[Federal Register Volume 88, Number 5 (Monday, January 9, 2023)]
[Proposed Rules]
[Pages 1149-1151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-00140]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 88, No. 5 / Monday, January 9, 2023 / 
Proposed Rules  

[[Page 1149]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR 3560

[Docket No. RHS-22-MFH-0005]
RIN 0575-AD23


Changes Related to Reserve Account Administration in Multi-Family 
Housing (MFH) Direct Loan Programs

AGENCY: Rural Housing Service, U.S. Department of Agriculture (USDA).

ACTION: Proposed rule.

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

SUMMARY: The Rural Housing Service (RHS or Agency), a Rural Development 
(RD) agency of the United States Department of Agriculture (USDA), 
proposes to amend its regulation to implement changes related to the 
administration of property reserve accounts under the Multi-Family 
Housing (MFH) section 515, Rural Rental Housing, and section 514 Farm 
Labor Housing programs. The intent of this proposed rule is to increase 
flexibility in project refinancing for additional capital improvements 
needed at MFH section 515, Rural Rental Housing, and section 514 Farm 
Labor Housing properties.

DATES: Comments on the proposed rule must be received on or before 
March 10, 2023.

ADDRESSES: Comments may be submitted electronically by the Federal 
eRulemaking Portal: Go to https://www.regulations.gov and, in the 
``Search Field'' box, labeled ``Search for Rules, Proposed Rules, 
Notices, or Supporting Documents,'' enter the following docket number: 
(RHS-22-MFH-0005) or the RIN# 0575-AD23. To submit or view public 
comments, click the ``Search'' button, select the ``Documents'' tab, 
then select the following document title: (Changes Related to Reserve 
Account Administration in Multi-Family Housing (MFH) Direct Loan 
Programs) from the ``Search Results,'' and select the ``Comment'' 
button. Before inputting your comments, you may also review the 
``Commenter's Checklist'' (optional). Insert your comments under the 
``Comment'' title, click ``Browse'' to attach files (if available). 
Input your email address and select ``Submit Comment.'' Information on 
using Regulations.gov, including instructions for accessing documents, 
submitting comments, and viewing the docket after the close of the 
comment period, is available through the site's ``FAQ'' link.
    Other Information: Additional information about Rural Development 
(RD) and its programs is available on the internet at https://www.rd.usda.gov/.
    All comments will be available online for public inspection at the 
Federal eRulemaking Portal (https://www.regulations.gov).

FOR FURTHER INFORMATION CONTACT: Jennifer Larson, Multi-Family Housing 
Portfolio Management Division, Rural Housing Service, 1400 Independence 
Avenue SW, Washington DC 20250-0782, Telephone: (202) 720-1615; Email: 
[email protected].

SUPPLEMENTARY INFORMATION: 

I. Background

    The RHS, an agency of the USDA, offers a variety of programs to 
build or improve housing and essential community facilities in rural 
areas. RHS offers loans, grants, and loan guarantees for single- and 
multi-family housing, childcare centers, fire and police stations, 
hospitals, libraries, nursing homes, schools, first responder vehicles 
and equipment, and housing for farm laborers. RHS also provides 
technical assistance loans and grants in partnership with non-profit 
organizations, Indian tribes, state and Federal government agencies, 
and local communities.
    Title V of the Housing Act of 1949 (Act) authorized the USDA to 
make housing loans to farmers to enable them to provide habitable 
dwellings for themselves or their tenants, lessees, sharecroppers, and 
laborers. The USDA then expanded opportunities in rural areas, making 
housing loans and grants to rural residents through the Single-Family 
Housing (SFH) and Multi-Family Housing (MFH) Programs.
    The RHS operates the MFH section 515 Rural Rental Housing direct 
loan program. The Section 515 program employs a public-private 
partnership by providing subsidized loans at an interest rate of one 
percent to developers to construct or renovate affordable rental 
complexes in rural areas. This one percent loan keeps the debt service 
on the property sufficiently low to support below-market rents 
affordable to low-income tenants. Many of these projects also utilize 
low-income housing tax credit proceeds.
    The RHS also operates the MFH Farm Labor Housing direct loan and 
grant programs under sections 514 and 516 which provide low interest 
loans and grants to provide housing for farmworkers. These eligible 
farmworkers may work either at the borrower's farm (``on-farm'') or at 
any other farm (``off-farm'').

II. Purpose of This Regulatory Action

    On March 1, 2022, RHS published a final rule in the Federal 
Register (87 FR 11275) requiring MFH direct loan housing projects to 
maintain a reserve account, subject to the requirements of 7 CFR part 
1902, subpart A, regarding supervised bank accounts. The final rule 
also stipulated that a MFH housing project's reserve account may 
alternatively be escrowed by the Agency when the Agency deems 
necessary. In addition, the March 1, 2022, rule allowed for an annual 
U.S. Department of Housing and Urban Development Operating Cost 
Adjustment Factor (OCAF) increase in contributions to a MFH project 
reserve account. The borrower may choose the option for annual 
incremental OCAF increases in a project's reserve account 
contributions, which may improve property preparedness to address 
capital needs over the life of the project.
    Amendments proposed in this rule are designed to increase 
flexibility in project refinancing for additional capital improvements 
needed for a section 515 or 514 MFH property. The MFH direct loan 
project's general operating account is deemed to contain surplus funds 
when the balance at the end of the housing project's fiscal year, after 
all payables, exceeds 20 percent of the operating and maintenance 
expenses. When a MFH property's Agency-approved budget results in 
surplus cash at the end of the year, this proposed change to the 
current regulation will allow the borrower to use surplus cash to fund 
Agency-approved soft debt. MFH-approved soft debt, such as ``cash flow 
notes,'' are often provided by state

[[Page 1150]]

or local government as vital, additional sources of MFH direct loan 
property rehabilitation funding. The changes will allow owners the 
flexibility to access surplus cash notes as a new source of capital for 
property improvements, and to implement operating cost increases in 
property reserve contributions.

III. Summary of Changes

    The proposed changes would amend 7 CFR 3560.306 to include reducing 
debt service on other third-party debt, as an allowable use of funds, 
including payments toward cash flow notes. Allowing borrowers to use 
surplus funds to repay third-party debt would allow those borrowers to 
access state and local government funding available as a capital source 
for property improvements. Acceptable third-party debt, including cash 
flow notes, will take the form of a written agreement for the payment 
of an Agency-approved debt obligation, with or without interest. 
Payments may occur only after approval has been granted by the Agency. 
These changes are designed to improve property condition and increase 
tools available to borrowers to preserve properties as affordable 
housing resources. This proposed rule no longer includes the reduction 
in rents as an allowable use of surplus funds, as rent-setting is part 
of the annual proposed budget process and should not be included in the 
reserve account section of this regulation. These changes are designed 
to improve property condition and increase tools available to borrowers 
to preserve properties as affordable housing resources.

IV. Regulatory Information

Statutory Authority

    The Rural Rental Housing program is authorized under sections 514, 
515, 516 of title V of the Housing Act of 1949, as amended; 42 U.S.C. 
1480 et seq.; and implemented under 7 CFR part 3560.

Executive Order 12372, Intergovernmental Review of Federal Programs

    These loans are subject to the provisions of Executive Order 12372, 
which requires intergovernmental consultation with state and local 
officials. RHS conducts intergovernmental consultations for each loan 
in accordance with 2 CFR part 415, subpart C.

Executive Order 12866, Regulatory Planning and Review

    This proposed rule has been determined to be non-significant and, 
therefore, was not reviewed by the Office of Management and Budget 
(OMB) under Executive Order 12866.

Executive Order 12988, Civil Justice Reform

    This proposed rule has been reviewed under Executive Order 12988. 
In accordance with this rulemaking: (1) Unless otherwise specifically 
provided, all state and local laws that conflict with this rulemaking 
will be preempted; (2) no retroactive effect will be given to this 
rulemaking except as specifically prescribed in the rule; and (3) 
administrative proceedings of the National Appeals Division of the 
Department of Agriculture (7 CFR part 11) must be exhausted before 
suing in court that challenges action taken under this rulemaking.

Executive Order 13132, Federalism

    The policies contained in this proposed rule do not have any 
substantial direct effect on States, on the relationship between the 
National Government and the States, or on the distribution of power and 
responsibilities among the various levels of government. This proposed 
rule does not impose substantial direct compliance costs on state and 
local governments; therefore, consultation with States is not required.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This executive order imposes requirements on RHS in the development 
of regulatory policies that have tribal implications or preempt tribal 
laws. RHS has determined that the proposed rule does not have a 
substantial direct effect on one or more Indian tribe(s) or on either 
the relationship or the distribution of powers and responsibilities 
between the Federal Government and Indian tribes. Thus, this proposed 
rule is not subject to the requirements of Executive Order 13175. If 
tribal leaders are interested in consulting with RHS on this 
rulemaking, they are encouraged to contact USDA's Office of Tribal 
Relations or RD's Tribal Coordinator at: [email protected] to request such 
a consultation.

National Environmental Policy Act

    This document has been reviewed in accordance with 7 CFR part 1970, 
subpart A, ``Environmental Policies.'' RHS determined that this action 
does not constitute a major Federal action significantly affecting the 
quality of the environment. In accordance with the National 
Environmental Policy Act of 1969, Public Law 91-190, an Environmental 
Impact Statement (EIS) is not required.

Regulatory Flexibility Act

    This proposed rule has been reviewed with regard to the 
requirements of the Regulatory Flexibility Act (5 U.S.C. 601-612). The 
undersigned has determined and certified by signature on this document 
that this proposed rule will not have a significant economic impact on 
a substantial number of small entities since this rulemaking action 
does not involve a new or expanded program nor does it require any more 
action on the part of a small business than required of a large entity.

Unfunded Mandate Reform Act (UMRA)

    Title II of the UMRA, Public Law 104-4, establishes requirements 
for Federal agencies to assess the effects of their regulatory actions 
on state, local, and tribal governments and on the private sector. 
Under section 202 of the UMRA, Federal agencies generally must prepare 
a written statement, including cost-benefit analysis, for proposed and 
Final Rules with ``Federal mandates'' that may result in expenditures 
to state, local, or tribal governments, in the aggregate, or to the 
private sector, of $100 million or more in any one year. When such a 
statement is needed for a rule, section 205 of the UMRA generally 
requires a Federal agency to identify and consider a reasonable number 
of regulatory alternatives and adopt the least costly, more cost-
effective, or least burdensome alternative that achieves the objectives 
of the rule.
    This proposed rule contains no Federal mandates (under the 
regulatory provisions of title II of the UMRA) for state, local, and 
tribal governments or for the private sector. Therefore, this proposed 
rule is not subject to the requirements of sections 202 and 205 of the 
UMRA.

Paperwork Reduction Act

    The information collection requirements contained in this 
regulation have been approved by OMB and have been assigned OMB control 
number 0575-0189. This proposed rule contains no new reporting and 
recordkeeping requirements that would require approval under the 
Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35).

E-Government Act Compliance

    RHS is committed to complying with the E-Government Act by 
promoting the use of the internet and other information technologies to 
provide

[[Page 1151]]

increased opportunities for citizen access to government information, 
services, and other purposes.

Civil Rights Impact Analysis

    Rural Development has reviewed this proposed rule in accordance 
with USDA Regulation 4300-4, Civil Rights Impact Analysis, to identify 
any major civil rights impacts the proposed rule might have on program 
participants on the basis of age, race, color, national origin, sex, or 
disability. After review and analysis of the proposed rule and 
available data, it has been determined that implementation of the 
rulemaking will not adversely or disproportionately impact very low, 
low- and moderate-income populations, minority populations, women, 
Indian tribes, or persons with disability by virtue of their race, 
color, national origin, sex, age, disability, or marital or familial 
status. No major civil rights impact is likely to result from this 
proposed rule.

Assistance Listing

    The program affected by this regulation is listed in the Assistance 
Listing Catalog (formerly Catalog of Federal Domestic Assistance) under 
number 10.415-Rural Rental Housing Loans.

Non-Discrimination Statement Policy

    In accordance with Federal civil rights laws and U.S. Department of 
Agriculture (USDA) Remedies and complaint filing deadlines vary by 
program or incident.
    Program information may be made available in languages other than 
English. Persons with disabilities who require alternative means of 
communication to obtain program information (e.g., Braille, large 
print, audiotape, American Sign Language) should contact the 
responsible Mission Area, agency, or staff office; the USDA TARGET 
Center at (202) 720-2600 (voice and TTY); or the Federal Relay Service 
at (800) 877-8339.
    To file a program discrimination complaint, a complainant should 
complete a Form AD-3027, USDA Program Discrimination Complaint Form, 
which can be obtained online at https://www.ocio.usda.gov/document/ad-3027, from any USDA office, by calling (866) 632-9992, or by writing a 
letter addressed to USDA. The letter must contain the complainant's 
name, address, telephone number, and a written description of the 
alleged discriminatory action in sufficient detail to inform the 
Assistant Secretary for Civil Rights (ASCR) about the nature and date 
of an alleged civil rights violation. The completed AD-3027 form or 
letter must be submitted to USDA by:
    (1) Mail: U.S. Department of Agriculture, Office of the Assistant 
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 
20250-9410; or
    (2) Fax: (833) 256-1665 or (202) 690-7442; or
    (3) Email: [email protected].
    USDA is an equal opportunity provider, employer, and lender.

List of Subjects in 7 CFR 3560

    Accounting, Administrative practice and procedure, Aged, Conflicts 
of interest, Government property management, Grant programs-housing and 
community development, Insurance, Loan programs-agriculture, Loan 
programs-housing and community development, Low and moderate-income 
housing, Migrant labor, Mortgages, Nonprofit organizations, Public 
housing, Rent-subsidies, Reporting and recordkeeping requirements, 
Rural areas.

    For the reasons set forth in the preamble, Rural Housing Service 
proposes to amend 7 CFR part 3560 as follows:

PART 3560--DIRECT MULTI-FAMILY HOUSING LOANS AND GRANTS

0
1. The authority citation for part 3560 continues to read as follows:

    Authority:  42 U.S.C. 1480.

Subpart G--Financial Management

0
2. Amend Sec.  3560.306 by revising paragraph (d)(2) to read as 
follows:


Sec.  3560.306   Reserve account.

* * * * *
    (d) * * *
    (2) If a housing project's general operating account has surplus 
funds at the end of the housing project's fiscal year per paragraph 
(d)(1) of this section, the borrower will be required to use such 
surplus for one of the following (not in priority order): use the 
surplus funds to address capital needs, make a deposit in the reserve 
account or reduce the debt service on the borrower's loans, including 
Agency-approved third-party debt. The prior written consent of the 
Agency must be obtained before surplus funds may be used to pay debt 
service on third-party debt. At the end of the borrower's fiscal year, 
if the borrower is required to transfer surplus funds from the general 
operating account to the reserve account, the transfer does not change 
the future required contributions to the reserve account.
* * * * *

Joaquin Altoro,
Administrator, Rural Housing Service.
[FR Doc. 2023-00140 Filed 1-6-23; 8:45 am]
BILLING CODE 3410-XV-P