[Federal Register Volume 71, Number 205 (Tuesday, October 24, 2006)]
[Rules and Regulations]
[Pages 62354-62369]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-17724]



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Part II





Department of Housing and Urban Development





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24 CFR Part 970



Demolition or Disposition of Public Housing Projects; Final Rule

  Federal Register / Vol. 71, No. 205 / Tuesday, October 24, 2006 / 
Rules and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 970

[Docket No. FR-4598-F-02]
RIN 2577-AC20


Demolition or Disposition of Public Housing Projects

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

ACTION: Final rule.

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SUMMARY: This final rule revises HUD's regulations governing demolition 
or disposition of public housing projects. This rule establishes the 
general and specific requirements for HUD approval of demolition or 
disposition applications, relocation of residents, resident 
participation in the form of consultation and opportunity to purchase a 
public housing project, the replacement of units, and a new authority 
for a public housing agency (PHA) to demolish a small number of its 
units without a formal application under certain circumstances, 
referred to as ``de minimis'' demolition. This final rule follows a 
December 15, 2004, proposed rule and makes several changes in response 
to public comment.

DATES: Effective Date: November 24, 2006.

FOR FURTHER INFORMATION CONTACT: Ainars Rodins, Director, Public and 
Indian Housing Special Application Center, Department of Housing and 
Urban Development, Ralph H. Metcalfe Federal Building, 77 West Jackson 
Boulevard, Room 2401, Chicago, IL 60604-3507; telephone: (312) 353-6236 
(this is not a toll-free number). Persons with hearing or speech 
impairments may access that number toll-free through TTY by calling the 
Federal Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION: 

I. Background

    On December 15, 2004, HUD published a proposed rule (69 FR 75188) 
entitled ``Demolition or Disposition of Public Housing Projects.'' This 
rule proposed to implement revisions to section 18 of the U.S. Housing 
Act of 1937 (1937 Act) (42 U.S.C. 1437p) (section 18) made by the 
Quality Housing and Work Responsibility Act of 1998 (Pub. L. 105-276, 
approved October 21, 1998) (QHWRA). Section 18 generally pertains to 
the demolition and disposition of public housing projects, including 
application and other requirements. The main features of the QHWRA 
revisions to section 18 are:
     A change in the burden of proof required for HUD approval 
of an application for demolition or disposition. Rather than HUD having 
to independently make certain findings, as long as the PHA certifies 
truthfully to the relevant factors, HUD will approve the application.
     The resident opportunity to purchase a project, which, by 
regulation, applied in the case of both demolition and disposition, is 
now by statute available only for proposed dispositions of public 
housing projects.
     The former requirement for one-for-one replacement of 
demolished units was eliminated.
     Former section 18(d) of the 1937 Act was removed. That 
section provided that a PHA could not ``take any action'' to demolish a 
public housing project, or portion of a project, without HUD approval. 
Similar language in 24 CFR 970.7(a) and 970.25(a) is designed to make 
certain that HUD can track units being phased out for funding purposes. 
That language is not intended to create any private right of action.
     A small, ``de minimis'' exception to the requirements of 
section 18 is made that allows the lesser of 5 percent of a PHA's 
public housing units or five units to be demolished, if the space will 
be used for meeting service or other needs of residents or if the units 
are beyond repair.
     Consolidation of occupancy in buildings for the purpose of 
improving living conditions or providing more efficient services to 
residents is allowed.
     If replacement units are put back on the site of a 
demolished project, they must be significantly fewer in number than the 
number of units demolished.
     The Uniform Relocation Act (42 U.S.C. 4601 et seq.) is 
statutorily not applicable to residents of projects to be demolished or 
disposed, but there are specific notice and relocation requirements for 
those residents.
    There is a more detailed description of the statutory changes in 
the preamble to the proposed rule at 69 FR 75188.

II. This Final Rule

    This final rule follows publication of the December 15, 2004, 
proposed rule and takes into consideration all comments received. 
Section III of this preamble summarizes the issues raised by the public 
commenters and provides HUD's responses.
    In consideration of the public comments, and in order to clarify 
certain legal points, HUD has made several changes at the final rule 
stage.
     The exception in Sec.  970.3(b)(5) for common areas and 
unoccupied units for use in Family Self-Sufficiency (FSS) programs has 
been expanded to include HUD-approved economic self-sufficiency 
services and activities to promote employment of public housing 
residents.
     In Sec.  970.3(b)(11), the explanation of the acronym 
``DOFA'' (date of full availability) has been eliminated because the 
correct explanation is now given at Sec.  970.3(b)(2).
     In Sec.  970.3(b)(12), a clarification is made that the 
regulation does not apply to disposition of property for mixed-finance 
development under 24 CFR part 941, subpart F.
     In Sec.  970.7(a)(6), the rule clarifies that a relocation 
plan must include reasonable accommodations for persons who require 
such accommodations under law. This addition simply clarifies existing 
law.
     The requirement in proposed Sec.  970.7(a)(9), that a PHA 
provide the estimated balance of project debt with a disposition 
application, has been eliminated because HUD has independent access to 
that information.
     The proposed 2-year time limitation on completion of 
demolition or disposition in Sec.  970.7(b)(1) has been removed.
     The rule clarifies references to the HOPE VI program and 
mandatory conversion in Sec.  970.9(b) relating to exceptions from the 
resident opportunity to purchase, and, in Sec.  970.9(c), includes a 
clarifying reference to the definition of ``established eligible 
organizations.''
     In Sec.  970.11, which contains the procedures for sales 
offers to resident organizations, the final rule gives the PHAs 3 
business days to provide information in response to the residents' 
initial expression of interest, rather than the proposed same-day 
response (see Sec.  970.11(d)(6)).
     In Sec.  970.13, HUD has incorporated more explanation 
about environmental review procedures and policies into the 
environmental review provisions.
     In Sec.  970.15, which relates to criteria for HUD 
approval of demolition requests, the use of housing construction cost 
(HCC) in the test for obsolescence is replaced with a percentage of 
total development cost (TDC).
     In Sec.  970.21(c)(2), this rule clarifies that the use of 
Urban Development Action Grant (UDAG) funds under 42 U.S.C. 5318 and 
HOME Investment Partnership Act (HOME) funds under 42 U.S.C. 12701 et 
seq., as well as Community Development Block Grant (CDBG) funds under 
42 U.S.C. 5301 et

[[Page 62355]]

seq., can trigger relocation obligations under section 104(d) of the 
Housing and Community Development Act of 1974.
     In Sec.  970.27, relating to the requirements for de 
minimis demolition, the definition of ``beyond repair'' is removed, and 
a clarification is added to the effect that PHAs must still comply with 
applicable laws outside of the 1937 Act, including environmental 
authorities and civil rights requirements.
     The phrase ``notwithstanding any other provision of law'' 
is added to Sec.  970.31, which contains the requirement that any on-
site replacement units be significantly fewer in number than the number 
of units demolished.

III. Discussion of the Public Comment on the December 15, 2004, 
Proposed Rule

    The public comment period for the proposed rule closed on February 
14, 2005. Fourteen commenters submitted comments. Commenters included 
industry trade associations, PHAs, and individuals. A summary of the 
issues raised by the commenters follows.
    A number of commenters stated that they generally support the rule. 
A commenter stated that it supports the ``streamlined changes'' to the 
regulations. Another commenter favorably cited the provision allowing 
PHAs to rescind requests for demolition or disposition if conditions 
have changed (Sec.  970.7(b)(2)), and that an offer only has to be made 
to resident organizations in the case of disposition (Sec.  970.11). 
Another commenter stated that the rule is now better organized and 
easier to read.
    One commenter stated support for the following specific provisions: 
Sec. Sec.  970.7, 970.15, and 970.17, which provide for HUD deference 
to a PHA's ``unique knowledge of local conditions,'' and Sec. Sec.  
970.15 and 970.17, permitting a PHA to certify that portions of its 
housing stock are no longer viable for public housing ``according to 
more realistic standards.'' The commenter stated that these provisions 
will give PHAs greater flexibility to develop alternative housing 
programs and preserve its other existing housing stock.
    This commenter also stated support for Sec.  970.19 providing for a 
waiver of the duty to retire outstanding obligations. Sections 970.9 
and 970.11 would provide for ``reasonable prior notice to residents.'' 
While PHAs would ``no longer be obligated to wait for a period of time 
for the resident to organize'' in the case of a disposition, they would 
only be obligated to make an offer to existing resident organizations. 
Proposed Sec.  970.25, allowing the PHA to consolidate occupancies, 
will provide ``greater flexibility in allocating scarce resources.'' 
Section 970.27, providing for a de minimis exception to demolition 
requirements, will ``grant the PHA relief from the substantial 
administrative burdens'' involved in making small changes to its public 
housing stock.

A. General Comments

    Comment: One commenter requested an extension of time to file 
public comments, stating that the rule could have a large impact and 
that time for further research was necessary.
    Response: HUD provided 60 days for public comment. This time span 
is in accordance with HUD's policy as stated in 24 CFR 10.1, and 
experience has shown that this period is generally sufficient time for 
the public to comment on HUD's proposed rules, and HUD determined that 
this was the case for this rule.
    Comment: HUD should continue to refine and streamline this rule for 
greater flexibility. Another commenter stated that HUD should remove 
``all unnecessary and redundant regulations to streamline the 
demolition and disposition process.''
    Response: HUD continually seeks to improve its regulations.

B. Comments on Specific Provisions

1. Demolition or Disposition for Mixed-Finance Projects
    Comment: Demolition or disposition related to mixed-finance 
development should be exempt from the requirements of this rule, or 
such disposition should be exempt. Some commenters raising this issue 
stated that because mixed-finance projects are already heavily 
regulated and time-consuming, they should not have to undergo a 
separate complete approval process under this rule. These and other 
commenters stated that there is already substantial overlap between the 
mixed-finance approval process and the approval process under this 
rule, and to the extent that there are some different requirements 
(such as environmental review and offer of sale to residents), the 
entire approval process could be done as part of mixed-finance 
approval, or at least PHAs should be given that option.
    Response: The rule does exempt public housing developments that are 
conveyed by a PHA prior to the date of full availability (DOFA) to 
enable an owner entity to develop the property using the mixed-finance 
development method (see 24 CFR 970.3(b)(11)). In addition, HUD agrees 
with the commenters that section 18 of the 1937 Act and this regulation 
do not apply to public housing property to be used for mixed-finance 
developments. This final rule revises 24 CFR 970.3(b)(12) to clarify 
this point.
    Comment: Section 970.2(a)(11) of the currently codified regulations 
should be read to exempt mixed-finance projects from a separate 
disposition review process, although HUD (according to the commenter, 
incorrectly) does not read the section this way. Some other commenters 
also cited proposed Sec.  970.3(b)(11) as well as Sec.  970.3(b)(12) 
for the same proposition. Other commenters cited proposed Sec.  
970.3(b)(12) for the proposition that mixed-finance public housing does 
not require a demolition/disposition application, and asked that HUD's 
Mixed-Finance Guidebook be amended accordingly.
    Response: See the response to the preceding comment. Additionally, 
all guidance and application materials will be revised accordingly.
    Comment: The rule should contain a clear statement that mixed-
finance projects are exempt. HUD should ``clarify'' its regulations on 
this issue, because working on complex issues with multiple departments 
at HUD may cause delays that increase development costs and that are 
detrimental to residents. Sections 970.3(b)(11) and (12) should be 
revised to exempt ``any public housing development or land on which a 
public housing development formerly stood that is conveyed by a PHA to 
an owner entity pursuant to an approved proposal under 24 CFR part 941, 
subpart F.'' If HUD chooses not to exempt mixed-finance projects in 
their entirety, HUD should add a new Sec.  970.3(c) as follows:

    Land or public housing disposed of prior to the start of 
construction in or due to mixed-finance development is not exempt 
under this part. Although development under 24 CFR part 941, subpart 
F is not exempt from this part 970, for such development under part 
941, subpart F, HUD will collect all information required by part 
970 during the approval process described at 24 CFR part 941, 
subpart F.

    Response: The rule does exempt public housing developments that are 
conveyed by a PHA prior to the date of full availability (DOFA) to 
enable an owner entity to develop the property using the mixed-finance 
development method (see 24 CFR 970.3(b)(11)). HUD believes that 
Sec. Sec.  970.3(b)(11) and (12) resolve the issues raised by these 
comments.
    Comment: Independent appraisals should not be required where a 
property is undergoing disposition for a nominal

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price or for use in a mixed-finance project, because most such 
dispositions are for a nominal or de minimis price. PHAs should not 
have to obtain an independent appraisal for dispositions at less than 
fair market value (FMV). Section 970.7(a)(10) should be revised to 
read:

    In the case of disposition, an estimate of the fair market value 
of the property, established on the basis of one independent 
appraisal, unless HUD determines that another method of valuation is 
sufficient, as described in Sec.  970.10(c).

    Three commenters stated that Sec.  970.19(c)(2) should be revised 
to read:

    Another method of valuation is clearly sufficient and the 
expense of an independent appraisal is unjustified because of the 
limited nature of the property interest involved or other available 
data, including, but not limited to, transfers for less than fair 
market value.

    Response: HUD reserves the right to request a determination of fair 
market value (FMV) of the property. Assessing the market value of a 
property is a common business practice and assists in evaluating any 
gain or loss. HUD only requires an appraisal if the property is 
advertised for bid and, even then, not in all cases. HUD recognizes 
that in some cases, a full appraisal is not necessary and has accepted 
tax assessors' opinions for dollar deals, negotiated sales, and leases 
in order to meet the appraisal requirement. Appraisal would not be 
required for disposition based on commensurate public benefit. Even in 
the case of public sale, appraisal is not required under some 
circumstances as indicated in Sec.  970.19 of the proposed rule. 
Language in the proposed rule stated that an independent appraisal is 
required unless ``HUD determines that another method of valuation is 
clearly sufficient and the expense of an independent appraisal is 
unjustified.'' (See proposed Sec.  970.7(a)(10), final Sec.  
970.7(a)(9).) Therefore, HUD has not adopted suggestions from 
commenters regarding proposed Sec.  970.7(a)(10), since the result is 
the same under both the proposed rule and the commenter's suggested 
language.
2. De Minimis Demolition, Proposed Sec.  970.27
    Comment: Section 970.27(c)(2) defines ``beyond repair'' for the de 
minimis demolition exception. This definition should be removed to 
provide PHAs with more discretion. One commenter stated that it may not 
be appropriate to rehabilitate a property even if costs fall just under 
the HCC. Some commenters stated that ``this rigid definition conflicts 
with the spirit of the de minimis exception'' to limit regulatory 
burdens.
    Response: Since this proposed definition may be overly restrictive, 
HUD is adopting the requested change. This final rule removes language 
in Sec.  970.27(c)(2) defining ``beyond repair.''
3. The Use of Proceeds of Demolition, Proposed Sec.  970.19(e)(2)(i)
    Comment: The proposed rule should permit as much flexibility as 
possible for the use of the proceeds of disposition. Several commenters 
stated that the listing of specific examples of permissible uses of 
proceeds should be removed from Sec.  970.19(e)(2)(i). An additional 
section should be added stating that proceeds will be allowed for use 
on all projects benefiting public housing residents and low-income 
families. One commenter stated that the phrase ``or for other low-
income housing purposes'' should be added to the section.
    Response: HUD did not adopt suggestions by commenters to remove the 
examples from the rule, since HUD believes that examples provide 
clarity to the rule (however, the examples are not intended to limit 
flexibility). HUD is not adopting a suggestion by commenters to add 
additional explanatory language since the proposed regulatory language 
does permit net proceeds to be used for the provision of low-income 
housing or to benefit the residents of the PHA.
    Comment: Proposed Sec.  970.19(e)(2)(ii) provides that the net 
proceeds of disposition may be used for ``leveraging amounts for 
securing commercial enterprises, on-site in public housing developments 
of the PHA, appropriate to serve the needs of the residents.'' Some 
commenters stated that this provision should be explicitly expanded to 
define ``on-site'' as including either current public housing sites or 
``former public housing property which is disposed of for purposes 
including commercial enterprises.'' The commenters stated that there is 
an urgent need for commercial enterprises, such as grocery stores, 
pharmacies, and other services on and around public housing 
developments, and HUD is unlikely to consider such enterprises as an 
appropriate use of current public housing property.
    Response: HUD incorporates statutory language from 42 U.S.C. 
1437p(a)(5)(B)(ii) in Sec.  970.19(e)(2)(ii) and believes this language 
is clear. However, HUD may provide additional guidance in this area 
after issuance of the final rule.
4. Definition of ``End of Initial Operating Period (EIOP), `` Proposed 
Sec.  970.5
    Comment: The definition of end of initial operating period (EIOP) 
should be conformed to the definition in 24 CFR part 941.
    Response: HUD has decided to use DOFA instead of EIOP throughout 
the rule, and so this final rule removes the definition of EIOP.
5. Exemption for Disposition for Homeownership Programs, Proposed Sec.  
970.3(b)(3)
    Comment: Several commenters stated that they support the exemption 
in Sec.  970.3(b)(3) of homeownership programs under public housing 
homeownership programs under sections 5(h), 21, and 32 of the 1937 Act 
from the disposition approval process. A commenter stated that some 
provisions of the current regulations conflict with the homeownership 
programs, and that there should be ``expedited adoption'' of the 
homeownership exemption and that notices required ``to keep the PIC 
system up to date occur as part of the final rule making process.'' 
Commenters also stated that the exemption is not sufficiently broad and 
should be extended to all homeownership programs, including ``Section 
24/9'' and ``Nehemiah-like'' programs. Some commenters stated that a 
new Sec.  970.3(b)(16) be added as follows:

    The conveyance of a public housing project or vacant land 
formerly containing a public housing project for the purpose of 
providing homeownership opportunities under Section 24, Section 9, 
Middle-Income, Nehemiah, or other HUD-approved homeownership 
program.

    Response: The purpose of this exemption is to allow for the removal 
of units outside of this regulation for use in a statutory 
homeownership program. While ``Nehemiah-like'' activities may be 
eligible under HOPE VI, homeownership may or may not be the result of a 
HOPE VI plan. In addition, any disposition as part of a HOPE VI plan is 
subject to section 18 of the 1937 Act and hence this implementing 
regulation. On the other hand, the Section 5(h) and 32 programs both 
provide a statutory basis for removal of units from the program under 
the requirement that the units be used for homeownership. It is these 
types of programs to which the exemption is addressed. In order to 
clarify this focus, this final rule refers to ``statutory predecessor'' 
homeownership programs.

[[Page 62357]]

6. Time Limit for Completion, Timetable, and Plan in PHA Plan, Proposed 
Sec.  970.7
    Comment: Commenters objected to the 2-year time limit in Sec.  
970.7(b)(1) for completion of demolition or disposition. Because 
project approval, relocation of tenants, and obtaining funding take 
varying amounts of time depending on the project, there should be no 
time limit. There is a potential conflict between Sec.  970.7(a)(4), 
which requires the PHA to submit with its application a general 
timetable, and the 2-year time limit. There are too many variables 
involved to limit the process to 2 years. Instead, the timetable 
submitted under Sec.  970.7(a)(4) should determine the time limit.
    In addition, there is no statutory basis for the 2-year limitation, 
and HUD should consider PHA applications for extensions under 
appropriate circumstances. The 2-year limitation might be impossible 
for larger projects to meet, and instead there should be a firm date 
after which no HUD money could be spent on the property except for 
demolition and disposition costs. A solution might be to revise Sec.  
970.7(b)(1) to require that a PHA ``must either (a) commence any 
demolition or disposition within 2 years of the date of HUD's approval 
or (b) complete any demolition or disposition within 3 years of the 
date of HUD's approval.''
    Response: While the majority of demolitions and dispositions can be 
accomplished in 2 years, there may be some cases where a longer period 
is required. Therefore, this final rule adopts the commenters' 
suggestion and removes the 2-year requirement.
    Comment: Section 970.7(a)(1) should not require an identical 
timetable and description in the application and the PHA's plan. This 
requirement is antithetical to a streamlined process, and requires PHAs 
to submit, in effect, multiple applications for every demolition or 
disposition. The administrative burden will be extensive and will 
create delays, and having two identical submissions will not improve 
the process. For example, if, during the process, it were discovered 
that another property should have been included, the proposed rule 
would require the PHA to wait until the next annual plan submission 
before including the property. It should be sufficient under the 
statute for the PHA to specifically authorize demolition of a certain 
number of units in a certain neighborhood, and have the specific units 
listed in the demolition application. Accordingly, Sec.  970.7(a)(1) 
should be revised to read:

    A certification that the PHA has described the demolition or 
disposition in the approved PHA Annual Plan under 24 CFR part 903 
(except in the case of small, high-performing, or MTW PHAs eligible 
for streamlined annual plan treatment), and that the application 
submitted pursuant to this part otherwise complies with section 18 
of the Act, 42 U.S.C. 1437p, and this part * * *

    The timetable requirement is unrealistic because the description in 
the annual plan could anticipate a slightly different formulation of 
units, land, or other components that the agency is actually able to 
submit, and it is not clear from the regulation what to do in such a 
case. To require the PHA plan and the application to be identical 
serves no rational purpose and provides (because of minor differences 
that may arise) a basis for challenging or delaying a legitimate and 
necessary undertaking. Instead, the PHA plan should be ``substantially 
descriptive'' of the proposed action in order to facilitate general 
public comments.
    Another commenter stated that, while the intention to carry out a 
demolition or disposition would be stated in the annual plan, ``it is 
often difficult to predict accurately the timeline within which a 
project will be played out.''
    Response: Section 970.7 only requires that the description of the 
housing proposed to be demolished or disposed of in the approved PHA 
Annual Plan be identical to the application submitted pursuant to 24 
CFR part 970. The Annual Plan requirements ask for limited demolition/
disposition information as it relates to the planning process where the 
application requires more detailed information along with 
justifications and certifications. Since a PHA may amend the plan and 
submit significant changes to HUD, HUD disagrees with commenters that 
would suggest that only a certification be required for the contents of 
the PHA's plan.
    The Annual Plan's purpose is to provide a framework for local 
accountability and an easily identifiable source by which public 
housing residents, participants, and other members of the public may 
locate basic PHA policies, rules, and requirements; the PHA's mission 
for serving the needs of low-income families; and the PHA's goals and 
objectives to enable the PHA to reach that mission. The application for 
demolition/disposition is a specific request for demolition and/or 
disposition. HUD does not believe that this requirement is duplicative 
or burdensome.
    Comment: One commenter stated that ``at a time when there is a 
trend towards demolishing and disposing of public housing units, we 
must ensure that we do not make it easier'' for PHAs to remove units. 
For this reason, the provision exempting small and high-performing PHAs 
from certifying their demolition plans in their annual plans should be 
removed.
    Response: PHAs that are small or high performers are not entirely 
exempt from certifying their demolition plans. Those PHAs that are 
eligible to submit a streamlined plan are required to submit a 
certification listing the policies the PHA has revised since submission 
of its last Annual Plan, including those involving demolition and 
disposition. HUD believes that this certification is appropriate for 
PHAs using the streamlined plan process.
7. Resident Relocation, Proposed Sec. Sec.  970.21, 970.23
a. Notice to Residents, Proposed Sec.  970.21(e)(1)
    Comment: The required 90-day notice of demolition or disposition is 
too short. Only 20 percent of all new rental construction in the past 
decade has been targeted for low-income and extremely low-income 
people. Given the shortage of affordable rental units for low-income 
and extremely low-income people, it may be extremely difficult for 
families to find affordable rental housing within 90 days. The rule 
should require 6 months' advance notice.
    Response: The statute refers to 90 days' notice; however, it also 
should be noted that a PHA may not commence demolition or complete 
disposition until all residents are relocated. Since the rule, as 
proposed, addressed the commenter's concerns, HUD does not adopt this 
comment.
b. Uniform Relocation Act (URA) Procedures
    Comment: The rule provides an exemption from the URA, but the 
substitute procedures are ``the functional equivalent'' of URA 
procedures. The use of HUD funds for relocation costs (in proposed 
Sec.  970.23) would reduce the availability of those funds for other 
necessary uses. The use of disposition proceeds for relocation should 
be considered for those PHAs seeking waivers from using disposition 
proceeds to pay down debt.
    Response: HUD recognizes that much of what is required under URA is 
similar to the requirements in part 970. However, these requirements 
are statutory (see 42 U.S.C. 1437p(a)(4)(A)(iii)). HUD disagrees with 
the statement that funds for relocation costs would reduce the 
availability of those funds for other uses since other

[[Page 62358]]

funds are available for relocation costs. The comment pertaining to the 
use of disposition proceeds is not adopted because doing so would 
conflict with the requirements of Sec.  970.19 of this rule and 42 
U.S.C. 1437p(a)(5).
c. Use of Vouchers
    Comment: Given the funding shortfalls in the voucher program 
(citing that only 95 percent of 2004 vouchers are being funded, and the 
proposed FY 2006 budget would cut project-based assistance by $272 
million), HUD should require PHAs to ``confirm landlord stability'' in 
the tenant-based and project-based voucher programs before certifying 
that a resident has been relocated. The commenter also states that the 
rule should require PHAs to track relocated families for at least 3 
years, and that this data is to be shared with HUD.
    Response: The comments related to vouchers are beyond the scope of 
this rule. As to relocation, the relocation provisions are required by 
statute (see 42 U.S.C. 1437p(a)(4)(A)(iii)). The statutory requirement 
is that demolition not commence until each resident is relocated, and 
the rule appropriately implements that requirement. Therefore, no 
change is made to the final rule.
8. Reference to HOPE VI, Proposed Sec.  970.9(b)(3)(iii)
    Comment: Section 970.9(b)(3)(iii) incorrectly references part 970 
as including regulations for HOPE VI relocation. This reference should 
be revised.
    Response: The rule addresses circumstances in which a PHA is not 
required to make an offering to residents. The rule takes into account 
(1) HOPE VI revitalization (see 42 U.S.C. 1437v), (2) mandatory removal 
from inventory of distressed units for which there is no potential to 
revitalize under 24 CFR part 971 (authorized by the 1996 Omnibus 
Consolidated Rescissions and Appropriation Act, Pub. L. 104-134, 
approved April 26, 1996), and (3) the required conversion of distressed 
housing to tenant-based assistance under 42 U.S.C 1437z-5.
9. Environmental Review Provisions, Proposed Sec.  970.13
    Comment: Several commenters objected to environmental review 
provisions in proposed Sec.  970.13. Commenters stated that an 
environmental review should not be required for a known re-use unless 
such re-use involves PIH funds. Commenters also stated that:

    The Preamble describes known use so broadly that a housing 
authority disposing of property would have to get Part 58 approval 
for a future use such as a purely privately funded project * * *. 
That result places a disproportionate burden on housing authorities 
to obtain environmental approvals not otherwise required by the 
placement of HUD funds into a project. It also requires a housing 
authority to essentially subsidize activities by a third party 
outside of the public housing program. For situations in which 
housing authorities dispose of land that will no longer be used for 
public housing purposes, any required environmental review should be 
passed on to the purchaser. Accordingly, Sec.  970.13(b) should be 
revised to read:
    The environmental review is limited to the demolition or 
disposition action and any known re-use involving public housing 
funding. For the purposes of this section, known re-use means: (1) 
architectural, engineering, or design plans for the re-use exist and 
go beyond preliminary stages and (2) either of the following is 
true: (a) HUD public housing funding has been committed; or (b) a 
grant application for HUD public housing funding has been submitted 
to HUD.

    One commenter stated that the provision that environmental review 
is not required for an unknown future re-use is too general, and the 
term ``unknown'' should be defined. Another commenter stated that it is 
unlikely that a PHA does not know the future re-use of its property. 
The process of obtaining an environmental review is ``onerous'' because 
the responsibility for the review is on the local governmental entity. 
``In reality, this usually shifts the cost burden to the housing agency 
because the city is unlikely to cover the expense of environmental 
review.''
    Response: HUD believes that the proposed preamble language provided 
clarity regarding what is a ``known future reuse'' and what is an 
``unknown reuse'' and has placed the language describing the factors 
used to determine whether a future re-use is ``known'' in the text of 
the final rule.
    The suggested revision to Sec.  970.13(b) is not adopted since an 
environmental review is applicable when there is a ``federal action,'' 
such as HUD approving an application for demolition or disposition or a 
related request for release of funds. The requirement is not 
necessarily limited to public housing funding. HUD does not agree that 
the environmental review is ``onerous'' and points out that Sec.  
970.13 does permit HUD to make a finding in accordance with 24 CFR 
58.11(d) and may itself perform the environmental review under the 
provision of 24 CFR part 50 if a PHA objects in writing to the 
responsible entity performing the review under 24 CFR part 58.
    Comment: Dispositions by sealed-bid solicitations should be 
conducted without an environmental assessment. This would allow PHAs to 
``test the disposition market'' without the expense of an environmental 
review and also give relief to the transferee from the costs of having 
to conduct an environmental review prior to acquisition.
    Environmental review should not be required for mixed-finance 
projects or for de minimis demolitions under Sec.  970.27. ``There is 
little difference'' between mixed-finance development and redevelopment 
using the Capital Fund, where environmental review is not required. 
Since the de minimis exception is for cases where the demolition action 
is ``not substantive,'' the environmental review requirement should be 
eliminated for these demolitions as well.
    Response: See the response to the preceding comment. The 
commenter's statement that environmental review is not required for 
development and redevelopment using the Capital Fund is not correct 
(see 24 CFR 58.1(b)(6)(i)). Environmental review is required because 
federal financial assistance is involved.
10. Substitution of Units, Proposed Sec.  970.7(b)(3)
    Comment: Section 970.7(b)(3) should be revised to allow ``de 
minimis'' substitution of units. While HUD needs to be able to track 
units, the proposed rule is unduly restrictive. Redevelopment in an 
urban setting sometimes requires the substitution of small parcels in 
order to produce efficiency or meet local zoning or code requirements. 
The proposed provisions will cause unnecessary delays in these cases. 
To avoid this problem, Sec.  970.7(b)(3) should be revised to read:

    A PHA may request to either substitute units or add units to 
those originally included in the approved demolition or disposition 
application, without submitting a new application for those units, 
so long as such a request involves (a) units within the same project 
number or (b) the substitution or addition of no more than 3 units 
in project numbers adjacent to the project that is the subject of 
the disposition.

    In the alternative, HUD should permit amendments to approved 
demolition or disposition applications. In that case, the section 
should be revised to read:

    A PHA may either substitute units or add units to those 
originally included in the approved demolition or disposition 
application through an amendment to the application, so long as such 
a request involves (a) units within the same project number or (b) 
the substitution or addition of no more than 10 units in project 
numbers adjacent to the project that is the subject of the 
disposition.


[[Page 62359]]


    One commenter stated that ``PHAs should be permitted a greater 
degree of flexibility to substitute units within developments in order 
to effectuate the stated goal of consolidation of occupancies.''
    Response: The comments regarding ``de minimis'' substitution of 
units are not adopted since applications are approved for specific 
reasons and reviewed on a case-by-case basis. Not all units in a given 
public housing project are equivalent to all others, and considerations 
include not only the units themselves but such factors as location, 
amenities, and appearance. However, PHAs can apply for and obtain 
approval to demolish a larger set of units than they actually plan to 
demolish, including the units they may wish to substitute. The PHA 
could then substitute units within the approved larger group. Thus, 
PHAs can effectively have the ability to substitute units for 
demolition and still comply with this rule.
11. Offer to Existing Resident Organizations, Proposed Sec.  970.11
    Comment: One commenter supported the general idea of excluding 
demolitions (so that the offer to purchase to residents applies only to 
disposition), HOPE VI, and mandatory conversion projects from the 
resident offer requirement. However, the rule stops short by not also 
excluding projects where the PHA has consolidated vacancies as 
permitted by section 18. Excluding such developments does not seem to 
further any legitimate purpose, and will penalize PHAs that consolidate 
occupancies to improve the living conditions of their residents or to 
provide greater efficiency in serving residents. Why would HUD want to 
discourage such efforts?
    Commenters stated that the procedures for the offering to residents 
are unduly cumbersome and time-consuming. The entire process could take 
from 135 to 225 days, and such a delay is unreasonable. The rule should 
ensure that the entire process is completed within 30 days and that the 
decision of the PHA is not subject to an appeal process. One commenter 
stated that ``[p]roposal 970.11(h) would provide for an extension of 
the time, from 30 days to 120 days, for appealing resident 
organizations desiring to buy a complex, but receiving a rejected 
purchase proposal. Should the rejection be justified, and HUD agrees, 
it would seem that this proposal would further delay the redevelopment 
of a project. HUD should waive this requirement or certainly limit it 
to a nominal time frame if there is no organized resident group.''
    Extending the time frame for HUD to review the PHA decision from 30 
days to 120 days will place an additional burden on the PHA. Timing is 
a key factor, and it is essential that disposition applications be 
processed by the HUD Special Application Center as expeditiously as 
possible. However, the proposed appeals process could add an additional 
120 days or more to the application approval process. In addition, the 
uncertainty of how long the review period could last will likely hinder 
a PHA's ability to consummate market transactions with private partners 
and could unnecessarily deter private partners from working with PHAs 
on real estate transactions. The time frame for HUD to render a 
decision on an appeal should remain 30 days.
    Response: The rule does permit a PHA to consolidate without 
submitting a disposition application and, therefore, the offer to 
existing resident organizations under this rule is not applicable. The 
comments regarding the time for resident consultation are not adopted 
since the procedures for offer of sale to established eligible 
organizations is statutory. The comment regarding the 120-day HUD 
appeal process is not adopted since the 120-day period relates to the 
maximum amount of time HUD has to consider an appeal from a resident 
organization. HUD believes that there is no uncertainty as to how long 
the review period could last, since the period is a maximum of 120 
days. HUD's experience in this area reflects the possibility that some 
appeals may require the full 120 days to review and render a decision.
    Comment: Proposed Sec.  970.11(d)(6), which requires the PHA to 
provide sales materials to the resident organization on the same day as 
it receives the resident's expression of interest, has too short a time 
frame. The provision should be revised to read, ``The PHA must supply 
the totality of all the terms of sale and all the necessary materials 
to the residents no later than 3 business days from the day it receives 
the residents' initial expression of interest.''
    Response: HUD adopts this comment. This final rule revises the 
third sentence of Sec.  970.11(d)(6) to read: ``The PHA must supply the 
totality of all the terms of sale and all necessary material to the 
residents no later than 3 business days from the day it receives the 
residents' initial expression of interest.''
    Comment: The resident offer provision should be expanded. Contrary 
to HUD's assertions in the proposed rule, there are many PHAs that do 
not have resident organizations. HUD should include a requirement that 
PHAs have to inform tenants of their right to organize and allow them 
the opportunity to organize before moving forward with any disposition 
plans. The $25 per unit/per year for resident participation activities 
should be used for resident organizations.
    In addition, the 60 days provided for residents to secure financing 
is not enough. Residents should get 90 days. This commenter stated 
that, contrary to proposed Sec.  970.11(h), residents should have a 
right to appeal any HUD ruling in court.
    Response: HUD does not adopt this comment since the resident-offer 
provision, as required by the existing regulation, proved to be overly 
time-consuming and unworkable in some situations where there was not 
yet a resident organization formed. The suggestion to give residents 90 
days to secure financing is beyond statutory requirements and to allow 
an extended period of time would again delay the process unnecessarily. 
As for the right to judicial appeal, residents are not prevented by 
this section from pursuing any available judicial review; Sec.  
970.11(h) simply provides for finality of the administrative review 
process.
12. Exemption of Areas Used for Family Self-Sufficiency (FSS), Proposed 
Sec.  970.3(b)(5)
    Comment: The exemption for common and unoccupied areas being used 
for an FSS program is correct, but should be expanded to all areas 
being used for supportive services regardless of whether they are being 
used in the statutory FSS program.
    Response: After consideration of this issue, HUD agrees that HUD's 
policy in this area, should ``encourage and reward employment and 
economic self-sufficiency'' (see 42 U.S.C. 1437a(2)(D).) ``Employment 
and economic self-sufficiency'' includes FSS and other HUD-approved 
self-sufficiency activities. This final rule revises 24 CFR 970.3(b)(5) 
accordingly.
13. Review Under the Public Housing Assessment System (PHAS)
    Comment: Two commenters stated that when a PHA submits a property 
for demolition or disposition, it acknowledges that the units are in 
need of substantial repair and is working to resolve the problem. Such 
units should not be required to be reviewed under PHAS or scored as 
part of the PHA's overall rating. The PHA should not be penalized by 
HUD for the condition of the units being demolished or subject to 
disposition.

[[Page 62360]]

    Response: Changes to PHAS scoring are outside the scope of this 
rule.
14. Exemption for Eminent Domain Taking, Proposed Sec.  970.3(b)(8)
    Comment: One commenter stated that the preamble and regulatory 
provisions on eminent domain taking do not match. In particular, the 
preamble states that HUD must be a party to the eminent domain 
proceeding, that HUD must approve any out-of-court settlement for the 
transfer of PHA-owned property, and that additional adjustments may be 
made to account for changes in law. These requirements do not appear in 
the rule text.
    This commenter stated that the rule should clearly state that 
commencement of litigation is not required in those states such as Ohio 
where the first step toward an eminent domain taking occurs before 
litigation. This commenter also stated that material should be added to 
the rule that explains how to obtain HUD approval for an eminent domain 
taking and which HUD office to contact.
    Response: HUD does not adopt this comment since the proposed 
regulatory provisions address the fact of the exemption only. To fully 
explain the process of eminent domain is beyond the scope of this rule. 
This final rule does not limit the start of condemnation proceedings to 
the filing in a court but accepts the determination as to when the 
condemnation proceedings commence under state law.
15. Resident Consultation Requirement, Proposed Sec.  970.9
    Comment: The rule should have ``safe harbor'' criteria for resident 
consultation that, once met, ensure that the requirement has been 
fulfilled. This comment cites an example of a situation where the 
commenter states that more than 30 meetings were held with residents 
over 2 years, and HUD did not find the consultation adequate but 
required the PHA to sign a memorandum of understanding (MOU) with the 
resident council in which the parties agreed to the action. This 
requirement exceeds any reasonable interpretation of ``consultation.'' 
This comment suggests an additional sentence be added to read:

    The requirement for resident consultation will be satisfied 
where the PHA has invited all affected residents and resident 
organizations to attend at least three meetings at which the 
proposed demolition or disposition plan is presented in writing to 
those attending and the PHA affords the residents in attendance the 
right to present their comments orally and later in writing.

    Response: The comment is not adopted. The statute requires 
consultation with residents who will be affected by the action and HUD 
believes that PHAs should have flexibility in this area. HUD shall 
review consultation on a case-by-case basis. HUD does not consider it 
appropriate to specify how many meetings are necessary for resident 
consultation, but as proposed Sec.  970.9 requires, a PHA must submit 
copies of any written comments submitted to the PHA and any evaluation 
that the PHA has made of the comments.
    Comment: Proposed Sec.  970.9(c), which provides that established, 
eligible resident organizations may act for residents, ``does not 
identify any standards that must be met by nonprofit organizations that 
may act on behalf of residents. At a minimum, nonprofit organizations 
should have a history of working with the residents of the affected 
community and should be able to demonstrate the capacity and ability to 
assist the resident organization with real estate transactions.''
    Response: Proposed Sec.  970.9 makes reference to 24 CFR part 964 
to define what is a resident management corporation. Additionally, part 
964 contains language stating that a nonprofit organization is one that 
is ``validly incorporated under the laws of the state in which it is 
located.'' This standard has been clarified in the final rule. HUD 
believes that the rule is sufficient and that adopting the comment 
would make the rule too prescriptive and inflexible in this regard.
16. Method of Disposition, Proposed Sec.  970.19
    Comment: There should be an additional disposition option besides 
public solicitation for not less than FMV, or negotiated sale. The rule 
should also permit a sale by public solicitation for less than FMV. Why 
prohibit a sale on this basis? It does not serve anyone's interest to 
require the PHA to retain title solely because the purchaser willing to 
pay the most for it will not pay the appraised value. Whether or not to 
accept such a bid should be within the PHA's discretion.
    Response: The proposed rule permitted HUD to authorize sale for 
less than fair market value. No change is made to this final rule as a 
result of this comment.
    Comment: Two commenters stated that the rule requires an assessment 
of commensurate public benefits when selling for less than FMV. HUD 
required a showing of commensurate public benefits for a negotiated 
sale of greater than FMV. This requirement was a waste of time because 
there was no chance of anyone other than the offeror offering more than 
the negotiated price, and placed the PHA at risk of receiving less 
money because the offeror might decide to lower the offer and risk 
losing the property. The rule should be changed to allow for a 
negotiated price at greater than the appraised value without showing a 
commensurate public benefit.
    Response: The rule merely requires a showing of a commensurate 
public benefit for a sale of less than FMV. HUD will not require a 
showing of commensurate public benefit for a negotiated sale of greater 
than FMV on and after implementation date of the final rule.
17. Program of Modifications Is Not Cost-Effective, Proposed Sec.  
970.15(a)(2)
    Comment: The test for obsolescence--whether a reasonable program of 
modifications is cost-effective to return a development or portion to 
useful life--should be based on 90 percent of total development cost 
(TDC), rather than 100 percent of housing construction cost (HCC), as 
proposed.
    Response: HUD has eliminated proposed references to HCC for clarity 
purposes and revised language in the final rule to reflect 62.5 percent 
of TDC for elevator structures and 57.14 percent of TDC for all other 
types of structures, which is the functional equivalent of 100 percent 
of HCC. Such a change does not eliminate the flexibility the proposed 
rule offered.
18. PIH Information Center (PIC) System
    Comment: A trade association commenter stated that its members have 
found that the limitations of the PIC system for tracking public 
housing units make it difficult to demolish or dispose of units that 
should otherwise be eligible for demolition or disposition. As an 
example, if a PHA has two buildings under one public housing project 
number, and it decides to demolish one and apply for funding for 
replacement housing, it cannot later apply to replace the second 
building because, as far as the system is concerned, the PHA has 
already received replacement housing funding for that project.
    Response: Technical issues related to PIC were not addressed in the 
proposed rule and are outside the scope of this rulemaking.
19. Replacement Units, Proposed Sec.  970.31
    Comment: This section, which provides that replacement housing 
units

[[Page 62361]]

may be placed back on-site if the number of units is significantly 
fewer than the number of units demolished, should be prefaced with the 
phrase, ``notwithstanding any other provision of law.'' This phrase 
would mirror current law.
    Response: The final rule makes the suggested change. Section 18(d) 
of the 1937Act (42 U.S.C. 1437p(d)) provides for placing replacement 
units back on site ``notwithstanding any other provision of law.''
20. Application Requirements Generally, Proposed Sec. Sec.  970.7, 
970.29
    Comment: This proposed section requires submission of too much 
information and should be streamlined. HUD would approve an application 
based on a PHA's certification as to specific conditions of the 
property and evidence that the PHA complied with resident consultation 
requirements. This should result in a simpler process. One purpose of 
the statute, to eliminate the burden on PHAs, is overshadowed by HUD's 
demand for more information than is required.
    Response: The rule does reflect statutory language. PHAs determine 
whether a project is eligible for demolition or disposition and are 
permitted to certify to this unless HUD has information that the PHA's 
certification is incorrect. Certification forms reflect language from 
section 18(b) of the 1937 Act. However, the application process will be 
updated to conform to any changes made by this rule.
    Comment: Commenters stated that proposed Sec.  970.29, which 
provides the rules for HUD's rejection of an application, is too broad 
or too vague. Proposed Sec.  970.29(a)(3), which states that HUD may 
disapprove an application if it has information inconsistent with the 
application, is too vague concerning what that contrary information may 
be. ``The rule should be more explicit on what information or data may 
be requested so that PHAs are not subject to the vagaries of those 
conducting the application process.'' This section implies that HUD can 
ask for additional information after it reviews the application, and 
that, since HUD reviews the PHA's annual and 5-year plans, HUD 
personnel should know what to ask before their review. As written, the 
section could cause lengthy delays.
    The phrase ``HUD will disapprove an application if HUD determines * 
* *'' should be changed to ``HUD will disapprove an application only if 
HUD determines * * *'' because, as written, the phrase implies that HUD 
may disapprove an application for some other reason. A commenter 
objected to proposed Sec.  907.29(a) because it does not define what 
``clearly inconsistent'' means, and because the phrase ``if HUD 
determines'' vests absolute discretion in the agency regardless of how 
clear and convincing a case the PHA has made. This commenter stated 
that the section should be revised to read:

    HUD will disapprove an application only if any certification by 
the PHA required under this part is:
    (a) Inconsistent with the approved PHA Plan; or
    (b) Arbitrary, capricious, made in bad faith, or constitutes an 
abuse of discretion.

    Response: Language in this section reflects statutory requirements. 
Each proposal is unique and must be reviewed on a case-by-case basis. 
HUD may reject an application for demolition or disposition if the 
reason for the proposed action is not in conformance with the statute.
21. Other Miscellaneous Application Requirements, Proposed Sec.  970.7
a. Estimate of Project Debt, Sec.  970.7(a)(9)
    Comment: Proposed Sec.  970.7(a)(9), requiring PHAs to submit 
estimate of project debt, should be removed. This information is 
readily available to HUD and not to PHAs.
    Response: This comment is adopted since HUD currently maintains 
such information. However, if HUD determines the project still has 
debt, it will assume the PHA is asking for a waiver of the requirement 
to use the proceeds to repay the debt, if the PHA has shown another use 
for the proceeds.
b. Consultation With Appropriate Government Officials, Sec.  
970.7(a)(15)
    Comment: This requirement could ``require a great deal of extra 
effort if the PHA's project is trying to move forward during a change 
in local government.'' The rule should allow more latitude in case of 
change in local political volatility.
    Response: HUD disagrees with this commenter and believes that the 
rule does allow for latitude. Section 970.7(a)(15)(iii) provides that, 
where the local government consistently fails to respond to the PHA's 
attempt at consultation, including letters, request for meetings, 
public notice and other reasonable efforts, documentation of those 
attempts are acceptable. HUD will review such documentation on a case-
by-case basis to determine if the consultation requirement was met. 
Because of the large amount of variations in local situations, HUD does 
not consider it appropriate to make a general rule as to what action on 
the part of the public body will be required to meet the consultation 
requirement in situations where the local government does not respond.
    Comment: The rule should have a ``safe harbor'' standard so that it 
is known when the PHA has satisfied the consultation requirement. 
Otherwise, jurisdictions could delay the process. For example, if a 
racially concentrated project were to be demolished to provide for 
integration of its residents into non-concentrated neighborhoods, a 
jurisdiction opposed to integration could refuse to issue the letter 
required in proposed Sec.  970.7(a)(15)(ii) and allege that the PHA did 
not consult. By establishing threshold criteria, the PHA could 
establish that it had consulted adequately even absent the letter. A 
new paragraph should be added to Sec.  970.7(a)(15) to read:

    The requirement for consultation with local government officials 
will be satisfied where the PHA has either met or offered to meet 
with the appropriate government officials on three occasions at 
which the proposed demolition or disposition plan was presented in 
writing to those attending and the PHA has responded in writing to 
any written objections, comments, or concerns received within ten 
days following the third such meeting or offer to meet.

    Response: As discussed in the response to the preceding comment, 
because of the variances in local situations, HUD does not believe it 
is possible to provide a safe harbor standard that will be applicable 
in all cases.

IV. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements in this rule have been 
approved by OMB under section 3507(d) of the Paperwork Reduction Act of 
1995 (44 U.S.C. Chapter 35) and assigned OMB Control number 2577-0157. 
An agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless the collection displays 
a valid control number.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) 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 government, 
or the private sector within the meaning of UMRA.

[[Page 62362]]

Environmental Impact

    A Finding of No Significant Impact (FONSI) with respect to the 
environment was made with respect to the proposed rule in accordance 
with HUD regulations in 24 CFR part 50 that implement section 102(2)(C) 
of the National Environmental Policy Act of 1969 (42 U.S.C. 
4332(2)(C)). The FONSI remains applicable and is available for public 
inspection between 8 a.m. and 5 p.m. weekdays in the Regulations 
Division, Office of General Counsel, U.S. Department of Housing and 
Urban Development, 451 Seventh Street, SW., Room 10276, Washington, DC 
20410-0500. Due to security measures at the HUD Headquarters building, 
please schedule an appointment to review the FONSI by calling the 
Regulations Division at (202) 708-3055 (this is not a toll-free 
number).

Impact on Small Entities

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.), 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities.
    This rule is concerned solely with the requirements for PHAs to 
apply for demolition or disposition of the public housing developments 
that they administer. However, many of the requirements of this rule 
were already present under the existing regulations regarding public 
housing demolition or disposition. To the extent that this rule would 
alter the previous requirements, it would do so in ways that are likely 
to either leave the economic impact unchanged or lower such impact. For 
example, because of a statutory change, the rule would no longer 
require PHAs to have a replacement housing plan. The rule would provide 
greater flexibility than before in how PHAs can use the proceeds from 
disposition of a property. The rule would provide for demolition of a 
minimal number of units without submitting an application. Thus, the 
rule certainly would not impose a greater administrative burden on 
entities than previously, and in some ways would lower the 
administrative requirements for demolishing or disposing of public 
housing units. Therefore, the undersigned certifies that this final 
rule will not have a significant economic impact on a substantial 
number of small entities, and an initial regulatory flexibility 
analysis is not required.

Federalism Impact

    Executive Order 13132 (entitled ``Federalism'') prohibits, to the 
extent practicable and permitted by law, an agency from promulgating a 
regulation that has federalism implications and either imposes 
substantial direct compliance costs on state and local governments and 
is not required by statute, or preempts state law, unless the relevant 
requirements of section 6 of the executive order are met. This 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.

Executive Order 12866, Regulatory Planning and Review

    OMB reviewed this final 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 economically significant, as provided in section 3(f)(1) 
of the order). The docket file is available for public inspection from 
8 a.m. to 5 p.m. in the Regulations Division, Office of General 
Counsel, U.S. Department of Housing and Urban Development, 451 Seventh 
Street, SW., Room 10276, Washington, DC 20410-0500. Due to security 
measures at the HUD Headquarters building, please schedule an 
appointment to review the docket file by calling the Regulations 
Division at (202) 708-3055 (this is not a toll-free number).

List of Subjects in 24 CFR Part 970

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

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

0
For the reasons stated in the preamble, HUD revises 24 CFR part 970 as 
follows:
0
1. 24 CFR part 970 is revised to read as follows:

PART 970--PUBLIC HOUSING PROGRAM--DEMOLITION OR DISPOSITION OF 
PUBLIC HOUSING PROJECTS

Sec.
970.1 Purpose.
970.3 Applicability.
970.5 Definitions.
970.7 General requirements for HUD approval of a PHA demolition/
disposition application.
970.9 Resident participation--consultation and opportunity to 
purchase.
970.11 Procedures for the offer of sale to established eligible 
organizations.
970.13 Environmental review requirements.
970.15 Specific criteria for HUD approval of demolition requests.
970.17 Specific criteria for HUD approval of disposition requests.
970.19 Disposition of property; use of proceeds.
970.21 Relocation of residents.
970.23 Costs of demolition and relocation of displaced tenants.
970.25 Required and permitted actions prior to approval.
970.27 De minimis exception to demolition requirements.
970.29 Criteria for disapproval of demolition or disposition 
applications.
970.31 Replacement units.
970.33 Effect on Operating Fund Program and Capital Fund Program.
970.35 Reports and records.

    Authority: 42 U.S.C. 1437p and 3535(d).


Sec.  970.1  Purpose.

    This part states requirements for HUD approval of a public housing 
agency's application for demolition or disposition (in whole or in 
part) of public housing developments assisted under Title I of the U.S. 
Housing Act of 1937 (Act). The regulations in 24 CFR part 85 are not 
applicable to this part.


Sec.  970.3  Applicability.

    (a) This part applies to public housing developments that are owned 
by public housing agencies (PHAs) and that are subject to annual 
contributions contracts (ACCs) under the Act.
    (b) This part does not apply to the following:
    (1) PHA-owned section 8 housing, or housing leased under former 
sections 10(c) or 23 of the Act;
    (2) Demolition or disposition before the date of full availability 
(DOFA) of property acquired incident to the development of a public 
housing project (however, this exception shall not apply to dwelling 
units under ACC);
    (3) The conveyance of public housing for the purpose of providing 
homeownership opportunities for lower-income families under sections 21 
and 32 of the Act (42 U.S.C. 1437s and 42 U.S.C. 1437z-4, 
respectively), the homeownership program under former section 5(h) of 
the Act (42 U.S.C. 1437c(h)), or other predecessor homeownership 
programs;
    (4) The leasing of dwelling or non-dwelling space incident to the 
normal operation of the project for public housing purposes, as 
permitted by the ACC;
    (5) Making available common areas and unoccupied dwelling units in 
public housing projects to provide HUD-approved economic self-
sufficiency services and activities to promote

[[Page 62363]]

employment of public housing residents;
    (6) The reconfiguration of the interior space of buildings (e.g., 
moving or removing interior walls to change the design, sizes, or 
number of units) without ``demolition,'' as defined in Sec.  970.5. 
(This includes the conversion of bedroom size, occupancy type, changing 
the status of unit from dwelling to non-dwelling.);
    (7) Easements, rights-of-way, and transfers of utility systems 
incident to the normal operation of the development for public housing 
purposes, as permitted by the ACC;
    (8) A whole or partial taking by a public or quasi-public entity 
(taking agency) authorized to take real property by its use of police 
power or exercise of its power of eminent domain under state law. A 
taking does not qualify for the exception under this paragraph unless:
    (i) The taking agency has been authorized to acquire real property 
by use of its police power or power of eminent domain under its state 
law;
    (ii) The taking agency has taken at least the first step in formal 
proceedings under its state law; and
    (iii) If the taking is for a federally assisted project, the 
Uniform Relocation Act (URA) (42 U.S.C. 4601 et seq.) applies to any 
resulting displacement of residents and it is the responsibility of the 
taking agency to comply with applicable URA requirements.
    (9) Demolition after conveyance of a public housing project to a 
non-PHA entity in accordance with an approved homeownership program 
under Title III of the Cranston-Gonzalez National Affordable Housing 
Act (HOPE I) (42 U.S.C. 1437aaa note);
    (10) Units or land leased for non-dwelling purposes for one year or 
less;
    (11) A public housing property that is conveyed by a PHA prior to 
DOFA to enable an owner entity to develop the property using the mixed-
finance development method;
    (12) Disposition of public housing property for development 
pursuant to the mixed-finance development method at 24 CFR part 941, 
subpart F;
    (13) Demolition under the de minimis exception in Sec.  970.27, 
except that the environmental review provisions apply, including the 
provisions at Sec. Sec.  970.7(a)(16) and 970.13(b) of this part;
    (14) Demolition (but not disposition) of severely distressed units 
as part of a revitalization plan under section 24 of the Act (42 U.S.C. 
1437v) (HOPE VI) approved after October 21, 1998;
    (15) Demolition (but not disposition) of public housing 
developments removed from a PHA's inventory under section 33 of the 
Act, 42 U.S.C. 1437z-5.


Sec.  970.5  Definitions.

    ACC, or annual contributions contract, is defined in 24 CFR 5.403.
    Act means the United States Housing Act of 1937, 42 U.S.C. 1437 et 
seq.
    Appropriate government officials mean the Chief Executive Officer 
or officers of a unit of general local government.
    Assistant Secretary means the Assistant Secretary for Public and 
Indian Housing at HUD.
    Chief Executive Officer of a unit of general local government means 
the elected official or the legally designated official, who has the 
primary responsibility for the conduct of that entity's governmental 
affairs. Examples of the chief executive officer of a unit of general 
local government are: the elected mayor of a municipality; the elected 
county executive of a county; the chairperson of a county commission or 
board in a county that has no elected county executive; and the 
official designated pursuant to law by the governing body of a unit of 
general local government.
    Demolition means the removal by razing or other means, in whole or 
in part, of one or more permanent buildings of a public housing 
development. A demolition involves any four or more of the following:
    (1) Envelope removal (roof, windows, exterior walls);
    (2) Kitchen removal;
    (3) Bathroom removal;
    (4) Electrical system removal (unit service panels and distribution 
circuits); or
    (5) Plumbing system removal (e.g., either the hot water heater or 
distribution piping in the unit, or both).
    Disposition means the conveyance or other transfer by the PHA, by 
sale or other transaction, of any interest in the real estate of a 
public housing development, subject to the exceptions stated in Sec.  
970.3.
    DOFA, or date of full availability, means the last day of the month 
in which substantially all (95 percent or more) of the units in a 
housing development are available for occupancy.
    Firm financial commitment means a commitment that obligates a 
creditable source, lender, or equity provider, to the lending or equity 
investment of a specific sum of funds to be made on or before a 
specific date(s) and may contain contingencies or conditions that must 
be satisfied by the borrower (or entity receiving equity investments) 
before the closing of the transaction. The condition of a firm 
commitment must be that it is enforceable by the borrower (or entity 
receiving the equity investment) upon the satisfaction of all 
contingencies or conditions.
    PHA Plan--Means the PHA's initial, annual, and 5-year submissions 
under section 5A of the U.S. Housing Act of 1937, 42 U.S.C. 1437c-1.
    Resident Advisory Board (RAB) has the same meaning as in Sec.  
903.13(a) of this title.
    Resident Council means a resident organization, the role and 
requirements of which are as described in 24 CFR part 964.
    Total development cost has the same meaning as in 24 CFR 941.103.


Sec.  970.7  General requirements for HUD approval of a PHA demolition/
disposition application.

    (a) Application for HUD Approval. A PHA must obtain written 
approval from HUD before undertaking any transaction involving 
demolition or disposition of PHA-owned property under the ACC. Where a 
PHA demolishes or disposes of public housing property without HUD 
approval, no HUD funds may be used to fund the costs of demolition or 
disposition or reimburse the PHA for those costs. HUD will approve an 
application for demolition or disposition upon the PHA's submission of 
an application with the required certifications and the supporting 
information required by this section and Sec. Sec.  970.15 or 970.17. 
Section 970.29 specifies criteria for disapproval of an application. 
Approval of the application under this part does not imply approval of 
a request for additional funding, which the PHA must make separately 
under a program that makes available funding for this purpose. The PHA 
shall submit the application for demolition or disposition and the 
timetable in a time and manner and in a form prescribed by HUD. The 
supporting information shall include:
    (1) A certification that the PHA has described the demolition or 
disposition in the PHA Annual Plan and timetable under 24 CFR part 903 
(except in the case of small or high-performing PHAs eligible for 
streamlined annual plan treatment), and that the description in the PHA 
Annual Plan is identical to the application submitted pursuant to this 
part and otherwise complies with section 18 of the Act (42 U.S.C. 
1437p) and this part;
    (2) A description of all identifiable property, by development, 
including land, dwelling units, and other improvements, involved in the 
proposed demolition or disposition;

[[Page 62364]]

    (3) A description of the specific action proposed, such as:
    (i) Demolition, disposition, or demolition with disposition;
    (ii) If disposition is involved, the method of sale;
    (4) A general timetable for the proposed action(s), including the 
initial contract for demolition, the actual demolition, and, if 
applicable, the closing of sale or other form of disposition;
    (5) A statement justifying the proposed demolition or disposition 
under the applicable criteria of Sec. Sec.  970.15 or 970.17;
    (6) If applicable, a plan for the relocation of tenants who would 
be displaced by the proposed demolition or disposition (including 
persons with disabilities requiring reasonable accommodations and a 
relocation timetable as prescribed in Sec.  970.21);
    (7) A description with supporting evidence of the PHA's 
consultations with residents, any resident organizations, and the 
Resident Advisory Board, as required under Sec.  903.9 of this title;
    (8) In the case of disposition only, evidence of compliance with 
the offering to resident organizations, as required under Sec.  970.9;
    (9) In the case of disposition, an estimate of the fair market 
value of the property, established on the basis of one independent 
appraisal, unless otherwise determined by HUD, as described in Sec.  
970.19(c);
    (10) In the case of disposition, estimates of the gross and net 
proceeds to be realized, with an itemization of estimated costs to be 
paid out of gross proceeds and the proposed use of any net proceeds in 
accordance with Sec.  970.19;
    (11) An estimate of costs for any required relocation housing, 
moving costs, and counseling.
    (12) Where the PHA is requesting a waiver of the requirement for 
the application of proceeds for repayment of outstanding debt, the PHA 
must request such a waiver in its application, along with a description 
of the proposed use of the proceeds;
    (13) A copy of a resolution by the PHA's Board of Commissioners 
approving the specific demolition or disposition application (or, in 
the case of the report required under Sec.  970.27(e) for ``de 
minimis'' demolitions, the Board of Commissioner's resolution approving 
the ``de minimis'' action) for that development or developments or 
portions thereof. The resolution must be signed and dated after all 
resident and local government consultation has been completed;
    (14) Evidence that the application was developed in consultation 
with appropriate government officials as defined in Sec.  970.5, 
including:
    (i) A description of the process of consultation with local 
government officials, which summarizes dates, meetings, and issues 
raised by the local government officials and the PHA's responses to 
those issues;
    (ii) A signed and dated letter in support of the application from 
the chief executive officer of the unit of local government that 
demonstrates that the PHA has consulted with the appropriate local 
government officials on the proposed demolition or disposition;
    (iii) Where the local government consistently fails to respond to 
the PHA's attempts at consultation, including letters, requests for 
meetings, public notices, and other reasonable efforts, documentation 
of those attempts;
    (iv) Where the PHA covers multiple jurisdictions (such as a 
regional housing authority), the PHA must meet these requirements for 
each of the jurisdictions where the PHA is proposing demolition or 
disposition of PHA property;
    (15) An approved environmental review of the proposed demolition or 
disposition in accordance with 24 CFR parts 50 or 58 for any demolition 
or disposition of public housing property covered under this part, as 
required under 24 CFR 970.13;
    (16) A certification that the demolition or disposition application 
does not violate any remedial civil rights order or agreement, 
voluntary compliance agreement, final judgment, consent decree, 
settlement agreement, or other court order or agreement;
    (17) Any additional information necessary to support the 
application and assist HUD in making determinations under this part.
    (b) Completion of demolition/disposition or rescissions of 
approval.
    (1) HUD will consider a PHA's request to rescind an earlier 
approval to demolish or dispose of public housing property, where a PHA 
submits a resolution from the Board of Commissioners and submits 
documentation that the conditions that originally led to the request 
for demolition or disposition have significantly changed or been 
removed.
    (2) The Assistant Secretary will not approve any request by the PHA 
to either substitute units or add units to those originally included in 
the approved demolition or disposition application, unless the PHA 
submits a new application for those units that meet the requirements of 
this part.


Sec.  970.9  Resident participation--consultation and opportunity to 
purchase.

    (a) Resident consultation. PHAs must consult with residents who 
will be affected by the proposed action with respect to all demolition 
or disposition applications. The PHA must provide with its application 
evidence that the application was developed in consultation with 
residents who will be affected by the proposed action, any resident 
organizations for the development, PHA-wide resident organizations that 
will be affected by the demolition or disposition, and the Resident 
Advisory Board (RAB). The PHA must also submit copies of any written 
comments submitted to the PHA and any evaluation that the PHA has made 
of the comments.
    (b) Resident organization offer to sell--applicability. In the 
situation where the PHA applies to dispose of a development or portion 
of a development:
    (1) The PHA shall, in appropriate circumstances as determined by 
the Assistant Secretary, initially offer the property proposed for 
disposition to any eligible resident organization, eligible resident 
management corporation as defined in 24 CFR part 964, or to a nonprofit 
organization acting on behalf of the residents at any development 
proposed for disposition, if the resident entity has expressed an 
interest in purchasing the property for continued use as low-income 
housing. The entity must make the request in writing to the PHA, no 
later than 30 days after the resident entity has received the 
notification of sale from the PHA;
    (2) If the resident entity has expressed an interest in purchasing 
the property for continued use as low-income housing, the entity, in 
order for its purchase offer to be considered, must:
    (i) In the case of a nonprofit organization, be acting on behalf of 
the residents of the development; and
    (ii) Demonstrate that it has obtained a firm commitment for the 
necessary financing within 60 days of serving its written notice of 
interest under paragraph (b)(1) of this section.
    (3) The requirements of this section do not apply to the following 
cases, which have been determined not to present an appropriate 
opportunity for purchase by a resident organization:
    (i) A unit of state or local government requests to acquire vacant 
land that is less than two acres in order to build or expand its public 
services (a local government wishes to use the land to build or 
establish a police substation); or
    (ii) A PHA seeks disposition outside the public housing program to 
privately

[[Page 62365]]

finance or otherwise develop a facility to benefit low-income families 
(e.g., day care center, administrative building, mixed-finance housing 
under 24 CFR part 941 subpart F, or other types of low-income housing);
    (iii) Units that have been legally vacated in accordance with the 
HOPE VI program, the regulations at 24 CFR part 971, or the mandatory 
conversion regulations at 24 CFR part 972, excluding developments where 
the PHA has consolidated vacancies;
    (iv) Distressed units required to be converted to tenant-based 
assistance under section 33 of the 1937 Act (42 U.S.C. 1437z-5); or
    (vi) Disposition of non-dwelling properties, including 
administration and community buildings, and maintenance facilities.
    (4) If the requirements of this section are not applicable, as 
provided in paragraph (b)(3) of this section, the PHA may proceed to 
submit to HUD its application under this part to dispose of the 
property, or a portion of the property, without affording an 
opportunity for purchase by a resident organization. However, PHAs must 
consult with their residents in accordance with paragraph (a) of this 
section. The PHA must submit documentation with date and signatures to 
support the applicability of one of the exceptions in paragraph (b)(3) 
of this section. Examples of appropriate documentation include, but are 
not limited to: a letter from the public body that wants to acquire the 
land, copies of memoranda or letters approving the PHA's previous 
application under part 970 or mandatory conversion plan, and the HUD 
transmittal document approving the proposed revitalization plan.
    (c) Established eligible organizations. Where there are eligible 
resident organizations, eligible resident management corporations as 
defined in 24 CFR part 964, or nonprofit organizations acting on behalf 
of the residents as defined in 24 CFR part 964 (collectively, 
``established eligible organizations''), that have expressed an 
interest, in writing, to the PHA within 30 days of the date of 
notification of the proposed sale, in purchasing the property for 
continued use as low-income housing at the affected development, the 
PHA shall follow the procedures for making the offer described in Sec.  
970.11.


Sec.  970.11  Procedures for the offer of sale to established eligible 
organizations.

    In making an offer of sale to established eligible organizations as 
defined in Sec.  970.9(c) in the case of proposed disposition, the PHA 
shall proceed as follows:
    (a) Initial written notification of sale of property. The PHA shall 
send an initial written notification to each established eligible 
organization (for purposes of this section, an established eligible 
organization that has been so notified is a ``notified eligible 
organization'') of the proposed sale of the property. The notice of 
sale must include, at a minimum, the information listed in paragraph 
(d) of this section;
    (b) Initial expression of interest. All notified eligible 
organizations shall have 30 days to initially express an interest, in 
writing, in the offer (``initial expression of interest''). The initial 
expression of interest need not contain details regarding financing, 
acceptance of an offer of sale, or any other terms of sale.
    (c) Opportunity to obtain firm financial commitment by interested 
entity. If a notified eligible organization expresses interest in 
writing during the 30-day period referred to in paragraph (b) of this 
section, no disposition of the property shall occur during the 60-day 
period beginning on the date of the receipt of the written notice of 
interest. During this period, the PHA must give the entity expressing 
interest an opportunity to obtain a firm financial commitment as 
defined in Sec.  970.5 for the financing necessary to purchase the 
property;
    (d) Contents of initial written notification. The initial written 
notification to established eligible organizations under paragraph (a) 
of this section must include at a minimum the following:
    (1) An identification of the development, or portion of the 
development, involved in the proposed disposition, including the 
development number and location, the number of units and bedroom 
configuration, the amount and use of non-dwelling space, the current 
physical condition (fire damaged, friable asbestos, lead-based paint 
test results), and percent of occupancy;
    (2) A copy of the appraisal of the property and any terms of sale;
    (3) Disclosure and description of the PHA's plans for reuse of 
land, if any, after the proposed disposition;
    (4) An identification of available resources (including its own and 
HUD's) to provide technical assistance to the organization to help it 
to better understand its opportunity to purchase the development, the 
development's value, and potential use;
    (5) A statement that public housing developments sold to resident 
organizations will not continue to receive capital and operating 
subsidy after the completion of the sale;
    (6) Any and all terms of sale that the PHA will require, including 
a statement that the purchaser must use the property for low-income 
housing. If the PHA does not know all the terms of the offer of sale at 
the time of the notice of sale, the PHA shall include all the terms of 
sale of which it is aware. The PHA must supply the totality of all the 
terms of sale and all necessary material to the residents no later than 
3 business days from the day it receives the residents' initial 
expression of interest;
    (7) A date by which an established eligible organization must 
express its interest, in writing, in response to the PHA's offer to 
sell the property proposed for demolition or disposition, which shall 
be up to 30 days from the date of the official written offer of sale 
from the PHA;
    (8) A statement that the established eligible organization will be 
given 60 days from the date of the PHA's receipt of its letter 
expressing interest to develop and submit a proposal to the PHA to 
purchase the property and to obtain a firm financial commitment, as 
defined in Sec.  970.5. The statement shall explain that the PHA shall 
approve the proposal from an organization if the proposal meets the 
terms of sale and is supported by a firm commitment for financing. The 
statement shall also provide that the PHA can consider accepting an 
offer from the organization that differs from the terms of sale. The 
statement shall explain that if the PHA receives proposals from more 
than one organization, the PHA shall select the proposal that meets the 
terms of sale, if any. In the event that two proposals from the 
development to be sold meet the terms of sale, the PHA shall choose the 
best proposal. If no proposal meets the terms of sale, the PHA in its 
discretion may or may not select the best proposal.
    (e) Response to the notice of sale. The established eligible 
organization or organizations have up to 30 days to respond to the 
notice of sale from the PHA. The established eligible organization 
shall respond to the PHA's notice of sale by means of an initial 
expression of interest under paragraph (b) of this section.
    (f) Resident proposal. The established eligible organization has up 
to 60 days from the date the PHA receives its initial expression of 
interest and provides all necessary terms and information to prepare 
and submit a proposal to the PHA for the purchase of the property of 
which the PHA plans to dispose, and to obtain a firm commitment for 
financing. The

[[Page 62366]]

resident's proposal shall provide all the information requested in 
paragraph (i) of this section.
    (g) PHA Review of Proposals. The PHA has up to 60 days from the 
date of receipt of the proposal or proposals to review the proposals 
and determine whether they meet the terms of sale described in the 
PHA's offer or offers. If the PHA determines that the proposal meets 
the terms of sale, within 14 days of the date of this determination, 
the PHA shall notify the organization of that fact and that the 
proposal has been accepted. If the PHA determines that the proposal 
differs from the terms of sale, the PHA may accept or reject the 
proposal at its discretion;
    (h) Appeals. The established eligible organization has the right to 
appeal the PHA's decision to the Assistant Secretary for Public and 
Indian Housing, or his designee, by sending a letter of appeal within 
30 days of the date of the PHA's decision to the field office director. 
The letter of appeal must include copies of the proposal and any 
related correspondence, along with a statement of reasons why the 
organization believes the PHA should have decided differently. HUD 
shall render a decision within 30 days, and notify the organization and 
the PHA by letter within 14 days of such decision. If HUD cannot render 
a decision within 30 days, HUD will so notify the PHA and the 
established eligible organization in writing, in which case HUD will 
have an additional 30 days in which to render a decision. HUD may 
continue to extend its time for decision in 30-day increments for a 
total of 120 days. Once HUD renders its decision, there is no further 
administrative appeal or remedy available.
    (i) Contents of the organization's proposal. The established 
eligible organization's proposal shall at a minimum include the 
following:
    (1) The length of time the organization has been in existence;
    (2) A description of current or past activities that demonstrate 
the organization's organizational and management capability, or the 
planned acquisition of such capability through a partner or other 
outside entities (in which case the proposal should state how the 
partner or outside entity meets this requirement);
    (3) To the extent not included in paragraph (i)(2) of this section, 
the organization's experience in the development of low-income housing, 
or planned arrangements with partners or outside entities with such 
experience (in which case the proposal should state how the partner or 
outside entity meets this requirement);
    (4) A statement of financial capability;
    (5) A description of involvement of any non-resident organization 
(such as non-profit, for-profit, governmental, or other entities), if 
any, the proposed division of responsibilities between the non-resident 
organization and the established eligible organization, and the non-
resident organization's financial capabilities;
    (6) A plan for financing the purchase of the property and a firm 
financial commitment as stated in paragraph (c) of this section for 
funding resources necessary to purchase the property and pay for any 
necessary repairs;
    (7) A plan for using the property for low-income housing;
    (8) The proposed purchase price in relation to the appraised value;
    (9) Justification for purchase at less than the fair market value 
in accordance with Sec.  970.19(a) of this part, if appropriate;
    (10) Estimated time schedule for completing the transaction;
    (11) Any additional items necessary to respond fully to the PHA's 
terms of sale;
    (12) A resolution from the resident organization approving the 
proposal; and
    (13) A proposed date of settlement, generally not to exceed 6 
months from the date of PHA approval of the proposal, or such period as 
the PHA may determine to be reasonable.
    (j) PHA obligations. The PHA must:
    (1) Prepare and distribute the initial notice of sale pursuant to 
24 CFR 970.11(a), and, if any established eligible organization 
expresses an interest, any further documents necessary to enable the 
organization or organizations to make an offer to purchase;
    (2) Evaluate proposals received, make the selection based on the 
considerations set forth in paragraph (b) of this section, and issue 
letters of acceptance or rejection;
    (3) Prepare certifications, where appropriate, as provided in 
paragraph (k) of this section;
    (4) Comply with its obligations under Sec.  970.7(a) regarding 
tenant consultation and provide evidence to HUD that the PHA has met 
those obligations. The PHA shall not act in an arbitrary manner and 
shall give full and fair consideration to any offer from a qualified 
resident management corporation, resident council of the affected 
development, or a nonprofit organization acting on behalf of the 
residents, and shall accept the proposal if the proposal meets the 
terms of sale.
    (k) PHA post-offer requirements. After the resident offer, if any, 
is made, the PHA shall:
    (1) Submit its disposition application to HUD in accordance with 
section 18 of the Act and this part. The disposition application must 
include complete documentation that the resident offer provisions of 
this part have been met. This documentation shall include:
    (i) A copy of the signed and dated PHA notification letter(s) to 
each established eligible organization informing them of the PHA's 
intention to submit an application for disposition, the organization's 
right to purchase the property to be disposed of; and
    (ii) The responses from each organization.
    (2)(i) If the PHA accepts the proposal of an established eligible 
organization, the PHA shall submit revisions to its disposition 
application to HUD in accordance with section 18 of the Act and this 
part reflecting the arrangement with the resident organization, with 
appropriate justification for a negotiated sale and for sale at less 
than fair market value, if applicable.
    (ii) If the PHA rejects the proposal of the resident organization, 
the resident organization may appeal as provided in paragraph (h) of 
this section. Once the appeal is resolved, or, if there is no appeal, 
and the 30 days allowed for appeal has passed, HUD shall proceed to 
approve or disapprove the application.
    (3) HUD will not process an application for disposition unless the 
PHA provides HUD with one of the following:
    (i) An official board resolution or its equivalent from each 
established eligible organization stating that such organization has 
received the PHA offer, and that it understands the offer and waives 
its opportunity to purchase the project, or portion of the project, 
covered by the disposition application;
    (ii) A certification from the executive director or board of 
commissioners of the PHA that the 30-day time frame to express interest 
has expired and no response was received to its offer; or
    (iii) A certification from the executive director or board of 
commissioners of the PHA with supporting documentation that the offer 
was otherwise rejected.


Sec.  970.13  Environmental review requirements.

    (a) Activities under this part (including de minimis demolition 
pursuant to Sec.  970.27) are subject to HUD environmental regulations 
in 24 CFR part 58. However, HUD may make a finding in accordance with 
24 CFR 58.11(d) of this title and may itself perform the environmental 
review under the provisions of 24 CFR part 50

[[Page 62367]]

if a PHA objects in writing to the responsible entity performing the 
review under 24 CFR part 58.
    (b) The environmental review is limited to the demolition or 
disposition action and any known re-use, and is not required for any 
unknown future re-use. Factors that indicate that the future site reuse 
can reasonably be considered to be known include the following:
    (1) Private, Federal, state, or local funding for the site reuse 
has been committed;
    (2) A grant application involving the site has been filed with the 
Federal government or a state or local unit of government;
    (3) The Federal government or a state or unit of local government 
has made a commitment to take an action, including a physical action, 
that will facilitate a particular reuse of the site; and
    (4) Architectural, engineering, or design plans for the reuse exist 
that go beyond preliminary stages.
    (c) In the case of a demolition or disposition made necessary by a 
disaster that the President has declared under the Robert T. Stafford 
Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121 et seq., 
or a disaster that has been declared under state law by the officer or 
entity with legal authority to make such declaration, pursuant to 24 
CFR 50.43 and 24 CFR 58.33, the provisions of 40 CFR 1506.11 will 
apply.


Sec.  970.15  Specific criteria for HUD approval of demolition 
requests.

    (a) In addition to other applicable requirements of this part, HUD 
will approve an application for demolition upon the PHA's certification 
that it meets the following statutory criteria, unless the application 
meets the criteria for disapproval under 24 CFR 270.29. An application 
for the demolition of all or a portion of a public housing project must 
certify that the project:
    (1) Is obsolete as to physical condition, location, or other 
factors, making it unsuitable for housing purposes, and no reasonable 
program of modifications is cost-effective to return the public housing 
project or portion of the project to useful life; and
    (2) In the case of an application for demolition of a portion of a 
project, the demolition will help to ensure the viability of the 
remaining portion of the project.
    (b) As to paragraph (a)(1) of this section:
    (1) Major problems indicative of obsolescence are:
    (i) As to physical condition: Structural deficiencies that cannot 
be corrected in a cost-effective manner (settlement of earth below the 
building caused by inadequate structural fills, faulty structural 
design, or settlement of floors), or other design or site problems 
(severe erosion or flooding);
    (ii) As to location: physical deterioration of the neighborhood; 
change from residential to industrial or commercial development; or 
environmental conditions as determined by HUD environmental review in 
accord with 24 CFR part 50, which jeopardize the suitability of the 
site or a portion of the site and its housing structures for 
residential use; or
    (iii) There are other factors that have seriously affected the 
marketability, usefulness, or management of the property.
    (2) HUD generally shall not consider a program of modifications to 
be cost-effective if the costs of such program exceed 62.5 percent of 
total development cost (TDC) for elevator structures and 57.14 percent 
of TDC for all other types of structures in effect at the time the 
application is submitted to HUD.
    (c) As to paragraph (a)(2) of this section, a partial demolition 
will be considered to ensure the viability of the remaining portion if 
the application certifies that the demolition will reduce development 
density to permit better access by emergency, fire, or rescue services, 
or improve marketability by reducing the density to that of the 
neighborhood or other developments in the PHA's inventory.


Sec.  970.17  Specific criteria for HUD approval of disposition 
requests.

    In addition to other applicable requirements of this part, HUD will 
approve a request for disposition by sale or other transfer of a public 
housing project or other real property if the PHA certifies that the 
retention of the property is not in the best interests of the residents 
or the PHA for at least one of the following reasons, unless 
information available to HUD is inconsistent with the certification:
    (a) Conditions in the area surrounding the project (density, or 
industrial or commercial development) adversely affect the health or 
safety of the tenants or the feasible operation of the project by the 
PHA;
    (b) Disposition allows the acquisition, development, or 
rehabilitation of other properties that will be more efficiently or 
effectively operated as low-income housing developments;
    (c) The PHA has otherwise determined the disposition to be 
appropriate for reasons that are consistent with the goals of the PHA 
and the PHA Plan and that are otherwise consistent with the Act;
    (d) In the case of disposition of property other than dwelling 
units (community facilities or vacant land), the PHA certifies that:
    (1) The non-dwelling facilities or land exceeds the needs of the 
development (after DOFA); or
    (2) The disposition of the property is incidental to, or does not 
interfere with, continued operation of the remaining portion of the 
development.


Sec.  970.19  Disposition of property; use of proceeds.

    (a) Where HUD approves the disposition of real property of a 
development, in whole or in part, the PHA shall dispose of the property 
promptly for not less than fair market value (in which case there is no 
showing of commensurate public benefit required), unless HUD authorizes 
negotiated sale for reasons found to be in the best interests of the 
PHA or the federal government; or dispose of the property for sale for 
less than fair market value (where permitted by state law), based on 
commensurate public benefits to the community, the PHA, or the federal 
government justifying such an exception. General public improvements, 
such as streets and bridges, do not qualify as commensurate public 
benefits.
    (b) A PHA may pay the reasonable costs of disposition, and of 
relocation of displaced tenants allowable under Sec.  970.21, out of 
the gross proceeds, as approved by HUD.
    (c) To obtain an estimate of the fair market value before the 
property is advertised for bid, the PHA shall have one independent 
appraisal performed on the property proposed for disposition, unless 
HUD determines that:
    (1) More than one appraisal is warranted; or
    (2) Another method of valuation is clearly sufficient and the 
expense of an independent appraisal is unjustified because of the 
limited nature of the property interest involved or other available 
data.
    (d) To obtain an estimate of the fair market value when a property 
is not publicly advertised for bid, HUD may accept a reasonable 
valuation of the property.
    (e) A PHA shall use net proceeds, including any interest earned on 
the proceeds (after payment of HUD-approved costs of disposition and 
relocation under paragraph (a) of this section), subject to HUD 
approval, as follows:

[[Page 62368]]

    (1) Unless waived by HUD, for the retirement of outstanding 
obligations, if any, issued to finance original development or 
modernization of the project; and
    (2) To the extent that any net proceeds remain, after the 
application of proceeds in accordance with paragraph (e)(1) of this 
section, for:
    (i) The provision of low-income housing or to benefit the residents 
of the PHA, through such measures as modernization of lower-income 
housing or the acquisition, development, or rehabilitation of other 
properties to operate as lower-income housing; or
    (ii) Leveraging amounts for securing commercial enterprises, on-
site in public housing developments of the PHA, appropriate to serve 
the needs of the residents.
    (f) For dispositions for the purpose stated in Sec.  970.17(b), a 
PHA must demonstrate to the satisfaction of HUD that the replacement 
units are being provided in connection with the disposition of the 
property. A PHA may use sale proceeds in accordance with paragraph (e) 
to fund the replacement units.


Sec.  970.21  Relocation of residents.

    (a) Relocation of residents on a nondiscriminatory basis and 
relocation resources. A PHA must offer each family displaced by 
demolition or disposition comparable housing that meets housing quality 
standards (HQS) and is located in an area that is generally not less 
desirable than the location of the displaced persons. The housing must 
be offered on a nondiscriminatory basis, without regard to race, color, 
religion, creed, national origin, handicap, age, familial status, or 
gender, in compliance with applicable Federal and state laws. For 
persons with disabilities displaced from a unit with reasonable 
accommodations, comparable housing should include similar 
accommodations. Such housing may include:
    (1) Tenant-based assistance, such as assistance under the Housing 
Choice Voucher Program, 24 CFR part 982, except that such assistance 
will not be considered ``comparable housing'' until the family is 
actually relocated into such housing;
    (2) Project-based assistance; or
    (3) Occupancy in a unit operated or assisted by the PHA at a rental 
rate paid by the family that is comparable to the rental rate 
applicable to the unit from which the family is vacated.
    (b) In-place tenants. A PHA may not complete disposition of a 
building until all tenants residing in the building are relocated.
    (c) Financial resources. (1) Sources of funding for relocation 
costs related to demolition or disposition may include, but are not 
limited to, capital funds or other federal funds currently available 
for this purpose;
    (2) If Federal financial assistance under the Community Development 
Block Grant (CDBG) program, 42 U.S.C. 5301 et seq. (including loan 
guarantees under section 108 of the Housing and Community Development 
Act of 1974, 42 U.S.C. 5308 et seq.); the Urban Development Action 
Grant (UDAG) program, 42 U.S.C. 5318 et seq.; or HOME program, 42 
U.S.C. 12701 et seq. is used in connection with the demolition or 
disposition of public housing, the project is subject to section 104(d) 
of the Housing and Community Development Act of 1974, 42 U.S.C. 5304(d) 
(as amended)), including the relocation payment provisions and the 
anti-displacement provisions, which require that comparable replacement 
dwellings be provided within the community for the same number of 
occupants as could have been housed in the occupied and vacant, 
occupiable low- and moderate-income units demolished or converted to 
another use.
    (d) Relocation timetable. For the purpose of determining operating 
subsidy eligibility under 24 CFR part 990, a PHA must provide the 
following information in the application or immediately following 
application submission:
    (1) The number of occupied units at the time of demolition/
disposition application approval;
    (2) A schedule for the relocation of those residents on a month-by-
month basis.
    (e) The PHA is responsible for the following:
    (1) Notifying each family residing in the development of the 
proposed demolition or disposition 90 days prior to the displacement 
date, except in cases of imminent threat to health and safety. The 
notification must include a statement that:
    (i) The development or portion of the development will be 
demolished or disposed of;
    (ii) The demolition of the building in which the family resides 
will not commence until each resident of the building has been 
relocated;
    (iii) Each family displaced by such action will be provided 
comparable housing, which may include housing with reasonable 
accommodations for disability, if required under section 504 of the 
Rehabilitation Act of 1973 and HUD's regulations in 24 CFR part 8, as 
described in paragraph (a) of this section;
    (2) Providing for the payment of the actual and reasonable 
relocation expenses of each resident to be displaced, including 
residents requiring reasonable accommodations because of disabilities;
    (3) Ensuring that each displaced resident is offered comparable 
replacement housing as described in paragraph (b) of this section; and
    (4) Providing any necessary counseling for residents that are 
displaced.
    (f) In addition, the PHA's plan for the relocation of residents who 
would be displaced by the proposed demolition or disposition must 
indicate:
    (1) The number of individual residents to be displaced;
    (2) The type of counseling and advisory services the PHA plans to 
provide;
    (3) What housing resources are expected to be available to provide 
housing for displaced residents; and
    (4) An estimate of the costs for counseling and advisory services 
and resident moving expenses, and the expected source for payment of 
these costs.
    (g) The Uniform Relocation Act does not apply to demolitions and 
dispositions under this part.


Sec.  970.23  Costs of demolition and relocation of displaced tenants.

    Where HUD has approved demolition of a project, or a portion of a 
project, and the proposed action is part of a program under the Capital 
Fund Program (24 CFR part 905), the costs of demolition and of 
relocation of displaced residents may be included in the budget funded 
with capital funds pursuant to section 9(d) of the Act (42 U.S.C. 
1437g(d)) or awarded HOPE VI or other eligible HUD funds.


Sec.  970.25  Required and permitted actions prior to approval.

    (a) A PHA may not take any action to demolish or dispose of a 
public housing development or a portion of a public housing development 
without obtaining HUD approval under this part. HUD funds may not be 
used to pay for the cost to demolish or dispose of a public housing 
development or a portion of a public housing development, unless HUD 
approval has been obtained under this part. Until the PHA receives HUD 
approval, the PHA shall continue to meet its ACC obligations to 
maintain and operate the property as housing for low-income families. 
However, the PHA may engage in planning activities, analysis, or 
consultations without seeking HUD approval. Planning activities may 
include project viability

[[Page 62369]]

studies, capital planning, or comprehensive occupancy planning. The PHA 
must continue to provide full housing services to all residents that 
remain in the development. A PHA should not re-rent these units at 
turnover while HUD is considering its application for demolition or 
disposition. However, the PHA's operating subsidy eligibility will 
continue to be calculated as stated in 24 CFR part 990.
    (b) A PHA may consolidate occupancy within or among buildings of a 
development, or among developments, or with other housing for the 
purposes of improving living conditions of, or providing more efficient 
services to residents, without submitting a demolition or disposition 
application.


Sec.  970.27  De minimis exception to demolition requirements.

    (a) A PHA may demolish units without submitting an application if 
the PHA is proposing to demolish not more than the lesser of:
    (1) five dwelling units; or
    (2) 5 percent of the total dwelling units owned by the PHA over any 
5-year period.
    (b) The 5-year period referred to in paragraph (a)(2) of this 
section is the 5 years counting backward from the date of the proposed 
de minimis demolition, except that any demolition performed prior to 
October 21, 1998, will not be counted against the five units or 5 
percent of the total, as applicable. For example, if a PHA that owns 
1,000 housing units wishes to demolish units under this de minimis 
provision on July 1, 2004, and previously demolished two units under 
this provision on September 1, 2000, and two more units on July 1, 
2001, the PHA would be able to demolish one additional unit for a total 
of five in the preceding 5 years. As another example, if a PHA that 
owns 60 housing units as of July 1, 2004, had demolished two units on 
September 1, 2000, and one unit on July 1, 2001, that PHA would not be 
able to demolish any further units under this ``de minimis'' provision 
until after September 1, 2005, because it would have already demolished 
5 percent of its total.
    (1) In order to qualify for this exemption, the space occupied by 
the demolished unit must be used for meeting the service or other needs 
of public housing residents (use of space to construct a laundry 
facility, community center, child care facility, office space for a 
general provider; or for use as open space or garden); or
    (2) The unit being demolished must be beyond repair.
    (d) PHAs utilizing this section will comply with environmental 
review requirements at 24 CFR 970.13 and, if applicable, the 
requirements of 24 CFR 8.23.
    (e) For recordkeeping purposes, PHAs that wish to demolish units 
under this section shall submit the information required in Sec.  
970.7(a)(1), (2), (12), (13), and (14). HUD will accept a certification 
from the PHA that one of the two conditions in paragraph (c) of this 
section apply unless HUD has independent information that requirements 
for ``de minimis'' demolition have not been met.


Sec.  970.29  Criteria for disapproval of demolition or disposition 
applications.

    HUD will disapprove an application if HUD determines that:
    (a) Any certification made by the PHA under this part is clearly 
inconsistent with:
    (1) The PHA Plan;
    (2) Any information and data available to HUD related to the 
requirements of this part, such as failure to meet the requirements for 
the justification for demolition or disposition as found in Sec. Sec.  
970.15 or 970.17; or
    (3) Information or data requested by HUD; or
    (b) The application was not developed in consultation with:
    (1) Residents who will be affected by the proposed demolition or 
disposition as required in Sec.  970.9; and
    (2) Each resident advisory board and resident council, if any, of 
the project (or portion thereof) that will be affected by the proposed 
demolition or disposition as required in Sec.  970.9, and appropriate 
government officials as required in Sec.  970.7.


Sec.  970.31  Replacement units.

    Notwithstanding any other provision of law, replacement public 
housing units may be built on the original public housing location or 
in the same neighborhood as the original public housing location if the 
number of the replacement public housing units is significantly fewer 
than the number of units demolished. Such development must comply with 
24 CFR part 905, Public Housing Capital Fund Program, as well as 24 CFR 
part 941.


Sec.  970.33  Effect on the Operating Fund Program and Capital Fund 
Program.

    The provisions of 24 CFR part 990, the Public Housing Operating 
Fund Program, and 24 CFR part 905, the Public Housing Capital Fund 
Program, apply.


Sec.  970.35  Reports and records.

    (a) After HUD approval of demolition or disposition of all or part 
of a project, the PHA shall provide information on the following:
    (1) Actual completion of each demolition contract by entering the 
appropriate information into HUD's applicable data system, or providing 
the information by another method HUD may require, within a week of 
making the final payment to the demolition contractor, or expending the 
last remaining funds if funded by force account;
    (2) Execution of sales or lease contracts by entering the 
appropriate information into HUD's applicable data system, or providing 
the information by another method HUD may require, within a week of 
execution;
    (3) The PHA's use of the proceeds of sale by providing a financial 
statement showing how the funds were expended by item and dollar 
amount;
    (4) Amounts expended for closing costs and relocation expenses, by 
providing a financial statement showing this information for each 
property sold; and
    (5) Such other information as HUD may from time to time require.
    (b) [Reserved]

    Dated: October 12, 2006.
Orlando J. Cabrera,
Assistant Secretary for Public and Indian Housing.
[FR Doc. E6-17724 Filed 10-23-06; 8:45 am]
BILLING CODE 4210-67-P