[Federal Register Volume 76, Number 25 (Monday, February 7, 2011)]
[Proposed Rules]
[Pages 6654-6682]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-2303]



[[Page 6653]]

Vol. 76

Monday,

No. 25

February 7, 2011

Part II





Department of Housing and Urban Development





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24 CFR Parts 903, 905, 941 et al.



Public Housing Capital Fund Program; Proposed Rule

  Federal Register / Vol. 76, No. 25 / Monday, February 7, 2011 / 
Proposed Rules  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 903, 905, 941, 968, 969

[Docket No. FR-5236-P-01]
RIN-2577-AC50


Public Housing Capital Fund Program

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule combines and streamlines the former legacy 
public housing modernization programs, including the Comprehensive 
Grant Program (CGP), the Comprehensive Improvement Assistance Program 
(CIAP), and the Public Housing Development Program (which encompasses 
mixed-finance development), into the Capital Fund Program (CFP). This 
rule proposes a change to the Public Housing Agency Annual Plan 
regulation to incorporate the definition of qualified public housing 
agencies (PHAs), which was mandated by the Housing and Economic 
Recovery Act (HERA) of 2008, and to decouple or separate the CFP 
informational requirements from the PHA Annual Plan requirements. Also 
proposed is the ability for PHAs to request a total development cost 
(TDC) exception for integrated utility management, capital planning, 
and other capital and management activities that maximize energy 
conservation and efficiency, including green construction and 
retrofits, which include windows; heating system replacements; wall 
insulation; site-based generation; advanced energy savings 
technologies, including renewable energy generation; and other such 
retrofits.
    The structure of the proposed Public Housing Capital Fund Program 
regulation is described in section IV of the SUPPLEMENTARY INFORMATION. 
Several regulations would be eliminated with the implementation of this 
rule, along with the issuance of new and/or revised CFP forms, 
including the CFP Annual Statement/Performance and Evaluation Report 
(form HUD-50075.1), CFP 5-Year Action Plan (form HUD-50075.2), and the 
CFP Annual Contributions Contract (ACC) Amendment, as well as a new 
guidebook.

DATES: Comments Due Date: April 8, 2011.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Regulations Division, Office of General 
Counsel, Department of Housing and Urban Development, 451 7th Street, 
SW., Room 10276, Washington, DC 20410-0500. Communications must refer 
to the above docket number and title. There are two methods for 
submitting public comments. All submissions must refer to the above 
docket number and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street, SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
http://www.regulations.gov. HUD strongly encourages commenters to 
submit comments electronically. Electronic submission of comments 
allows the commenter maximum time to prepare and submit a comment, 
ensures timely receipt by HUD, and enables HUD to make them immediately 
available to the public. Comments submitted electronically through the 
http://www.regulations.gov Web site can be viewed by other commenters 
and interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note:  To receive consideration as public comments, comments 
must be submitted through one of the two methods specified above. 
Again, all submissions must refer to the docket number and title of 
the rule.

    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Due to security measures at the HUD Headquarters 
building, an advance appointment to review the public comments must be 
scheduled by calling the Regulations Division at 202-402-3055 (this is 
not a toll-free number). Individuals with speech or hearing impairments 
may access this number via TTY by calling the Federal Information Relay 
Service, toll free, at 800-877-8339. Copies of all comments submitted 
are available for inspection and downloading at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Jeffrey Riddel, Director, Office of 
Capital Improvements, Office of Public and Indian Housing, Department 
of Housing and Urban Development, 451 7th Street, SW., Washington, DC 
20410-8000; telephone number 202-708-1640 (this is not a toll-free 
number). Hearing- or speech-impaired individuals may access this number 
through TTY by calling the toll-free Federal Information Relay Service 
at 800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 9(d) of the U.S. Housing Act of 1937 (1937 Act) (42 U.S.C. 
1437g(d)) provides for a ``Capital Fund'' for the purpose of making 
assistance available to PHAs to carry out capital and management 
improvement activities. Section 9(d)(2) of the 1937 Act (42 U.S.C. 
1437g(d)(2)) requires HUD to develop a formula for determining the 
amount of assistance provided to PHAs from the Capital Fund for a 
federal fiscal year (FFY). The formula ``shall include'' a mechanism to 
reward PHA performance. As required by statute, the Capital Fund 
formula (CF formula) was developed through negotiated rulemaking and 
promulgated through a final rule, published on March 16, 2000 (65 FR 
14422), with certain minor amendments to remove some incorrect, 
unnecessary dates adopted by final rule published on May 2, 2000 (65 FR 
25446).
    Section 9(g) of the 1937 Act (42 U.S.C. 1437g(g)) provides for a 
certain amount of flexibility in the use of Capital Fund amounts. For 
PHAs other than small PHAs (that is, those with fewer than 250 units of 
public housing), a PHA may use up to 20 percent of its Capital Fund for 
activities that are eligible activities for the Operating Fund under 
section 9(e) of the 1937 Act (42 U.S.C. 1437g(e)). Small PHAs that meet 
certain statutory criteria related to operating and maintaining their 
public housing in safe, clean, and healthy condition may use 100 
percent of their Capital Fund amounts for any statutorily eligible use 
under the Operating Fund.
    Section 9(g)(3) of the 1937 Act (42 U.S.C. 1437g(g)(3)) imposes 
limitations on the use of the Capital Fund or Operating Fund for new 
construction. Generally, the CF formula shall not provide PHAs funding 
for the purpose of constructing public housing units (which includes 
acquisition), if the construction would result in a net increase from 
the number of housing units owned, operated, or assisted by the PHA on 
October 1, 1999. PHAs may use their CF formula amounts to construct 
units in excess of the ``net increase'' limitation, if the units are 
available and affordable to low-income families (42 U.S.C. 
1437g(g)(3)(B)). The 1937 Act provides two exceptions to the ``net 
increase'' limitation on the CF

[[Page 6655]]

formula. One is where the funding for additional units is for a mixed-
finance project (42 U.S.C. 1437g(g)(3)(C)(i)). The second exception is 
where the cost of the useful life of the project is less than the 
estimated cost of providing tenant-based assistance under the Housing 
Choice Voucher program (42 U.S.C. 1437g(g)(3)(C)(ii)).
    Section 9(j) of the 1937 Act (42 U.S.C. 1437g(j)) provides for 
penalties for slow obligation and expenditure of Capital Funds. 
Generally, a PHA is required to obligate funds received under section 9 
of the 1937 Act within 24 months of the date on which the funds become 
available or within 24 months of the date on which the PHA accumulates 
enough funds to undertake modernization, substantial rehabilitation, or 
construction of units (42 U.S.C. 1437g(j)(1)). Under section 9(j)(2)(B) 
of the 1937 Act (42 U.S.C. 1437g(j)(2)(B)), a PHA ``shall disregard'' 
this requirement with respect to unobligated amounts the total of which 
do not exceed 10 percent of the original allocation of Capital Funds to 
the PHA. Additionally, PHAs must expend their Capital Fund assistance 
within 4 years after the date on which the funds became available for 
obligation (42 U.S.C. 1437g(j)(5)). HUD may extend the time periods for 
obligation of Capital Funds for specific reasons listed in the statute 
and established by HUD by notice published in the Federal Register (42 
U.S.C. 1437g(j)(2), 42 U.S.C. 1437g(j)(5)(A)). The statute lists 
potential sanctions for failure to comply with the obligation and 
expenditure deadlines, including withholding of funds, penalties 
applied to future grants, reallocation of funds to high-performing 
PHAs, and recapture (42 U.S.C. 1437g(j)(3), 42 U.S.C. 1437g(j)(6)). 
Regulations implementing the obligation and expenditure requirements 
were published on August 1, 2003 (68 FR 45731). These regulations are 
currently codified at 24 CFR 905.120, and would be moved to Sec.  
905.306 by this proposed rulemaking.
    Former section 9(k) of the 1937 Act (42 U.S.C. 1437g(k)) provided 
for a fund reserve for emergency, natural disasters, and litigation 
needs, and for a set-aside for Operation Safe Home. Section 2804 of 
Title VII (Small Public Housing Authorities Paperwork Reduction Act) of 
Division B of the HERA (Pub. L. 110-289, approved July 30, 2008) 
removed section 9(k) of the 1937 Act.
    Section 2702 of the Small Public Housing Authorities Paperwork 
Reduction Act amends section 5A of the 1937 Act (42 U.S.C. 1437c-1), to 
provide that certain PHAs, called ``qualified public housing 
agencies,'' are not required to file the PHA Annual Plan called for in 
section 5A(b)(1) of the 1937 Act (42 U.S.C. 1437c-1(b)(1)). Qualified 
PHAs under section 2702 are those that administer 550 or fewer units--
considered as the sum of all the public housing units and vouchers 
under section 8(o) of the 1937 Act (42 U.S.C. 1437f(o)) administered by 
a PHA--and are not designated as a troubled PHA under section 6(j)(2), 
and do not have a failing score under the Section 8 Management 
Assessment Program (SEMAP) during the prior 12 months.
    Such PHAs must still submit a PHA 5-Year Plan, file the civil 
rights certification under 42 U.S.C. 1437c-1(d)(16), and consult with, 
and consider the recommendations of, the resident advisory board at the 
annual hearing required of such agencies regarding any changes to the 
goals, objectives, and policies of that PHA. The CFP (and previous CIAP 
and CGP) have always had separate informational requirements, but some 
of these were combined with the PHA Annual and 5-Year Plan. However, 
with the changes made to the PHA Annual Plan and the need to have grant 
reporting in compliance with CFP and other federal reporting 
requirements, the CFP informational requirements will be decoupled or 
separated from the PHA Annual Plan submissions.

II. Overview of the Capital Fund Program

    This rule proposes to revise the regulations governing the use of 
assistance made available under the Capital Fund in 24 CFR part 905. 
Assistance under the Capital Fund is a primary, regular source of 
funding made available by HUD to a PHA for modernization and 
development of public housing and other capital activities. This rule 
also proposes to replace and remove several other regulations that 
currently govern a PHA's use of HUD assistance, specifically: 24 CFR 
part 941, entitled ``Public Housing Development''; 24 CFR part 968, 
entitled ``Public Housing Modernization''; and 24 CFR part 969, 
entitled ``PHA-Owned Projects--Continued Operation as Low-Income 
Housing After Completion of Debt Service.'' In the case of part 969, 
which provides for the continued operation of housing as public housing 
for the 10-year period after the last receipt of operating subsidy, 
sections 9(e)(3) and 9(m) of the 1937 Act, along with the Annual 
Contributions Contract (ACC), as amended and approved by HUD, serve the 
same purpose, making the separate regulations in 24 CFR part 969 no 
longer necessary.
    Although HUD established the CF formula in 2000, HUD continued to 
rely on CFP requirements found in the regulations in these other parts 
of 24 CFR, to the extent that these requirements were not superseded by 
statutory requirements.

III. Overview of the Changes to the PHA Annual Plan

    This regulation modifies 24 CFR 903.3(a) to incorporate the 
definition of a qualified PHA provided in section 2702 of HERA. HERA 
exempts qualified PHAs from the requirement of section 5(A) of the 1937 
Act to submit a PHA Annual Plan.

IV. This Proposed Rule

    To meet the objective of revising and consolidating the 
requirements governing the use of Capital Funds, as discussed in 
Section II of this preamble, this proposed rule would revise 24 CFR 
part 905 to establish new subparts A through H.

A. Subpart A

    Subpart A of this proposed part 905 would provide a general 
introduction and definitions. Section 905.100(a) and (b) would state 
the purpose of the part 905 regulations and provide a general 
description of the CFP. Section 905.100(c) would establish employment, 
contracting, and close-out requirements. Section 905.102 would address 
the applicability of the part 905 regulations. Section 905.104 would 
require that all HUD approvals be in writing from officials designated 
to grant such approvals. Section 905.106 would state that noncompliance 
with this part or any other applicable requirements may subject a PHA 
and its partners to sanctions provided elsewhere in part 905. Section 
905.108 would provide a number of program-specific definitions.
    The following are definitions relating to the Capital Fund Program 
and proposed to be included in the definition section of the part 905 
regulations: ``Additional Project Costs,'' ``Accessible,'' ``Capital 
Fund,'' ``Capital Fund Annual Contributions Contract Amendment (CF ACC 
Amendment),'' ``Capital Fund Program Fee,'' ``Community Renewal 
Costs,'' ``Cooperation Agreement,'' ``Date of Full Availability 
(DOFA),'' ``Emergency Work,'' ``Expenditure,'' ``Federal Fiscal Year 
(FFY),'' ``Force Account Labor,'' ``Fungibility,'' ``Housing 
Construction Cost (HCC),'' ``Line of Credit Control system (LOCCS),'' 
``Mixed Finance Modernization,'' ``Natural Disaster,'' ``Obligation,'' 
``Open Grant,'' ``Operating

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Fund,'' ``PIH Information Center (PIC),'' ``Public Housing Agency 
(PHA),'' ``Public Housing Project,'' ``Public Housing Assessment System 
(PHAS),'' ``Public Housing Development,'' ``Public Housing 
Requirements,'' ``Reasonable Cost,'' ``Reconfiguration,'' and ``Uniform 
Federal Accessibility Standards (UFAS).'' Other definitions 
specifically related to public housing development are proposed to be 
placed in subpart F, which will address development activities.
    ``Capital Fund Program Fee'' is defined as the amount up to 10 
percent of the annual Capital Fund grant under this regulation that may 
be set aside for administrative costs for an asset management PHA. 
These costs are associated with the Central Office Cost Center's (COCC) 
oversight and management of the CFP. These costs include duties related 
to general capital planning, preparing of the Annual Plan, processing 
of LOCCS, preparing reports, drawing of funds, budgeting, accounting, 
and procuring of construction and other miscellaneous contracts.
    PHAs that have not converted to asset management may expend up to 
10 percent of the Capital Fund grant on their administrative costs. 
Administrative costs exclude any costs related to lead-based paint or 
asbestos testing, in-house architectural or engineering work, or 
special administrative costs required under state or local law, unless 
approved by HUD.
    ``Reasonable cost'' is defined in the regulation as ``An amount to 
rehabilitate or modernize an existing structure that is not greater 
than 90 percent of the TDC for a new development of the same structure 
type, number and size of units in the same market area.'' Section 
905.314(g), modernization cost limits, states that a PHA is prohibited 
from modernizing an existing public housing development that cannot be 
modernized for 90 percent of TDC. The Office of Public Housing uses 
other cost limitation standards for voluntary conversion and for 
Section 18 demolition. For mandatory conversion (24 CFR part 972 
subpart B), which relates to developments of 250 or more dwelling units 
with a significant (15 percent) vacancy rate over 3 years, the cost 
standard is whether it is more expensive to operate the development as 
public housing than to provide tenant based assistance. For 24 CFR part 
970, the description of major problems indicative of obsolescence 
includes a cost standard of 62 percent of TDC for elevator structure 
and 57.14 percent of TDC for all other types of structures. HUD is 
requesting that the public consider these varying cost limitations and 
provide the Department with comments on whether the standard of 90 
percent of TDC, which is incorporated in this proposed rulemaking, is 
the best cost limitation to use for the modernization of existing 
public housing.

B. Subpart B

    Subpart B would describe Capital Fund eligible activities and 
ineligible activities. Section 905.200 lists the eligible costs, which 
include, but are not limited to, development, financing, and 
modernization of public housing projects; capital planning; preparation 
of the annual statement; vacancy reduction; making units and common 
areas accessible; nonroutine maintenance; resident self sufficiency, 
security and safety; relocation and mobility counseling; costs for 
approved homeownership programs; conduct of an energy audit when there 
are not sufficient operating funds and the energy audit is part of a 
new modernization program for energy efficiency, including the use of 
Energy Star items; certain administrative costs; monitoring of LOCCS; 
the preparation of reports; the new Capital Fund program fee that can 
be attributed to the Central Office Cost Center; and emergency 
activities.
    This proposed rule would incorporate energy standards at Sec. Sec.  
905.200(b)(6)(ii), 905.200(b)(14), 905.312(b)(1), 905.312(c)(3), 
905.312(d), 905.314(c), and 905.316(e). The standards include those in 
42 U.S.C. 12709 as amended by section 153 of the Energy Policy Act of 
2005, Public Law 109-58 (these standards include the 2006 International 
Energy Conservation Code and ASHRAE 90.1-2004), and the Energy Star 
requirement for appliances in section 152 of the Energy Policy Act of 
2005. In addition, Sec.  905.200(b)(14) of this proposed rule 
incorporates energy efficiency standards from 42 U.S.C. 1437g(d)(1)(K), 
as added by section 151 of the Energy Policy Act of 2005, which makes 
it an eligible use of the capital fund to increase energy efficiency by 
such means as the Secretary of HUD determines are appropriate. Public 
comment is sought as to how energy efficiency should be measured, as 
well as what specific uses of the Capital Fund would increase energy 
efficiency.
    Since HERA removed the authorization of the emergency set-aside 
under section 9(k) of the 1937 Act (42 U.S.C. 1437g(k)), this proposed 
rule would remove the regulatory provisions related to section 9(k).
    Proposed Sec.  905.202 would list the activities and costs that 
would be ineligible under the CFP. These include, but are not limited 
to, costs not included in the PHA's CFP 5-Year Action Plan; luxury 
items such as amenities beyond what is customary in the community; 
costs that would be eligible but for the fact that they are in excess 
of the amount directly attributable to the public housing units, when 
the physical or management improvement will benefit programs other than 
public housing; direct provision of social services; costs that are 
funded by another source, so there would be duplicate funding; and any 
other costs that HUD may determine on a case-by-case basis.
    Proposed Sec.  905.204 would include regulations on funding for 
emergencies and natural disasters. Under this section, HUD will look to 
ensure, in both situations, that a PHA uses other legally available 
funds, including unobligated Capital Funds, before using funds from the 
set-aside for disasters and emergencies. Disasters and emergencies are, 
however, by nature unexpected and unpredictable, so it is also 
necessary for HUD to exercise case-by-case discretion to ensure that 
disaster needs and other housing needs of the PHA's residents are and 
will continue to be met. It should be noted that both HUD's 2009 (Title 
II, Pub. L. 111-8) and 2010 (Division A, Title II, Pub. L. 111-117) 
Appropriations Acts made a limited amount of Capital Funds available 
for emergencies and natural disasters, and specifically excluded 
Capital Funds from being used for Presidentially declared disasters 
under the Stafford Act (42 U.S.C. 5121 et seq.). See also PIH Notice 
2010-14, available at http://www.hud.gov/offices/pih/publications/notices/10/pih2010-14.pdf.
    Former Sec.  905.10(b), Emergency Reserve and Use of Amounts, would 
be removed from the proposed rule. The Capital Fund formula, which was 
previously found in Sec.  905.10, is in Sec.  905.400 of this proposed 
rulemaking. However, this proposed rule retains the procedures for 
awarding emergency and natural disaster grants, if provision is made 
for a set-aside for emergencies and natural disasters in an annual 
Appropriations Act.

C. Subpart C

    Subpart C of this proposed rule would include the CFP requirements 
found in 24 CFR part 968 (public housing modernization) and 24 CFR 
905.120 (penalties for slow expenditure or obligation of Capital 
Funds), as those sections are codified as of the date of this proposed 
rule. This rule would

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establish CFP submission requirements for both qualified and 
nonqualified PHAs, as defined in Title VII of HERA section 2702. 
Submission requirements include, but are not limited to, the Physical 
Needs Assessment (PNA), the budget, and various certifications.
    The new requirement for project-based PNAs for all properties in 
the PHA's inventory is intended to support effective property-based 
planning and the transition to asset management. Completion of the PNA 
will provide PHAs with critical information on the physical condition 
of each project in its inventory and assist the PHAs to identify and 
prioritize work items in the Annual Statement and the 5-Year Action 
Plan. The proposed rule would require that the PNA be completed by the 
PHA and be submitted to the Field Office at a time required by HUD.
    The proposed rule would require that the other CFP submission 
requirements, including the budget and the certifications, be submitted 
in a format prescribed by HUD at the time that the PHA submits its 
signed CFP ACC Amendment for its CFP grant(s). Except in the case of 
emergency work, the PHA shall not spend Capital Funds on any work that 
is not included in an approved CFP 5-Year Action Plan and any approved 
amendments. Proposed Sec.  905.300(b)(5) describes HUD review of the 
CFP submissions for compliance with the public housing program 
requirements. The PHA's budget must be approved by the PHA's Board of 
Commissioners, but does not require HUD approval. The CFP 5-Year Action 
Plan, which is a component of the 5-Year Plan required under part 903, 
continues to be required for all PHAs, both qualified and nonqualified.
    Proposed Sec.  905.300(b)(8) would address performance and 
evaluation reports. Proposed Sec.  905.300(b)(4) would govern other 
formal requirements for qualified and nonqualified PHAs, such as the 
requirement that the PHA consult with the Resident Advisory Board(s) 
and conduct annual public hearings.
    Proposed Sec.  905.302 would require PHAs to submit the CF ACC 
Amendment by a specified date. Late submittal does not affect a PHA's 
requirement to obligate and expend its Capital Fund by the dates 
established by HUD. If HUD does not receive the signed and dated CF ACC 
Amendment by the submission deadline, the PHA will receive the Capital 
Fund grant for that year; however, the PHA will have less than 24 
months to obligate 90 percent of the Capital Fund grant and less than 
48 months to expend those funds, because the PHA's obligation start 
date and disbursement end date for these grants will remain as 
previously established by HUD.
    Proposed Sec.  905.304 requires public housing developed or 
modernized with Capital Funds to be operated in accordance with the CF 
ACC Amendment. Under proposed Sec.  905.304(a)(1), projects developed 
with Capital Funds must have a covenant requiring them to be operated 
as public housing for a 40-year period beginning on the date on which 
the project becomes available for occupancy, as required by section 
9(d)(3)(A) of the 1937 Act (42 U.S.C. 1437g(d)(3)(A)). Under proposed 
Sec.  905.304(a)(2), projects modernized with Capital Funds will have 
an additional use restriction for a 20-year period that begins on the 
latest date that modernization is completed, as required by section 
9(d)(3)(B) of the 1937 Act (42 U.S.C. 1437g(d)(3)(B)). Under proposed 
Sec.  905.304(a)(3), projects developed that receive Operating Fund 
assistance shall generally have a covenant to operate under 
requirements applicable to public housing for a 10-year period 
beginning upon the conclusion of the fiscal year for which such amounts 
were provided. In accordance with the ACC, existing Declarations of 
Trust, and section 30 of the 1937 Act (42 U.S.C.1437z-2), proposed 
Sec.  905.304(b) imposes a HUD approval requirement on any potential 
liens or security interests in public housing assets.
    The requirements for obligation and expenditure of Capital Funds 
would be in proposed Sec.  905.306. These requirements include the 
statutory time limits on expenditure found in section 9(j) of the 1937 
Act (42 U.S.C. 1437g(j)), as well as penalties for failure to obligate 
Capital Funds in a timely manner. This section also provides 
information on the criteria for requesting an extension to the 
obligation deadline.
    Section 905.308 would list federal requirements applicable to all 
Capital Fund modernization, development, and financing activities, 
including, but not limited to, relocation of residents, wage rates, 
environmental requirements, section 504 compliance, and lead-based 
paint poisoning prevention.
    Proposed Sec.  905.310 would require that the PHA initiate a fund 
requisition from HUD only when the funds are due and payable, unless 
HUD authorizes another method of payment of such advances, which 
includes working capital advances, or reimbursement as authorized by 24 
CFR 85.21.
    Proposed Sec.  905.312 would incorporate the design and 
construction requirements, which are currently found in 24 CFR 941.203. 
The standards in proposed Sec.  905.312(a) are similar to those in 
currently codified 24 CFR 941.203(a), with the primary difference being 
that the proposed Sec.  905.312 would require structures ``to be 
consistent with'' the neighborhoods they occupy, rather than requiring 
them to ``improve or harmonize with'' the neighborhoods.
    Additionally, proposed Sec.  905.312, like currently codified Sec.  
941.203(b), would require that all development comply with a national 
building code in addition to the applicable state and local laws, 
codes, ordinances, and regulations. The proposed rule also specifically 
addresses accessibility requirements among the federal requirements 
with which compliance is required at proposed Sec.  905.312(b)(4). The 
proposed rule would apply design and construction standards to 
modernization, as well as to development, in proposed Sec.  905.312(c).
    In Sec.  905.312(c)(3), HUD refers to including cost-effective 
energy conservation measures as identified in the PHA's most recent 
updated energy audit in the design, rehabilitation and construction of 
public housing development. The Department is seeking public comment, 
particularly from PHAs, on what cost-effectiveness test(s) should be 
used when deciding whether an energy conservation measure identified in 
the energy audit should be implemented or not. Issues for public 
comment include but are not limited to the following:
    (1) The measurement basis for cost effectiveness; i.e., whether to 
use the total cost of the energy improvement versus the incremental 
cost of the energy improvement;
    (2) Are opportunity costs figured into this calculation (e.g., the 
incremental cost of the energy improvement versus the cost of various 
alternative uses of the money);
    (3) Do such calculations include any expected increase in energy 
costs; and
    (4) The period of time over which the cost of the improvement would 
be realized, such as the manufacturer's estimated useful life versus 
actual time in service.
    Your comments will assist HUD to develop important guidance to PHAs 
that will assist them in determining the most cost-effective energy 
conservation measures to fund from among the many identified in the 
PHAs' respective energy audits.
    Proposed Sec.  905.314 establishes cost limits for public housing 
projects, including details about how the TDC and housing construction 
cost (HCC) limits are calculated. Modernization costs are limited to 90 
percent of the TDC; if modernization costs exceed that

[[Page 6658]]

limit, the project will not be modernized. Also proposed in Sec.  
905.314(c)(1) is the ability for PHAs to request a TDC exception for 
integrated utility management, capital planning, and other capital and 
management activities that maximize energy conservation and efficiency, 
including green construction and retrofits, which include windows; 
heating system replacements; wall insulation; site-based generation; 
advanced energy savings technologies, including renewable energy 
generation; and other such retrofits. HUD has the statutory authority 
to grant such a TDC exception pursuant to 42 U.S.C. 1437d(b).
    For TDC exceptions for integrated utility management, capital 
planning, and other capital and management activities that maximize 
energy conservation and efficiency identified in Sec.  905.314(c)(1), 
the Department will require that the requesting PHA submit a detailed 
list of the planned energy conservation improvements, an explanation 
and justification for the proposed energy conservation improvements, 
and the estimated costs for HUD review. In addition, PHAs requesting an 
exception of the TDC will be required to submit to HUD an independent 
cost certification from a third party such as a licensed accredited 
architect. These materials will be reviewed by HUD and approved on a 
case-by-case basis. The Department is seeking public comment on what 
cost effectiveness test(s) HUD should apply when reviewing TDC requests 
for this exception.
    Proposed Sec.  905.314(h) sets administrative cost limits for 
modernization at 10 percent of the annual Capital Fund grant, excluding 
costs related to lead-based paint or asbestos testing, in-house 
architectural or engineering work, or other special administrative 
costs, unless approved by HUD. Proposed Sec.  905.314(h) sets the 
administrative cost limits for development work with Capital Fund and 
RHF grants at 3 percent of the total project budget or, with HUD's 
approval, up to 6 percent of the total project budget. For a PHA that 
is under asset management, this administrative cost limit of 10 percent 
includes the Capital Fund Program fee. This limitation reflects the 
priority HUD places on use of the Capital Fund for development and 
modernization.
    Proposed Sec.  905.314(j) proposes to reduce the threshold for 
management improvements from 20 percent to 10 percent over a 3-year 
period. Under the current CFP a large housing authority (a PHA with 250 
or more units in management) could use as much as 50 percent of a 
Capital Fund (CF) formula grant (i.e., 20 percent for management 
improvements, 10 percent for administrative costs, and up to 20 percent 
for operations) for costs not associated with physical improvements of 
the development. The Department will not be able to fund the estimated 
modernization needs (as determined in the Capital Needs of the Public 
Housing Stock in 1998: Formula Capital Study) if such a high percentage 
of the Capital Fund appropriation is used for purposes other than 
modernization or development of public housing units. When CGP was 
established more than 20 years ago, the Department established a 
threshold to allow for 20 percent of the Capital Fund grant to be used 
to fund resident activities and other administrative expenses needed to 
support the physical improvements funded by the modernization program. 
Since the initiation of the CIAP and CGP, other programs such as the 
Resident Opportunities and Supportive Services (ROSS) program and 
Community and Supportive Services, a component of the HOPE VI program, 
have been established to fund services that enable residents to become 
self sufficient and/or improve their quality of life. In addition to 
these programs, section 9(g) of the 1937 Act (42 U.S.C. 1437g(g)) 
allows large PHAs to use up to 20 percent of a Capital Fund grant for 
operating costs, while small PHAs have complete flexibility to use 
their entire Capital Fund grant for operating costs (Sec.  905.314(l) 
of this proposed rule). With this flexibility to use Capital Fund for 
operations, it is no longer necessary to have such a high threshold for 
funding management improvements.
    Proposed Sec.  905.314(k) covers resident management corporation 
(RMC) activities. RMCs are authorized under section 20 of the 1937 Act 
(42 U.S.C. 1437r). Under section 20(c) of the 1937 Act (42 U.S.C. 
1437r(c)), a PHA may provide a portion of its Capital Funds to an RMC 
for the purpose of performing eligible activities (under certain 
conditions, RMCs can be directly funded without going through the PHA 
(see 42 U.S.C. 1437r(e)). The proposed rule would provide that the PHA 
will not retain any of the Capital Funds unless the PHA contractually 
agrees to do so with the RMC.
    Proposed Sec.  905.314(j) provides for the HUD-approved use of 
force account labor. High-performing PHAs would not require HUD 
approval for this purpose.
    Proposed Sec.  905.316 of the proposed rule establishes contracting 
requirements. This section generally requires compliance with 24 CFR 
85.36. Proposed Sec.  905.316(d) requires that, notwithstanding the 
bonding requirements of 24 CFR 85.36(h), for each contract over 
$100,000, the contractor shall provide a bid guarantee equivalent to 5 
percent of the bid price plus one of five acceptable forms of bond 
listed.
    Section 905.318 of the proposed rule would require the PHA to 
obtain a title insurance policy before taking title to any and all 
sites and properties acquired with Capital Funds. Section 905.318 also 
would require recordation of the deed as prescribed by HUD.
    Proposed Sec.  905.320 would impose contract administration duties 
on the PHA for work performed using Capital Funds. The PHA must inspect 
the work and determine when it is acceptable, and shall pay a 
contractor only for work that the PHA has inspected and accepted.
    Proposed Sec.  905.322 would require that the fiscal closeout of a 
Capital Fund project requires the submission of a cost certificate; and 
an audit, if applicable. Proposed Sec.  905.322 also would require the 
submission of a performance and evaluation (P&E) report that describes 
the progress on open Capital Fund grants, which is currently required 
by 24 CFR 968.330. If the PHA does not submit the cost certificate and 
P&E report in a timely manner as specified in the regulation, HUD may, 
after notifying the PHA, impose restrictions on the PHA's Capital Fund 
grants. Proposed Sec.  905.322(c) would provide that the cost 
certificate is also subject to audit. For PHAs that are exempt from 
audit, HUD would review and approve the cost certificate based on 
available information regarding the Capital Fund grant. Proposed Sec.  
905.322(e) would provide that all Capital Funds in excess of the actual 
cost incurred for the grant are subject to recapture.
    Proposed Sec.  905.324 would require certain data reporting by 
PHAs.
    Proposed Sec.  905.326 would require PHAs to keep full and complete 
records of each Capital Fund grant.

D. Subpart D

    Subpart D would incorporate, in proposed Sec.  905.400, the 
regulations that establish the CF formula, currently codified in Sec.  
905.10, with the exception of reference to the emergency reserve fund, 
which was removed by HERA, as discussed above.
    The CF formula was initially established by final rule published on 
March 16, 2000 (65 FR 14422), and that formula is not proposed to be 
changed by this rule. Terminology would be updated to reflect the 
change to asset management and project-level accounting. In April 2008, 
PIC was

[[Page 6659]]

realigned to reflect the reorganization of developments into projects. 
In order to avoid resulting changes in DOFA dates that otherwise could 
have affected certain PHAs, Sec.  905.400 (d)(6) of this rule proposes 
to freeze the determination of modernization need as of FFY 2008 and 
then make adjustments based on changes in inventory. The end result is 
that there is no substantive change to the formula or the resulting 
allocation of Capital Funds, and hence the formula, which was 
originally established through a statutory negotiated rulemaking 
process, is presented here for the sake of completeness only and not 
for public comment. However, HUD will accept comment on the 
aforementioned technical changes reflecting asset management.
    Since the Study of the Modernization Needs of the Public and Indian 
Housing Stock, prepared by Abt Associates Inc., in 1988, the Department 
has demolished more than 100,000 units of severely distressed public 
housing and funded a significant amount of modernization in public 
housing. Subsequently, the Department has already funded 10 years of 
replacement housing grants for the severely distressed public housing 
that was removed from the public housing inventory. Section 905.400(j) 
proposes a transition from a 10-year-long RHF program to a 5-year RHF 
program for PHAs that remove units from the inventory based on 
demolition or disposition. The transition to a 5-year RHF program would 
be effective in FFY 2011 for PHAs that removed units from the inventory 
in FFY 2010. In FFY 2011, any PHA that began receiving RHF in FFY 2010 
based on demolition or disposition that occurred in FFY 2009 and 
earlier will receive the remainder of its first increment and be 
eligible for a second increment. Subsequently, PHAs that are already 
receiving RHF funding in FFY 2011 will not be negatively impacted by 
the transition because they will receive the total 10 years of RHF 
funding and will be eligible to receive RHF funding for units removed 
from inventory for the sale of homeownership as described in Sec.  
905.400(j)(1). Also, beginning in FFY 2011, PHAs will be eligible to 
receive RHF funding for units removed from inventory for the sale of 
homeownership as described in Sec.  905.400(j)(1) and be allowed to use 
RHF grants to fund development of either public housing rental or 
homeownership units. The Department is soliciting comments from PHAs 
and the PHA interest groups on this proposal to change the RHF funding.
    Proposed Sec.  905.400(k) provides for a performance award factor 
similar to currently codified Sec.  905.10(j). The provisions of 
currently codified Sec.  905.10(k) on eligible costs would be moved to 
proposed Sec.  905.200.

E. Subpart E

    Subpart E would address the use of Capital Funds for financing. 
This subpart is reserved for the regulation entitled ``Use of Public 
Housing Capital and Operating Funds for Financing Activities'' that is 
the subject of a separate rulemaking. (See final rule published on 
October 21, 2010, at 75 FR 65198.)

F. Subpart F

    Subpart F would contain the development requirements, including 
those related to mixed-finance projects. These requirements would be 
moved to subpart F from 24 CFR part 941. Program requirements including 
the limitation on costs and site and neighborhood standards are 
described in Sec.  905.602. The Department has not made any substantive 
changes to the site and neighborhood standards found at Sec.  941.202. 
Definitions specifically related to public housing development are 
found in Sec.  905.604(b). This subpart also proposes certain 
deviations from applicable requirements as HUD is permitted to do by 
regulation in the case of mixed-finance projects under section 35(h) of 
the 1937 Act, 42 U.S.C. 1437z-7(h). Section 905.604(l), which pertains 
to closing materials and other documents, and Sec.  905.604(m), which 
addresses subsidy layering, are reserved to address the revised 
regulations that are the subject of the rulemaking entitled 
``Streamlining of Mixed Finance Applications,'' which was published as 
a proposed rule in the Federal Register on December 27, 2006. 
Development, with regards to homeownership, will be addressed by a 
separate rulemaking.

G. Subpart G

    Subpart G would state that the PHA may not pledge, mortgage, or 
enter into a transaction that uses public housing assets without 
written HUD approval.

H. Subpart H

    Subpart H would address PHA compliance with Capital Fund 
requirements, and HUD review and sanction for noncompliance with HUD 
contracts and regulations.

V. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements contained in this rule have 
been approved by the Office of Management and Budget (OMB) under the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and given OMB 
control numbers 2577-0157 and 2577-0226. In accordance with the 
Paperwork Reduction Act, 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 currently valid OMB control number.

Regulatory Planning and Review

    OMB reviewed this rule under Executive Order 12866 (entitled 
``Regulatory Planning and Review''). This rule was determined to be a 
``significant regulatory action'' as defined in section 3(f) of the 
Order (although not an economically significant regulatory action under 
the Order).
    The rule would not have any direct financial impact on the level of 
funding for the CFP, but has the potential to create some financial 
transfers among program participants. However, the total amount of 
transfer is estimated to be less than $100 million annually.
    The rule would gradually phase down the dollar threshold for 
management improvements, from up to 20 percent to up to 10 percent of a 
PHA's CF formula grant over a period of 3 fiscal years. On average, 
PHAs use approximately 8 percent of their Capital Fund grants on 
management improvements, with many PHAs using considerably less and 
large PHAs of more than 250 units using 9 percent. In 2008, $2.38 
billion in formula funds were distributed to PHAs. If all PHAs were 
using the full 20 percent permitted under the current rule, a 10 
percent reduction in the management improvement threshold would 
indicate that about $238 million would be reprogrammed for other 
eligible activities and would constitute a transfer from one group of 
stakeholders that traditionally received management improvement funds, 
to other CFP eligible activities and stakeholders, without any impact 
on funding. However, given that the actual rate of usage is below 10 
percent, this program requirement would not result in any transfers.
    The rule would also phase down the allocation of funds for the RHF 
from a 10-year RHF to a 5-year RHF. In 2008, a total of 294 PHAs 
received RHF funds. That year, 251 PHAs funded under the CF formula 
received $97,936,944 RHF first increment funding, and 123 PHAs received 
$112,825,095 RHF second increment funding. Five years after the 
implementation of the RHF phase-down, the $113 million second increment 
funding would be eliminated and redistributed by formula to all 3,138 
eligible PHAs, creating a transfer, but

[[Page 6660]]

one only among PHAs. However, HUD has already funded more than 10 years 
of RHF to assist PHAs that demolished over 100,000 units of severely 
distressed public housing; thus, the need for RHF has significantly 
decreased. The phase-down also grandfathers all PHAs that are receiving 
first- or second-increment RHF as of Fiscal Year (FY) 2010, minimizing 
the impact.
    This rule, if implemented as proposed, would also have significant 
benefits. This rule updates and consolidates the CFP regulations and 
related regulations having to do with the use of Capital Funds for 
development and modernization, as well as regulations for continuing 
operation of low-income housing after completion of debt service. In 
addition, the rule proposes to codify recent statutory requirements 
enacted in HERA. The benefits of the rule such as regulatory 
consolidation, program clarification, removal of obsolete references, 
and enhanced efficiencies make the rule necessary. Although HUD 
established the CF formula in 2000, HUD has continued to rely on CFP 
requirements to the extent that these requirements were not superseded 
by statutory requirements.

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 rule does not impose 
any federal mandate on any state, local, or tribal government or the 
private sector within the meaning of UMRA.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969 (42 U.S.C. 4332(2)(C)). The Finding of No Significant 
Impact is available for public inspection between the hours of 8 a.m. 
and 5 p.m. weekdays in the Regulations Division, Office of General 
Counsel, Department of Housing and Urban Development, 451 7th Street, 
SW., Room 10276, Washington, DC 20410-0500. Due to security measures at 
the HUD Headquarters building, an advance appointment to review the 
docket file must be scheduled by calling the Regulations Division at 
202-708-3055 (this is not a toll-free number). Hearing- or speech-
impaired individuals may access this number through TTY by calling the 
toll-free Federal Information Relay Service at 800-877-8339.

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 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 reflects the transition from PHA-wide accounting to an asset 
management model, and therefore changes some of the language regarding 
the CF formula to reflect the new accounting model. The only 
significant change in the CF formula calculation is a proposal to limit 
the number of years a PHA is eligible to receive RHF grants to replace 
units removed from the inventory by demolition, disposition, or 
homeownership, from 10 years to 5 years. The CF formula amount that is 
freed up because of fewer RHF grants will cause an increase in the 
amount of Capital Funds available to the remainder of the PHAs, which 
includes a large number of small PHAs. Since most small PHAs do not 
demolish or dispose of a significant number of public housing units, 
reducing RHF eligibility to 5 years should benefit small PHAs. 
Therefore, the undersigned certifies that this rule will not have a 
significant economic impact on a substantial number of small entities, 
and an initial regulatory flexibility analysis is not required.
    Notwithstanding the determination that this rule would not have a 
significant impact on a substantial number of small entities, HUD 
specifically invites any comments regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.

Executive Order 13132, Federalism

    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.

Catalog of Federal Domestic Assistance Number

    The Catalog of Federal Domestic Assistance numbers for 24 CFR parts 
905, 941, 968, and 969 are 14.850, 14.872, 14.882, 14.883.

List of Subjects

24 CFR Part 903

    Administrative practice and procedure, Public housing, Reporting 
and recordkeeping requirements.

24 CFR Part 905

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

24 CFR Part 941

    Grant programs--housing and community development, Loan programs--
housing and community development, Public housing.

24 CFR Part 968

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

24 CFR Part 969

    Grant programs--housing and community development, Low and moderate 
income housing, Public housing.

    Accordingly, for the reasons stated in the preamble, under the 
authority of 42 U.S.C. 3535(d), HUD proposes to amend 24 CFR chapter IX 
as follows:

PART 903--PUBLIC HOUSING AGENCY PLANS

    1. The authority citation for part 903 is revised to read as 
follows:

    Authority:  42 U.S.C. 1437c; 42 U.S.C. 1437c-1; Pub. L. 110-289; 
42 U.S.C. 3535d.
    2. Revise Sec.  903.3 to read as follows:


Sec.  903.3  What is the purpose of this subpart?

    (a) This subpart specifies the requirements for PHA plans, required 
by section 5A of the United States Housing Act of 1937 (42 U.S.C. 
1437c-1) (the Act), as amended.
    (b) Title VII of the Housing and Economic Reform Act, Public Law 
110-289, section 2702, amends 42 U.S.C. 1437c-1(b) to provide qualified 
public housing agencies (PHAs) an exemption from the requirement of 
section 5A of the Act to submit an annual PHA Plan. The term 
``qualified public housing

[[Page 6661]]

agency'' has the meaning stated in section 2702(a)(3)(C) of Pub. L. 
110-289. HUD will make available a list of the qualified PHAs on a 
quarterly basis.
    3. Revise part 905 to read as follows:

PART 905--THE PUBLIC HOUSING CAPITAL FUND PROGRAM

Subpart A--General
Sec.
905.100 Purpose, general description, and other requirements.
905.102 Applicability.
905.104 HUD approvals.
905.106 Compliance.
905.108 Definitions.
Subpart B--Eligible Activities
905.200 Eligible activities.
905.202 Ineligible activities and costs.
905.204 Emergencies and natural disasters.
Subpart C--General Program Requirements
905.300 Capital fund submission requirements.
905.302 Timely submission of the CF ACC amendment by the PHA.
905.304 CF ACC term and covenant to operate.
905.306 Obligations and expenditure of Capital Fund grants.
905.308 Federal requirements applicable to all capital fund 
activities.
905.310 Disbursements from HUD.
905.312 Design and construction.
905.314 Cost and other limitations.
905.316 Procurement and contract requirements.
905.318 Title and deed.
905.320 Contract administration and acceptance of work.
905.322 Fiscal closeout.
905.324 Data reporting requirements.
905.326 Records.
Subpart D--Capital Fund Formula
905.400 Capital Fund formula (CF formula).
Subpart E--Use of Capital Funds for Financing [Reserved]
Subpart F--Development Requirements
905.600 General.
905.602 Program requirements.
905.604 Mixed-finance development.
905.606 Development proposal.
905.608 Site or property acquisition proposal.
905.610 Technical processing.
905.612 Disbursement of capital funds--predevelopment costs.
Subpart G--Other Security Interests
905.700 Other security interests.
Subpart H--Compliance, HUD Review, Penalties, and Sanctions
905.800 Compliance.
905.802 HUD review of PHA performance.
905.804 Sanctions.

    Authority: 42 U.S.C. 1437g and 3535(d); Pub. L. 110-289.

Subpart A--General


Sec.  905.100  Purpose, general description, and other requirements.

    (a) Purpose. The Public Housing Capital Fund Program (Capital Fund 
Program or CFP) provides financial assistance to public housing 
agencies (PHAs) and resident management corporations (RMC) (pursuant to 
24 CFR 964.225) to make improvements to existing public housing. The 
CFP also provides financial assistance to develop public housing, 
including mixed-finance developments that contain public housing units.
    (b) General description. Congress appropriates amounts for the 
Capital Fund in HUD's annual appropriations. In order to receive a 
Capital Fund grant, the PHA must:
    (1) Validate project-level information in HUD's data systems, as 
prescribed by HUD;
    (2) Have an approved CFP 5-Year Action Plan;
    (3) Enter into a Capital Fund Annual Contributions Contract (CF 
ACC) Amendment to the PHA's Annual Contributions Contract (as defined 
in 24 CFR 5.403) with HUD; and
    (4) Provide a written certification and counsel's opinion that all 
property receiving Capital Fund assistance is under a currently 
effective Declaration of Trust and is in compliance with the CF ACC and 
the Act.
    (c) Informational requirements. Section 905.300 of this part 
describes the information to be submitted to HUD for the CFP. HUD uses 
the Capital Fund formula set forth in Sec.  905.400 of this part, along 
with data provided by the PHA and other information, including, but not 
limited to, the High Performance information from the Real Estate 
Assessment Center (REAC) and location cost indices, to determine each 
PHA's annual grant amount. HUD notifies each PHA of the amount of the 
grant and provides a CF ACC Amendment that must be signed by the PHA 
and executed by HUD in order for the PHA to access the grant. After HUD 
executes the CF ACC Amendment, the PHA may draw down funds for eligible 
costs that have been described in its CFP Annual Statement/Performance 
and Evaluation Report or CFP 5-Year Action Plan.
    (d) Eligible activities. Eligible Capital Fund costs and activities 
as further described in subpart B of this part include, but are not 
limited to, making physical improvements to the public housing stock 
and developing public housing units to be added to the existing 
inventory. With HUD approval, a PHA may also leverage its public 
housing inventory by borrowing additional capital on the private market 
and pledging a portion of its annual Capital Funds for debt service in 
accordance with Sec.  905.500.
    (e) Obligation and expenditure requirements. A PHA must obligate 
and expend its Capital Funds in accordance with Sec.  905.306. The PHA 
will directly employ labor, either temporarily or permanently, to 
perform work (force account) or contract for the required work in 
accordance with 24 CFR part 85. Upon completion of the work, the PHA 
must submit an Actual Modernization Cost Certificate (AMCC) or Actual 
Development Cost Certificate (ADCC) and a final Performance and 
Evaluation Report (in accordance with Sec.  905.322) to HUD to close 
out each Capital Fund grant.
    (f) Financing and development. Section 905.500 of this part 
regulates financing activities using Capital Funds and Operating Funds. 
Section 905.600 of this part contains the development requirements, 
including those related to mixed-finance development formerly found in 
24 CFR part 941. Section 905.700 of this part describes the criteria 
for the use of Capital Funds for other security interest. Section 
905.800 of this part addresses PHA compliance with Capital Fund 
requirements and HUD capability for review and sanction for 
noncompliance.


Sec.  905.102  Applicability.

    All PHAs that have public housing units under an Annual 
Contributions Contract as described in 24 CFR 5.403 are eligible to 
receive Capital Funds.


Sec.  905.104  HUD approvals.

    All HUD approvals required in this part must be in writing and from 
an official designated to grant such approval.


Sec.  905.106  Compliance.

    PHAs or owner/management entities or their partners are required to 
comply with all applicable provisions of this part. Execution of the CF 
ACC Amendment, submissions required by this part, and disbursement of 
Capital Fund grants from HUD are individually and collectively deemed 
to be the PHA's certification that it is in compliance with the 
provisions of this part and all other Public Housing Program 
Requirements. Noncompliance with any provision of this part or other 
applicable requirements may subject the PHA and/or its partners to 
sanctions contained in Sec.  905.804.


Sec.  905.108  Definitions.

    The following definitions apply to this part:

[[Page 6662]]

    1937 Act. The term ``1937 Act'' is defined in 24 CFR 5.100.
    Accessible. As defined in 24 CFR 8.3.
    Additional Project Costs. The sum of the following HUD-approved 
costs related to the development of a public housing project:
    (1) Costs for the demolition or remediation of environmental 
hazards associated with public housing units that will not be rebuilt 
on the original site; and
    (2) Extraordinary site costs that have been verified by an 
independent state registered, licensed engineer (e.g., removal of 
underground utility systems; replacement of off-site underground 
utility systems; extensive rock and/or soil removal and replacement; 
and amelioration of unusual site conditions such as unusual slopes, 
terraces, water catchments, lakes, etc.). These costs are not subject 
to the Total Development Cost (TDC) limit, but are included in the 
maximum project cost as stated in Sec.  905.314(b).
    Capital Fund (CF). The fund established under 42 U.S.C. 1437g(d).
    Capital Fund Annual Contributions Contract Amendment (CF ACC). A 
contract under the 1937 Act between HUD and the PHA containing the 
terms and conditions under which the Department assists the PHA in 
providing decent, safe, and sanitary housing for low-income families. 
The CF ACC must be in a form prescribed by HUD, under which HUD agrees 
to provide assistance in the development, modernization, and/or 
operation of a low-income housing project under the 1937 Act and the 
PHA agrees to modernize and operate the project in compliance with all 
Public Housing Requirements.
    Capital Fund Program Fee. The Capital Fund Program Fee covers costs 
associated with the Central Office Cost Center's (COCC) oversight and 
management of the Capital Fund Program. These costs include duties 
related to general capital planning, preparing of the Annual Plan, 
processing of the Line of Credit Control System (LOCCS), preparation of 
reports, drawing of funds, budgeting, accounting, and procurement of 
construction and other miscellaneous contracts. The Capital Fund 
Program Fee is the administrative cost for managing Capital Fund grants 
for PHAs subject to asset management, which is subject to the 
regulatory limitation of 10 percent of the annual capital fund grant.
    Community Renewal Costs. Public housing capital assistance may be 
used to pay for Community Renewal Costs in an amount equivalent to the 
difference between the Housing Construction Costs (HCCs) paid for with 
public housing capital assistance and the TDC limit.
    Cooperation Agreement. An agreement, in a form prescribed by HUD, 
between a PHA and the applicable local governing body or bodies that 
assures exemption from real and personal property taxes, provides for 
local support and services for the development and operation of public 
housing, and provides for PHA payments in lieu of taxes (PILOT).
    Date of Full Availability (DOFA). The last day of the month in 
which substantially all (95 percent or more) of the units in a public 
housing project are available for occupancy.
    Emergency Work. Capital Fund related physical work items that if 
not done pose an immediate threat to the health or safety of residents, 
and which must be completed within one year of funding. Management 
Improvements are not eligible as emergency work and therefore must be 
covered by the CFP 5-Year Action Plan before the PHA may carry them 
out.
    Expenditure. Capital Funds disbursed to the PHA to pay for 
obligations incurred in connection with work included in a HUD approved 
CFP 5-Year Action Plan. Total funds expended means cash actually 
disbursed and does not include retainage.
    Federal Fiscal Year (FFY). The Federal Fiscal Year begins each year 
on October 1 and ends on September 30 of the following year.
    Force Account Labor. Labor employed directly by the PHA on either a 
permanent or a temporary basis.
    Fungibility. As it relates to the Capital Fund Program, fungibility 
allows the PHA to substitute work items between any of the years within 
the latest approved CFP 5-Year Action Plan, without prior HUD approval.
    Housing Construction Cost (HCC). The sum of the following HUD-
approved costs related to the development of a public housing project: 
Dwelling unit hard costs (including construction and equipment), 
builder's overhead and profit, the cost of extending utilities from the 
street to the public housing project, finish landscaping, and the 
payment of Davis-Bacon wage rates.
    Line of Credit Control System (LOCCS). LOCCS-Web is an intranet 
version of LOCCS for HUD personnel. eLOCCS is the Internet link to 
LOCCS data for HUD business partners.
    Mixed-Finance Modernization. Use of the mixed-finance method of 
development to modernize public housing projects.
    Natural Disaster. An extraordinary event, affecting only one or few 
PHAs, but excluding Presidentially declared emergencies and major 
disasters under the Robert T. Stafford Disaster Relief and Emergency 
Assistance Act, 42 U.S.C. 5121 et seq.
    Obligation. A binding agreement for work or financing that will 
result in outlays, immediately or in the future. All obligations must 
be incorporated within the HUD-approved CFP 5-Year Action Plan. This 
includes funds obligated by the PHA for work to be performed by 
contract labor (i.e., contract award), or by force account labor (i.e., 
work actually started by PHA employees). Capital Funds identified in 
the PHA's CFP 5-Year Action Plan to be transferred to operations are 
obligated by PHAs once the funds have been budgeted and drawn down by 
the PHA. Once these funds are drawn down they are subject to the 
requirements of 24 CFR part 990.
    Open Grant. Any grant for which a cost certificate has not been 
submitted and has not reached fiscal closeout as described in Sec.  
905.322.
    Operating Fund. Assistance provided under 24 CFR part 990 pursuant 
to section 9(e) of the 1937 Act (42 U.S.C. 1437g(e)) for the purpose of 
operation and management of public housing.
    PIH Information Center (PIC). PIH's current system for recording 
data concerning: The public housing inventory, the characteristics of 
public housing and Housing Choice Voucher assisted families, the 
characteristics of PHAs, and performance measurement of housing 
authorities receiving Housing Choice Voucher funding.
    Public Housing Agency (PHA). Any State, county, municipality, or 
other governmental entity or public body or agency or instrumentality 
of these entities that is authorized to engage or assist in the 
development or operation of public housing under this part.
    Public Housing Assessment System (PHAS). The assessment system 
under 24 CFR part 902 for measuring the properties and PHA management 
performance in essential housing operations, including rewards for 
strong performers and consequences for poor performers.
    Public Housing Development. Any or all undertakings necessary for 
planning, land acquisition, demolition, construction, or equipment in 
connection with a public housing project.
    Public Housing Project. The term ``public housing'' means low-
income housing, and all necessary appurtenances thereto, assisted under 
the 1937 Act, other than Section 8. The term ``public housing'' 
includes dwelling units in a mixed-finance project that are assisted by 
a public housing agency

[[Page 6663]]

with Capital Fund or Operating Fund assistance. When used in reference 
to public housing, the term ``project'' means housing developed, 
acquired, or assisted by a public housing agency under the 1937 Act, 
and the improvement of any such housing.
    Public Housing Requirements. All requirements applicable to public 
housing including, but not limited to, the 1937 Act; HUD regulations; 
the CF ACC, including amendments; HUD notices; and all applicable 
federal statutes, executive orders, and regulatory requirements, as 
these requirements may be amended from time to time.
    Reasonable cost. An amount to rehabilitate or modernize an existing 
structure that is not greater than 90 percent of the TDC for a new 
development of the same structure type, number, and size of units in 
the same market area. Reasonable costs are also determined with 
consideration of HUD regulations including 24 CFR part 85 and OMB 
Circular A-87.
    Reconfiguration. The altering 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 24 CFR 970.5.
    Uniform Federal Accessibility Standards (UFAS). As defined in 24 
CFR 8.32.

Subpart B--Eligible Activities


Sec.  905.200  Eligible activities.

    (a) General. Eligible activities include only items specified in an 
approved CFP 5-Year Action Plan as identified in Sec.  905.300, or 
approved by HUD for emergency and natural disaster assistance.
    (b) Eligible activities. Eligible activities include the 
development, financing, and modernization of public housing projects, 
including the redesign, reconstruction, and reconfiguration of public 
housing sites and buildings (including accessible design and 
construction of accessibility improvements) and the development of 
mixed-finance projects, including the following:
    (1) Modernization. Modernization means the activities identified in 
Sec.  905.200(a), except those activities associated with the 
development of public housing;
    (2) Development. Development refers to activities and related costs 
to add units to a PHA's public housing inventory under Sec.  905.600, 
including: Construction and acquisition with or without rehabilitation; 
any and all undertakings necessary for planning, design, financing, 
land acquisition, demolition, construction, or equipment, including 
development of public housing units, and buildings, facilities, and/or 
related appurtenances (i.e., nondwelling facilities/spaces). 
Development of mixed-finance projects include the provision of public 
housing through a regulatory and operating agreement, master contract, 
individual lease, condominium or cooperative agreement, or equity 
interest.
    (3) Financing. Debt and financing costs (e.g., origination fees, 
interest) incurred by PHAs for development or modernization of PHA 
projects that involves the use of Capital Funds, including, but not 
limited to:
    (i) Mixed Finance as described in Sec.  905.604;
    (ii) The Capital Fund Financing Program (CFFP) as described in 
Sec.  905.500; and
    (iii) Any other use authorized by the Secretary under section 30 of 
the 1937 Act (42 U.S.C. 1437).
    (4) Vacancy reduction. Physical improvements to reduce the number 
of units that are vacant. Not included are costs for routine vacant 
unit turnaround such as painting, cleaning, and minor repairs. Vacancy 
reduction activities must be remedies to a defined vacancy problem 
detailed in a vacancy reduction program included in the PHA's CFP 5-
Year Action Plan.
    (5) Nonroutine maintenance. Work items that ordinarily would be 
performed on a regular basis in the course of maintenance of property, 
but have become substantial in scope because they have been postponed 
and involve expenditures that would otherwise materially distort the 
level trend of maintenance expenses. These activities also include the 
replacement of obsolete utility systems and dwelling equipment.
    (6) Planned code compliance. Building code compliance includes 
design and physical improvement costs associated with:
    (i) Correcting violations of local code or the Uniform Physical 
Condition Standards (UPCS) under the Public Housing Assessment System 
(PHAS), and
    (ii) A national building code, such as those developed by the 
International Code Council or the National Fire Protection Association; 
and the 2006 International Energy Conservation Code (IECC), or ASHRAE 
90.1-2004 for multifamily high-rises (four stories or higher), or a 
successor energy code or standard that has been adopted by HUD pursuant 
to 42 U.S.C. 12709 or other relevant authority.
    (7) Management improvements. Activities that are project-specific 
or PHA-wide noncapital improvements needed to upgrade the operation of 
the PHA's projects, including upgrading operations to maximize energy 
conservation to sustain physical improvements at those projects, or 
correct management deficiencies. Such activities include, but are not 
limited to, the following costs:
    (i) Training for PHA personnel in operations and procedures;
    (ii) Improvement of resident programs and services, including 
resident and project security, and resident selection and eviction;
    (iii) Activities that assure or foster equal opportunity; and
    (iv) Resident management costs not covered by the Operating Fund 
include, but are not limited to:
    (A) The cost of technical assistance to a resident council or RMC 
to assess feasibility of carrying out management functions for a 
specific development or developments;
    (B) The cost to train residents in skills directly related to the 
operation and management of the development(s) for potential employment 
by the RMC;
    (C) The cost to train RMC board members in community organization, 
board development, and leadership; and the cost of the formation of an 
RMC; and
    (D) When carrying out management improvement activities, the PHA 
shall give priority to correcting deficiencies under PHAS before 
expending Capital Funds on other management improvements, except for 
activities necessary to address emergency work or statutory or court-
ordered deadlines.
    (8) Resident self-sufficiency.
    (i) Economic Self-Sufficiency Costs. These include costs for 
resident job training and resident business development activities to 
enable residents and their businesses to carry out Capital Fund-
assisted activities. HUD encourages PHAs, to the greatest extent 
feasible, to hire residents as trainees, apprentices, or employees to 
carry out activities under this part, and to contract with resident-
owned businesses as required by Section 3 of the Housing and Community 
Development Act of 1968, 12 U.S.C. 1701u.
    (ii) Resident Participation Costs. These are costs that promote 
more effective resident participation in the operation of the PHA in 
its Capital Fund activities to the extent not covered by $25 per unit, 
per month, from the Operating Fund. They include costs for staff 
support, outreach, training, meeting and office space, childcare,

[[Page 6664]]

transportation, and access to computers that are modest and reasonable.
    (iii) Economic Self-Sufficiency. Capital expenditures to facilitate 
programs to improve the empowerment and economic self-sufficiency of 
public housing residents.
    (9) Demolition and reconfiguration.
    (i) The costs to demolish dwelling units or nondwelling facilities 
approved by HUD, where required, and other related costs for activities 
such as relocation, clearing, and grading the site after demolition, 
and subsequent site improvements to benefit the remaining portion of 
the existing public housing property, as applicable.
    (ii) The costs to develop dwelling units or nondwelling facilities 
approved by HUD, where required, and other related costs for activities 
such as relocation, clearing, and grading the site prior to 
development.
    (iii) The costs to reconfigure existing dwelling units to units 
with different bedroom sizes or to a nondwelling use.
    (10) Resident relocation and mobility counseling. Relocation and 
other assistance (e.g., reasonable out-of-pocket expenses incurred in 
connection with temporary relocation, including the cost of moving to 
and from temporary housing and any increase in monthly rent/utility 
costs) for permanent or temporary relocation, as a direct result of 
modernization, development, rehabilitation, demolition, 
reconfiguration, or acquisition.
    (11) Security and safety. Capital expenditures to improve the 
security and safety of residents.
    (12) Homeownership. Activities associated with approved 
homeownership, such as:
    (i) The cost of a study to assess the feasibility of converting 
rental to homeownership units and the preparation of an application for 
the conversion to homeownership or sale of units;
    (ii) Construction or acquisition of units;
    (iii) Downpayment assistance;
    (iv) Closing cost assistance;
    (v) Subordinate mortgage loans;
    (vi) Construction or permanent financing such as write downs for 
new construction, or acquisition with or without rehabilitation; and
    (vii) Other activities in support of the above primary 
homeownership activities, including but not limited to:
    (A) Demolition to make way for new construction;
    (B) Abatement of environmentally hazardous materials;
    (C) Relocation assistance and mobility counseling;
    (D) Homeownership counseling;
    (E) Site improvements; or
    (F) Administrative and marketing costs;
    (13) Capital Fund related legal costs (e.g., legal costs related to 
preparing property descriptions for the Declaration on Trust, zoning, 
permitting, environmental review, procurement, and contracting).
    (14) Energy efficiency. Allowed costs include:
    (i) Energy audit or updated energy audit to the extent operating 
funds are not available and the energy audit is included within a 
modernization program.
    (ii) Integrated utility management and capital planning to maximize 
energy conservation and efficiency measures.
    (iii) Energy conservation measures identified in a PHA's most 
recently updated energy audit.
    (iv) Improvement of energy and water-use efficiency by installing 
fixtures and fittings that conform to the American Society of 
Mechanical Engineers/American National Standards Institute standards 
A112.19.2-1998 and A112.18.1-2000, or any revision thereto, applicable 
at the time of installation, and by increasing energy efficiency and 
water conservation by such other means as the Secretary determines are 
appropriate.
    (v) The installation and the use of Energy Star appliances whenever 
energy systems, devices, and appliances are replaced, unless it is not 
cost-effective to do so, in accordance with Section 152 of the Energy 
Policy Act of 2005, 42 U.S.C. 15841.
    (vi) Utility and energy management system automation, and metering 
activities, including changing mastermeter systems if installed as a 
part of a modernization activity to upgrade utility systems, e.g. 
electric, water, or gas systems of the PHA consistent with the 
requirements of 24 CFR part 965.
    (15) Administrative costs. Any administrative costs, including 
salaries and employee benefit contributions, other than the Capital 
Fund Program Fee, must be related to a specific public housing 
development or modernization project and detailed in the CFP 5-Year 
Action Plan.
    (16) Audit. Costs of the annual audit attributable to the portion 
of the audit covering the CFP in accordance with Sec.  905.322(c).
    (17) Capital Fund Program Fee. This fee covers costs associated 
with oversight and management of the CFP attributable to the HUD-
accepted COCC as described in 24 CFR part 990 subpart H. These costs 
include duties related to capital planning, preparing the CFP Annual 
Statement/Performance and Evaluation Report, preparing the CFP 5-Year 
Action Plan, monitoring of LOCCS, preparing reports, drawing of funds, 
budgeting, accounting, and procuring of construction and other 
miscellaneous contracts. This fee is not intended to cover costs 
associated with construction supervisory and inspection functions that 
are considered a front-line cost of the project.
    (18) Emergency activities. Capital Fund related activities 
identified as emergency work, as defined in Sec.  905.108, whether or 
not the need is indicated in the CFP 5-Year Action Plan.


Sec.  905.202  Ineligible activities and costs.

    The following are ineligible activities and costs for the Capital 
Fund Program:
    (a) Costs not associated with a public housing project or 
development, as defined in Sec.  905.604(b)(1);
    (b) Activities and costs not included in the PHA's CFP 5-Year 
Action Plan;
    (c) Improvements or purchases that are not modest in design and 
cost because they include amenities, materials, and design in excess of 
what is customary for the locality;
    (d) Any costs not authorized as outlined in OMB Circular A-87, 
codified at 2 CFR part 225, including, but not limited to, indirect 
administrative costs and indemnification;
    (e) Public housing operating assistance, except as provided in 
Sec.  905.314(l);
    (f) Direct provision of social services through either force 
account or contract labor;
    (g) Eligible costs that are in excess of the amount directly 
attributable to the public housing units when the physical or 
management improvements, including salaries and employee benefits and 
contributions, will benefit programs other than public housing, such as 
Section 8 housing choice voucher or local revitalization programs;
    (h) Eligible cost that is funded by another source and would result 
in duplicate funding; and
    (i) Any other activities and costs that HUD may determine on a 
case-by-case basis.


Sec.  905.204  Emergencies and natural disasters.

    (a) General. PHAs are required by the CF ACC to carry various types 
of insurance to protect it from loss. In most cases, insurance coverage 
will be the primary source of funding to pay repair or replacement 
costs associated with emergencies and natural disasters. Where the 
Department's Annual

[[Page 6665]]

Appropriations Act requires a set aside from the Capital Fund 
appropriation for emergencies and natural disasters, the procedures in 
this section apply.
    (b) Estimate required. An independent estimate of damage and repair 
cost is required as a part of the final natural disaster application. 
For natural disasters, the assessment must identify damage specifically 
caused by the natural disaster from other repairs. The set aside can be 
used only to pay costs to repair or replace a public housing project 
damaged as a result of the natural disaster, not for nonroutine 
maintenance or other improvements.
    (c) Emergencies and natural disasters. An emergency is an 
unforeseen or unpreventable event or occurrence that poses an immediate 
threat to the health and safety of the residents that must be corrected 
within one year of funding. A natural disaster for purposes of the 
Capital Fund reserve is a non-Presidentially declared disaster. In the 
event an emergency or natural disaster arises, HUD may require a PHA to 
use any other source that may legally be available, including 
unobligated Capital Funds, prior to providing emergency or natural 
disaster funds from the set aside. The Department will review, on a 
case-by-case basis, requests for emergency and natural disaster funding 
from PHAs that have unobligated Capital Funds.
    (d) Procedure to request emergency or natural disaster funds. To 
obtain emergency or natural disaster funds, a PHA shall submit a 
written request in the form and manner prescribed by HUD. In instances 
where the PHA requires immediate relief to preserve the property and 
safety of the residents, the PHA may submit a preliminary request 
outlined in Sec.  905.204(f). Subsequently, the PHA is required to 
complete and submit the remaining information outlined in Sec.  
905.204(g), at a time prescribed by HUD.
    (e) Procedure to request preliminary natural disaster grant for 
immediate preservation. A PHA may request a preliminary grant only for 
costs necessary for immediate preservation of the property and 
protection of the residents. The application should include the 
reasonable identification of damage and preservation costs as 
determined by the PHA. An independent assessment will be required when 
the PHA submits the final request or when the PHA reconciles the 
preliminary application grant with the actual amounts received from the 
Federal Emergency Management Agency (FEMA), insurance carriers, and 
other natural disaster relief sources. Regardless of whether further 
funding from the set aside is requested, at a time specified by HUD, 
the PHA will be expected to provide a reconciliation of all funds 
received, to ensure that the PHA does not receive duplicate funding.
    (f) Procedure for final request of emergency or natural disaster 
funds. In the request the PHA shall:
    (1) Identify the public housing project(s) with the emergency or 
natural disaster condition(s).
    (2) Identify and provide the date of the:
    (i) Conditions that present an unforeseen or unpreventable threat 
to the health, life, or safety of residents in the case of emergencies; 
or
    (ii) Natural disaster (e.g., hurricane, tornado, etc.).
    (3) Describe the activities that will be undertaken to correct the 
emergency or the conditions caused by the natural disaster and the 
estimated cost.
    (4) Provide an independent assessment of the extent of and the cost 
to correct the condition. The assessment must be specific as to the 
damage and costs associated with the emergency or natural disaster.
    (5) Provide a copy of a currently effective Declaration of Trust 
covering the property and an opinion of counsel that there are no 
preexisting liens or other encumbrances on the property.
    (6) Demonstrate that without the requested funds from the set aside 
the PHA does not have adequate funds available to correct the emergency 
condition(s).
    (7) Identify all other sources of available funds (e.g., insurance 
proceeds, FEMA).
    (8) Any other material required by HUD.
    (g) HUD Action. HUD shall review all requests for emergency or 
natural disaster funds. If HUD determines that a PHA's request meets 
the requirements of this section, HUD shall approve the request subject 
to the availability of funds in the set aside, in the order in which 
requests are received and are determined approvable.
    (h) Submission of the CF ACC. Upon being provided with a CF ACC 
Amendment from HUD, the PHA must sign and date the CF ACC Amendment and 
return it to HUD by the date established by HUD. HUD will execute the 
signed and dated CF ACC Amendment submitted by the PHA.

Subpart C--General Program Requirements


Sec.  905.300  Capital fund submission requirements.

    (a) General. Unless otherwise stated, the requirements in this 
section apply to both qualified Public Housing Agencies (as described 
in Sec.  903.3) and non-qualified Public Housing Agencies. Each PHA 
must complete a comprehensive physical needs assessment (PNA) to be 
submitted at a time and in a format prescribed by HUD. The PHA shall 
use the PNA to identify and prioritize work to be performed with 
Capital Funds at each project.
    (b) Capital Fund program submission requirements. At the time that 
the PHA submits the ACC Amendment(s) for its Capital Fund Grants(s) to 
HUD, the PHA must also submit the following items:
    (1) Budget. The Capital Fund Budget, including attachments, shall 
be prepared by a PHA using the form(s) prescribed by HUD. The PHA's 
budget must be approved by the PHA's Board of Commissioners; it does 
not require HUD approval. Work items listed in the budget must include, 
but are not limited to the following:
    (i) Where a PHA has an approved Capital Fund Financing Program 
(CFFP) loan, debt service payments for the grants from which the 
payments are scheduled;
    (ii) Where a PHA has an approved CFFP loan, the PHA shall also 
include all work and costs, including debt service payments, in the CFP 
5-Year Action Plan. Work associated with the use of financing proceeds 
will be reported separately in the CFP Annual Statement/Performance and 
Evaluation Report; or
    (iii) Work affecting health and safety and compliance with 
regulatory requirements such as section 504 of the Rehabilitation Act 
of 1973 and HUD's implementing regulations at 24 CFR part 8, and the 
lead-based paint poisoning prevention standards at 24 CFR part 35, 
before major systems (e.g., heating, roof, etc.) and other costs of 
lower priority.
    (2) Certifications required for receipt of Capital Fund grants. The 
PHA is also required to submit various certifications to HUD, in a form 
prescribed by HUD, including, but not limited to:
    (i) Certification of PIC Data;
    (ii) Standard Form--Disclosure of Lobbying Activities;
    (iii) Standard Form--Drug Free Workplace;
    (iv) Civil Rights Compliance in a form prescribed by HUD; and
    (v) Compliance with Public Hearing Requirements.
    (3) Public hearing and Resident Advisory Board requirements. A PHA 
must annually conduct a public hearing and consult with the Resident 
Advisory Board of the PHA to discuss either the PHA Annual Plan, or any 
changes to the goals, objectives, and policies of the

[[Page 6666]]

qualified PHA, in order to solicit public comment.
    (4) Qualified and non-qualified PHAs. (i) Qualified PHAs, as 
described in 24 CFR 903.3, are required to comply with the requirements 
in the Housing and Economic Recovery Act (HERA), Public Law 110-289 
(approved July 30, 2008), section 2702.
    (ii) Non-Qualified PHAs are required to comply with the 
requirements of 24 CFR part 903.
    (5) HUD review for compliance. The CFP submission requirements must 
meet the requirements of this part as well as the Public Housing 
Program Requirements as defined in Sec.  905.108. PHAs are required to 
revise or correct information that is not in compliance, and HUD has 
the authority to impose administrative sanctions until the appropriate 
revisions are made. HUD will review the CFP submission requirements to 
determine whether:
    (i) All of the information that is required to be submitted is 
included;
    (ii) The information is consistent with the needs identified in the 
PNA and data available to HUD; and
    (iii) There are any issues of compliance with applicable laws, 
regulations, or contract requirements that have not been addressed with 
the proposed use of the Capital Fund.
    (6) Time frame for submission of requirements. The requirements 
identified in Sec.  905.300(b) must be submitted to HUD in a format 
prescribed by HUD at the time that the PHA submits its signed CF ACC 
Amendment.
    (7) CFP 5-Year Action Plan covering large capital items for all 
PHAs.
    (i) Content. The CFP 5-Year Action Plan must describe the capital 
improvements necessary to ensure long-term physical and social 
viability of the PHA's public housing developments, including the 
capital improvements to be undertaken with the 5-year period, their 
estimated costs, and any other information required for participation 
in the CFP as prescribed by HUD. Except in the case of emergency work, 
the PHA shall not spend Capital Funds on any work that is not included 
in an approved CFP 5-Year Action Plan and its amendments.
    (ii) Submission. The PHA must submit a CFP 5-Year Action Plan at 
least once every 5 years. The PHA may choose to update its CFP 5-Year 
Action Plan every year. The PHA shall indicate whether its CFP 5-Year 
Action Plan is fixed or rolling.
    (iii) PHAs making amendments to the CFP 5-Year Action Plan must 
follow the requirements in 24 CFR 903.21.
    (iv) HUD Review and Approval. PHA submission and HUD Approval 
requirements for the CFP 5-Year Action Plan must be made pursuant to 24 
CFR part 903. In any given year that a PHA does not have an approved 
CFP 5-Year Action Plan, the Capital Fund grant(s) for these PHAs will 
be reserved and obligated; however, the PHA will not have access to 
those funds until its CFP 5-Year Action Plan is approved by HUD.
    (8) Performance and Evaluation Report.
    (i) All PHAs must prepare a CFP Annual Statement/Performance and 
Evaluation Report at a time and in a format prescribed by HUD. These 
reports shall be retained on file for all grants for which a final 
Actual Modernization Cost Certificate (AMCC) or an Actual Development 
Cost Certificate (ADCC) has not been submitted. A final Performance and 
Evaluation Report must be submitted in accordance with 24 CFR 905.322, 
at the time the PHA submits its AMCC or ADCC.
    (ii) PHAs that are designated as Troubled under PHAS or the Section 
8 Management Assessment Program (SEMAP), and/or were identified as 
noncompliant with section 9(j) obligation and expenditure requirements 
during the fiscal year, shall submit their CFP Annual Statement/
Performance and Evaluation Reports to HUD for review and approval.
    (iii) All other PHAs that are not designated as Troubled under 
PHAS, and were in compliance with section 9(j) obligation and 
expenditure requirements during the fiscal year, shall prepare a CFP 
Annual Statement/Performance and Evaluation report for all open grants 
and shall retain the report(s) on file at PHA to be available to HUD 
upon request.


Sec.  905.302  Timely submission of the CF ACC amendment by the PHA.

    Upon being provided with a CF ACC Amendment from HUD, the PHA must 
sign and date the CF ACC Amendment and return it to HUD by the date 
established. HUD will execute the signed and dated CF ACC Amendment 
submitted by the PHA. If HUD does not receive the signed and dated 
Amendment by the submission deadline, the PHA will receive the Capital 
Fund grant for that year; however, it will have less than 24 months to 
obligate 90 percent of the Capital Fund grant and less than 48 months 
to expend these funds because the PHA's obligation start date and 
disbursement end date for these grants will remain as previously 
established by HUD.


Sec.  905.304  CF ACC term and covenant to operate.

    (a) Period of obligation to operate as public housing. The PHA 
shall operate all public housing projects in accordance with the CF 
ACC, as amended, and applicable HUD regulations for the statutorily 
prescribed period. These periods shall be evidenced by a recorded 
Declaration of Trust on all public housing property. If the PHA uses 
Capital Funds to develop public housing or to modernize existing public 
housing, the CF ACC term and the covenant to operate those projects are 
as follows:
    (1) Development activities. Each public housing project developed 
using Capital Funds shall establish a restricted use covenant to 
operate under the terms and conditions applicable to public housing for 
a 40-year period that begins on the date on which the project becomes 
available for occupancy, as determined by HUD.
    (2) Modernization activities. For PHAs that receive Capital Fund 
assistance, the execution of each new CF ACC Amendment establishes an 
additional 20-year period that begins on the latest date on which 
modernization is completed, except that the additional 20-year period 
does not apply to a project that receives Capital Fund assistance only 
for management improvements.
    (3) Operating fund. Any public housing project developed that 
receives Operating Fund assistance shall have a covenant to operate 
under requirements applicable to public housing for a 10-year period 
beginning upon the conclusion of the fiscal year for which such amounts 
were provided, except for such shorter period as permitted by HUD by an 
exception.
    (b) Mortgage or security interests. The PHA shall not allow any 
mortgages or security interests in public housing assets, including 
under section 30 of the 1937 Act, without prior written approval from 
HUD.
    (c) Applicability of latest expiration date. All public housing 
subject to this part or required by law shall be maintained and 
operated as public housing as prescribed until the latest expiration 
date provided in section 9(d)(3) of the 1937 Act (42 U.S.C. 
1437g(d)(3)) or any other provision of law or regulation mandating the 
operation of the housing as public housing, or under terms and 
conditions applicable to public housing, for a specified period of 
time.

[[Page 6667]]

Sec.  905.306  Obligation and expenditure of Capital Fund grants.

    (a) Obligation. A PHA shall obligate each Capital Fund grant, 
including formula grants, Replacement Housing Factor (RHF) grants, and 
natural disaster grants, no later than 24 months, and emergency grants 
no later than 12 months after the date on which the funds become 
available to the PHA for obligation, except as provided in paragraphs 
(c) and (d) of this section. However, a PHA with unobligated funds from 
a grant shall disregard this requirement for up to not more than 10 
percent of the originally allocated funds from that grant. The funds 
become available to the PHA when HUD executes the CF ACC Amendment. 
With HUD approval, the PHA can accumulate RHF grants for up to 5 years 
or until it has adequate funds to undertake replacement housing. The 
PHA shall obligate 90 percent of the RHF grant within 24 months from 
the date that the PHA accumulates adequate funds, except as provided in 
paragraph (c) of this section.
    (b) Items and costs. For funds to be considered obligated, all 
items and costs must meet the criteria for an obligation in Sec.  
905.108.
    (c) Extension to obligation requirement. The PHA may request an 
extension of the obligation deadline, and HUD may grant an extension 
for a period of up to 12 months, based on:
    (1) The size of the PHA;
    (2) The complexity of the CFP of the PHA;
    (3) Any limitation on the ability of the PHA to obligate the 
amounts allocated for the PHA from the Capital Fund in a timely manner 
as a result of state or local law; or
    (4) Any other factors that HUD determines to be relevant.
    (d) HUD extension for other reasons. HUD may extend the obligation 
deadline for a PHA for such a period as HUD determines to be necessary, 
if HUD determines that the failure of the PHA to obligate assistance in 
a timely manner is attributable to:
    (1) Litigation;
    (2) Delay in obtaining approvals from the Federal Government or a 
state or local government that is not the fault of the PHA;
    (3) Compliance with environmental assessment and abatement 
requirements;
    (4) Relocating residents;
    (5) An event beyond the control of the PHA; or
    (6) Any other reason established by HUD by Notice in the Federal 
Register.
    (e) Failure to obligate. (1) For any month during the fiscal year, 
HUD shall withhold all new Capital Fund grants, including RHF grants, 
from any PHA that has unobligated funds in violation of Sec.  
905.306(a). The penalty will be imposed once the violations of Sec.  
905.306(a) are known. The PHA may cure the noncompliance by:
    (i) Requesting in writing that HUD recapture the unobligated 
balance of the grant; or
    (ii) Continuing to obligate funds for the grant in noncompliance 
until the noncompliance is cured.
    (2) After the PHA has cured the noncompliance, HUD will release the 
withheld Capital Fund grant(s) minus a penalty of 1/12th of the grant 
for each month of noncompliance.
    (f) Expenditure. The PHA shall expend all grant funds within 48 
months after the date on which funds become available, as described in 
Sec.  905.306(a). The deadline to expend funds may be extended only by 
the period of time of a HUD-approved extension of the obligation 
deadline. No other extensions of the expenditure deadline will be 
granted. All funds not expended will be recaptured.


Sec.  905.308  Federal requirements applicable to all capital fund 
activities.

    (a) The PHA shall comply with the requirements of 24 CFR part 5 
(General HUD Program Requirements; Waivers), 24 CFR part 85 
(Administrative Requirements for Grants and Cooperative Agreements to 
State, Local and Federally Recognized Indian Tribal Governments), and 
this part.
    (b) The PHA shall also comply with the following program 
requirements.
    (1) Nondiscrimination and equal opportunity. The PHA shall comply 
with all applicable nondiscrimination and equal opportunity 
requirements, including, but not limited to, the Department's generally 
applicable nondiscrimination and equal opportunity requirements at 24 
CFR 5.105(a) and the Architectural Barriers Act of 1968, 42 U.S.C. 4151 
et seq., and its implementing regulations at 24 CFR parts 40 and 41. 
The PHA shall affirmatively further fair housing in its use of funds 
under this part, which includes but is not limited to addressing 
modernization and development in the completion of requirements at 24 
CFR 903.7(o).
    (2) Environmental requirements. All activities under this part are 
subject to an environmental review by a responsible entity under HUD's 
environmental regulations at 24 CFR part 58 and must comply with the 
requirements of the National Environmental Policy Act of 1969 (NEPA) 
(42 U.S.C. 4321 et seq.) and the related laws and authorities listed at 
24 CFR 58.5. HUD may make a finding in accordance with 24 CFR 58.11 and 
may perform the environmental review itself under the provisions of 24 
CFR part 50. In those cases where HUD performs the environmental review 
under 24 CFR part 50, it will do so before approving a proposed 
project, and will comply with the requirements of NEPA and the related 
requirements at 24 CFR 50.4.
    (3) Wage rates. (i) Davis-Bacon wage rates. For all work or 
contracts exceeding $2,000 in connection with development activities or 
modernization activities (except for nonroutine maintenance work, as 
defined in Sec.  905.200(b)(5) of this part), all laborers and 
mechanics employed on the construction, alteration, or repair shall be 
paid not less than the wages prevailing in the locality, as determined 
by the Secretary of Labor pursuant to the Davis-Bacon Act (40 U.S.C. 
3142).
    (ii) HUD-determined wage rates. For all operations work and 
contracts, including routine and nonroutine maintenance work (as 
defined in Sec.  905.200(b)(5) of this part), all laborers and 
mechanics employed shall be paid not less than the wages prevailing in 
the locality, as determined or adopted by HUD pursuant to section 12(a) 
of the 1937 Act, 42 U.S.C. 1437j(a).
    (iii) State wage rates. Preemption of state prevailing wage rates 
as provided at 24 CFR 965.101.
    (iv) Volunteers. The prevailing wage requirements of this section 
do not apply to volunteers performing development, modernization, or 
nonroutine maintenance work under the conditions set out in 24 CFR part 
70.
    (4) Technical wage rates. All architects, technical engineers, 
draftsmen, and technicians (other than volunteers under the conditions 
set out in 24 CFR part 70) employed in a development or modernization 
project shall be paid not less than the wages prevailing in the 
locality, as determined or adopted (subsequent to a determination under 
applicable state or local law) by HUD.
    (5) Lead-based paint poisoning prevention. The PHA shall comply 
with the Lead-Based Paint Poisoning Prevention Act (LPPPA) (42 U.S.C. 
4821 et seq.), the Residential Lead-Based Paint Hazard Reduction Act 
(42 U.S.C. 4851 et seq.), and the Lead Safe Housing Rule and the Lead 
Disclosure Rule at 24 CFR part 35.
    (6) Fire safety. A PHA shall comply with the requirements of 
section 31 of the Federal Fire Prevention and Control Act of 1974 (15 
U.S.C. 2227).
    (7) Flood insurance and floodplain requirements. The PHA will not 
engage

[[Page 6668]]

in the acquisition, construction, or improvement of a public housing 
project located in an area that has been identified by the Federal 
Emergency Management Agency (FEMA) as having special flood hazards, 
unless:
    (i) The requirements of 24 CFR part 55, Floodplain Management, have 
been met, including a determination by a responsible entity under 24 
CFR part 58 or by HUD under 24 CFR part 50 that there is no practicable 
alternative to locating in an area of special flood hazards; and the 
minimization of unavoidable adverse impacts.
    (ii) Flood insurance on the building is obtained in compliance with 
the Flood Disaster Protection Act of 1973 (42 U.S.C. 4001 et seq.); and
    (iii) The community in which the area is situated is participating 
in the National Flood Insurance Program in accordance with 44 CFR parts 
59 through 79, or less than one year has passed since FEMA notification 
regarding flood hazards.
    (8) Coastal barriers. In accordance with the Coastal Barriers 
Resources Act (16 U.S.C. 3501 et seq.), no financial assistance under 
this part may be made available within the Coastal Barrier Resources 
System.
    (9) Displacement, relocation, and real property acquisition. All 
acquisition or rehabilitation activities carried out under the Capital 
Fund, including acquisition of any property for development, shall 
comply with the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970 (URA) (42 U.S.C. 4601-4655) and with 
implementing regulations at 49 CFR part 24. Demolition or disposition 
under section 9(d)(4) is covered by the section 18 relocation 
provisions at 24 CFR 970.21.
    (10) Procurement and contract requirement. PHAs and their 
contractors shall comply with Section 3 of the Housing and Community 
Development Act of 1968 (12 U.S.C. 1701u) and HUD's implementing rules 
at 24 CFR part 135.


Sec.  905.310  Disbursements from HUD.

    (a) The PHA shall initiate a fund requisition from HUD only when 
funds are due and payable, unless HUD approves another payment schedule 
as authorized by 24 CFR 85.21.
    (b) The PHA shall maintain detailed disbursement records to 
document eligible expenditure (e.g., contracts or other applicable 
documents), in a form and manner prescribed by HUD.


Sec.  905.312  Design and construction.

    The PHA shall meet the following design and construction standards, 
as applicable, for all development and modernization.
    (a) Physical structures shall be designed, constructed, and 
equipped to be consistent with the neighborhoods they occupy; meet 
contemporary standards of modest design, comfort, and livability; 
promote security; maximize energy conservation; and be attractive and 
marketable to the people they are intended to serve.
    (b) All development projects shall be designed and constructed in 
compliance with:
    (1) A national building code, such as those developed by the 
International Code Council or the National Fire Protection Association; 
and the 2006 International Energy Conservation Code (IECC), or ASHRAE 
90.1-2004 for multifamily high-rises (four stories or higher), or a 
successor energy code or standard that has been adopted by HUD pursuant 
to 42 U.S.C. 12709 or other relevant authority;
    (2) Applicable state and local laws, codes, ordinances, and 
regulations;
    (3) Other federal requirements, including fire protection and 
safety standards implemented under section 31 of the Fire 
Administration Authorization Act of 1992, 15 U.S.C. 2227 and HUD 
minimum property standards (e.g., 24 CFR part 200, subpart S);
    (4) Accessibility Requirements as required by Section 504 of the 
Rehabilitation Act (29 U.S.C. 794) and implementing regulations at 24 
CFR part 8; Title II of the Americans with Disabilities Act (42 U.S.C. 
12101 et seq.) and implementing regulations at 28 CFR part 35; and, if 
applicable, the Fair Housing Act (42 U.S.C. 3601-3619) and implementing 
regulations at 24 CFR part 100; and
    (5) High-rise elevator structure specifications. A high-rise 
elevator structure shall not be provided for families with children 
regardless of density, unless the PHA demonstrates and HUD determines 
that there is no practical alternative, where project-based Section 8 
assistance under 42 U.S.C. 1437f(o)(13) is provided through a Housing 
Assistance Payment (HAP) contract, in which case the assistance may be 
provided to a high-rise elevator building, including one occupied by 
families with children, without review and approval of the contract by 
the Secretary.
    (c) All modernization projects shall be designed and constructed in 
compliance with:
    (1) The modernization standards as prescribed by HUD;
    (2) Accessibility requirements as required by Section 504 of the 
Rehabilitation Act (29 U.S.C. 794) and implementing regulations at 24 
CFR part 8; Title II of the Americans with Disabilities Act (42 U.S.C. 
12101 et seq.) and implementing regulations at 28 CFR part 35; and, if 
applicable, the Fair Housing Act (42 U.S.C. 3601-3619) and implementing 
regulations at 24 CFR part 100; and
    (3) Cost-effective energy conservation measures, identified in the 
PHA's most recently updated energy audit, conducted pursuant to 24 CFR 
part 965, subpart C.
    (d) PHAs shall use appliances that are Energy Star products or 
Federal Energy Management Program-designed products, unless the PHA 
determines that the purchase of these appliances is not cost-effective.


Sec.  905.314  Cost and other limitations.

    (a) Eligible administrative costs. Where the physical or management 
improvement costs will benefit programs other than Public Housing, such 
as the Housing Choice Voucher program or local revitalization programs, 
eligible administrative costs are limited to the amount directly 
attributable to the public housing program.
    (b) Maximum project cost. The maximum project cost represents the 
total amount of public housing capital assistance used in connection 
with the development of a public housing project, and includes:
    (1) Project costs that are subject to the TDC limit (i.e., HCC and 
Community Renewal Costs); and
    (2) Project costs that are not subject to the TDC limit (i.e., 
Additional Project Costs). The total project cost to be funded with 
public housing capital assistance, as set forth in the proposal and as 
approved by HUD, becomes the maximum project cost stated in the CF ACC 
Amendment. Upon completion of the project, the actual project cost is 
determined based upon the amount of public housing capital assistance 
expended for the project, and this becomes the maximum project cost for 
purposes of the CF ACC Amendment.
    (c) TDC limit. (1) The Capital Fund may not be used to pay for 
Housing Construction Cost (HCC) and Community Renewal Costs in excess 
of the TDC limit, as determined under paragraph (b)(2) of this section. 
However, HOPE VI grantees will be eligible to request a TDC exception 
for public housing and HOPE VI funds awarded in FFY 1996 and prior 
years. However, PHAs may also request a TDC exception for integrated 
utility management, capital planning, and other capital and management 
activities

[[Page 6669]]

that maximize energy conservation and efficiency, including green 
construction and retrofits, which include windows; heating system 
replacements; wall insulation; site-based generation; advanced energy 
savings technologies, including renewable energy generation; and other 
such retrofits. HUD will apply a cost-effectiveness test to ensure that 
up-front expenditures due to the exception would be justified by future 
cost savings when deciding whether to grant a TDC waiver under this 
section.
    (2) Determination of TDC limit. HUD will determine the TDC for a 
public housing project as follows:
    (i) Step 1: Unit construction cost guideline. HUD will first 
determine the applicable ``construction cost guideline,'' averaging the 
current construction costs as listed in two nationally recognized 
residential construction cost indices for publicly bid construction of 
a good and sound quality for specific bedroom sizes and structure 
types. The two indices HUD will use for this purpose are the R.S. Means 
cost index for construction of ``average'' quality and the Marshall & 
Swift cost index for construction of ``good'' quality. HUD has the 
discretion to change the cost indices to other such indices that 
reflect comparable housing construction quality through a notice 
published in the Federal Register.
    (ii) Step 2: Bedroom size and structure types. The construction 
cost guideline is then multiplied by the number of units for each 
bedroom size and structure type.
    (iii) Step 3: Elevator and non-elevator type structures. HUD will 
then multiply the resulting amounts from step 2 by 1.6 for elevator 
type structures and by 1.75 for non-elevator type structures.
    (iv) Step 4: TDC limit. The TDC limit for a project is calculated 
by adding the resulting amounts from step 3 for all the public housing 
units in the project.
    (3) Costs not subject to the TDC limit. Additional Project Costs 
are not subject to the TDC limit, which is described in paragraph (c) 
of this section.
    (4) Funds not subject to the TDC limit. A PHA may use funding 
sources not subject to the TDC limit (e.g., Community Development Block 
Grant (CDBG) funds, low-income tax credits, private donations, private 
financing, etc.) to cover project costs that exceed the TDC limit or 
the HCC limit described in paragraph (c) of this section. Such funds, 
however, may not be used for items that would result in substantially 
increased operating, maintenance, or replacement costs, and must meet 
the requirements of section 102 of the Department of Housing and Urban 
Development Reform Act of 1989 (Pub. L. 101-235, approved December 15, 
1989) (42 U.S.C. 3545). These funds must be included in the project 
development cost budget.
    (d) Housing Construction Costs (HCC).
    (1) General. A PHA may not use Capital Funds to pay for HCC in 
excess of the amount determined under paragraph (c)(2) of this section.
    (2) Determination of HCC limit. HUD will determine the HCC limit as 
listed in at least two nationally recognized residential construction 
cost indices for publicly bid construction of a good and sound quality 
for specific bedroom sizes and structure types. The two indices HUD 
will use for this purpose are the R.S. Means cost index for 
construction of ``average'' quality and the Marshal & Swift cost index 
for construction of ``good'' quality. HUD has the discretion to change 
the cost indices to other such indices that reflect comparable housing 
construction quality through a notice published in the Federal 
Register. The resulting construction cost guideline is then multiplied 
by the number of public housing units in the project based upon bedroom 
size and structure type. The HCC limit for a project is calculated by 
adding the resulting amounts for all public housing units in the 
project.
    (3) The HCC limit is not applicable to the acquisition of existing 
housing, whether or not such housing will be rehabilitated. The TDC 
limit is applicable to such acquisition.
    (e) Community Renewal Costs. Capital Funds may be used to pay for 
Community Renewal Costs in an amount equivalent to the difference 
between the HCC paid for with public housing capital assistance and the 
TDC limit.
    (f) Rehabilitation of existing public housing projects. The HCC 
limit is not applicable to the rehabilitation of existing Public 
Housing Projects. The TDC limit for modernization of existing public 
housing is 90 percent of the TDC limit as determined under Sec.  
905.314(c). This limitation does not apply to the rehabilitation of any 
property acquired pursuant to Sec.  905.600.
    (g) Modernization cost limits. If the modernization costs are more 
than 90 percent of the TDC, then the project shall not be modernized. 
Capital Funds shall not be expended to modernize an existing public 
housing development that fails to meet the HUD definition of reasonable 
cost found in Sec.  905.108, except for:
    (1) Emergency work;
    (2) Essential maintenance necessary to keep a public housing 
project habitable until the demolition or disposition application is 
approved; or
    (3) The costs of maintaining the safety and security of a site that 
is undergoing demolition.
    (h) Administrative cost limits and Capital Fund Program Fee.
    (1) Administrative cost limits (for non-asset management PHAs).
    (i) Modernization. The PHA shall not budget or expend more than 10 
percent of its annual Capital Fund grant on administrative costs, in 
accordance with its CFP 5-Year Action Plan. The 10 percent limit 
excludes any costs related to lead-based paint or asbestos testing, in-
house Architectural and Engineering work, or other special 
administrative costs required by state or local law.
    (ii) Development. For development work with Capital Fund and RHF 
grants, the administrative cost limit is 3 percent of the total project 
budget, or, with HUD's approval, up to 6 percent of the total project 
budget.
    (2) Capital Fund Program Fee (for asset management PHAs). For a PHA 
that is under asset management, the Capital Fund Program Fee and 
administrative costs limits are the same. For the Capital Fund Program 
Fee, a PHA may charge a management fee of up to 10 percent of the 
annual CFP formula grant(s) amount, excluding emergency and disaster 
grants and also excluding any costs related to lead-based paint or 
asbestos testing, in-house Architectural and Engineering work, or other 
special administrative costs required by state or local law. The 
Capital Fund Program Fee for development work funded with Capital Fund 
and RHF grants is 3 percent of the total project budget, or, with HUD 
approval, up to 6 percent of the total project budget.
    (i) Management improvement cost limits. A PHA shall not budget nor 
use more than 20 percent of its annual Capital Fund grant for 
management improvement costs identified in its CFP 5-Year Action Plan 
through FY 2010. In FFY 2011, a PHA shall not budget nor use more than 
16 percent for management improvements for grants awarded in that 
fiscal year; for FFY 2012, a PHA shall not budget nor use more than 13 
percent for grants awarded in that year; and for FFY 2013 and 
thereafter, a PHA shall not budget nor use more than 10 percent for 
grants awarded. Management improvements are an eligible expense for 
PHAs participating in Asset Management.
    (j) Types of labor. A PHA may use force account labor for 
development and modernization activities if included in a HUD-approved 
CFP 5-Year Action Plan. HUD approval to use force account labor is not 
required when the PHA is

[[Page 6670]]

designated as a High Performer under PHAS.
    (k) RMC activities. When the entire development, financing, or 
modernization activity, including the planning and architectural 
design, is administered by an RMC, the PHA shall not retain any portion 
of the Capital Funds for any administrative or other reason unless the 
PHA and the RMC provide otherwise by contract.
    (l) Capital Funds for operating costs. A PHA may use Capital Funds 
for operating costs only if it is included in the HUD-approved CFP 5-
Year Action Plan and limited as described in paragraphs (l)(1) and (2) 
of this section. Capital Funds identified in the CFP 5-Year Action Plan 
to be transferred to operations are obligated once the funds have been 
budgeted and drawn down by the PHA. Once such transfer of funds occurs, 
the PHA must follow the requirements of 24 CFR part 990 with respect to 
those funds.
    (1) Large PHAs. A PHA with 250 or more units may use no more than 
20 percent of its annual Capital Fund grant for activities that are 
eligible under the Operating Fund at 24 CFR part 990.
    (2) Small PHAs. A PHA with less than 250 units, that is not 
designated as troubled under PHAS, may use up to 100 percent of its 
annual Capital Fund grant for activities that are eligible under the 
Operating Fund at 24 CFR part 990, except that the PHA must have 
determined that there are no debt service payments, significant Capital 
Fund needs, or emergency needs that must be met prior to transferring 
100 percent of its funds to operating expenses.


Sec.  905.316  Procurement and contract requirements.

    (a) General. PHAs shall comply with 24 CFR 85.36, and HUD 
implementing instructions, for all capital activities including 
modernization and development except as provided in paragraph (c) in 
this section.
    (b) Contracts. The PHA shall use all contract forms prescribed by 
HUD. If a form is not prescribed, the PHA may use any Office of 
Management and Budget (OMB) approved form that contains all applicable 
federal requirements and contract clauses.
    (c) Mixed-finance development projects. Mixed-finance development 
partners may be selected in accordance with the 24 CFR 905.604. 
Contracts and other agreements with mixed-finance development partners 
must specify that they comply with the requirements of Sec. Sec.  
905.602 and 905.604.
    (d) Assurances of completion. Notwithstanding 24 CFR 85.36(h), for 
each construction contract over $100,000, the contractor shall furnish 
the PHA with the following:
    (1) A bid guarantee from each bidder equivalent to 5 percent of the 
bid price; and
    (2) One of the following:
    (i) A performance bond and payment bond for 100 percent of the 
contract price;
    (ii) A performance bond and a payment bond, each for 50 percent or 
more of the contract price;
    (iii) A 20 percent cash escrow;
    (iv) A 25 percent irrevocable letter of credit with terms 
acceptable to HUD, or
    (v) Any other payment method acceptable to HUD.
    (e) Procurement of recovered materials. PHAs that are state 
agencies and agencies of a political subdivision of a state that are 
using assistance under this part for procurement, and any person 
contracting with such PHAs with respect to work performed under an 
assisted contract, must comply with the requirements of section 6002 of 
the Solid Waste Disposal Act, as amended by the Resource Conservation 
and Recovery Act. In accordance with section 6002, these agencies and 
persons must procure items designated in guidelines of the 
Environmental Protection Agency (EPA) at 40 CFR part 247 that contain 
the highest percentage of recovered material practicable, consistent 
with maintaining a satisfactory level of competition, where the 
purchase price of the item exceeds $10,000 or the value of the quantity 
acquired in preceding fiscal year exceeded $10,000; must procure solid 
waste management services in a manner that maximizes energy and 
resource recovery; and must have established an affirmative procurement 
program for procurement of recovered materials identified in the EPA 
guidelines.


Sec.  905.318  Title and deed.

    The PHA shall obtain a title insurance policy that guarantees the 
title is good and marketable before taking title to any and all sites 
and properties acquired with Capital Funds. The PHA shall record within 
90 days the deed and Declaration of Trust in the form and in the manner 
prescribed by HUD. The PHA shall at all times maintain a recorded 
Declaration of Trust in the form and manner prescribed by HUD on all 
public housing projects covering the term required by this part.


Sec.  905.320  Contract administration and acceptance of work.

    (a) Contract administration. The PHA is responsible, in accordance 
with 24 CFR 85.36, for all contractual and administrative issues 
arising out of their procurements. The PHA shall maintain full and 
complete records on the history of each procurement transaction.
    (b) Inspection and acceptance. The PHA or owner, in the case of 
mixed finance, shall carry out inspections of work in progress and 
goods delivered, as necessary, to ensure compliance with existing 
contracts. If, upon inspection, the PHA determines that the work and/or 
goods are complete, satisfactory and, as applicable, otherwise 
undamaged, except for any work that is appropriate for delayed 
completion, the PHA shall accept the work. The PHA shall determine any 
hold-back for items of delayed completion and the amount due and 
payable for the work that has been accepted, including any conditions 
precedent to payment that are stated in the construction contract or 
contract of sale. The contractor shall be paid for items only after the 
PHA inspects and accepts that work.
    (c) Guarantees and warranties. The PHA or owner, in the case of 
mixed finance, shall specify the guaranty period and amounts to be 
withheld, as applicable, and shall provide that all contractor, 
manufacturer, and supplier warranties required by the construction and 
modernization documents shall be assigned to the PHA. The PHA shall 
inspect each dwelling unit and the overall project approximately 3 
months after the beginning of the project guaranty period, 3 months 
before its expiration, and at other times as may be necessary to 
exercise its rights before expiration of any warranties. The PHA shall 
require repair or replacement of all defective items prior to the 
expiration of the guaranty or warranty periods.
    (d) Notification of completion. The PHA shall require that all 
contractors and developers notify the PHA in writing when the contract 
work, including any approved off-site work, will be completed and ready 
for inspection.


Sec.  905.322  Fiscal closeout.

    (a) General. Each Capital Fund grant and/or development project is 
subject to fiscal closeout. Fiscal closeout includes the submission of 
a cost certificate; an audit, if applicable; a final Performance and 
Evaluation Report; and HUD approval of the cost certificate.
    (b) Submission of cost certificate. (1) When an approved 
development or modernization activity is completed or when HUD 
terminates the activity, the PHA must submit to HUD the:
    (i) Actual Development Cost Certificate (ADCC) within 12 months. 
For purposes of the CF ACC, costs incurred between the completion of 
the

[[Page 6671]]

development and DOFA becomes the actual development cost; and
    (ii) Actual Modernization Cost Certificate (AMCC) for each grant, 
no later than 12 months after the expenditure deadline but no earlier 
than the obligation end date. A PHA with under 250 units with an 
approved CFP 5-Year Action Plan for use of 100 percent of the Capital 
Fund Grant in Operations may submit the cost certificate any time after 
the funds have been budgeted to operations and withdrawn, as described 
in Sec.  905.314(l).
    (2) If the PHA does not submit the cost certificate and the final 
CFP Annual Statement/Performance and Evaluation Report within the 
period prescribed in this section, HUD may impose restrictions on open 
Capital Fund grants, e.g., establish review thresholds, set the grant 
to ``auto review'' (HUD automatically reviews it on a periodic basis), 
or suspend grants, until the cost certificate for the affected grant is 
submitted. These restrictions may be imposed by HUD after notification 
of the PHA.
    (c) Audit. The cost certificate is a financial statement subject to 
audit pursuant to 24 CFR 85.26. After submission of the cost 
certificate to HUD, the PHA shall provide the cost certificate to its 
independent public auditor (IPA) as part of its annual audit. After 
audit, the PHA will notify HUD of the grants included in the audit, any 
exceptions noted by the PHA auditor, and the schedule to complete 
corrective actions recommended by the auditor.
    (d) Review and approval. For PHAs exempt from the audit 
requirements, HUD will review and approve the cost certificate based on 
available information regarding the Capital Fund grant. For PHAs 
subject to an audit, HUD will review the information from the annual 
audit provided by the PHA and approve the certificate after all 
exceptions, if any, have been resolved.
    (e) Recapture. All Capital Funds in excess of the actual cost 
incurred for the grant are subject to recapture. Any funds awarded to 
the PHA that are returned or any funds taken back from the PHA in a 
fiscal year after the grant was awarded are subject to recapture.


Sec.  905.324  Data reporting requirements.

    The PHA shall provide, at minimum, the following data reports, at a 
time and in a form prescribed by HUD:
    (a) The Performance and Evaluation Report as described in Sec.  
905.300(b)(8);
    (b) Updates on the PHA's building and unit data as required by HUD;
    (c) Reports of obligation and expenditure; and
    (d) Any other information required for participation in the Capital 
Fund Program.


Sec.  905.326  Records.

    (a) The PHA will maintain full and complete records of the history 
of each Capital Fund grant, including, but not limited to, CFP 5-Year 
Action Plans, procurement, contracts, obligations, and expenditures.
    (b) The PHA shall retain all documents related to the activities 
for which the Capital Fund grant was received for 5 years after HUD 
approves either the actual development or modernization cost 
certificate, unless a longer period is required by applicable law.
    (c) HUD and its duly authorized representatives shall have full and 
free access to all PHA offices, facilities, books, documents, and 
records, including the right to audit and make copies.

Subpart D--Capital Fund Formula


Sec.  905.400  Capital Fund formula (CF formula).

    (a) General. This section describes the formula for allocating 
Capital Funds to PHAs.
    (b) Formula allocation based on relative needs. HUD shall allocate 
Capital Funds to the PHAs in accordance with the CF formula. The CF 
formula measures the existing modernization needs and accrual needs of 
PHAs.
    (c) Allocation for existing modernization needs under the CF 
formula. HUD shall allocate one-half of the available Capital Fund 
amount based on the relative existing modernization needs of PHAs, 
determined in accordance with paragraph (d) of this section.
    (d) PHAs with 250 or more units in FFY 1999, except the New York 
City and Chicago Housing Authorities. The estimates of the existing 
modernization needs for these PHAs shall be based on the following:
    (1) Objective measurable data concerning the following PHA, 
community, and project characteristics applied to each project:
    (i) The average number of bedrooms in the units in a project 
(Equation co-efficient: 4604.7);
    (ii) The total number of units in a project (Equation co-efficient: 
10.17);
    (iii) The proportion of units in a project in buildings completed 
in 1978 or earlier. In the case of acquired projects, HUD will use the 
DOFA unless the PHA provides HUD with the actual date of construction 
completion. When the PHA provides the actual date of construction 
completion, HUD will use that date (or, for scattered sites, the 
average dates of construction of all the buildings), subject to a 50-
year cap. (Equation co-efficient: 4965.4);
    (iv) The cost index of rehabilitating property in the area 
(Equation co-efficient: -10608);
    (v) The extent to which the units of a project were in a 
nonmetropolitan area as defined by the United States Bureau of the 
Census (Census Bureau) during FFY 1996 (Equation co-efficient: 2703.9);
    (vi) The PHA is located in the Southern census region, as defined 
by the Census Bureau (Equation co-efficient: -269.4);
    (vii) The PHA is located in the Western census region, as defined 
by the Census Bureau (Equation co-efficient: -1709.5);
    (viii) The PHA is located in the Midwest census region as defined 
by the Census Bureau (Equation co-efficient: 246.2); and
    (2) An equation constant of 13851.
    (i) Newly constructed units. Units with a DOFA date of October 1, 
1991, or after, shall be considered to have a zero existing 
modernization need.
    (ii) Acquired projects. Projects acquired by a PHA with a DOFA date 
of October 1, 1991, or after, shall be considered to have a zero 
existing modernization need.
    (3) For New York City and Chicago Housing Authorities, based on a 
large sample of direct inspections. Prior to the cost calibration in 
paragraph (d)(5) of this section, the number used for the existing 
modernization need of family projects shall be $16,680 in New York and 
$24,286 in Chicago, and the number for elderly projects shall be 
$14,622 in New York and $16,912 in Chicago.
    (i) Newly constructed units. Units with a DOFA date of October 1, 
1991, or after, shall be considered to have a zero existing 
modernization need.
    (ii) Acquired projects. Projects acquired by a PHA with a DOFA date 
of October 1, 1991, or after, shall be considered to have a zero 
existing modernization need.
    (4) PHAs with fewer than 250 units in FFY 1999. The estimates of 
the existing modernization need shall be based on the following:
    (i) Objective measurable data concerning the PHA, community, and 
project characteristics applied to each project:
    (A) The average number of bedrooms in the units in a project. 
(Equation coefficient: 1427.1);
    (B) The total number of units in a project. (Equation coefficient: 
24.3);

[[Page 6672]]

    (C) The proportion of units in a project in buildings completed in 
1978 or earlier. In the case of acquired projects, HUD shall use the 
DOFA date unless the PHA provides HUD with the actual date of 
construction completion, in which case HUD shall use the actual date of 
construction completion (or, for scattered sites, the average dates of 
construction of all the buildings), subject to a 50-year cap. (Equation 
coefficient: -1389.7);
    (D) The cost index of rehabilitating property in the area, as of 
FFY 1999. (Equation coefficient: -20163);
    (E) The extent to which the units of a project were in a 
nonmetropolitan area as defined by the Census Bureau during FFY 1996. 
(Equation coefficient: 6157.7);
    (F) The PHA is located in the Southern census region, as defined by 
the Census Bureau. (Equation coefficient: 4379.2);
    (G) The PHA is located in the Western census region, as defined by 
the Census Bureau. (Equation coefficient: 3747.7);
    (H) The PHA is located in the Midwest census region as defined by 
the Census Bureau. (Equation coefficient: -2073.5); and
    (ii) An equation constant of 24762.
    (A) Newly constructed units. Units with a DOFA date of October 1, 
1991, or after, shall be considered to have a zero existing 
modernization need.
    (B) Acquired projects. Projects acquired by a PHA with a DOFA date 
of October 1, 1991, or after, shall be considered by HUD to have a zero 
existing modernization need.
    (5) Calibration of existing modernization need for cost index of 
rehabilitating property in the area. The estimated existing 
modernization need determined under paragraphs (d)(1), (d)(2), or 
(d)(3) of this section shall be adjusted by the values of the cost 
index of rehabilitating property in the area.
    (6) Freezing of the determination of existing modernization need. 
FFY 2008 is the last fiscal year that HUD will calculate the existing 
modernization need. The existing modernization need will be frozen for 
all developments at the calculation as of FFY 2008 and will be adjusted 
for changes in the inventory and paragraph (d)(4) of this section.
    (e) Allocation for accrual needs under the CF formula. HUD shall 
allocate the other half of the remaining Capital Fund amount based on 
the relative accrual needs of PHAs, determined in accordance with this 
paragraph of this section.
    (1) PHAs with 250 or more units, except the New York City and 
Chicago Housing Authorities. The estimates of the accrual need shall be 
based on the following:
    (i) Objective measurable data concerning the following PHA, 
community, and project characteristics applied to each project:
    (A) The average number of bedrooms in the units in a project. 
(Equation coefficient: 324.0);
    (B) The extent to which the buildings in a project average fewer 
than 5 units. (Equation coefficient: 93.3);
    (C) The age of a project, as determined by the DOFA date. In the 
case of acquired projects, HUD shall use the DOFA date unless the PHA 
provides HUD with the actual date of construction completion, in which 
case HUD shall use the actual date of construction (or, for scattered 
sites, the average dates of construction of all the buildings), subject 
to a 50-year cap. (Equation coefficient: -7.8);
    (D) Whether the development is a family project. (Equation 
coefficient: 184.5);
    (E) The cost index of rehabilitating property in the area. 
(Equation coefficient: -252.8);
    (F) The extent to which the units of a project were in a 
nonmetropolitan area as defined by the Census Bureau during FFY 1996. 
(Equation coefficient: -121.3);
    (G) PHA size of 6,600 or more units in FFY 1999. (Equation 
coefficient: -150.7);
    (H) The PHA is located in the Southern census region, as defined by 
the Census Bureau. (Equation coefficient: 28.4);
    (I) The PHA is located in the Western census region, as defined by 
the Census Bureau. (Equation coefficient: -116.9);
    (J) The PHA is located in the Midwest census region as defined by 
the Census Bureau. (Equation coefficient: 60.7); and
    (ii) An equation constant of 1371.9.
    (2) For the New York City and Chicago Housing Authorities, based on 
a large sample of direct inspections. Prior to the cost calibration in 
paragraph (e)(4) of this section the number used for the accrual need 
of family developments is $1,395 in New York, and $1,251 in Chicago, 
and the number for elderly developments is $734 in New York and $864 in 
Chicago.
    (3) PHAs with fewer than 250 units. The estimates of the accrual 
need shall be based on the following:
    (i) Objective measurable data concerning the following PHA, 
community, and project characteristics applied to each project:
    (A) The average number of bedrooms in the units in a project. 
(Equation coefficient: 325.5);
    (B) The extent to which the buildings in a project average fewer 
than 5 units. (Equation coefficient: 179.8);
    (C) The age of a project, as determined by the DOFA date. In the 
case of acquired projects, HUD shall use the DOFA date unless the PHA 
provides HUD with the actual date of construction completion. When 
provided with the actual date of construction completion, HUD shall use 
this date (or, for scattered sites, the average dates of construction 
of all the buildings), subject to a 50-year cap. (Equation coefficient: 
-9.0);
    (D) Whether the project is a family development. (Equation 
coefficient: 59.3);
    (E) The cost index of rehabilitating property in the area. 
(Equation coefficient: -1570.5);
    (F) The extent to which the units of a project were in a 
nonmetropolitan area as defined by the Census Bureau during FFY 1996. 
(Equation coefficient: -122.9);
    (G) The PHA is located in the Southern census region, as defined by 
the Census Bureau. (Equation coefficient: -564.0);
    (H) The PHA is located in the Western census region, as defined by 
the Census Bureau. (Equation coefficient: -29.6);
    (I) The PHA is located in the Midwest census region as defined by 
the Census Bureau. (Equation coefficient: -418.3); and
    (ii) An equation constant of 3193.6.
    (4) Calibration of accrual need for the cost index of 
rehabilitating property in the area. The estimated accrual need 
determined under either paragraph (e)(2) or (e)(3) of this section 
shall be adjusted by the values of the cost index of rehabilitation.
    (f) Calculation of number of units.
    (1) General. For purposes of determining the number of a PHA's 
public housing units and the relative modernization needs of PHAs:
    (i) HUD shall count as one unit:
    (A) Each public housing and section 23 bond-financed CF unit, 
except that each existing unit under the Turnkey III program shall 
count as one-fourth of a unit. Units receiving operating subsidy only 
shall not be counted.
    (B) Each existing unit under the Mutual Help program.
    (ii) HUD shall add to the overall unit count any units that the PHA 
adds to its inventory when the units are under CF ACC amendment and 
have reached DOFA by the date that HUD establishes for the FFY in which 
the CF formula is being run (hereafter called the ``reporting date''). 
New CF units and reaching DOFA after the reporting date

[[Page 6673]]

shall be counted for CF formula purposes in the following FFY.
    (2) Replacement units. Replacement units newly constructed on or 
after October 1, 1998, that replace units in a project funded in FFY 
1999 by the Comprehensive Grant formula system or the Comprehensive 
Improvement Assistance Program (CIAP) formula system shall be given a 
new CF ACC number as a separate project and shall be treated as a newly 
constructed development as outlined in Sec.  905.600.
    (3) Reconfiguration of units. Reconfiguration of units may cause 
the need to be calculated by the new configuration based on the formula 
characteristics in the building and unit's module of PIC (refer to the 
formula sections here). The unit counts will be determined by the CF 
units existing after the reconfiguration.
    (4) Reduction of units. For a project losing units as a result of 
demolition and disposition, the number of units on which the CF formula 
is based shall be the number of units reported as eligible for Capital 
Funds as of the reporting date. Units are eligible for funding until 
they are removed due to demolition and disposition in accordance with a 
schedule approved by HUD.
    (g) Computation of formula shares under the CF formula. (1) Total 
estimated existing modernization need. The total estimated existing 
modernization need of a PHA under the CF formula is the result of 
multiplying for each project the PHA's total number of formula units by 
its estimated existing modernization need per unit, as determined by 
paragraph (d) of this section, and calculating the sum of these 
estimated project needs.
    (2) Total accrual need. The total accrual need of a PHA under the 
CF formula is the result of multiplying for each project the PHA's 
total number of formula units by its estimated accrual need per unit, 
as determined by paragraph (e) of this section, and calculating the sum 
of these estimated accrual needs.
    (3) PHA's formula share of existing modernization need. A PHA's 
formula share of existing modernization need under the CF formula is 
the PHA's total estimated existing modernization need divided by the 
total existing modernization need of all PHAs.
    (4) PHA's formula share of accrual need. A PHA's formula share of 
accrual need under the CF formula is the PHA's total estimated accrual 
need divided by the total existing accrual need of all PHAs.
    (5) PHA's formula share of capital need. A PHA's formula share of 
capital need under the CF formula is the average of the PHA's share of 
existing modernization need and its share of accrual need (by which 
method each share is weighted 50 percent).
    (h) CF formula capping. (1) For units that are eligible for funding 
under the CF formula (including replacement housing units discussed 
below), a PHA's CF formula share shall be its share of capital need, as 
determined under the CF formula, subject to the condition that no PHA's 
CF formula share for units funded under CF formula can be less than 94 
percent of its formula share had the FFY 1999 formula system been 
applied to these CF formula eligible units. The FFY 1999 formula system 
is based upon the FFY 1999 Comprehensive Grant formula system for PHAs 
with 250 or more units in FFY 1999 and upon the FFY 1999 Comprehensive 
Improvement Assistance Program (CIAP) formula system for PHAs with 
fewer than 250 units in FFY 1999.
    (2) For a Moving to Work (MTW) PHA whose MTW agreement provides 
that its CF formula share is to be calculated in accordance with the 
previously existing formula, the PHA's CF formula share, during the 
term of the MTW agreement, may be approximately the formula share that 
the PHA would have received had the FFY 1999 formula funding system 
been applied to the CF formula eligible units.
    (i) RHF to reflect formula need for developments with demolition, 
or disposition occurring on or after October 1, 1998.
    (1) RHF generally. PHAs that have a reduction in the number of 
units attributable to demolition or disposition of units during the 
period (reflected in data maintained by HUD) that lowers the formula 
unit count for the CFF calculation qualify for application of a 
replacement housing factor, subject to satisfaction of criteria stated 
in paragraph (i)(5) of this section
    (2) When applied. The RHF will be added, where applicable:
    (i) For the first 5 years after the reduction of units described in 
paragraph (i)(1) of this section; and
    (ii) For an additional 5 years if the planning, leveraging, 
obligation, and expenditure requirements are met. As a prior condition 
of a PHA's receipt of additional funds for replacement housing provided 
for the second 5-year period or any portion thereof, a PHA must obtain 
a firm commitment of substantial additional funds other than public 
housing funds for replacement housing, as determined by HUD.
    (3) Computation of RHF. The RHF consists of the difference between 
the CFF share without the CFF share reduction of units attributable to 
demolition or disposition, and the CFF share that resulted after the 
reduction of units attributable to demolition or disposition.
    (4) Replacement housing funding in FFY 1998 and 1999. Units that 
received replacement housing funding in FFY 1998 will be treated as if 
they had received 2 years of replacement housing funding by FFY 2000. 
Units that received replacement housing funding in FFY 1999 will be 
treated as if they had received one year of replacement housing funding 
as of FFY 2000.
    (5) PHA Eligibility for the RHF. A PHA is eligible for this factor 
only if the PHA satisfies the following criteria:
    (i) The PHA requests the application of the replacement housing 
factor;
    (ii) The PHA will use the funding in question only for replacement 
housing;
    (iii) The PHA will use the restored funding that results from the 
use of the replacement factor to provide replacement housing in 
accordance with the PHA's 5-Year Plan, as approved by HUD under part 
903 of this chapter;
    (iv) The PHA has not received funding for public housing units that 
will replace the lost units under Public Housing Development, and Major 
Reconstruction of Obsolete Public Housing, HOPE VI, or programs that 
otherwise provide for replacement with public housing units;
    (v) The PHA, if designated troubled by HUD, and not already under 
the direction of HUD or an appointed receiver, in accordance with part 
902 of this chapter, uses an Alternative Management Entity as defined 
in part 902 of this chapter, for development of replacement housing and 
complies with any applicable provisions of its Memorandum of Agreement 
executed with HUD under that part; and
    (vi) The PHA undertakes any development of replacement housing in 
accordance with applicable HUD requirements and regulations.
    (6) Failure to provide replacement housing in a timely fashion.
    (i) A PHA will be subject to the actions described in paragraph 
(i)(7)(ii) of this section if the PHA does not:
    (A) Use the restored funding that results from the use of the RHF 
to provide replacement housing in a timely fashion as provided in 
paragraph (i)(7)(i) of this section and in accordance with applicable 
HUD requirements and regulations, and
    (B) Make reasonable progress on such use of the funding, in 
accordance with applicable HUD requirements and regulations.
    (ii) If a PHA fails to act as described in paragraph (i)(6)(i) of 
this section,

[[Page 6674]]

HUD will require appropriate corrective action under these regulations, 
may recapture and reallocate the funds, or may take other appropriate 
action.
    (7) Requirement to obligate and expend RHF funds within specified 
period.
    (i) In addition to the requirements otherwise applicable to 
obligation and expenditure of funds, PHAs are required to obligate 
assistance received as a result of the RHF within:
    (A) 24 months from the date that funds become available to the PHA; 
or
    (B) With specific HUD approval, 24 months from the date that the 
PHA accumulates adequate funds to undertake replacement housing.
    (ii) To the extent the PHA has not obligated any funds provided as 
a result of the RHF within the time frames required by this paragraph, 
or has not expended such funds within a reasonable time, HUD shall 
reduce the amount of funds to be provided to the PHA as a result of the 
application of the second 5 years of the replacement housing factor.
    (j) RHF to reflect formula need for developments with demolition, 
disposition, or sale for homeownership occurring on or after October 1, 
2009.
    (1) RHF generally. In FFY 2011 and thereafter, PHAs that have a 
reduction in the number of units occurring in FFY 2010 and attributable 
to demolition, disposition, or sale of homeownership under section 32 
of the U.S. Housing Act of 1937, 42 U.S.C. 1437z-4 (section 32), or 
former section 5(h) of the U.S. Housing Act of 1937 (42 U.S.C. 1437c(h) 
(1994) (former section 5(h)), HOPE I, or as otherwise approved by HUD, 
but excluding homeownership under Turnkey III, are automatically 
eligible to receive RHF grants for a 5-year period, subject to the 
criteria stated in paragraph (j)(4) of this section. The funding 
reductions attributable to homeownership apply in instances where the 
units proposed for homeownership under section 32, former section 5(h), 
HOPE I, or as otherwise approved by HUD have been in the public housing 
inventory for a minimum of 5 years.
    (2) When applied. The RHF will be added, where applicable, for 5 
years after the reduction of units described in paragraph (j)(1) of 
this section.
    (3) Computation of RHF. The RHF consists of the difference between 
the CFF share without the CFF share reduction of units attributable to 
demolition, disposition, or sale for homeownership under section 32, 
former section 5(h), HOPE I or as otherwise approved by HUD and the CFF 
share that resulted after the reduction of units attributable to 
demolition, disposition, or sale for homeownership under section 32, 
former section 5(h), HOPE I, or as otherwise approved by HUD.
    (4) PHA eligibility for the RHF. A PHA is eligible for this factor 
only if the PHA satisfies the following criteria:
    (i) The PHA will automatically receive the RHF for reduction of 
units in accordance with (j)(1), unless the PHA rejects the RHF funding 
for that fiscal year in writing;
    (ii) The PHA will use the funding in question for replacement 
housing, i.e., development of public housing rental and/or 
homeownership units;
    (iii) The PHA will use the restored funding that results from the 
use of the replacement factor to provide replacement housing in 
accordance with the PHA's CFP 5-Year Action Plan.
    (iv) The PHA has not received funding for public housing units that 
will replace the lost units under Public Housing Development, and Major 
Reconstruction of Obsolete Public Housing, HOPE VI, or programs that 
otherwise provide for replacement with public housing units;
    (v) The PHA, if designated troubled by HUD, and not already under 
the direction of HUD or an appointed receiver, in accordance with part 
902 of this chapter, uses an Alternative Management Entity, as defined 
in part 902 of this chapter, for development of replacement housing and 
complies with any applicable provisions of its Memorandum of Agreement 
executed with HUD under that part; and
    (vi) The PHA undertakes any development of replacement housing in 
accordance with applicable HUD requirements and regulations.
    (5) Failure to provide replacement housing in a timely fashion.
    (i) A PHA will be subject to the actions described in paragraph 
(j)(6)(ii) of this section if the PHA does not:
    (A) Use the restored funding that results from the use of the RHF 
to provide replacement housing in a timely fashion as provided in 
paragraph (j)(6)(i) of this section and in accordance with applicable 
HUD requirements and regulations, and
    (B) Make reasonable progress on such use of the funding, in 
accordance with applicable HUD requirements and regulations.
    (ii) If a PHA fails to act as described in paragraph (j)(5)(i) of 
this section, HUD will require appropriate corrective action under 
these regulations, may recapture and reallocate the funds, or may take 
other appropriate action.
    (6) Requirement to obligate and expend RHF funds within specified 
period.
    (i) In addition to the requirements otherwise applicable to 
obligation and expenditure of funds, PHAs are required to obligate 
funds received as a result of the RHF within:
    (A) 24 months from the date that funds become available to the PHA; 
or
    (B) With specific HUD approval, 24 months from the date that the 
PHA accumulates adequate funds to undertake replacement housing.
    (ii) To the extent the PHA has not obligated any funds provided as 
a result of the RHF within the time frames required by this paragraph, 
or expended such funds within a reasonable time frame, HUD shall reduce 
the amount of funds to be provided to the PHA.
    (k) Performance reward factor.
    (1) High performer. A PHA that is designated a high performer under 
the PHA's most recent final PHAS score may receive a performance bonus 
that is:
    (i) 3 percent above its base formula amount in the first 5 years 
these awards are given (for any year in this 5-year period in which the 
performance reward is earned); or
    (ii) 5 percent above its base formula amount in future years (for 
any year in which the performance reward is earned);
    (2) Condition. The performance bonus is subject only to the 
condition that no PHA will lose more than 5 percent of its base formula 
amount as a result of the redistribution of funding from non-high 
performers to high performers.
    (3) Redistribution. The total amount of Capital Funds that HUD has 
recaptured or not allocated to PHAs as a sanction for violation of 
expenditure and obligation requirements shall be allocated to the PHAs 
that are designated high performers under PHAS.

Subpart E--Use of Capital Funds for Financing [Reserved]

Subpart F--Development Requirements


Sec.  905.600  General.

    (a) Applicability. This subpart F applies to the development of 
public housing units to be included under an ACC and receive Capital 
and/or Operating Funds. PHAs must comply with all of the requirements 
in this part, as applicable. Pursuant to Sec.  905.106, when a PHA or 
owner/management entities and its partners submit and execute a 
development proposal and, if applicable, a site acquisition proposal,

[[Page 6675]]

and submit an executed ACC Amendment covering those same units, it is 
deemed to have certified by those executed submissions its past, 
current, and future compliance with this subpart. Noncompliance with 
any provision of this part or other applicable statutes or regulations, 
or the ACC, Amendment, and any Amendment thereto may subject the PHA 
and/or its partners to sanctions contained in Sec.  905.804.
    (b) Description. A PHA may develop public housing through the 
construction of new units or the acquisition of existing units that may 
or may not require rehabilitation prior to occupancy. As noted in 
paragraph (c) of this section, a PHA may use a variety of funding 
sources to develop public housing. When developing new public housing 
with Capital Funds, pursuant to 24 CFR 905.304, the term of the ACC 
Amendment will be 40 years. However, a PHA may develop a mixed-financed 
project with no public housing funds used for construction of the units 
and receive only Operating Fund assistance for an ACC term, as 
determined by HUD pursuant to section 9(e) of the 1937 Act (42 U.S.C. 
1437(g)(e) and 24 CFR 905.604(k)).
    (c) Capital Fund Financing. For Capital Fund Financing, only the 
general development process will be as follows:
    (1) The PHA must include any public housing development in its CFP 
5-Year Action Plan.
    (2) After approval of the CFP 5-Year Action Plan by HUD, the PHA 
will contract for services necessary to develop the project.
    (d) All financing. For all financing, the general development 
process will be as follows:
    (1) The PHA or partner will locate properties and/or sites, prepare 
plans and specifications, and obtain HUD approval of the site 
acquisition and development proposals.
    (2) Upon HUD approval of the development proposal, HUD and the PHA 
must execute the ACC Amendment and the PHA will enter the applicable 
project information into HUD's data systems. The PHA may request 
predevelopment funding necessary for preparation of the development 
proposal, as described in Sec.  905.612(a).
    (3) After HUD approval of the development and/or site acquisition 
proposals, the PHA and/or its partner will acquire sites and/or 
properties, and record the Declaration of Trust/Declaration of 
Restrictive Covenants for all properties acquired. After HUD approval 
of the development proposal, the PHA and/or its partner will solicit 
construction bids, and award contracts and construct the units.
    (4) Upon completion of the project, the PHA will establish the 
DOFA. After the DOFA, the PHA will submit a cost certificate to HUD 
attesting to the actual cost of the project that will be subject to 
audit.
    (e) Funding sources. A PHA may engage in development activities 
using any one or a combination of the following sources of funding:
    (1) Capital Funds;
    (2) HOPE VI funds;
    (3) Proceeds from the sale of units under a homeownership program 
in accordance with 24 CFR part 906;
    (4) Proceeds resulting from the disposition of PHA-owned land or 
improvements;
    (5) Private financing used in accordance with Sec.  905.604, Mixed 
Financed Development;
    (6) Capital Fund Financing Program (CFFP) proceeds under Sec.  
905.500;
    (7) Operating Funds pursuant to an Operating Fund Financing Program 
(OFFP) approved by HUD pursuant to 24 CFR part 990; and
    (8) Funds available from any other source.


Sec.  905.602  Program requirements.

    (a) Local cooperation. Except as provided under Sec.  905.604(d) 
for mixed-finance projects, the PHA must enter into a Cooperation 
Agreement with the applicable local governing body that includes 
sufficient authority to cover the public housing being developed under 
this subpart, or provide an opinion of counsel that the existing, 
amended, or supplementary cooperation agreement between the 
jurisdiction and the PHA includes the project or development.
    (b) New construction limitation. These requirements apply to the 
construction of public housing and are not applicable to development of 
public housing through the acquisition of existing housing. All 
proposed new construction projects must meet both of the following 
requirements:
    (1) Limitation on the number of units. A PHA may not use Capital 
Funds to pay for the construction cost of public housing units if such 
construction would result in a net increase in the number of public 
housing units that the PHA owned, assisted, or operated on October 1, 
1999. A PHA may develop public housing units in excess of the 
limitation if:
    (i) The units are available and affordable to eligible low-income 
families and the CF formula does not provide additional funding for the 
specific purpose of allowing construction and operation of such excess 
units; or
    (ii) The units are part of a mixed-finance project or otherwise 
leverage significant additional investment, and the cost of the useful 
life of the projects is less than the estimated cost of providing 
tenant-based assistance under section 8(o) of the 1937 Act.
    (2) Limitations on cost. A PHA may not construct public housing 
unless the cost of construction is less than the cost of acquisition or 
acquisition and rehabilitation of existing units, including the amount 
required to establish, as necessary, an upfront reserve for replacement 
accounts for major repairs. A PHA shall provide evidence of compliance 
with this subpart either by:
    (i) Demonstrating through a cost comparison that the cost of new 
construction in the neighborhood where the PHA proposes to construct 
the housing is less than the cost of acquisition of existing housing 
with or without rehabilitation in the same neighborhood; or
    (ii) Documenting that there is insufficient existing housing in the 
neighborhood to acquire.
    (c) Federalization. Existing PHA-owned nonpublic housing properties 
financed with or without city or state funds may not be federalized, as 
described in section 9(n) of the 1937 Act (see 42 U.S.C. 1437g(n)), 
under a public housing CF ACC under this part, or by any other means.
    (d) Site and neighborhood standards. Each proposed site to be newly 
acquired for a public housing project or for construction or 
rehabilitation of public housing must be reviewed and approved by the 
Field Office as meeting the following standards, as applicable:
    (1) The site must be adequate in size, exposure, and contour to 
accommodate the number and type of units proposed. Adequate utilities 
(e.g., water, sewer, gas, and electricity) and streets shall be 
available to service the site.
    (2) The site and neighborhood shall be suitable to facilitating and 
furthering full compliance with the applicable provisions of Title VI 
of the Civil Rights Act of 1964, Title VIII of the Civil Rights Act of 
1968, Executive Order 11063, and HUD regulations issued under these 
statutes.
    (3) The site for new construction shall not be located in an area 
of minority concentration unless:
    (i) There are sufficient, comparable opportunities outside the 
areas of minority concentration for housing minority families in the 
income range that are to be served by the proposed project; or

[[Page 6676]]

    (ii) The project is necessary to meet overriding housing needs that 
cannot otherwise feasibly be met in that housing market area. 
``Overriding housing needs'' shall not serve as the basis for 
determining that a site is acceptable if the only reason that these 
needs cannot otherwise feasibly be met is that, due to discrimination 
because of race, color, religion, creed, sex, disability, familial 
status, or national origin, sites outside areas of minority 
concentration are unavailable.
    (4) The site for new construction shall not be located in a 
racially mixed area if the project will cause a significant increase in 
the proportion of minority to nonminority residents in the area.
    (5) Notwithstanding the foregoing, after demolition of public 
housing units a PHA may construct public housing units on the original 
public housing site or in the same neighborhood if the number of 
replacement public housing units is significantly fewer than the number 
of units demolished. One of the following criteria must be satisfied:
    (i) The number of public housing units being constructed is not 
more than 50 percent of the number of units in the original 
development; or
    (ii) In the case of replacing an occupied development, the number 
of public housing units being constructed is the minimum number needed 
to house current residents that want to remain at the site, so long as 
the number of units is significantly fewer than the number being 
demolished; or
    (iii) The public housing units being constructed constitute no more 
than 25 units.
    (6) The site shall promote greater choice of housing opportunities 
and avoid undue concentration of assisted persons in areas containing a 
high proportion of low-income persons.
    (7) The site shall be free from adverse environmental conditions, 
natural or manmade, such as: Toxic or contaminated soils and 
substances; mudslide or other unstable soil conditions; flooding; 
septic tank backups or other sewage hazards; harmful air pollution or 
excessive smoke or dust; excessive noise or vibration from vehicular 
traffic; insect, rodent or vermin infestation; or fire hazards. The 
neighborhood shall not be seriously detrimental to family life. It 
shall not be filled with substandard dwellings nor shall other 
undesirable elements predominate, unless there is a concerted program 
in progress to remedy the undesirable conditions.
    (8) Through the use of public transportation, the site shall be 
accessible to social, recreational, educational, commercial, health 
facilities, health services, and other municipal facilities and 
services that are at least equivalent to those typically found in 
neighborhoods consisting largely of similar unassisted standard 
housing.
    (9) Through the use of public transportation, the site shall be 
accessible to a range of jobs for low-income workers and for other 
needs.
    (10) The project may not be built on a site that has occupants 
unless the relocation requirements at Sec.  905.308(b)(9) are met.
    (11) The site shall not be in an area that HUD has identified as 
having special flood hazards and in which the sale of flood insurance 
has been made available under the National Flood Insurance Act of 1968, 
unless the development is covered by flood insurance required by the 
Flood Disaster Protection Act of 1973 and meets all applicable HUD 
standards and local requirements.


Sec.  905.604  Mixed-finance development.

    (a) General. A PHA may use a combination of private financing and/
or other public funds and Capital Funds to develop public housing 
units. There are many potential scenarios for ownership and transaction 
structures, ranging from the PHA or its partner(s) holding no ownership 
interest, a partial ownership interest, or 100 percent of the ownership 
of public housing units that are to be developed.
    (1) PHAs and/or their partner(s) may choose to enter into a 
partnership or other contractual arrangement with a third entity for 
the mixed-financed development and/or ownership of public housing 
units. If this entity has primary responsibility along with the PHA for 
the development of these units, it is referred to for purposes of this 
subpart as the PHA's ``partner.'' The entity, other than the PHA itself 
that ultimately owns the public housing units, whether or not the PHA 
retains an ownership interest, is referred to as the ``owner entity.''
    (2) The resulting ``mixed-financed'' developments may consist of 
100 percent public housing units or may consist of public and nonpublic 
housing units. The term ``mixed-finance development'' applies to all 
projects developed by an owner entity regardless of whether there is a 
combination of private or other public sources. The term ``mixed-
finance modernization'' applies to public housing projects modernized 
using the mixed-finance method. Projects developed by ownership 
entities that are modernized using the mixed-finance method shall 
maintain the DOFA that existed prior to mixed-finance modernization. 
Projects modernizing using the mixed-finance method shall have a 
covenant to maintain and operate the project as public housing pursuant 
to 24 CFR 905.304(a)(2). In addition, if a PHA decides to limit the 
term of the ACC by receiving Operating Fund or Capital Fund Only 
assistance, as described in Sec.  905.600(b) and (c), it must follow 
the general development procedures discussed in this subpart.
    (b) Definitions applicable to this section--(1) Development. A 
housing facility consisting of public housing units and that may also 
consist of nonpublic housing units, that has been developed, or that 
will be developed, using mixed-finance strategies under this subpart.
    (2) Mixed-finance. The use of publicly and/or privately financed 
sources of funds for development under this subpart, owned by an owner 
entity of public housing units.
    (3) Owner entity. The owner entity is the entity that will own the 
public units, if the PHA holds less than 100 percent of the ownership 
interest. The owner entity may be a partnership in which the PHA owns a 
partnership interest.
    (4) Participating party. Any person, firm, corporation, or public 
or private entity that:
    (i) Agrees to provide financial or other resources to carry out the 
approved proposal or specified activities in the proposal; or
    (ii) Otherwise participates in the development and/or operation of 
the public housing units and will receive funds derived from HUD with 
respect to such participation. The term ``participating party'' 
includes an owner entity or partner.
    (5) Partner. A third-party entity with which the PHA has entered 
into a partnership or other contractual arrangement to provide for the 
mixed-finance development of public housing units pursuant to this 
subpart. The Partner has primary responsibility with the PHA for the 
development and operation of public housing units under the terms of 
the approved proposal and in compliance with the applicable Public 
Housing Requirements.
    (6) PHA instrumentality. An Instrumentality is an entity related to 
the PHA whose assets, operations, and management are legally and 
effectively controlled by the PHA, and through which PHA functions or 
policies are implemented, and which utilizes public housing funds or 
public housing assets for the purpose of carrying out public housing 
development functions of the PHA. For the Department's purposes, an 
Instrumentality assumes the role of the

[[Page 6677]]

PHA and is the PHA under the Public Housing Requirements for purposes 
of implementing public housing development activities and programs. 
Instrumentalities must be authorized to act for and to assume such 
responsibilities. In addition, an Instrumentality must abide by the 
Public Housing Requirements that would be applicable to the PHA.
    (c) Structure of projects. Each mixed-finance project shall be 
developed in a manner that:
    (1) Ensures the continued operation of public housing in accordance 
with all Public Housing Requirements; and
    (2) Will bear the approximate same proportion to the total number 
of units in the mixed-financed project as the value of the total 
financial commitment provided by the PHA bears to the total financial 
commitment of the project, or shall not be less than the number of 
units that could have been developed under the conventional public 
housing program with the assistance, or as otherwise approved by the 
Secretary.
    (d) Process. Development of a mixed-finance project under this 
subpart is similar to the development of public housing financed 
entirely with Capital Funds. PHAs will be expected to submit 
development and site acquisition proposals as identified in Sec. Sec.  
905.606 and 905.608. There are unique provisions applicable to mixed-
finance projects that are further explained in this section.
    (e) Local cooperation. A PHA may elect to exempt all public housing 
units in a mixed-finance project from provisions under section 6(d) of 
the Act and from the finding of need and cooperative agreement 
provisions under sections 5(e)(1)(ii) and (e)(2) of the Act, 42 U.S.C. 
1437c(e)(1)(ii) and (e)(2), and instead subject units to local real 
estate taxes, but only if the development of the units is not 
inconsistent with the jurisdiction's comprehensive housing 
affordability strategy. If no election is made, the Cooperation 
Agreement as provided in 905.602(a) is required.
    (f) Conflicts. In the event of a conflict between the requirements 
for a mixed-finance project and other requirements of this subpart, the 
mixed-finance public housing requirements shall apply, unless HUD 
determines otherwise in writing.
    (g) HUD approval. For purposes of this section only, any action or 
approval that is required by HUD pursuant to the requirements set forth 
in this section shall be construed to mean HUD Headquarters, unless the 
Field Office is authorized in writing by Headquarters to carry out a 
specific function in this section.
    (h) Irrevocable financial commitment. Irrevocability of funds means 
that binding legal documents, such as loan agreements, mortgages/deeds 
of trust, partnership agreements or operating agreements or similar 
documents committing funds have been executed by the applicable 
parties, though disbursement of such funds may be subject to meeting 
progress milestones, the absence of default, and other commercially 
reasonable conditions precedent under such documents. For projects 
involving revolving loan funds, the irrevocability of funds means that 
funds in an amount identified to HUD as the maximum revolving loan have 
been committed pursuant to legally binding documents, though 
disbursement of such funds may be subject to meeting progress 
milestones, the absence of default, and other commercially reasonable 
conditions precedent under such documents. The PHA must ensure the 
availability of the participating party or parties' financing, the 
amount and source of financing committed to the proposal by the 
participating party or parties, and the irrevocability of those funds.
    (1) To ensure the irrevocable nature of the committed funds, the 
PHA shall: Review the legal documents committing such funds to ensure 
that the progress milestones and conditions precedent contained in such 
contracts are commercially reasonable, as commonly accepted by the 
industry; that the PHA and/or its ownership entity are ready, willing, 
and able to attain such milestones and comply with such preconditions; 
and confirm, after conducting sufficient due diligence, that such 
documents are properly executed by persons or entities legally 
authorized to bind the entity committing such funds.
    (2) The PHA is not required to ensure the availability of funds by 
enforcing documents to which it is not a party.
    (3) The PHA may certify as to the irrevocability of funds through 
the submission of an opinion of the PHA's counsel attesting that 
counsel has examined the availability of the participating party or 
parties' financing, and the amount and source of financing committed to 
the proposal by the participating party or parties, and has determined 
that such financing has been irrevocably committed by the participating 
party or parties for use in carrying out the proposal, and that such 
commitment is in the amount required under the terms of the proposal.
    (i) Comparability. Public housing units built in a mixed-financed 
development must be comparable in size, location, external appearance, 
and distribution to nonpublic housing units within the development.
    (j) Mixed-finance procurement. The requirements of 24 CFR part 85 
and 24 CFR 905.316 are applicable to this subpart with the following 
exceptions:
    (1) PHA may select a development partner using competitive 
proposals procedures for qualifications-based procurement, subject to 
negotiation of fair and reasonable compensation, and compliance with 
TDC and other applicable cost limitations;
    (2) An owner entity (which, as a private entity, would normally not 
be subject to 24 CFR part 85) shall be required to comply with 24 CFR 
part 85 if HUD determines that the PHA or PHA Instrumentality or either 
of their members or employees exercises significant decision-making 
functions within the owner entity with respect to managing the 
development of the proposed units. HUD may, on a case-by-case basis, 
exempt such an owner entity from the need to comply with 24 CFR part 85 
if it determines that the owner entity has developed an acceptable 
alternative procurement plan.
    (k) Operating Fund and Capital Fund only assistance. (1) General. 
PHAs and their partners may develop public housing without the use of 
Capital Funds but for which the PHA agrees to provide only Operating 
Fund assistance. These Operating Fund-only newly developed units will 
be included in the calculation of the Capital Fund formula in Sec.  
905.400. Where the PHA elects in the future to use Capital Funds for 
modernization of Operating Fund only units, the PHA must sign an ACC 
Amendment with a 20-year use restriction and record a Declaration of 
Trust in accordance with Sec.  905.304. In addition, PHAs and their 
partners may develop public housing without the use of Operating Funds 
but for which the HUD and the PHA agree to provide only Capital Fund 
assistance for the development of new units, or, annually, in the 
future, for modernization and capital improvements, and the PHA must 
sign an ACC Amendment with a 40-year use restriction for development of 
new units and a 20-year use restriction for modernization and capital 
improvements and record a Declaration of Trust in accordance with Sec.  
905.304.
    (2) ACC Term and Formula. (i) The term of the mixed-finance ACC 
amendment will be determined based on the assistance as provided in 
Sec.  905.304. For units constructed with the benefit of public housing 
capital assistance, there shall be no disposition of the public housing 
units without the prior written approval of HUD during a 40-year period 
and the public housing

[[Page 6678]]

units shall be maintained and operated in accordance with all 
applicable Public Housing Requirements (including the ACC), as required 
by section 9(d)(3) of the Act, 42 U.S.C. 1437g(d)(3), as those 
requirements may be amended from time to time. For Operating Fund only 
units, there shall be no disposition of the public housing units 
without the prior written approval of HUD during, and for 10 years 
after the end of, the period in which the public housing units receive 
operating subsidy from the PHA, as required by 42 U.S.C. 1437g(e)(3), 
as those requirements may be amended from time to time. For units 
modernized with Capital Funds, the PHA would have to execute an ACC 
Amendment providing for no disposition of the public housing units 
without the prior written approval of HUD during a 20-year period, and 
the public housing units shall be maintained and operated in accordance 
with all applicable Public Housing Requirements (including the ACC), as 
required by 42 U.S.C. 1437g(d)(3), as those requirements may be amended 
from time to time.
    (ii) If the PHA is no longer able to provide Operating Fund 
assistance, the PHA (on behalf of the owner entity) may request to 
terminate the CF ACC early. Where the ACC is terminated early, the PHA 
must provide the resident with a decent, safe, sanitary, and affordable 
unit to which he or she can relocate, which may include a public 
housing unit in another development or a Housing Choice Voucher, and 
pay for the tenant's reasonable moving costs. The URA is not applicable 
in this situation.
    (3) Procedures. PHAs and their partners will develop Operating Fund 
only or Capital Fund only projects in accordance with this part by 
submitting development proposals, site acquisition proposals, and 
closing documents, except that the development proposals submitted, 
pursuant to Sec.  905.606, need only address Sec.  905.606(a), (b) (c), 
(j), (k), and (l). Upon HUD approval of the development proposal and 
closing documents, the PHA and HUD will execute a Mixed-Finance 
Amendment to the ACC for Operating Fund only or Capital Fund only 
assistance projects.
    (l) [Reserved]
    (m) [Reserved]
    (n) Mixed-finance operations--Deviation from HUD requirements 
pursuant to section 35 (h) of the 1937 Act.
    (1) An entity that develops, owns, and operates a mixed-finance 
development in which 20 percent or more of the units are for the rental 
of nonpublic housing may include a provision in the agreement that it 
may deviate from the requirements of the Mixed-Finance ACC and 
applicable public housing regulations regarding rents and income 
eligibility, as provided in paragraph (n)(2) of this section, only when 
there is a reduction in appropriations under section 9(e) of the 1937 
Act (see 42 U.S.C. 1437g(e)), or any other change in law preventing the 
PHA from providing Operating Funds as provided in its contractual 
agreement with the entity.
    (2) Allowable deviations. The agreement may provide for deviations 
from Public Housing Requirements as follows:
    (i) Increased public housing tenant rents, to the extent necessary 
to preserve the viability of units.
    (ii) The owner entity rents vacant public housing units to persons 
who earn more than 80 percent of the adjusted median income (AMI) or to 
persons who are paying more than 30 percent adjusted income for rent.
    (iii) If an owner determines that the amount of income being 
generated after renting the vacant public housing units is still 
insufficient to cover the projected shortfall in operating subsidies 
and if the owner has expended all operating subsidy reserve funds put 
aside for such eventuality, the owner may give written notice to the 
public housing residents that the owner intends to increase the rent 
being charged for the unit. In this case, the owner may increase the 
amount of the public housing rent above the amount established under 
section 3 of the Act, 42 U.S.C. 1437a, but any increased rental charges 
must be strictly limited to the amount needed to meet the projected 
shortfall in operating subsidies.
    (iv) If, after notifying public housing residents of a proposed 
rent increase under Sec.  905.604(n)(2)(iii) of this section, the 
resident is unable to remain in the unit because the new rent is more 
than 40 percent of the tenant's income, the PHA must provide the 
resident with a decent, safe, sanitary, and affordable unit to which he 
or she can relocate, which may include a public housing unit in another 
development or a Housing Choice Voucher, and pay for the tenant's 
reasonable moving costs. The URA is not applicable in this situation. 
Pending the tenant's relocation to another unit, the owner may not 
evict the tenant for nonpayment of rent if the reason for the eviction 
is the resident's inability to pay the incremental increase in rent 
under Sec.  905.604(n)(2)(iii) of this section.
    (v) The owner must have included in each of its leases with public 
housing residents in the mixed-finance development a disclosure that 
the residents may be required to pay a higher rent for the unit, or to 
relocate to another unit, and specific conditions under which a higher 
rent might be charged; that is, a change in subsidy under section 9 of 
the Act, 42 U.S.C. 1437g, or other applicable law.
    (3) Alternative management plan. If the agreement between the PHA 
and the entity contains a provision permitting a deviation from the 
Public Housing Requirements pursuant to section 35(h) of the 1937 Act 
and this part, the alternative management plan between the PHA and the 
entity must be approved by HUD before the implementation of such plan. 
The plan must contain the following:
    (i) A statement describing the owner's reasons for invoking the 
alternative management plan (and, if the plan is being invoked because 
of changes in applicable law(s), a statement as to how the statutory 
changes will materially affect the viability of the public housing 
units);
    (ii) An explanation of the owner's proposed remedies including, but 
not limited to:
    (A) How the owner will select the residents (including a statement 
of their income levels) and units to be affected by the proposed 
remedies;
    (B) The number and income levels of the families proposed to be 
admitted to those public housing units;
    (C) The owner's timetable for implementing the proposed remedies in 
the alternative management plan;
    (iii) An amended agreement between the Owner and PHA that includes 
provisions ensuring that:
    (A) The alternative management plan is reevaluated and approved 
annually by HUD to ensure that implementation of the remedies continues 
to be appropriate;
    (B) The owner complies with the requirements of this part in its 
management and operation of the public housing units following the 
invocation of remedies;
    (C) The owner returns to the PHA any income that is generated by 
the public housing units in excess of the owner's expenses on behalf of 
those units, as a result of its invocation of remedies;
    (D) The owner reinstates all Public Housing Requirements (including 
rent and income eligibility requirements) with respect to the original 
number of public housing units and number of bedrooms, in the mixed-
finance development following the PHA's reinstatement of operating 
subsidies at the level originally agreed to in the regulatory and 
operating agreement; and
    (E) The owner provides written notice to each of the public housing 
residents

[[Page 6679]]

in the mixed-finance development of its intention to invoke remedies 
under a submitted alternative management plan. Such notice must comply 
with all relevant federal, state, and local substantive and procedural 
requirements and, at a minimum, must provide public housing residents 
with 90 days advance notice of any proposal to increase rents or to 
relocate public housing residents to alternative housing.
    (iv) Additional evidence. The PHA must provide documentation that:
    (A) The revenues being generated by the public housing units (in 
combination with the reduced allocation of operating subsidy) are 
inadequate to cover the reasonable and necessary operating expenses of 
the public housing units;
    (B) The deficit in operating revenues is attributable solely to the 
reduction in operating subsidy for the public housing units;
    (C) A demonstration that the PHA cannot meet its contractual 
obligation;
    (D) The reduction in appropriations under section 9 of the 1937 Act 
or other changes in applicable law materially affects the viability of 
the public housing units; and
    (E) The owner has attempted to offset the impact of reduced 
operating subsidies, or changes in applicable law, by expending more 
than 50 percent of the funds from any operating reserve that may have 
been established on behalf of the public housing units.
    (4) HUD review. HUD will review the alternative management plan to 
ensure that the plan meets the requirements of this subpart, and that 
any proposed deviation from standard Public Housing Requirements will 
be implemented only to the extent necessary to preserve the viability 
of the public housing units, while maintaining the low-income character 
of the units to the maximum extent practicable. HUD will complete its 
review of the alternative management plan and provide a decision within 
30 days of its receipt. HUD may disapprove a PHA's request, made on 
behalf of the owner, to invoke or continue remedies under the 
alternative management plan for any of the following reasons:
    (i) That the circumstances upon which the owner's request to invoke 
remedies under the plan are premised do not qualify in accordance with 
section 35(h) of the Act (42 U.S.C. 1437z-7(h)), as determined by HUD, 
or that the original circumstances that triggered the remedies no 
longer continue to apply;
    (ii) In HUD's sole discretion, the owner's proposed deviation(s) 
from standard Public Housing Requirements are not limited to the 
maximum extent practicable to preserving the viability of the public 
housing units and maintaining the low-income character of those units;
    (iii) HUD has factual information available to it that contradicts 
the PHA's and/or the owner's assertions that each of the required 
preconditions for invoking remedies has been satisfied; or
    (iv) HUD has evidence that the proposed alternative management plan 
is not in compliance with the civil rights laws, including the 
requirement to affirmatively further fair housing.
    (5) HUD reevaluation and reapproval. HUD reevaluation and 
reapproval of the alternative management plan is required annually once 
an owner has invoked remedies under an alternative management plan, in 
order to ensure that the circumstances originally triggering the need 
for such remedies, as well as the scope of the remedies, remain valid 
and appropriate.


Sec.  905.606  Development proposal.

    (a) In order to develop any public housing, including mixed-finance 
public housing for rental occupancy, the PHA shall submit a development 
proposal, in the form prescribed by HUD. The development proposal shall 
include some or all of the following documentation, as deemed necessary 
by HUD. Failure to submit and obtain HUD approval may result in the 
Capital Funds used in conjunction with the project being deemed to be 
ineligible expenses. In determining the amount of information to be 
submitted by the PHA, HUD shall consider whether the documentation is 
required for HUD to carry out mandatory statutory, regulatory, or 
Executive Order reviews; the quality of the PHA's past performance in 
implementing development projects under this part; and the PHA's 
demonstrated administrative capability.
    (b) Project description. A description of the proposed project, 
including the proposed development method (e.g., mixed-finance, new 
construction, acquisition); the household type (e.g., family, elderly); 
number and type of units (with bedroom breakout and count) of public 
and nonpublic housing units, if applicable; the method of completing 
construction, including the extent to which the PHA shall use force 
account labor and use of procured contractors; schematic drawings of 
the proposed building and unit plans; and the types and size of 
nondwelling space to be provided. For new construction projects, the 
PHA must include determinations required under Sec.  905.602. If the 
project involves the acquisition of existing properties less than 2 
years old, the PHA must include an attestation from the PHA and owner 
that the property was not constructed with the intent that it would be 
sold to the PHA or that the property was constructed in compliance with 
all applicable requirements (e.g., Davis-Bacon wage rates, 
accessibility, etc.).
    (c) Site information. An identification and description of the 
proposed site, site plan, and neighborhood, and a neighborhood map 
shall be contained in the development proposal and must meet the site 
and neighborhood standards required under Sec.  905.602(d).
    (d) Participant description. Identification of participating 
parties and a description of the activities to be undertaken by each of 
the participating parties and the PHA; and legal and business 
relationships between the PHA and each of the participating parties, as 
applicable.
    (e) Development project schedule. A schedule for the development 
project that includes each major stage of development through and 
including the submission of an Actual Development Cost Certificate to 
HUD.
    (f) Accessibility. A PHA must provide sufficient information for 
HUD to determine that dwelling units and other public housing 
facilities meet accessibility requirements specified at Sec.  905.312, 
including, but not limited to, the number, location, and bedroom size 
distribution of UFAS-accessible dwelling units.
    (g) Project costs.
    (1) Budgets. The PHA shall submit a budget in the form prescribed 
by HUD reflecting the total cost from all sources based on the 
schematic drawings, outline specifications, and construction cost 
estimate. For mixed-financed projects, the PHA shall submit a budget 
for the construction period, a draw schedule identifying the timing of 
construction financing contributions from all sources, and a separate 
budget showing the permanent financing in the project
    (2) TDC comparison. A calculation of the TDC subject to Sec.  
905.314.
    (3) Financing. A PHA must submit a detailed description of all 
financing necessary for the implementation of the project, specifying 
the sources. In addition, HUD may require all documents relating to the 
financing (e.g., loan agreements, notes, etc.) and establishment of 
project reserves.
    (4) Safe harbor standards. HUD will review the project terms when 
receiving development proposals, budgets, and/or other documents that 
contain negotiated terms. In order to expedite the mixed-finance review 
process and control costs, HUD may make available safe

[[Page 6680]]

harbor and maximum fee ranges for a number of costs. If a project is at 
or below a safe harbor standard, no further review will be required by 
HUD. If a project is above a safe harbor standard, additional review by 
HUD will be necessary. In order to approve terms above the safe harbor, 
the PHA must demonstrate to HUD in writing that the negotiated terms 
are appropriate for the level of risk involved in the project, the 
scope of work, any specific circumstances of the development, and the 
local or national market for the services provided.
    (h) Operating pro-forma/Operating Fund methodology. Projects shall 
submit a 10-year operating pro-forma including all assumptions to 
assure that operating expenses do not exceed operating income. For 
mixed-finance development, the PHA must describe its methodology for 
providing and distributing operating subsidy to the owner entity for 
the public housing units.
    (i) Local cooperation agreement. Documentation regarding local 
cooperation agreement in accordance with 905.602(a) or 905.604(e) for 
mixed-finance transactions.
    (j) Environmental requirements. All activities under this part are 
subject to an environmental review by a responsible entity under HUD's 
environmental regulations at 24 CFR part 58 and must comply with the 
requirements of the National Environmental Policy Act of 1969 (NEPA) 
(42 U.S.C. 4321 et seq.) and the related laws and authorities listed at 
24 CFR 58.5. HUD may make a finding in accordance with Sec.  58.11 of 
this title and may perform the environmental review itself under the 
provisions of 24 CFR part 50. In those cases where HUD performs the 
environmental review under 24 CFR part 50, it will do so before 
approving a proposed project, and will comply with the requirements of 
NEPA and the related requirements at 24 CFR 50.4.
    (k) Relocation. Information concerning any displacement of the site 
occupants, including identification of each person displaced, the 
distribution plan for notices, and anticipated cost and source of 
funding for relocation assistance in accordance with Sec.  905.308 
(b)(9). If displacement is due to a HUD-approved demolition or 
disposition of existing public housing, no submission will be required, 
since relocation was required to be addressed prior to demolition/
disposition HUD approval.
    (l) Market analysis. For a mixed-finance development that includes 
nonpublic housing units, the PHA must include an analysis of the 
projected market for the proposed project.
    (m) Program income and fees. HUD will require the PHA to disclose 
information on program income and fees the PHA or its affiliate or 
instrumentality receives.
    (n) Additional HUD-requested information. PHAs are required to 
provide any additional information that HUD may need to determine 
whether it can approve the proposal.


Sec.  905.608  Site or property acquisition proposal.

    (a) When a PHA determines that it is necessary to acquire land or 
property using the Capital Fund for the development of public housing 
prior to approval of the Development Proposal, the PHA shall submit a 
site/property acquisition proposal to HUD for review and approval in 
accordance with 24 CFR 905.610. If site or property will be purchased 
at closing, then the items stated in paragraphs (e) and (f) of this 
section need to be included in the development proposal. The 
acquisition of a site or property for additional public housing is 
subject to requirements contained in Sec.  905.308(b)(9). The site 
acquisition proposal shall include the following:
    (b) Justification. A justification for acquiring property prior to 
Development Proposal submission.
    (c) Description. A description of the property (i.e., proposed site 
or project) to be acquired.
    (d) Project description; site and neighborhood standards. An 
identification and description of the proposed project, site plan, and 
neighborhood, together with information sufficient to enable HUD to 
determine that the proposed site meets the site and neighborhood 
standards at Sec.  905.602(d).
    (e) Zoning. Documentation that the proposed project is permitted by 
current zoning ordinances or regulations or evidence to indicate that 
needed rezoning is likely and will not delay the project.
    (f) Appraisal. Documentation attesting that an appraisal of the 
proposed property by an independent, state-certified appraiser has been 
conducted and that the acquisition is in compliance with Sec.  
905.308(b)(9). The purchase price of the site/property may not exceed 
the appraised value without HUD approval.
    (g) Schedule. A schedule of the activities to be carried out by the 
PHA.
    (h) Environmental assessment. An environmental review or request 
for HUD to perform the environmental review pursuant to Sec.  
905.308(b)(2).
    (i) Relocation. Information concerning any displacement of the site 
occupants, including identification of each person displaced, the 
distribution plan for notices, and anticipated cost and source of 
funding for relocation assistance in accordance with Sec.  
905.308(b)(9). If displacement is due to a HUD-approved demolition or 
disposition of existing public housing, no submission will be required 
since relocation was required to be addressed prior to HUD approval of 
the demolition or disposition.


Sec.  905.610  Technical processing.

    (a) Review. HUD shall review all development proposals and site/
property acquisition proposals for compliance with the statutory, 
Executive Order, and regulatory requirements applicable to the 
development of public housing. In addition, HUD shall conduct any 
necessary statutory and Executive Order reviews with respect to each 
proposal. For mixed-finance proposals, HUD's review will evaluate 
whether the proposed sources and uses of funds are eligible and 
reasonable, and whether the financing and other documentation establish 
to HUD's satisfaction that the development is viable and structured so 
as to adequately protect the federal investment of funds in the 
development. For this purpose, HUD will consider the PHA's proposed 
methodology for allocating operating subsidies on behalf of the public 
housing units, the projected revenue to be generated by any nonpublic 
housing units in a mixed-finance development, and the 10-year operating 
pro-forma and other information contained in the proposal. If public 
housing development funds are to be used to pay for more than the pro 
rata cost of common area improvements, HUD will evaluate the proposal 
to ensure that:
    (1) On a per-unit basis (taking into consideration the number of 
public housing units for which funds have been reserved) the PHA will 
not exceed TDC limits; and
    (2) Common area improvements will benefit the residents of the 
development in a mixed-finance project.
    (b) Approval. If HUD determines that a proposal is approvable, upon 
approval of the Request for Release of Funds and the environmental 
certification submitted in accordance with 24 CFR part 58, HUD shall 
notify the PHA in writing of its approval. The HUD approval will 
include the CF ACC for signature and return by the PHA for execution by 
HUD. Until HUD approves a proposal, a PHA may only draw down funds for 
costs for materials and services related to proposal preparation

[[Page 6681]]

and predevelopment costs approved by HUD.
    (c) Amendments to approved development proposals. The PHA shall 
amend any approved development proposal to which a material change is 
made. HUD's review and approval is required for all amendments to 
approved development proposals. HUD defines a material change as:
    (1) A change in the number of units;
    (2) A change in the number of bedrooms by an increase/decrease of 
more than 10 percent;
    (3) A change in cost or financing by an increase/decrease of more 
than 10 percent;
    (4) A change in the site; or
    (5) A schedule change that results in a PHA's failure to meet 
obligation and expenditure deadlines.


Sec.  905.612  Disbursement of capital funds--predevelopment costs.

    (a) Predevelopment Costs. After inclusion of a new development 
project in the HUD-approved CFP 5-Year Action Plan and the development 
has been entered into applicable HUD data systems, the PHA may request 
funding for predevelopment expenses. Failure to request and obtain HUD 
approval for predevelopment assistance may result in the costs 
associated with the new project being deemed ineligible costs. 
Predevelopment funds may be approved by HUD in accordance with the 
following requirements:
    (1) Predevelopment assistance may be used to pay for materials and 
services related to proposal development and may also be used to pay 
for costs related to the demolition of units on a proposed site or for 
preliminary development work.
    (2) For non-mixed-finance projects, predevelopment funding up to 5 
percent does not require HUD approval. HUD shall determine on a case-
by-case basis that a higher amount that may be drawn down by a PHA to 
pay for necessary and reasonable preliminary development costs, based 
upon a consideration of the nature and scope of activities proposed to 
be carried out by the PHA. For mixed-finance projects, all funding for 
predevelopment must be reviewed and approved by HUD.
    (3) Before a request for predevelopment assistance may be approved, 
the PHA must provide to HUD information and documentation specified in 
Sec. Sec.  905.606 and 905.608 as HUD deems appropriate.
    (4) The requirements in Sec.  905.612(b) to disburse funds for 
mixed-finance projects in an approved ratio to other public and private 
housing do not apply to disbursement of predevelopment funds.
    (b) Standard drawdown requirements.
    (1) General. If HUD determines that the proposed development is 
approvable, it may execute with the PHA a CF ACC Amendment, or mixed-
finance amendment to the CF ACC, as applicable, to provide funds for 
the purposes, and in the amounts approved by HUD. Upon approval of the 
development proposal and all necessary documentation evidencing and 
implementing the development plan, the PHA may disburse amounts as are 
necessary and consistent with the approved development and site 
acquisition proposal without further HUD approval, unless HUD 
determines that such approval is necessary. Once HUD approves the 
acquisition plan, the PHA may request funds for acquisition activities. 
Each Capital Fund disbursement from HUD is deemed to be an attestation 
of compliance by the PHA with the requirements of this part, as 
prescribed in Sec.  905.106. If HUD determines that the PHA is in 
noncompliance with any provision of this part, the PHA may be subject 
to the sanctions in subpart H, Sec.  905.800 of this part.
    (2) Mixed-finance projects. Upon HUD approval of final, fully 
executed and, where appropriate, recorded closing documents submitted 
pursuant to Sec.  905.604(l), the PHA may disburse funds from HUD only 
in an approved ratio to other public and private funds, in accordance 
with a disbursement schedule prepared by the PHA and approved by HUD. 
The ratio applies to the overall project and not to each drawdown. The 
PHA will release funds to its partner consistent with Sec.  905.316.

Subpart G--Other Security Interests


Sec.  905.700  Other security interests.

    (a) The PHA may not pledge, mortgage, enter into a transaction that 
provides recourse to public housing assets, or otherwise grant a 
security interest in any public housing project, portion thereof, or 
other property of the PHA without written approval of HUD.
    (b) The PHA shall submit the request in the form and manner 
prescribed by HUD.
    (c) HUD shall consider:
    (1) The ability of the PHA to complete the financing, the 
improvements, and repay the financing;
    (2) The reasonableness of the provisions in the proposal; or
    (3) Any other factors HUD deems appropriate.

Subpart H--Compliance, HUD Review, Penalties, and Sanctions


Sec.  905.800  Compliance.

    As provided in Sec.  905.106, PHAs or other owner/management 
entities and their partners are required to comply with all applicable 
provisions of this part. Execution of the CF ACC Amendment received 
from the PHA, submissions required by this part, and disbursement of 
Capital Fund grants from HUD are individually and collectively deemed 
to be the PHA's certification that it is in compliance with the 
provisions of this part and all other Public Housing Program 
Requirements. Noncompliance with any provision of this part or other 
applicable requirements may subject the PHA and/or its partners to 
sanctions contained in Sec.  905.804.


Sec.  905.802  HUD review of PHA performance.

    (a) HUD Determination. HUD shall review the PHA's performance in 
completing work in accordance with this part at least annually. HUD may 
make such other reviews when and as it determines necessary. When 
conducting such a review, HUD shall, at minimum, make the following 
determinations:
    (1) HUD shall determine whether the PHA has carried out its 
activities under this part in a timely manner and in accordance with 
its CFP 5-Year Action Plan and other applicable requirements.
    (2) HUD shall determine whether the PHA has a continuing capacity 
to carry out its Capital Fund activities in a timely manner.
    (3) HUD shall determine whether the PHA has accurately reported its 
obligation and expenditures in a timely manner.
    (4) HUD shall determine whether the PHA has accurately reported 
required building and unit data for the calculation of the formula.
    (5) HUD shall determine whether the PHA has obtained approval for 
any CFFP or OFFP proposal and any PHA development proposal.
    (b) [Reserved]


Sec.  905.804  Sanctions.

    (a) If at any time, HUD finds that a PHA has failed to comply 
substantially with any provision of this part, HUD may impose one or a 
combination of sanctions, as it determines is necessary. Sanctions 
associated with failure to obligate or expend in a timely manner are 
specified at Sec.  905.306. Other possible sanctions for noncompliance 
by the PHA that HUD may impose include, but are not limited to the 
following:

[[Page 6682]]

    (1) Issue a corrective action order at any time by notifying the 
PHA of the specific program requirements that the PHA has violated, and 
specifying that any of the corrective actions listed in this section 
must be taken. Any corrective action ordered by HUD shall become a 
condition of the CF ACC.
    (2) Reimburse from non-HUD sources.
    (3) Limit, withhold, reduce, or terminate Capital Fund or Operating 
Fund assistance.
    (4) Issue a Limited Denial of Participation or Debar responsible 
PHA officials pursuant to 24 CFR part 24, subpart J.
    (5) Withhold assistance to the PHA under section 8 of the Act, 42 
U.S.C. 1437f.
    (6) Declare a breach of the CF ACC with respect to some or all of 
the PHA's functions.
    (7) Take any other corrective action or sanction, as HUD deems 
necessary.
    (b) Right to Appeal. Before taking any action described in 
paragraph (a) of this section, HUD shall notify the PHA and provide an 
opportunity, within a prescribed period of time, to present any 
arguments or additional facts and data concerning the proposed action 
to the Assistant Secretary for Public and Indian Housing

PART 941--[REMOVED]

    4. Remove part 941, consisting of Sec. Sec.  941.101-941.616.

PART 968--[REMOVED]

    5. Remove part 968, consisting of Sec. Sec.  968.101-968.435.

PART 969--[REMOVED]

    6. Remove part 969, consisting of Sec. Sec.  969.101-969.107.

    Dated: December 23, 2010.
Sandra B. Henriquez,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 2011-2303 Filed 2-4-11; 8:45 am]
BILLING CODE 4210-67-P