that PHAs 
consider the fair housing implications of their conversion activities. 
As noted above, the conversion plan must be part of the PHA's Annual 
Plan. HUD's PHA Plan

[[Page 54619]]

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 voluntary 
conversion activities. As noted above, HUD has also added language to 
the final rule further emphasizing the need for adequate mobility 
counseling.

VI. Findings and Certifications

Public Reporting Burden

    The information collection requirements contained in Sec. Sec.  
972.218 and 972.230 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 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. Further, this final rule 
establishes policies and procedures governing voluntary conversions of 
public housing developments to tenant-based assistance. Accordingly, to 
the extent that the rule imposes any economic costs on PHAs, it does so 
as a result of actions undertaken voluntarily by the PHAs. Ultimately, 
the goal of the rule is to promote more efficient delivery of 
affordable housing to residents of current public housing developments. 
This efficiency should benefit small PHAs and large PHAs alike.

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 the Unfunded Mandates Reform Act 
of 1995.

Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, entitled ``Regulatory Planning and Review.'' OMB 
determined that this rule is a ``significant regulatory action'' as 
defined in section 3(f) of the Order (although not an economically 
significant regulatory action under the Order). Any changes made to 
this rule as a result of that review are identified in the docket file, 
which is available for public inspection in the office of the 
Department's Rules Docket Clerk, Office of General Counsel, Room 10276, 
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, and 3535(d).

0
2. Revise subpart B to read as follows:

Subpart B--Voluntary Conversion of Public Housing Developments

Purpose; Definition of Conversion

Sec.
972.200 Purpose.
972.203 Definition of ``conversion.''

Required Initial Assessments

972.206 Required initial assessments.

Voluntary Conversion Procedure

972.209 Procedure for voluntary conversion of public housing 
developments to tenant-based assistance.
972.212 Timing of voluntary conversion.
972.215 Applicability of Uniform Relocation Act.

Conversion Assessments

972.218 Conversion assessment components.
972.221 Timing of submission of conversion assessments to HUD.
972.224 Necessary conditions for HUD approval of conversion.

Conversion Plans

972.227 Public and resident consultation process for developing a 
conversion plan.
972.230 Conversion plan components.
972.233 Timing of submission of conversion plans to HUD.
972.236 HUD process for approving a conversion plan.
972.239 HUD actions with respect to a conversion plan.

Subpart B--Voluntary Conversion of Public Housing Developments

Purpose; Definition of Conversion


Sec.  972.200  Purpose.

    This subpart implements section 22 of the United States Housing Act 
of 1937 (42 U.S.C. 1437t). The purposes of this subpart are to:
    (a) Require PHAs to perform an assessment which considers 
developments for which conversion of public housing may be appropriate; 
and

[[Page 54620]]

    (b) Provide a basis for a PHA to take action for conversion on a 
voluntary basis.


Sec.  972.203  Definition of ``conversion.''

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

Required Initial Assessments


Sec.  972.206  Required initial assessments.

    (a) General. A PHA must conduct a required initial assessment 
(which consists of the certification described in paragraph (b) of this 
section), in accordance with this section, once for each of its 
developments, unless:
    (1) The development is subject to required conversion under 24 CFR 
part 971;
    (2) The development is the subject of an application for demolition 
or disposition that has not been disapproved by HUD;
    (3) A HOPE VI revitalization grant has been awarded for the 
development; or
    (4) The development is designated for occupancy by the elderly and/
or persons with disabilities (i.e., is not a general occupancy 
development).
    (b) Certification procedure. For each development, the PHA shall 
certify that it has:
    (1) Reviewed the development's operation as public housing;
    (2) Considered the implications of converting the public housing to 
tenant-based assistance; and
    (3) Concluded that conversion of the development may be:
    (i) Appropriate because removal of the development would meet the 
necessary conditions for voluntary conversion described in Sec.  
972.224; or
    (ii) Inappropriate because removal of the development would not 
meet the necessary conditions for voluntary conversion described Sec.  
972.224.
    (c) Documentation. A PHA must maintain documentation of the 
reasoning with respect to each required initial assessment.
    (d) Timing of submission. Consistent with statutory submission 
requirements, the results of each required initial assessment 
(consisting of the certification described in paragraph (b) of this 
section) must be submitted to HUD as part of the next PHA Annual Plan 
after its completion.

Voluntary Conversion Procedure


Sec.  972.209  Procedure for voluntary conversion of public housing 
developments to tenant-based assistance.

    A PHA that wishes to convert a public housing development to 
tenant-based assistance must comply with the following process:
    (a) The PHA must perform a conversion assessment, in accordance 
with Sec. Sec.  972.218-972.224 and submit it to HUD as part of the 
next PHA Annual Plan submission.
    (b) The PHA must prepare a conversion plan, in accordance with 
Sec.  972.227-972.233, and submit it to HUD, as part of its PHA Annual 
Plan, within one year after submitting the conversion assessment. The 
PHA may submit the conversion plan in the same Annual Plan as the 
conversion assessment.
    (c) The PHA may proceed to convert the development if HUD approves 
the conversion plan.


Sec.  972.212  Timing of voluntary conversion.

    (a) A PHA may proceed to convert a development covered by a 
conversion plan only after receiving written approval of the conversion 
plan from HUD. This approval will be separate from the approval that 
the PHA receives for its PHA Annual Plan. A PHA may apply for tenant-
based assistance in accordance with Section 8 program requirements and 
will be given priority for receiving tenant-based assistance to replace 
the public housing units.
    (b) A 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 deprogramming and may authorize the PHA to undertake other 
activities proposed in the 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, the 
submitted conversion plan will be considered the equivalent of a formal 
request to remove dwelling units from the PHA's inventory and Annual 
Contributions Contract (ACC). Units that are vacant or are 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 will also be 
provided the phase down of subsidy pursuant to Sec.  990.114 of this 
title.
    (d) HUD may require that funding for the initial year of tenant-
based assistance be provided from the public housing Capital Fund, 
Operating Fund, or both.


Sec.  972.215  Applicability of the 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 under 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.

Conversion Assessments


Sec.  972.218  Conversion assessment components.

    The conversion assessment contains five elements, as described 
below:
    (a) Cost analysis. A PHA must conduct a cost analysis comparing the 
cost of providing Section 8 tenant-based assistance with the cost of 
continuing to operate the development as public housing for the 
remainder of its useful life. The cost methodology necessary to conduct 
the cost comparisons for voluntary conversions has not yet been 
finalized. PHAs may not undertake conversions under this subpart until 
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.
    (b) Analysis of the market value. (1) A PHA must have an 
independent appraisal conducted to compare the market value of the 
development before and after rehabilitation. In both cases, the market 
value must be based on the use of the development as public housing.
    (2) In addition, the appraisal must compare:
    (i) The market value of the development before rehabilitation, 
based on the use of the development as public housing, with the market 
value of the development after conversion; with
    (ii) The market value of the development after rehabilitation, 
based on the use of the development as public housing, with the market 
value of the development after conversion.

[[Page 54621]]

    (3) A copy of the appraisal findings and the analysis of market 
value of the development in the conversion assessment must be provided 
in the conversion assessment.
    (c) Analysis of rental market conditions. (1) A PHA must conduct an 
analysis of the likely success of using tenant-based assistance for the 
residents of the public housing development. This analysis must include 
an assessment of the availability of decent, safe, and sanitary 
dwelling units rented at or below the applicable Section 8 payment 
standard established for the jurisdiction or designated part of the FMR 
area in which the development is located.
    (2) In conducting this assessment, a PHA must take into account:
    (i) Its overall use of rental certificates or vouchers under lease 
and the success rates of using Section 8 tenant-based assistance in the 
community for the appropriate bedroom sizes, including recent success 
rates for units renting at or below the established payment standard; 
and
    (ii) Any particular characteristics of the specific residents of 
the public housing which may affect their ability to be housed (such as 
large household size or the presence of an elderly or disabled family 
member).
    (d) Impact analysis. A PHA must describe the likely impact of 
conversion of the public housing development on the neighborhood in 
which the public housing is located. This must include:
    (1) The impact on the availability of affordable housing in the 
neighborhood;
    (2) The impact on the concentration of poverty in the neighborhood; 
and
    (3) Other substantial impacts on the neighborhood.
    (e) Conversion implementation. If a PHA intends to convert the 
development (or a portion of it) to tenant-based assistance, the 
conversion assessment must include a description of any actions the PHA 
plans to take in converting the development. This must include a 
general description of the planned future uses of the development, and 
the means and timetable for accomplishing such uses.


Sec.  972.221  Timing of submission of conversion assessments to HUD.

    (a) Submission with PHA Plan. A PHA that wishes to convert a public 
housing development to tenant-based assistance must submit a conversion 
assessment to HUD with its next PHA Annual Plan.
    (b) Updated conversion assessment. Where a PHA proposes to convert 
a development to tenant-based assistance, it must submit an updated 
conversion assessment if the conversion assessment otherwise would be 
more than one year older than the conversion plan to be submitted to 
HUD. To update a conversion assessment, a PHA must ensure that the 
analysis of rental market conditions is based on the most recently 
available data, and must include any data that have changed since the 
initial conversion assessment. A PHA may submit the initial cost 
analysis and comparison of the market value of the public housing 
before and after rehabilitation and/or conversion if there is no reason 
to believe that such information has changed significantly.


Sec.  972.224  Necessary conditions for HUD approval of conversion.

    (a) Conditions. In order to convert a public housing development, 
the PHA must conduct a conversion assessment that demonstrates that the 
conversion of the development:
    (1) Will not be more expensive than continuing to operate the 
development (or portion of it) as public housing;
    (2) Will principally benefit the residents of the public housing 
development (or portion thereof) to be converted, the PHA, and the 
community; and
    (3) Will not adversely affect the availability of affordable 
housing in the community.
    (b) Evidence. (1) Relative expense. The relative expense of 
continuing operation as public housing or conversion to tenant-based 
assistance may be demonstrated by the cost analysis and market value 
analysis.
    (2) Benefit to residents, PHA, and the community. (i) The benefit 
to residents, the PHA, and the community may be demonstrated in the 
rental market analysis, the analysis of the impact on the neighborhood, 
the market value analysis, and the proposed future use of the 
development. In determining whether a conversion will principally 
benefit residents, the PHA, and the community, HUD will consider 
whether the conversion will conflict with any litigation settlement 
agreements, voluntary compliance agreements, or other remedial 
agreements signed by the PHA with HUD.
    (ii) In making the determination of whether a conversion would 
principally benefit residents, the PHA, and the community, the PHA must 
consider such factors as the availability of landlords providing 
tenant-based assistance, as well as access to schools, jobs, and 
transportation.
    (iii) To determine the benefit to residents, the PHA must hold at 
least one public meeting with residents of the affected site (including 
the duly elected Resident Council, if any, that covers the development 
in question). At the meeting, the PHA must:
    (A) Explain the requirements of section 22 of the United States 
Housing Act of 1937 and these regulations, especially as they apply to 
residents of affected developments;
    (B) Provide draft copies of the conversion assessment to the 
residents; and
    (C) Provide the residents with a reasonable period of time to 
submit comments on the draft conversion assessment.
    (iv) The conversion assessment submitted to HUD must contain a 
summary of the resident comments, and the PHA responses to any 
significant issues raised by the commenters.
    (3) Impact on affordable housing. The impact on affordable housing 
may be demonstrated in the rental market analysis and the analysis of 
the impact of conversion on the neighborhood.

Conversion Plans


Sec.  972.227  Public and resident consultation process for developing 
a conversion plan.

    (a) A conversion plan must be developed in consultation with 
appropriate public officials and with significant participation by 
residents of the development.
    (b) The requirement for consultation with public officials may be 
satisfied by obtaining a certification from the appropriate state or 
local officials that the conversion plan is consistent with that 
jurisdiction's 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 significant participation by 
residents of the development, in addition to the public participation 
requirements for the PHA Annual Plan, a 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 section 22 of the United States 
Housing Act of 1937 and these regulations, especially as they apply to 
residents of affected developments; and
    (ii) Provide draft copies of the conversion plan to them.
    (2) Provide a reasonable comment period for residents; and
    (3) Summarize the resident comments (as well as the PHA responses 
to the significant issues raised by the commenters) for HUD, and 
consider these comments in developing the final conversion plan.

[[Page 54622]]

Sec.  972.230  Conversion plan components.

    A conversion plan must:
    (a) Describe the conversion and future use or disposition of the 
public housing development. If the future use of the development is 
demolition or disposition, the PHA is not required to submit a 
demolition or disposition application, so long as the PHA submits, and 
HUD approves, a conversion plan that includes a description of the 
future uses of the development.
    (b) Include an impact analysis of the conversion on the affected 
community. This may include the description that is required as part of 
the conversion assessment.
    (c) Include a description of how the conversion plan is consistent 
with the findings of the conversion assessment undertaken in accordance 
with Sec.  972.218.
    (d) Include a summary of the resident comments received when 
developing the conversion plan, and the PHA responses to the 
significant issues raised by the commenters (including a description of 
any actions taken by the PHA as a result of the comments).
    (e) Confirm that any proceeds received from the conversion are 
subject to the limitations under section 18(a)(5) of the United States 
Housing Act of 1937 (42 U.S.C. 1437p(a)(5)) applicable to proceeds 
resulting from demolition or disposition.
    (f) Summarize why the conversion assessment for the public housing 
project supports the three conditions necessary for conversion 
described in Sec.  972.224.
    (g) Include a relocation plan that incorporates all of the 
information identified in paragraphs (g)(1) through (g)(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 (g)(5) of this section. The relocation plan must incorporate 
the following:
    (1) The number of households to be relocated, by bedroom size, 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 voluntary conversion is not subject to 
the URA, the notice shall be provided to families at least 90 days 
before displacement. If the voluntary 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 voluntary 
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 will no longer be used as public housing 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 
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) The family will be relocated to other decent, safe, sanitary, 
and 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;
    (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) Additional information required for conversions subject to the 
URA. If the voluntary conversion is subject to the URA, the written 
notice described in paragraph (g)(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 (g)(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).
    (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.


Sec.  972.233  Timing of submission of conversion plans to HUD.

    A PHA that wishes to convert a public housing project to tenant-
based assistance must submit a conversion plan to HUD. A PHA must 
prepare a conversion plan, in accordance with Sec.  972.230, and submit 
it to HUD, as part of the next PHA Annual Plan within one year after 
submitting the full conversion assessment, or as a significant 
amendment to that Annual Plan. The PHA may also submit the conversion 
plan in the same Annual Plan as the conversion assessment.


Sec.  972.236  HUD process for approving a conversion plan.

    Although a PHA will submit its conversion plan to HUD as part of 
the PHA Annual Plan, the conversion plan will be treated separately for 
purposes of HUD approval. A PHA needs a separate written approval from 
HUD in order to proceed with conversion. 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

[[Page 54623]]

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. A lack of a HUD response within this time frame will 
constitute automatic HUD approval of the conversion plan.


Sec.  972.239  HUD actions with respect to a conversion plan.

    (a) When a PHA submits a conversion plan to HUD, HUD will review it 
to determine whether:
    (1) The conversion plan is complete and includes all of the 
information required under Sec.  972.230; and
    (2) The conversion plan is consistent with the conversion 
assessment the PHA submitted.
    (b) HUD will disapprove a conversion plan only if HUD determines 
that:
    (1) The conversion plan is plainly inconsistent with the conversion 
assessment;
    (2) There is reliable information and data available to the 
Secretary that contradicts the conversion assessment; or
    (3) The conversion plan is incomplete or otherwise fails to meet 
the requirements under Sec.  972.230.

    Dated: August 11, 2003.
Michael M. Liu,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 03-23027 Filed 9-16-03; 8:45 am]
BILLING CODE 3210-33-P