[Federal Register Volume 72, Number 157 (Wednesday, August 15, 2007)]
[Rules and Regulations]
[Pages 45872-45874]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-15961]



[[Page 45871]]

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Part III





Department of Housing and Urban Development





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24 CFR Part 990



 Public Housing Operating Fund Program; Revised Transition Funding 
Schedule for Calendar Years 2007 Through 2012; Final Rule

  Federal Register / Vol. 72, No. 157 / Wednesday, August 15, 2007 / 
Rules and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 990

[Docket Number FR-5105-F-02]
RIN 2577-AC72


Public Housing Operating Fund Program; Revised Transition Funding 
Schedule for Calendar Years 2007 Through 2012

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

ACTION: Final rule.

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SUMMARY: This final rule modifies HUD's regulations for transition 
funding under the Operating Fund Program. The Operating Fund Program, 
as revised by a September 19, 2005, final rule, adopted a new formula 
for determining the payment of operating subsidy to public housing 
agencies (PHAs). Transition funding is based on the difference in 
subsidy levels between the new formula and the formula in effect prior 
to the implementation of the September 19, 2005, final rule. As a 
result of the new formula, PHAs may experience either an increase or 
decrease in the amount of funding that they receive. This final rule 
revises the schedule for those PHAs that will experience a decline in 
funding, by extending the transition phase-in period an additional 
year. This final rule follows publication of the two proposed rules 
published on November 24, 2006, and takes into consideration the public 
comments received on the proposed rules. With the exception of a 
technical change, this final rule adopts the proposed regulatory 
changes without change.

DATES: Effective Date: September 14, 2007.

FOR FURTHER INFORMATION CONTACT: Elizabeth Hanson, Deputy Assistant 
Secretary, Departmental Real Estate Assessment Center, Office of Public 
and Indian Housing, Department of Housing and Urban Development, 451 
Seventh Street, SW., Room 2000, Washington, DC 20410; telephone number 
(202) 475-7949 (this is not a toll-free number). Individuals with 
speech or hearing impairments may access this number through TTY by 
calling the toll-free Federal Information Relay Service at (800) 877-
8339.

SUPPLEMENTARY INFORMATION:

I. Background

A. The September 19, 2005, Final Rule

    On September 19, 2005, at 70 FR 54984, HUD published a final rule 
amending the regulations of the Public Housing Operating Fund Program 
at 24 CFR part 990 to provide a new formula for distributing operating 
subsidy to PHAs and to establish requirements for PHAs to convert to 
asset management. More detailed information about this rule can be 
found in the preamble to the September 19, 2005, final rule. 
Additionally, on October 24, 2005, at 70 FR 61366, HUD published a 
technical correction (Correction Notice) correcting the September 19, 
2005, final rule to provide that the revised allocation formula is to 
be implemented for calendar year 2007, and adjusting the related dates 
specified in the rule to reflect the corrected implementation date.
    In accordance with both the September 19, 2005, final rule and the 
Correction Notice, the new Operating Fund formula for determining 
public housing operating subsidies goes into effect in calendar year 
2007. As a result of the new formula, PHAs may experience either an 
increase or decrease in the amount of funding that they receive. PHAs 
that will experience a gain under the new formula would receive 50 
percent of their gain in calendar year 2007 and the full amount of the 
gain in calendar year 2008.
    For PHAs experiencing a decrease in operating subsidy as a result 
of the new formula, the current regulations limit that reduction to 24 
percent of the difference between the old and new funding levels in the 
first year following implementation. In each of the following three 
years the subsidy will be reduced by 43, 62, and 81 percent of the 
difference, respectively. In the last year of the phase-in PHAs will be 
subject to the full decrease. The phase-in of the reduction in subsidy 
is designed to lessen the impact of the decline in funding, assisting 
PHAs with the conversion to asset management while continuing PHAs' 
ability to perform necessary functions and provide services.

B. The November 24, 2006, Proposed Rules

    On November 24, 2006, HUD published two proposed rules for public 
comment to revise HUD's regulations for transition funding under the 
Operating Fund Program.
    For PHAs that experience a decline, the first rule published on 
November 24, 2006 (71 FR 68408), proposed to cap the loss at 5 percent 
of the difference between the old and the new funding levels for 
calendar year 2007. As explained in the preamble to the proposed rule, 
the transition phase-in schedule codified in the part 990 regulations 
is the product of negotiated rulemaking. The negotiated rulemaking 
committee discussed the phase-in of reductions at length and agreed 
upon the schedule established in the September 19, 2005, final rule. 
Increased utility costs in public housing have reduced funding levels 
relative to total eligibility. Implementation of a difference of 24 
percent at this time, given current utility costs, would in effect 
result in subsidy losses greater than the agreed upon 24 percent.
    The second rule published on November 24, 2006 (71 FR 68404), 
proposed to modify the transition phase-in schedule for the years 
following calendar year 2007 to reflect the one-time 5 percent cap. The 
proposed transition funding schedule would result in a 24 percent 
reduction in calendar year 2008, a 43 percent reduction in calendar 
year 2009, a 62 percent reduction in calendar year 2010, and an 81 
percent reduction in calendar year 2011. The phase-in would conclude 
with the full reduction being experienced in calendar year 2012.
    Assuming no change in appropriations, HUD estimates that PHAs 
experiencing a subsidy increase under the new formula will have their 
subsidy reduced by approximately 0.7 percent as a result of the 
extended transition schedule. The 0.7 percent reduction is constant for 
each year of the transition funding schedule, but will end in year 2012 
upon completion of the formula phase-in. While these PHAs have also 
experienced an increase in utility costs, the overall effect of the two 
November 24, 2006, proposed rules would be to more closely match the 
agreements reached during the negotiated rulemaking process.
    These proposed revisions to the transition phase-in schedule were 
intended to provide PHAs experiencing a reduction in operating subsidy 
with adequate time to plan and prepare their budget and management 
operations. All other provisions of the September 19, 2005, final rule 
and the Correction Notice remain unchanged and in effect.

II. This Final Rule

    This final rule follows publication of the two November 24, 2006, 
proposed rules and takes into consideration the public comments 
received on the proposed rules. Given the similarity in the subject 
matter of the two proposed rules, and of the issues raised by the 
public comments on both proposed

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rules, HUD has decided to follow publication of the proposed rules with 
this single consolidated final rule.
    The public comment period on the first proposed rule closed on 
December 26, 2006. HUD received six public comments. Comments were 
received from individual PHAs, organizations representing PHAs, and a 
consulting firm. During the public comment period on the second 
proposed rule, which closed on January 23, 2007, HUD received 10 public 
comments. The comments were received from individual PHAs, 
organizations representing PHAs, consulting firms, and a labor union. 
Comments generally supported the proposed rules, and HUD has carefully 
considered the issues raised. As explained more fully in section III of 
this preamble, and to address confusion expressed by the commenters on 
the proposed rule, HUD has updated the table at Sec.  990.230(e) 
regarding ``stop loss'' application due dates to reflect the most 
recent information posted on HUD's Web site. With the exception of this 
technical change, HUD has adopted the two proposed rules without 
change.

III. Discussion of Public Comments Received on the November 24, 2006, 
Proposed Rules

    Comment: Support for proposed rules. The majority of commenters 
wrote in support of the two November 24, 2006, proposed rules. The 
commenters wrote that the proposed rules avoid the possible adverse 
consequences of the currently codified transition funding schedule, 
which might have necessitated the laying off of PHA staff and otherwise 
negatively impacting the ability of PHAs to provide safe and decent 
housing.
    HUD Response. HUD appreciates the support expressed by the 
commenters. As noted, this final rule adopts the two proposed rules 
without substantive change.
    Comment: Proposed rules will negatively impact historically 
underfunded PHAs. Several commenters opposed the proposed rules on the 
grounds that the ``cost'' of the revised transition funding schedule 
would be borne by those PHAs that have historically been underfunded. 
As noted above in this preamble, PHAs experiencing a subsidy increase 
under the new formula will have their subsidy reduced by approximately 
0.7 percent as a result of the extended transition provision, assuming 
no change in appropriations.
    HUD Response. HUD has not revised the rules in response to this 
comment. The commenter is correct in noting that the revised 
transition-funding schedule will result in a slight decrease in funding 
for those PHAs gaining under the new formula. However, as indicated 
above in this preamble, the overall effect of this final rule is to 
more closely match the agreements reached during the negotiated 
rulemaking process that developed the revised Operating Fund formula. 
The members of the negotiated rulemaking committee discussed the phase-
in of subsidy reductions at length. Implementation of a difference of 
24 percent at this time, given current utility costs, would in effect 
result in greater subsidy losses than those agreed upon by the 
committee members.
    Comment: Losses should be permanently capped at 5 percent for small 
PHAs. Several commenters recommended that the losses for small PHAs be 
permanently capped at 5 percent.
    HUD Response. HUD has not adopted the change requested by the 
commenter. The members of the negotiated rulemaking committee that 
developed the new Operating Fund formula represented a large cross-
section of PHAs, both large and small and from different geographic 
regions. The committee agreed that the transition-funding schedule 
should not vary due to PHA size. However, in consideration of the 
unique organizational and administrative challenges faced by small 
PHAs, the part 990 regulations allow PHAs with less than 250 units to 
elect whether to convert to asset management (other PHAs are required 
to convert). HUD is also taking steps to facilitate the transition to 
asset management for those small PHAs that elect to convert. For 
example, on September 6, 2006, at 71 FR 52710, HUD published a notice 
providing interim guidance on implementation of asset management, which 
addressed the possible administrative and financial burdens for small 
PHAs of establishing a central office cost center (see 71 FR 52712).
    Comment: Extension of first-year stop-loss application. As a result 
of a typographical error in the November 24, 2006, proposed rules, 
several commenters mistakenly read them as extending the first-year 
deadline for ``stop-loss'' applications. Specifically, the two proposed 
rules mistakenly proposed to revise the table codified at Sec.  
990.230(e) establishing the demonstration dates under the ``stop loss 
provision'' of the regulations. These commenters supported a ``further 
extension'' of the stop-loss application deadline.
    HUD Response. As the preambles to both proposed rules made clear, 
and as several other commenters noted, the November 24, 2006, proposed 
rules were exclusively concerned with the transition funding schedule, 
and did not address the subject of stop-loss. However, HUD is aware 
that the table codified at Sec.  990.230(e) is outdated, given the 
adjustments to the stop-loss application due dates (see Public and 
Indian Housing (PIH) Notice 2007-16, issued on June 18, 2007). To 
address the potential for confusion, HUD has taken the opportunity 
provided by this final rule to update the codified table. The updated 
table codified by this final rule is identical to the table contained 
in PIH Notice 2007-16, and HUD wishes to emphasize that this final rule 
does not modify the stop-loss application due dates. The due dates 
provided in PIH Notice 2007-16 remain in effect.

IV. Findings and Certifications

Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866 (entitled ``Regulatory Planning and Review''). 
OMB determined that this rule is a ``significant regulatory action'' as 
defined in section 3(f) of the Order (although not an economically 
significant regulatory action, as provided under section 3(f)(1) of the 
Order). The docket file is available for public inspection in the 
Regulations Division, Office of General Counsel, 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). Individuals with speech or hearing impairments may access 
this number through TTY by calling the toll-free Federal Information 
Relay Service at (800) 877-8339.

Environmental Impact

    This rule provides operating instructions and procedures in 
connection with activities under a Federal Register document that has 
previously been subject to a required environmental review. 
Accordingly, under 24 CFR 50.19(c)(4), this Notice is categorically 
excluded from environmental review under the National Environmental 
Policy Act (42 U.S.C. 4321).

Regulatory Flexibility Act

    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

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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. The entities that would be 
subject to this rule are PHAs that administer public housing. Under the 
definition of ``small governmental jurisdiction'' in section 601(5) of 
the RFA, the provisions of the RFA are applicable only to those PHAs 
that are part of a political jurisdiction with a population of under 
50,000 persons. The number of entities potentially affected by this 
rule is therefore not substantial. Further, this rule modifies the 
transition funding percentage for calendar year 2007 for PHAs 
experiencing a decline in funding between the old and new funding 
formulas, easing the transition for PHAs of all sizes. Accordingly, the 
undersigned certifies that this rule will not have a significant 
economic impact on a substantial number of small entities.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on state and local 
governments and is not required by statute, or the rule preempts State 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive Order. This rule will not have federalism 
implications and would not impose substantial direct compliance costs 
on State and local governments or preempt State law within the meaning 
of the Executive Order.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) establishes requirements for federal agencies to 
assess the effects of their regulatory actions on state, local, and 
tribal governments, and on the private sector. This rule will not 
impose any federal mandates on any state, local, or tribal governments, 
or on the private sector, within the meaning of the UMRA.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance (CFDA) Program number is 
14.850.

List of Subjects in 24 CFR Part 990

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

0
Accordingly, for the reasons described in the preamble, HUD amends 24 
CFR part 990 to read as follows:

PART 990--THE PUBLIC HOUSING OPERATING FUND PROGRAM

0
1. The authority citation for 24 CFR part 990 continues to read as 
follows:

    Authority: 42 U.S.C. 1437g; 42 U.S.C. 335(d).


0
2. Revise Sec.  990.230(a), (b), (c), and (e) to read as follows:


Sec.  990.230  PHAs that will experience a subsidy reduction.

    (a) For PHAs that will experience a reduction in their operating 
subsidy, as determined in Sec.  990.225, such reductions will have a 
limit of:
    (1) 5 percent of the difference between the two funding levels in 
the first year of implementation of the formula contained in this part;
    (2) 24 percent of the difference between the two funding levels in 
the second year of implementation of the formula contained in this 
part;
    (3) 43 percent of the difference between the two levels in the 
third year of implementation of the formula contained in this part;
    (4) 62 percent of the difference between the two levels in the 
fourth year of implementation of the formula contained in this part; 
and
    (5) 81 percent of the difference between the two levels in the 
fifth year of implementation of the formula contained in this part.
    (b) The full amount of the reduction in the operating subsidy level 
shall be realized in the sixth year of implementation of the formula 
contained in this part.
    (c) For example, a PHA has a subsidy reduction from $1 million, 
under the formula in effect prior to implementation of the formula 
contained in this part, to $900,000, under the formula contained in 
this part using FY 2004 data. The difference would be calculated at 
$100,000 ($1 million - $900,000 = $100,000). In the first year, the 
subsidy reduction would be limited to $5,000 (5 percent of the 
difference). Thus, the PHA would receive an operating subsidy amount 
pursuant to this rule plus a transition-funding amount of $95,000 (the 
$100,000 difference between the two subsidy amounts minus the $5,000 
reduction limit).
* * * * *
    (e) The schedule for successful demonstration of conversion to 
asset management for discontinuation of PHA subsidy reduction is 
reflected in the table below:

                              Stop-Loss Demonstration Time Line and Effective Dates
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                                                                            Reduction stopped      Reduction
        Demonstration date by                   Applications due                    at           effective for
----------------------------------------------------------------------------------------------------------------
September 30, 2007..................  October 15, 2007....................  5 percent of the   Calendar Year
                                                                             PUM difference.    2007 and
                                                                                                thereafter.
April 1, 2008.......................  April 15, 2008......................  24 percent of the  Calendar Year
                                                                             PUM difference.    2008 and
                                                                                                thereafter.
October 1, 2008.....................  October 15, 2008....................  43 percent of the  Calendar Year
                                                                             PUM difference.    2009 and
                                                                                                thereafter.
October 1, 2009.....................  October 15, 2009....................  62 percent of the  Calendar Year
                                                                             PUM difference.    2010 and
                                                                                                thereafter.
October 1, 2010.....................  October 15, 2010....................  81 percent of the  Calendar Year
                                                                             PUM difference.    2011 and
                                                                                                thereafter.
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* * * * *

    Dated: August 2, 2007.
Orlando J. Cabrera,
Assistant Secretary for Public and Indian Housing.
[FR Doc. E7-15961 Filed 8-14-07; 8:45 am]
BILLING CODE 4210-67-P