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Required Conversion of Developments From Public Housing Stock
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[Federal Register: September 17, 2003 (Volume 68, Number 180)]
[Rules and Regulations]
[Page 54599-54612]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17se03-16]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 972
[Docket No. FR-4475-F-02]
RIN 2577-AC01
Required Conversion of Developments From Public Housing Stock
AGENCY: Office of the Assistant Secretary for Public and Indian
Housing, HUD.
ACTION: Final rule.
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SUMMARY: This final rule implements section 537 of the Quality Housing
and Work Responsibility Act of 1998. Section 537 requires Public
Housing Agencies (PHAs) to identify distressed public housing
developments that must be converted to tenant-based assistance. If it
would be more expensive to modernize and operate a distressed
development for its remaining useful life than to provide tenant-based
assistance to all residents, or the PHA cannot assure the long-term
viability of a distressed development, then it must develop and carry
out a plan to remove the development from its public housing inventory
and convert it to tenant-based assistance. Since the cost methodology
necessary to conduct the cost comparisons for required conversions has
not yet been finalized, PHAs are not required to undertake conversions
under this final rule until the effective date of the cost methodology.
HUD is publishing a proposed rule elsewhere in today's Federal Register
to provide the public with an opportunity to comment on the methodology
that HUD proposes be used for the required cost comparisons. This final
rule follows publication of a July 23, 1999, proposed rule and takes
into consideration the public comments received on the proposed rule.
DATES: Effective Date: March 15, 2004.
FOR FURTHER INFORMATION CONTACT: Bessy Kong, Acting Deputy Assistant
Secretary for Policy, Program, and Legislative Initiatives, Department
of Housing and Urban Development, Office of Public and Indian Housing,
451 Seventh Street, SW., Room 4116, Washington, DC 20410-5000;
telephone (202) 708-0713 (this is not a toll-free telephone number).
Persons with hearing or speech impairments may access this number via
TTY by calling the toll-free Federal Information Relay Service at 1-
800-877-8339.
SUPPLEMENTARY INFORMATION:
I. Background
A. The July 23, 1999, Proposed Rule
On July 23, 1999 (64 FR 40232), HUD published for public comment a
proposed rule implementing section 537 of the Quality Housing and Work
Responsibility Act of 1998 (Title V of the Fiscal Year 1999 HUD
Appropriations Act; Pub. L. 105-276, approved October 21, 1998)
(QHWRA). Section 537 of QHWRA added a new section 33 to the United
States Housing Act of 1937 (42 U.S.C. 1437 et seq.) (1937 Act). Section
33 requires Public Housing Agencies (PHAs) to annually review their
public housing inventory and identify distressed developments that must
be converted to tenant-based assistance. If it would be more expensive
to modernize and operate a distressed development for its remaining
useful life than to provide tenant-based assistance to all residents,
or the PHA cannot assure the long-term viability of a distressed
development, then it must develop and carry out a plan to remove the
development from its public housing inventory and convert it to tenant-
based assistance. In the July 23, 1999, proposed rule HUD proposed to
implement the provisions for required conversions through the creation
of a new 24 CFR part 972, subpart A.
B. Relationship to Required Conversion Under Section 202 of the FY 1996
HUD Appropriations Act
Section 537 of QHWRA also repealed section 202 of the Fiscal Year
1996 HUD Appropriations Act (42 U.S.C. 1437l note). Section 202
provided for a program of required conversion of distressed public
housing. HUD implemented section 202 by issuing the regulations located
at 24 CFR part 971. Although section 202 has been repealed,
developments that were identified by PHAs or by HUD--before the
enactment of QHWRA--for conversion, or for assessment of whether such
conversion is required, continue to be subject to the requirements of
section 202 and the part 971 regulations implementing that section
until such requirements are satisfied. Thereafter, the provisions of
this final rule apply to any remaining public housing on the sites of
those developments.
C. Relationship to Voluntary Conversion
In addition to revising the statutory provisions for required
conversions, QHWRA created a program of voluntary conversions. Section
533 of QHWRA revised section 22 of the 1937 Act, entitled ``Authority
to Convert Public Housing to Vouchers.'' A separate proposed rule was
published on July 23, 1999 (64 FR 40240), to implement these provisions
through a new 24 CFR part 972, subpart B. The final rule that will make
these amendments effective is published elsewhere in today's Federal
Register.
II. This Final Rule
This final rule establishes regulatory policies and procedures for
the program of required conversions authorized under section 33 of the
1937 Act. The final rule follows publication of the July 23, 1999,
proposed rule and takes into consideration the public comments received
on the proposed rule. The major changes made by this final rule to the
July 23, 1999, proposed rule are summarized below.
A. General Changes
1. Reorganization and clarification of required conversion
requirements. For purposes of clarity, this final rule reorganizes and
consolidates several of the regulatory provisions contained in the
proposed rule. For example, the final rule now groups all regulatory
provisions concerning similar subject matter (such as the required
conversion process and conversion plans) under headings that identify
the subject of the related requirements. In addition, the final rule
replaces the question and answer format used in the proposed rule with
standard section headings that identify the subject of the regulatory
provisions. Further, a new section (Sec. 972.106) has been added,
which summarizes the required conversion process.
2. Applicability of the Uniform Relocation Act. The final rule adds
a new Sec. 972.118, which affirms that, to the extent that tenants are
displaced as a direct result of the demolition, acquisition, or
rehabilitation of federally-assisted property converted pursuant to
this final rule, the requirements of the Uniform Relocation Assistance
and Real Property Acquisition Policies Act of 1970 (42 U.S.C. 4601)
(URA), and the implementing regulations issued by the Department of
Transportation at 49 CFR part 24, apply.
B. Changes Regarding Identification of Developments Subject to Required
Conversion
1. Revised vacancy rate for purposes of determining distress. HUD
has revised the rule to provide that, for the first five years
following the effective date of this final rule, a 15 percent vacancy
rate will be used for purposes of determining whether a development is
subject to required conversion. A 12
[[Page 54601]]
percent vacancy rate will be used after the expiration of this five-
year period. The use of the 15 percent vacancy rate will allow PHAs and
HUD to focus their conversion efforts on the most distressed public
housing during the initial implementation of the final rule.
2. Prevention of intentional vacancies. The final rule adds a new
provision that prevents the intentional creation of vacancies by PHAs
for purposes of triggering a required conversion. Specifically, the
final rule provides that vacant units will not be considered in the
determination of distress if HUD, in its sole discretion, determines
that the vacancies were created intentionally and do not indicate
continued distress.
3. Standards for distressed properties. The final rule provides
that a property that meets the standards for a distressed development
will not be considered to be distressed if HUD determines that the
reasons the property meets such standards are temporary in duration and
are unlikely to recur.
4. Income-mix standard. HUD has revised the income-mix component of
the long-term viability test to more closely track the statutory
language of section 33. Specifically, the final rule provides that a
development satisfies the income-mix requirements if, after reasonable
investment for the specified period of time, it is probable that the
development ``can achieve a broader range of family income.''
5. Reasonableness of proposed revitalization costs for viability.
In order for a development to satisfy the long-term viability test, the
proposed revitalization costs for viability must be reasonable. The
proposed rule provided that the revitalization cost estimate contained
in the PHA's most recent comprehensive plan for modernization should be
used for this purpose. However, since HUD no longer requires
comprehensive plans for modernization, this final rule provides that a
PHA shall use the revitalization cost estimate contained in the PHA's
most recent Annual Plan or 5-Year Plan, unless the PHA demonstrates, or
HUD determines, that another cost estimate is clearly more realistic to
ensure viability and to sustain the operating costs.
C. Changes Regarding Conversion Plan Requirements
1. Relocation Plan. The final rule provides that the relocation-
related requirements of a conversion plan must be contained in a
relocation plan, which must include a budget for carrying out
relocation activities.
2. Schedule for the provision of moving expenses. The final rule
clarifies that any required conversion plan must also include a
schedule for providing actual and reasonable relocation expenses, as
determined by the PHA, to families displaced by the conversion.
3. URA notices of displacement. For purposes of clarity, HUD has
revised the rule to more closely conform to the notice requirements of
the URA and the implementing regulations at 49 CFR part 24. As required
by 49 CFR 24.203, if a required conversion is subject to the URA, PHAs
must provide families scheduled to be displaced with a General
Information Notice, a Notice of Relocation Eligibility or Notice of
Non-displacement (as applicable), and a 90-day advance notice of the
earliest date by which a resident may be required to move.
The General Information Notice provides families subject to
displacement with certain information regarding their rights under URA.
Under the URA regulation at 49 CFR 24.203, persons subject to
displacement must be provided with the General Information Notice ``as
soon as feasible.'' Accordingly, this final rule requires that the PHA
provide families with the General Information Notice no later than the
date the conversion plan is submitted to HUD.
The Notice of Relocation Eligibility advises families subject to
displacement that they are eligible for relocation assistance as of a
certain date that agencies are free to define (called the ``date of
initiation of negotiations'' in the URA regulations). This final rule
provides that, for purposes of required conversions, the ``date of
initiation of negotiations'' shall be the date that HUD approves the
conversion plan.
HUD Handbook 1378.0, ``Tenant Assistance, Relocation and Real
Property Acquisition'' (issued on March 28, 1996), provides additional
details and helpful information regarding the basic statutory and
regulatory requirements that must be followed by an agency that carries
out real property acquisition or the displacement of a person for a
project or program for which HUD financial assistance is provided,
including the notice requirements discussed above. Interested persons
may download a copy of Handbook 1378.0 through HUD's Client Information
and Policy System (HUDCLIPS) Web page at http://www.hudclips.org. 
4. Provision of voucher assistance used for relocation. The final
rule provides that, where Section 8 voucher assistance is being used
for relocation, the vouchers must be provided to the family at least 90
days before conversion.
5. Comparable housing in the form of tenant-based assistance. The
final rule revises the ``comparable housing'' requirements of the
proposed rule to more closely track the statutory language of section
33 of the 1937 Act. Specifically, the final rule provides that families
displaced as a result of conversion be offered comparable housing,
which may include tenant-based or project-based assistance, or
occupancy in a unit operated or assisted by the PHA. Further, if
tenant-based assistance is used, the comparable housing requirement is
fulfilled only upon relocation of the family into such housing.
6. Mobility counseling. For purposes of clarity, this final rule
specifies that the required PHA counseling to displaced families must
include appropriate mobility counseling. The PHA may finance the
mobility counseling using Operating Fund, Capital Fund, or Section 8
administrative fee funding.
7. Certification of consistency with Consolidated Plan. The final
rule clarifies that if a PHA elects to satisfy the consultation
requirements by certifying that its conversion plan is consistent with
the Consolidated Plan, this certification may be the same certification
as is required for the PHA Annual Plan that includes the conversion
plan, so long as the certification specifically addresses the
conversion plan.
8. Clarification of consultation requirements. The final rule
clarifies that the PHA must hold at least one meeting with the
residents of the affected sites. The language of the proposed rule
would have required one meeting between the PHA and residents, but was
silent regarding the possibility of the PHA sponsoring additional
meetings. This final rule also clarifies that the PHA must meet to
discuss the required conversion with any duly elected resident council
that covers the development in question.
9. Incorporation of conversion plan in PHA Plan. As provided in the
July 23, 1999, proposed rule, this final rule requires that a PHA must
submit any required conversion plan as part of the PHA's Annual Plan.
Since the cost methodology necessary to conduct the required cost
comparisons has not yet been finalized, this final rule provides that
this requirement will not become effective until PHA fiscal years
commencing six months after the effective date of the cost methodology.
A proposed cost methodology was contained in HUD's July 23, 1999,
proposed rule on voluntary conversions (although the methodology also
applies
[[Page 54602]]
to required conversions). HUD has decided to significantly revise the
cost methodology, based both on the public comments received on the
voluntary conversion proposed rule and upon further consideration of
the cost factors that should be assessed by PHAs in making conversion
determinations. Accordingly, HUD has decided to issue a new proposed
rule published elsewhere in today's Federal Register, which provides
the public with an additional opportunity to comment on the methodology
that will be used for the required cost comparisons.
Since the cost methodology necessary to conduct the required cost
comparisons has not yet been finalized, HUD is delaying the effective
date of this rule for a period of six months (180 days) following
publication (as opposed to the customary 30-day period). HUD's goal is
to have a final rule establishing the cost methodology in effect by
this date. Delaying the effective date of this rule for six months will
permit the final rule to take effect as close as possible to the
targeted effective date for the cost methodology.
While the cost methodology is being completed, PHAs may wish to
prepare for required conversions by using the proposed methodology
contained in the HUD proposed rule being published today. However,
because the final methodology may differ from what is contained in the
proposed rule, PHAs should not assume that the proposed cost test will
be final with respect to possible required or voluntary conversions.
HUD will revise the PHA Plan instructions to accommodate submission of
any required conversion plan.
D. Change Regarding HUD Actions With Respect to Required Conversions
1. Clarification of HUD Actions with Respect to Required
Conversions. The final rule clarifies the actions HUD will take if a
PHA fails to properly identify a development for required conversion,
or does not submit a conversion plan for a development in the PHA
Annual Plan following the Annual Plan in which the development was
identified as subject to required conversion. Specifically, the final
rule provides that HUD will disqualify the PHA from HUD funding
competitions and direct the PHA to cease additional spending in
connection with a development that meets, or is likely to meet, the
statutory criteria, except to the extent that failure to expend such
amounts would endanger health or safety. HUD may also take any or all
of the following actions: (1) Identify developments that fall within
the statutory criteria where the PHA has failed to do so properly; (2)
take appropriate actions to ensure the conversion of developments where
the PHA has failed to adequately develop or implement a conversion
plan; (3) require the PHA to revise the conversion plan, or prohibit
conversion, where HUD has determined that the PHA has erroneously
identified a development as being subject to the requirements of this
section; (4) authorize or direct the transfer of capital or operating
funds committed to or on behalf of the development (including
comprehensive improvement assistance, comprehensive grant or Capital
Fund amounts attributable to the development's share of funds under the
formula, and major reconstruction of obsolete projects funds) to
tenant-based assistance or appropriate site revitalization for the
agency; and (5) any other action that HUD determines appropriate and
has the authority to undertake.
2. HUD review of conversion plans. The final rule clarifies that
HUD anticipates that its review of a conversion plan will ordinarily
occur within 90 days following submission of a complete plan by the
PHA. A longer process may be required where HUD's initial review of the
plan raises questions that require further discussion with the PHA. In
any event, HUD will provide all PHAs with a preliminary response within
90 days following submission of a conversion plan.
III. Discussion of Public Comments Received on the July 23, 1999,
Proposed Rule
The public comment period closed on September 21, 1999. By close of
business on this date, HUD had received five public comments. Comments
were submitted by a PHA; two of the three main organizations
representing PHAs; and two legal aid organizations. This section of the
preamble presents a summary of the significant issues raised by the
public commenters on the July 23, 1999, proposed rule and HUD's
responses to these comments.
A. Comments Regarding Standards for Identifying Public Housing
Developments Subject to Required Conversion (Sec. 972.04 of the
Proposed Rule; Sec. 972.124 of This Final Rule)
The proposed rule at Sec. 972.104 described the standards for
identifying public housing developments subject to required conversion.
1. Comments Regarding the Required Vacancy Rate
Comment: Proposed definition of ``distressed housing'' failed to
consider factors that may be relevant to conversion. Three commenters
wrote that the proposed vacancy rate was overly inclusive and did not
comport with the guidelines established by the Commission on Severely
Distressed Public Housing (hereafter ``the Commission''). The
commenters were concerned that viable developments would unfairly be
required to conduct the required cost analysis. One of the commenters
wrote that the proposed rule did not consider current market and
employment conditions that affect the vacancy rate. The commenter also
wrote that the proposed rule failed to address the fact that
developments may become distressed due to lack of modernization
funding. Another commenter wrote that the proposed 10 percent vacancy
rate was too low, and noted that the Commission used a 15 percent
vacancy rate.
HUD Response. HUD has revised the rule to be more sensitive to the
concerns expressed by the commenters. Specifically, the final rule
raises the vacancy rate used for purposes of determining distress from
10 percent to 15 percent for the first five years following the
effective date of the final rule. A 12 percent vacancy will be used
following the expiration of this five-year period. The purpose of the
required conversion program is to identify those developments whose
non-viability and cost, relative to vouchers, merit their permanent
removal from public housing stock, even though the PHA did not
previously decide to take this step on its own. The use of a higher
vacancy rate better focuses required conversion on the situations where
this step is most clearly needed.
Comment: Final rule should require that a PHA take remedial steps
in those cases where the PHA has intentionally created vacancies. Two
commenters wrote that the proposed vacancy criterion failed to consider
whether a PHA has intentionally or artificially created vacancies at
the development. According to the commenters, a PHA could create such
vacancies by failing to make timely repairs or failing to lease
available units. The commenters agreed that to ``the extent that a PHA
intentionally or artificially creates vacancies at a development, HUD
should require the PHA to take corrective actions necessary to lease
the units.'' One of the commenters suggested that HUD include an
additional category of units that will not be considered in the vacancy
determination--units that are intentionally vacant as a result of a
PHA's desire to trigger mandatory conversion.
[[Page 54603]]
HUD response. HUD agrees that a rule change is required to prevent
the intentional creation of vacancies. In response to these public
comments, the final rule provides that vacant units will not be
considered in the determination of distress if HUD determines, in its
sole discretion, that the vacancies were created intentionally and do
not indicate continued distress.
2. Comments Regarding the Long-term Viability Test
Comment: Requiring that PHAs meet all four long-term viability
factors contradicts statute. Under the proposed rule, a PHA must meet
four regulatory factors in order for a development to satisfy the long-
term viability test. Specifically, the development, after reasonable
investment for at least 20 years, must: (1) Be able to sustain
structural/system soundness and full occupancy; (2) not be excessively
densely configured relative to other similar (typically family) housing
in the community; (3) be able to achieve a broader range of family
income; and (4) have no other site impairments that clearly should
disqualify the site from continuation as public housing. Two commenters
wrote that this requirement is in direct conflict with section
33(a)(3)(A) of the 1937 Act. According to the commenters, the statute
only requires that a development meet one of three statutory factors.
The commenters urged that the final rule provide that a PHA may satisfy
the long-term viability test if it meets any one of the regulatory
factors.
HUD response. HUD does not agree with these commenters. The
regulatory language is nearly identical to the statutory language of
section 33(a)(3)(A). The regulatory provisions opposed by the
commenters merely interpret and clarify this statutory language. The
final rule continues to provide, as authorized by the statutory
language of section 33, that a PHA must meet all the regulatory factors
to satisfy the long-term viability test. Each of the factors measures a
different and important aspect of a development's viability. Relying on
only one of the factors, as the commenters suggest, would ignore the
other elements necessary for an accurate assessment of a development's
long-term integrity as public housing. Further, HUD believes that the
factors are sufficiently flexible to address the concerns raised by the
commenters regarding the strictness of the long-term viability test.
Comment: Density standard exceeds statutory language. The proposed
rule provided that a development satisfies the long-term viability test
if it is not ``excessively densely configured relative to standards for
similar (typically family) housing in the community.'' One commenter
wrote that the proposed standard exceeded the standard established
under section 33(a)(3)(A) of the 1937 Act. The statute provides that
the long-term viability test may be satisfied by ``density reduction.''
The commenter wrote that the ``statute does not authorize a test that
compares the relative densities of the development and the surrounding
neighborhood, but merely requires the current density of the
development to be reduced.''
HUD response. The use of relative density levels is consistent with
the recommendations made by the Commission. The density reduction
efforts of a PHA cannot be accurately evaluated without considering the
density of comparable housing. For example, housing density varies
among communities due to differences in local conditions, such as
population, geography, and location of employment. Accordingly, this
final rule continues to require that the density of a development be
measured against the density of other similarly situated housing.
Comment: Income mix standard exceeds statutory standard. The
proposed rule provided that a development satisfies the long-term
viability test if it ``will not constitute an excessive concentration
of very low-income families.'' Two commenters wrote that the proposed
standard exceeded the statutory standard set forth in section
33(a)(3)(A) of the 1937 Act. The statute provides that the long-term
viability test may be satisfied by ``the achievement of a broader range
of family income.'' One of the commenters wrote that the ``distinction
is critical because a PHA can meaningfully broaden the income range and
still have a resident population that is primarily very low-income.''
The second commenter wrote that ``[g]iven that the analysis must
project over a 20-year period, it is mere speculation to maintain that
the site will be a candidate for additional mixing.''
HUD response. In response to these public comments HUD has revised
the income-mix component of the long-term viability test to more
closely track the statutory language of section 33. Specifically, the
final rule provides that a development satisfies the income-mix
requirements if, after reasonable investment for the specified period
of time, it is probable that the development ``can achieve a broader
range of family income.''
Comment: ``More expensive'' criterion should be removed. A
development must be converted if it would be more expensive to
modernize and operate the development for its remaining useful life
than to provide tenant-based assistance to all residents. One commenter
objected to this criterion for conversion. The commenter wrote that
section 33 cites only to ``reasonable modernization expenses.'' ``There
is nothing in the statute that suggests a development must be cheaper
than Section 8 assistance in order to be viable in the long term.''
HUD response. The regulatory language closely tracks the statutory
language of section 33. Specifically, section 33(a)(3) provides that a
development is subject to required conversion if the development is
identified as distressed housing by the PHA, in accordance with HUD
guidelines, and either: (1) The PHA cannot assure long-term viability;
or (2) the development has an estimated cost (during its remaining
useful life) of continued operation and modernization as public housing
that exceeds the estimated cost (during its remaining useful life) of
providing voucher tenant-based assistance for all families in occupancy
based on appropriate indicators of cost (such as the percentage of
total development costs required for modernization). Accordingly, HUD
has not revised the proposed rule to adopt the suggestions made by the
commenter.
3. Comments Regarding Issues for Which HUD Specifically Invited Public
Comment
Although HUD invited public comments on all aspects of the June 23,
1999, proposed rule, the preamble to the proposed rule specifically
solicited comments on two issues related to the standards for
identifying developments subject to required conversion. HUD solicited
comments on:
1. Whether the definition of ``distressed housing'' should include
developments with less than 250 units or that are not primarily
occupied by families; and
2. Whether a comparison of the average median income at a
development with the average median income in the development's area,
or other measure of tenant income, should be included in the
identification of developments as distressed.
Comment: Final rule should not require conversion for developments
with less than 250 units or that are not primarily occupied by
families. Four commenters made this recommendation. According to one of
the commenters, including developments with less than 250 units,
[[Page 54604]]
would impede local decision-making and further drain HUD resources. In
addition, the commenter wrote that including smaller developments is
unnecessary due to the voluntary conversion provisions of section 533
of QHWRA. Smaller developments would be able to convert using the
voluntary procedures of section 533 and HUD's implementing regulations.
HUD response. HUD agrees with the commenters. Accordingly, the
final rule adopts the proposed rule provisions exempting developments
with less than 250 units, or that are not primarily occupied by
families, from the required conversion requirements. However, a PHA may
elect to voluntarily convert such a development under the voluntary
conversion program established by separate final rule published
elsewhere in today's Federal Register (so long as the development
satisfies the criteria for voluntary conversion).
Comment: Average median income comparison should not be required.
One commenter objected to requiring PHAs to compare the average median
income at a development with the average median income in the
development's area. The commenter recognized that the Commission found
this ratio highly significant. However, the commenter wrote that the
measures included in the proposed rule are ``more than sufficient for a
reasonable person to draw the conclusions necessary.'' The commenter
recommended that any use of the income ratio analysis should be at the
option of the PHA. In addition, the commenter recommended that a PHA
should be given the flexibility to gather and present such data using
the methods and formats most useful to the PHA.
HUD response. HUD agrees with the commenter and has not revised the
proposed rule to require a comparison of average median income.
B. Comments Regarding Standards for Determining Whether a Property is
Viable in the Long Term (Sec. 972.105 of the Proposed Rule; Sec.
972.127 of This Final Rule)
The proposed rule at Sec. 972.105 described the conditions that a
development must meet in order to satisfy the long-term viability
standard.
Comment: PHAs should not be required to identify sources of
funding. A PHA must identify the sources of funding for a
revitalization program. One commenter wrote that this requirement is
``unreasonable'' because the ``revitalization may be several years down
the road and the PHA cannot determine what its annual appropriations
will be or how much money will be needed.'' The commenter suggested
that the requirement be eliminated.
HUD response. HUD believes that an estimate of available funding is
necessary to accurately assess the probable success of a revitalization
plan. In recognition that PHAs receive capital funds by formula, the
final rule permits PHAs to ``assume that future formula funds provided
through the Capital Fund over five years are available for this
purpose'' (see Sec. 972.127(a)(3)). Nothing in this final rule
prevents PHAs from applying for HOPE VI or other additional funding to
assist in the revitalization or replacement of a development during the
5-year phase-out period. PHAs, however, may not assume that they will
be successful in discretionary grant competitions, such as for HOPE VI
funding. PHAs may apply for HOPE VI and other discretionary grants
during the 5-year phase-out period, provided the use of such grants
will be consistent with the requirements of this final rule.
C. Comments Regarding Conversion Plan Components (Sec. 972.107 of the
Proposed Rule; Sec. 972.130 of This Final Rule)
The proposed rule at Sec. 972.107 described the various components
of a conversion plan.
Comment: More notice of displacement should be required. The
proposed rule would have required a PHA to notify families residing in
the development 90 days before displacement. Two commenters wrote that
if ``displacement'' is synonymous with a family vacating the unit, the
90-day notice is inadequate. The commenters wrote that a family may
need more than 90 days to find and relocate to other affordable
housing. The commenters also wrote that, under the Section 8 rental
voucher program, families generally have 120 days to locate housing.
Further, for families with school-age children, relocation during the
school term will seriously disrupt the children's education and
jeopardize related child-care arrangements. One of the commenters
recommended that the final rule require PHAs to provide families with
six months advance notice of their relocation rights, wherever
feasible.
HUD response. In accordance with URA, this final rule provides that
a family will not be required to move without at least 90-days advance
written notice of the earliest date by which the family may be required
to move, and that the family will not be required to move permanently
until the family is offered comparable housing, in accordance with the
final rule. In addition, the final rule provides that, where Section 8
voucher assistance is being used for relocation, the vouchers must be
provided to the family at least 90 days before conversion. PHAs should
consider all relevant factors that might affect a family's ability to
relocate (such as school age children) in determining the appropriate
timeframes and should ensure that families are provided with adequate
time to locate new housing.
Comment: Final rule should reference applicability of URA. One
commenter suggested that the final rule should provide that URA applies
to families displaced pursuant to a required conversion.
HUD response. HUD has adopted the commenter's suggestion. The final
rule adds a new Sec. 972.118, which affirms that, to the extent that
tenants are displaced as a direct result of the demolition,
acquisition, or rehabilitation of federally-assisted property converted
pursuant to this final rule, the requirements of the URA, and the
implementing regulations issued by the Department of Transportation at
49 CFR part 24, apply. Further, for purposes of clarity, HUD has
revised the rule to more closely conform to the notice requirements of
the URA and the implementing regulations. As required by 49 CFR 24.203,
if a required conversion is subject to the URA, PHAs must provide
families scheduled to be displaced with a General Information Notice, a
Notice of Relocation Eligibility or Notice of Non-displacement (as
applicable), and a 90-day advance notice of the earliest date by which
a resident may be required to move.
Comment: Final rule should clarify what constitutes housing choice
for relocated families. Families have the right to be relocated to
``other decent, safe, and sanitary and affordable housing that is, to
the maximum extent possible, housing of their choice.'' Two commenters
recommended that the final rule clarify that a family may choose ``to
lease any PHA rental unit of appropriate size, provided the rental unit
is vacant or will be vacant before the date on which the tenant must
vacate the converted rental unit.''
HUD response. The regulatory language adequately protects a
displaced family's right to relocate to comparable housing, while also
providing for circumstances that may limit the availability of a
particular unit. For example, a PHA may need to reserve a public
housing unit for medical transfer purposes. The broad language
suggested by the commenter fails to provide for such necessary
exceptions.
[[Page 54605]]
Accordingly, HUD has not adopted the commenter's recommended change.
Comment: Standard for extension is overly restrictive. Generally, a
conversion plan may not be more than a 5-year plan. However, HUD is
authorized to provide a 5-year extension ``in exceptional
circumstances, where HUD determines that this is clearly the most cost-
effective and beneficial means of providing housing over that same
period.'' One commenter wrote that this is too restrictive, and
inconsistent with section 33(c)(3) of the 1937 Act, which provides that
HUD may grant an extension if it ``determines that the deadline is
impracticable.''
HUD response. HUD does not agree that the regulatory language
contradicts the statutory language of section 33. The statute provides
HUD with broad authority to determine what circumstances make the 5-
year deadline ``impracticable'' for a PHA. The final rule is consistent
with the statutory goal of ensuring that most conversions be completed
within the prescribed 5-year period, but grants HUD the necessary
flexibility to address exceptional circumstances.
Comment: A fair housing impact assessment should be required. Two
commenters recommended that the final rule should require the
conversion plan to include an analysis of the effects of conversion on
persons protected by the Fair Housing Act. The commenters wrote that
even if a PHA is statutorily required to convert a particular
development, HUD and the PHA have an obligation to avoid discriminatory
impacts and to affirmatively further fair housing. One of the
commenters suggested that the fair housing analysis should:
1. Consider the impact of conversion on each protected group:
racial and ethnic minorities, persons with disabilities, and families
with children;
2. Consider the impact not only on current residents, but also on
persons likely to apply for housing;
3. Determine whether the proposed conversion will increase fair
housing choice for each protected class, or perpetuate segregation;
4. Determine whether the proposed conversion will decrease fair
housing choice (according to the commenter this would generally be true
if the overall amount of assisted housing is reduced or if public
housing units located outside high poverty areas with concentrations of
minorities are converted);
5. Analyze the rate at which minority families and other protected
groups are able to find housing under the Section 8 voucher program in
areas that are racially integrated and have low poverty rates; and
6. Analyze whether all families in housing proposed to be converted
will receive housing assistance and be able to remain in the area if
they choose.
HUD response. HUD has determined that the proposed rule adequately
addressed fair housing considerations, and that a regulatory change is
unnecessary. The conversion plan must be part of the PHA's Annual Plan.
HUD's PHA Plan regulations require that a PHA certify that it will
carry out its Annual Plan and 5-Year Plan in conformity with applicable
statutory fair housing and nondiscrimination requirements and must
affirmatively further fair housing. This, of course, includes any
required conversion activities. As noted above, HUD has also added
language to the final rule further emphasizing the need for adequate
mobility counseling.
Comment: Conversion plan should include a well funded mobility
program to ensure fair housing objectives are met. One commenter wrote
that without such a program, most families will find themselves
relocated to highly segregated communities with high levels of poverty.
HUD response. The final rule clarifies that a PHA must provide any
appropriate mobility counseling in providing the required counseling to
residents displaced by a conversion. The PHA may finance the mobility
counseling using Operating Fund, Capital Fund, or Section 8
administrative fee funding.
D. Comments Regarding the Public and Resident Consultation Process for
Developing a Conversion Plan (Sec. 972.110 of the Proposed Rule; Sec.
972.133 of This Final Rule)
The proposed rule at Sec. 972.110 required that a PHA consult with
public officials and the residents of the affected sites in the
development of the PHA's conversion plan.
Comment: Final rule should expand the resident and public
participation process. One commenter recommended that the minimum
standards for public and resident participation should be expanded. The
commenter made various specific suggestions, including:
1. Requiring the PHA to consult with the development's resident
council and the PHA-wide resident advisory board;
2. Requiring that the required meeting with residents take place at
least 45 days before the PHA submits the conversion plan to HUD; and
3. Requiring that the consultation process include adequate notice
to residents and an opportunity for residents to comment. Further, HUD
should require that a PHA give due consideration to all comments from
residents and the public.
Another commenter emphasized the third suggestion made by the
commenter above--that PHAs should be required to give due consideration
to resident comments. The commenter wrote that this is necessary to
allow the possibility that, based on resident comments, the PHA will
determine that conversion is inappropriate. Further, if the PHA decides
to proceed with conversion, then it should be required to consider the
resident comments in the development of the final conversion plan.
HUD response. HUD agrees that meaningful public and resident input
is essential to the success of the required conversion process. HUD
does not believe that it is necessary to revise the proposed rule to
adopt the suggestions made by these commenters. Existing regulatory
requirements already ensure meaningful and timely public input in the
development of the conversion plans. For example, the conversion plan
must be part of the PHA's Annual Plan. The conversion plans, therefore,
are subject to the extensive public participation requirements for the
development of the PHA Annual Plans (see 24 CFR part 903). The
consultation procedures established by this final rule supplement the
PHA Plan consultation requirements; they do not replace them.
Among other requirements, the PHA Plan regulations require that
PHAs establish Resident Advisory Boards to assist and make
recommendations in the development of the PHA Annual Plans (see 24 CFR
903.13). PHAs are also required to conduct a public hearing in
developing their Annual Plans, and to conduct reasonable outreach
activities to encourage broad public participation in the PHA Plans
(see 24 CFR 903.17). Considered in their totality, the consultation
procedures contained in both the required conversion and PHA Plan
regulations require that a PHA undertake good faith efforts to ensure
that residents understand and have a voice in the implementation of
required conversions.
For purposes of clarity, HUD has made two changes to the
consultation requirements of the rule. Specifically, the final rule
clarifies that the PHA must hold at least one meeting with the
residents of the affected sites. The language of the proposed rule
would have required one meeting between the PHA and residents, but was
silent regarding the possibility of the PHA sponsoring additional
meetings. The final rule also clarifies that the public
[[Page 54606]]
housing residents with whom the PHA must meet include any duly elected
resident council that covers the development in question.
Comment: Consolidated Plan requirements are inconsistent with
statute. The proposed rule provided that a PHA ``may satisfy the
requirement for consultation with public officials by submitting a
certification from the appropriate government official that the
conversion plan is consistent with the applicable Consolidated Plan.''
The rule also provided that ``[t]his may be the same certification as
is required for [the]
PHA Annual Plan that includes the conversion
plan.'' According to one commenter this contradicts the statutory
language of section 33. According to the commenter, section 33(c)(2)(B)
requires that the PHA submit a separate certification from the relevant
local official that specifically addresses the conversion plan. This
certification is in addition to the certification that is part of the
PHA Annual Plan (which is already required under section 33(c)(2)(A)).
HUD response. The final rule clarifies that if a PHA elects to
satisfy the consultation requirements by certifying that its conversion
plan is consistent with the Consolidated Plan, this certification may
be the same certification as is required for the PHA Annual Plan that
includes the conversion plan, so long as the certification specifically
addresses the conversion plan.
E. Comments Regarding Relationship Between Required Conversion and
Demolition/Disposition Requirements (Sec. 972.113 of the Proposed
Rule; Sec. 972.112 of This Final Rule) Application
The proposed rule at Sec. 970.113 described the applicability of
the demolition/disposition requirements of section 18 of the 1937 Act
to the required conversion process.
Comment: PHAs should be permitted to submit the conversion plan and
disposition application at a later date than the PHA Annual Plan. One
commenter wrote that requiring a PHA to simultaneously submit a PHA
Annual Plan, conversion plan, and disposition application is
unnecessarily burdensome and will not produce the best results. The
commenter recommended that a PHA be allowed to submit the conversion
plan and the disposition application at a later date than the PHA
Annual Plan--either as a separate submission or as addenda to the
Annual Plan.
HUD response. HUD has not revised the proposed rule to adopt the
commenter's suggestion. The regulatory language closely tracks the
statutory requirements of section 33. Specifically, section 33(h)(2)
provides that the disposition requirements of section 18 of the 1937
Act apply to required conversions. Further, section 33(c)(2)(A)
requires that a conversion plan be submitted as part of the PHA's
Annual Plan. However, neither section 33, or this final rule, requires
a PHA to submit any required disposition application as part of the
conversion plan or the Annual Plan. A PHA may elect to submit any
disposition application subsequent to submission of the conversion
plan. HUD may approve the conversion plan, even if the PHA has not yet
submitted the required disposition application under section 18.
However, the PHA may not proceed with the disposition until the
required disposition application has been approved by HUD.
Comment: PHAs should not be required to submit separate disposition
approval request. One commenter questioned the requirement for a
separate disposition approval for required conversion, when HUD does
not require it for voluntary conversions under section 533 of QHWRA. In
particular, the commenter objected to the requirement in those cases
where: (1) The development has had its debt forgiven; (2) there have
been no additional capital investments; and (3) the subsidy has been
removed in the conversion process. ``It would seem that under the
circumstances, the property would be the PHA's to deal with as it sees
fit.''
HUD response. As noted in HUD's response to the preceding comment,
section 33 provides that the disposition requirements of section 18 of
the 1937 Act apply to the required conversion program. The regulatory
language of this final rule tracks this statutory requirement.
The final rule should clarify that HUD's approval of a conversion
plan is contingent on HUD's approval of any disposition application for
the converted units. One commenter wrote that it is unclear whether the
proposed rule permits HUD to approve a conversion plan if the PHA's
disposition application does not comply with the requirements of
section 18 of the 1937 Act. The commenter suggested that, to encourage
compliance with section 18, the final rule should clarify that HUD's
approval of a conversion plan is contingent on approval of the PHA's
disposition application.
HUD response. As noted above, a PHA may elect to submit any
disposition application subsequent to submission of the conversion
plan. HUD may approve the conversion, even if the PHA has not yet
submitted the required disposition application. However, the PHA may
not proceed with the conversion until its disposition application has
been approved by HUD.
F. Comments Regarding the Relationship Between Required Conversion and
HOPE VI Developments (Sec. 972.114 of the Proposed Rule; Sec. 972.115
of This Final Rule)
The proposed rule at Sec. 972.114 described the applicability of
the required conversion requirements to HOPE VI developments.
Comments: HOPE VI recipients without an approved revitalization
plan should not be required to conduct a viability assessment. HOPE VI
developments without an approved revitalization plan are fully subject
to the required conversion standards of 24 CFR part 972. One commenter
objected to this requirement. The commenter wrote that requiring these
HOPE VI developments to conduct a viability assessment is
``extraordinarily redundant'' because ``each HOPE VI recipient was
approved based on an application [that]
included the number of units
removed.'' ``Another evaluation is unnecessary, redundant, and impedes
the implementation of HOPE VI.''
HUD response. Section 33 does not exempt HOPE VI developments from
the required conversion requirements. Accordingly, HUD does not have
the statutory authority to adopt the commenter's suggestion. HUD will
only approve HOPE VI revitalization plans that satisfy the conversion
plan requirements.
G. Comments Regarding Funding To Assist Residents of Units Being
Converted (Sec. 972.116 of the Proposed Rule; Sec. 972.109 of This
Final Rule)
The proposed rule at Sec. 972.116 described how a PHA obtains
funding to assist the residents of public housing developments
converted to tenant-based assistance.
Comment: HUD should not require that funding for the first year of
tenant-based assistance be provided from the Capital or Operating
Funds. Two commenters objected to this provision. One of the commenters
wrote that it would be unfair for HUD to expect PHAs to pay for one
year of tenant-based assistance from the Capital and Operating Funds,
since formula funding will have been reduced subsequent to the removal
of the development from public housing inventory. The second commenter
wrote that ``[t]he effect of siphoning off and further reducing
[[Page 54607]]
public housing funds for tenant-based assistance will be the continued
deterioration of public housing.'' ``[O]perating and capital funds are
appropriated to ensure the preservation of public housing as an
affordable housing resource and, as such, any funds attributable to
developments identified for conversion should be re-invested in the
public housing stock.''
HUD response. HUD has not adopted the change requested by the
commenters. The final rule does not mandate that the initial year of
tenant-based assistance be provided from the Capital and Operating
Funds. Rather, the final rule, as did the proposed rule before it,
merely provides for this possibility.
HUD should provide additional guidance regarding post-conversion.
One commenter wrote that it would be helpful for HUD to clarify the
timing of the phased process for substituting tenant-based assistance
for assistance provided from the Capital and Operating Funds. Rather,
the final rule, as did the proposed rule before it, merely provides for
this subsidy for the units being converted.
HUD response. Converted public housing would be phased-out using
currently applicable procedures. Subject to appropriations, new Section
8 funding would be committed and provided to PHAs for the provision of
tenant-based voucher assistance.
H. Comments Regarding the Timing of Conversion (Sec. 972.122 of the
Proposed Rule; Sec. 972.109 of This Final Rule)
The proposed rule at Sec. 972.122 provided that a PHA may proceed
to convert a development only after receiving written approval from
HUD. The approval will be separate from the one provided for the PHA
Annual Plan.
Comment: HUD should establish a reasonable time frame for providing
approval of a conversion plan. One commenter suggested that the final
rule establish a 75-day period for HUD review and approval of
conversion plans. According to the commenter, this ``will enable PHAs
to better plan relocation activities with residents and make
adjustments necessary for the loss of subsidy.'' The commenter wrote
that a 75-day period would conform to the time frame established for
HUD approval of the PHA Annual Plan.
HUD response. HUD has revised the rule to be more sensitive to the
concerns raised by the commenter. The final rule clarifies that HUD
anticipates that its review of a conversion plan will ordinarily occur
within 90 days following submission of a complete plan by the PHA. A
longer process may be required where HUD's initial review of the plan
raises questions that require further discussion with the PHA. In any
event, HUD will provide all PHAs with a preliminary response within 90
days following submission of a conversion plan.
IV. Findings and Certifications
Public Reporting Burden
The information collection requirements contained in Sec. Sec.
972.130, 970.133, and 972.136 have been approved by the Office of
Management and Budget (OMB) under the Paperwork Reduction Act of 1995
(44 U.S.C. 3501-3520) and assigned OMB Control Number 2577-0234. In
accordance with the Paperwork Reduction Act, HUD may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless the collection displays a currently valid OMB
control number.
Impact on Small Entities
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)) (the RFA), has reviewed and approved this final rule,
and in so doing certifies that this rule will not have a significant
economic impact on a substantial number of small entities. The reasons
for HUD's determination are as follows.
(1) A Substantial Number of Small Entities Will Not be Affected.
The entities that are subject to this rule are public housing agencies
that administer public housing. Under the definition of ``small
governmental jurisdiction'' in section 601(5) of the RFA, the
provisions of the RFA are applicable only to those public housing
agencies that are part of a political jurisdiction with a population of
under 50,000 persons. The number of entities potentially affected by
this rule is therefore not substantial. HUD anticipates that no more
than 10 percent of all PHAs will be subject to the requirements of
required conversion. Most PHAs with developments large enough to be
subject to this final rule are located in larger political
jurisdictions. This is a result of the statutory direction to identify
units subject to the requirements based on the criteria established by
the National Commission on Severely Distressed Public Housing, which
focused on larger troubled agencies.
(2) No Significant Economic Impact. The conversion plan will
involve a one-time cost, and this cost can vary from development to
development, depending on the scope of the assessment, location of the
property, and other factors. A mitigating factor concerning the cost
for PHAs whose properties are potentially subject to the requirements
of required conversion is that they may request assistance from HUD in
conducting the required analyses in order to offset the costs. HUD has
provided such assistance in the past and intends to continue to do so,
if resources are available. Therefore, the cost burden on small
entities is not likely to be great.
Environmental Impact
A Finding of No Significant Impact with respect to the environment
was made at the proposed rule stage, in accordance with HUD regulations
at 24 CFR part 50, which implement section 102(2)(C) of the National
Environmental Policy Act of 1969 (42 U.S.C. 4223). That Finding remains
applicable to this final rule and is available for public inspection
between the hours of 7:30 a.m. and 5:30 p.m. weekdays in the Office of
the Rules Docket Clerk, Office of General Counsel, Room 10276, U.S.
Department of Housing and Urban Development, 451 Seventh Street, SW.,
Washington, DC 20410-0500.
Federalism Impact
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial direct compliance costs on State and local
governments and is not required by statute, or the rule preempts State
law, unless the agency meets the consultation and funding requirements
of section 6 of the Executive Order. This final rule does not have
federalism implications and does not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive Order.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1531-1538) establishes requirements for federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and the private sector. This final rule does not impose any
federal mandates on any State, local, or tribal governments or the
private sector within the meaning of Unfunded Mandates Reform Act of
1995.
Regulatory Planning and Review
The Office of Management and Budget (OMB) reviewed this rule under
Executive Order 12866, entitled ``Regulatory Planning and Review.'' OMB
determined that this rule is a
[[Page 54608]]
``significant regulatory action'' as defined in section 3(f) of the
Order (although not an economically significant regulatory action under
the Order). Any changes made to this rule as a result of that review
are identified in the docket file, which is available for public
inspection in the Office of the Rules Docket Clerk, Office of General
Counsel, Room 10276, U.S. Department of Housing and Urban Development,
451 Seventh Street, SW., Washington, DC 20410-0500.
Catalog of Federal Domestic Assistance Number
The Catalog of Federal Domestic Assistance number for the program
affected by this rule is 14.850.
List of Subjects in 24 CFR Part 972
Grant programs--housing and community development, Low and moderate
income housing, Public housing.
? For the reasons discussed in the preamble, HUD amends title 24 of the
Code of Federal Regulations, chapter IX, part 972 as follows:
PART 972--CONVERSION OF PUBLIC HOUSING TO TENANT-BASED ASSISTANCE
? 1. The authority citation for part 972 continues to read as follows:
Authority: 42 U.S.C. 1437t, 1437z-5, and 3535(d).
? 2. Subpart A is added to read as follows:
Subpart A--Required Conversion of Public Housing Developments
Purpose; Definition of ``Conversion''
Sec.
972.100 Purpose.
972.103 Definition of ``conversion.''
Required Conversion Process
972.106 Procedure for required conversion of public housing
developments to tenant-based assistance.
972.109 Conversion of developments.
972.112 Relationship between required conversion and demolition/
disposition requirements.
972.115 Relationship between required conversion and HOPE VI
developments.
972.118 Applicability of Uniform Relocation Act.
Identifying Developments Subject To Required Conversion
972.121 Developments subject to this subpart.
972.124 Standards for identifying public housing developments
subject to required conversion.
972.127 Standards for determining whether a property is viable in
the long term.
Conversion Plans
972.130 Conversion plan components.
972.133 Public and resident consultation process for developing a
conversion plan.
972.136 Timing of submission of conversion plans to HUD.
HUD Actions With Respect To Required Conversions
972.139 HUD actions with respect to required conversions.
Subpart A--Required Conversion of Public Housing Developments
Purpose; Definition of Conversion
Sec. 972.100 Purpose.
The purpose of this subpart is to implement section 33 of the
United States Housing Act of 1937 (42 U.S.C. 1437z-5), which requires
PHAs to annually review their public housing inventory and identify
developments, or parts of developments, which must be removed from its
stock of public housing operated under an Annual Contributions Contract
(ACC) with HUD.
This subpart provides the procedures a PHA must follow to develop
and carry out a conversion plan to remove the units from the public
housing inventory, including how to provide for the transition for
residents of these developments to other affordable housing.
Sec. 972.103 Definition of ``conversion.''
For purposes of this subpart, the term ``conversion'' means the
removal of public housing units from the inventory of a PHA, and the
provision of tenant-based or project-based assistance for the residents
of the public housing units that are being removed. The term
``conversion,'' as used in this subpart, does not necessarily mean the
physical removal of the public housing development.
Required Conversion Process
Sec. 972.106 Procedure for required conversion of public housing
developments to tenant-based assistance.
(a) A PHA must annually review its public housing inventory and
identify developments, or parts of developments, which must be
converted to tenant-based assistance, in accordance with Sec. Sec.
972.121-972.127.
(b) With respect to any public housing development that is
identified under paragraph (a) of this section, the PHA generally must
develop a 5-year plan for removal of the affected public housing units
from the inventory, in accordance with Sec. Sec. 972.130-972.136.
(c) The PHA may proceed to convert the development if HUD approves
the conversion plan.
Sec. 972.109 Conversion of developments.
(a)(1) The PHA may proceed to convert the development covered by a
conversion plan after receiving written approval from HUD. This
approval will be separate from the approval that the PHA receives for
its Annual Plan.
(2) HUD anticipates that its review of a conversion plan will
ordinarily occur within 90 days following submission of a complete plan
by the PHA. A longer process may be required where HUD's initial review
of the plan raises questions that require further discussion with the
PHA. In any event, HUD will provide all PHAs with a preliminary
response within 90 days following submission of a conversion plan.
(b) The PHA may not demolish or dispose of units or property until
completion of the required environmental review under part 58 of this
title (if a responsible entity has assumed environmental responsibility
for the project) or part 50 of this title (if HUD is performing the
environmental review). Further, HUD will not approve a conversion plan
until completion of the required environmental review. However, before
completion of the environmental review, HUD may approve the targeted
units for removal from the PHA's inventory and may authorize the PHA to
undertake other activities proposed in its conversion plan that do not
require environmental review (such as certain activities related to the
relocation of residents), as long as the buildings in question are
adequately secured and maintained.
(c) For purposes of determining operating subsidy eligibility, HUD
will consider the conversion plan the PHA submits to be the equivalent
of a formal request to remove dwelling units from the PHA's inventory
and ACC. HUD will notify the PHA in writing whether it has approved the
conversion plan. Units that are vacant or vacated on or after the
written notification date will be treated as approved for deprogramming
under Sec. 990.108(b)(1) of this title and also will be provided any
phase-down of subsidy to which the PHA is entitled pursuant to Sec.
990.114 of this title.
(d) The PHA may apply for tenant-based assistance in accordance
with Section 8 program requirements, and HUD will give the PHA a
priority for receiving tenant-based assistance to replace the public
housing units. It is HUD's policy to provide funds for one-for-one
replacement housing with either public housing or tenant-based
assistance, if funds are available. HUD
[[Page 54609]]
may require that funding for the initial year be provided from the
public housing Capital Fund, Operating Fund, or both.
Sec. 972.112 Relationship between required conversion and demolition/
disposition requirements.
(a) Section 18 of the United States Housing Act of 1937 does not
apply to demolition of developments removed from the inventory of the
PHA under this subpart. Demolition of these developments is therefore
not subject to section 18(g), which provides an exclusion from the
applicability of the Uniform Relocation Assistance and Real Property
Acquisition Policies Act of 1970 (42 U.S.C. 4601) (URA). Accordingly,
the URA will apply to the displacement of tenants as the direct result
of the demolition of a development carried out pursuant to this
subpart, in accordance with Sec. 972.118. With respect to any such
demolition, the PHA must comply with the requirements for environmental
review found at part 58 of this title.
(b) Section 18 of the United States Housing Act of 1937 does apply
to any disposition of developments removed from the inventory of the
PHA under this subpart. Therefore, to dispose of property, the PHA must
submit a disposition application under section 18. HUD's review of any
such disposition application will take into account that the
development has been required to be converted.
Sec. 972.115 Relationship between required conversions and HOPE VI
developments.
HUD actions to approve or deny proposed HOPE VI revitalization
plans must be consistent with the requirements of this subpart.
Developments with HOPE VI revitalization grants, but without approved
HOPE VI revitalization plans, are fully subject to required conversion
standards under this subpart.
Sec. 972.118 Applicability of Uniform Relocation Act.
To the extent that tenants are displaced as a direct result of the
demolition, acquisition, or rehabilitation of federally-assisted
property converted pursuant to this subpart, the requirements of the
Uniform Relocation Assistance and Real Property Acquisition Policies
Act of 1970 (42 U.S.C. 4601) (URA), and the implementing regulations
issued by the Department of Transportation at 49 CFR part 24, apply.
Identifying Developments Subject To Required Conversion
Sec. 972.121 Developments subject to this subpart.
(a) This subpart is applicable to any development not identified
before October 21, 1998, for conversion, or for assessment of whether
such conversion is required, in accordance with section 202 of the
Omnibus Consolidated Rescissions and Appropriations Act of 1996 (Pub.
L. 104-134, approved April 26, 1996, 110 Stat. 1321-279--1321-281).
Developments identified before October 21, 1998, continue to be subject
to the requirements of section 202 and part 971 of this chapter until
these requirements are satisfied. Thereafter, the provisions of this
subpart apply to any remaining public housing on the sites of those
developments.
(b) The developments to which this subpart is applicable are
subject to the requirements of section 33 of the United States Housing
Act of 1937 (42 U.S.C. 1437z-5).
(c) The provisions of this subpart cease to apply when the units in
a development that are subject to the requirements of this subpart have
been demolished.
Sec. 972.124 Standards for identifying public housing developments
subject to required conversion.
The development, or portions thereof, must be converted if it is a
general occupancy development of 250 or more dwelling units and it
meets the following criteria:
(a) The development is on the same or contiguous sites. This refers
to the actual number and location of units, irrespective of HUD
development project numbers.
(b) The development has a vacancy rate of at least a specified
percent for dwelling units not in funded, on-schedule modernization,
for each of the last three years, and the vacancy rate has not
significantly decreased in those three years. (1) For a conversion
analysis performed on or before March 16, 2009, the specified vacancy
rate is 15 percent. For a conversion analysis performed after that
date, the specified vacancy rate is 12 percent.
(2) For the determination of vacancy rates, the PHA must use the
data it relied upon for the PHA's latest Public Housing Assessment
System (PHAS) certification, as reported on the Form HUD-51234 (report
on Occupancy). Units in the following categories must not be included
in this calculation:
(i) Vacant units in an approved demolition or disposition program;
(ii) Vacant units in which resident property has been abandoned,
but only if state law requires the property to be left in the unit for
some period of time, and only for the period of time stated in the law;
(iii) Vacant units that have sustained casualty damage, but only
until the insurance claim is adjusted;
(iv) Units that are occupied by employees of the PHA and units that
are used for resident services; and
(v) Units that HUD determines, in its sole discretion, are
intentionally vacant and do not indicate continued distress.
(c) The development either is distressed housing for which the PHA
cannot assure the long-term viability as public housing, or more
expensive for the PHA to operate as public housing than providing
tenant-based assistance. (1) The development is distressed housing for
which the PHA cannot assure the long-term viability as public housing
through reasonable revitalization, density reduction, or achievement of
a broader range of household income. (See Sec. 972.127)
(i) Properties meeting the standards set forth in paragraphs (a)
and (b) of this section will be assumed to be ``distressed,'' unless
HUD determines that the reasons a property meets such standards are
temporary in duration and are unlikely to recur.
(ii) A development satisfies the long-term viability test only if
it is probable that, after reasonable investment, for at least 20 years
(or at least 30 years for rehabilitation equivalent to new
construction) the development can sustain structural/system soundness
and full occupancy; will not be excessively densely configured relative
to other similar rental (typically family) housing in the community;
can achieve a broader range of family income; and has no other site
impairments that clearly should disqualify the site from continuation
as public housing.
(2) The development is more expensive for the PHA to operate as
public housing than to provide tenant-based assistance if it has an
estimated cost, during the remaining useful life of the project, of
continued operation and modernization of the development as public
housing in excess of the cost of providing tenant-based assistance
under section 8 of the United States Housing Act of 1937 for all
families in occupancy, based on appropriate indicators of cost (such as
the percentage of total development cost required for modernization).
(i) For purposes of this determination, the costs used for public
housing must be those necessary to produce a revitalized development as
described in paragraph (c)(1) of this section.
[[Page 54610]]
(ii) These costs, including estimated operating costs,
modernization costs, and accrual needs must be used to develop a per
unit monthly cost of continuing the development as public housing.
(iii) That per unit monthly cost of public housing must be compared
to the per unit monthly Section 8 cost.
(iv) The cost methodology necessary to conduct the cost comparisons
for required conversions has not yet been finalized. PHAs are not
required to undertake conversions under this subpart until six months
after the effective date of the cost methodology, which will be
announced in the Federal Register. Once effective, the cost methodology
will be codified as an appendix to this part.
Sec. 972.127 Standards for determining whether a property is viable
in the long term.
In order for a property to meet the standard of long-term
viability, as discussed in Sec. 972.124, the following criteria must
be met:
(a) The investment to be made in the development is reasonable. (1)
Proposed revitalization costs for viability must be reasonable. Such
costs must not exceed, and ordinarily would be substantially less than,
90 percent of HUD's total development cost (TDC) limit for the units
proposed to be revitalized (100 percent of the total development cost
limit for any ``infill'' new construction subject to this regulation).
The revitalization cost estimate used in the PHA's most recent Annual
Plan or 5-Year Plan is to be used for this purpose, unless the PHA
demonstrates, or HUD determines, that another cost estimate is clearly
more realistic to ensure viability and to sustain the operating costs
that are described in paragraph (a)(2) of this section.
(2) The overall projected cost of the revitalized development must
not exceed the Section 8 cost under the method contained in the
Appendix to this part, even if the cost of revitalization is a lower
percentage of the TDC than the limits stated in paragraph (a)(1) of
this section.
(3) The source of funding for such a revitalization program must be
identified and available. In addition to other resources already
available to the PHA, it may assume that future formula funds provided
through the Capital Fund over five years are available for this
purpose.
(b) Appropriate density is achieved. The resulting public housing
development must have a density which is comparable to that which
prevails in or is appropriate for assisted rental housing or for other
similar types of housing in the community (typically family).
(c) A greater income mix can be achieved. (1) Measures generally
will be required to broaden the range of resident incomes over time to
include a significant mix of households with at least one full-time
worker. Measures to achieve a broader range of household incomes must
be realistic in view of the site's location. Appropriate evidence
typically would include census or other recent statistical evidence
demonstrating some mix of incomes of other households located in the
same census tract or neighborhood, or unique advantages of the public
housing site.
(2) For purposes of judging appropriateness of density reduction
and broader range of income measures, overall size of the public
housing site and its number of dwelling units will be considered. The
concerns these measures would address generally are greater as the
site's size and number of dwelling units increase.
Conversion Plans
Sec. 972.130 Conversion plan components.
(a) With respect to any development that is identified under
Sec. Sec. 972.121 through 972.127, the PHA generally must develop a 5-
year plan for removal of the affected public housing units from the
inventory. The plan must consider relocation alternatives for
households in occupancy, including other public housing and Section 8
tenant-based assistance, and must provide for relocation from the units
as soon as possible. For planning purposes, the PHA must assume that
HUD will be able to provide in a timely fashion any necessary Section 8
rental assistance. The plan must include:
(1) A listing of the public housing units to be removed from the
inventory;
(2) Identification and obligation status of any previously approved
modernization, reconstruction, or other capital funds for the
distressed development and the PHA's recommendations concerning
transfer of these funds to Section 8 or alternative public housing
uses;
(3) A record indicating compliance with the statute's requirements
for consultation with applicable public housing tenants of the affected
development and the unit of local government where the public housing
is located, as set forth in Sec. 972.133;
(4) A description of the plans for demolition or disposition of the
public housing units; and
(5) A relocation plan, in accordance with paragraph (b) of this
section.
(b) Relocation plan. The relocation plan must incorporate all of
the information identified in paragraphs (b)(1) through (b)(4) of this
section. In addition, if the required conversion is subject to the URA,
the relocation plan must also contain the information identified in
paragraph (b)(5) of this section. The relocation plan must incorporate
the following:
(1) The number of households to be relocated, by bedroom size, and
by the number of accessible units.
(2) The relocation resources that will be necessary, including a
request for any necessary Section 8 funding and a description of actual
or potential public or other assisted housing vacancies that can be
used as relocation housing and budget for carrying out relocation
activities.
(3) A schedule for relocation and removal of units from the public
housing inventory (including the schedule for providing actual and
reasonable relocation expenses, as determined by the PHA, for families
displaced by the conversion).
(4) Provide for issuance of a written notice to families residing
in the development in accordance with the following requirements:
(i) Timing of notice. If the required conversion is not subject to
the URA, the notice shall be provided to families at least 90 days
before displacement. If the required conversion is subject to the URA
the written notice shall be provided to families no later than the date
the conversion plan is submitted to HUD. For purposes of a required
conversion subject to the URA, this written notice shall constitute the
General Information Notice (GIN) required by the URA.
(ii) Contents of notice. The written notice shall include all of
the following:
(A) The development must be removed from the public housing
inventory and that the family may be displaced as a result of the
conversion;
(B) The family will be offered comparable housing, which may
include tenant-based or project-based assistance, or occupancy in a
unit operated or assisted by the PHA (if tenant-based assistance is
used, the comparable housing requirement is fulfilled only upon the
relocation of the family into such housing);
(C) Any necessary counseling with respect to the relocation will be
provided, including any appropriate mobility counseling (the PHA may
finance the mobility counseling using Operating Fund, Capital Fund, or
Section 8 administrative fee funding);
(D) Such families will be relocated to other decent, safe,
sanitary, and
[[Page 54611]]
affordable housing that is, to the maximum extent possible, housing of
their choice;
(E) If the development is used as housing after conversion, the PHA
must ensure that each resident may choose to remain in the housing,
using tenant-based assistance towards rent; and
(F) Where section 8 voucher assistance is being used for
relocation, the family will be provided with the vouchers at least 90
days before displacement.
(5) If the required conversion is subject to the URA, the written
notice described in paragraph (b)(4) must also provide that:
(i) The family will not be required to move without at least 90-
days advance written notice of the earliest date by which the family
may be required to move, and that the family will not be required to
move permanently until the family is offered comparable housing, as
provided in paragraph (b)(4)(ii)(B) of this section;
(ii) Any person who is an alien not lawfully present in the United
States is ineligible for relocation payments or assistance under the
URA, unless such ineligibility would result in exceptional and
extremely unusual hardship to a qualifying spouse, parent, or child, as
provided in the URA regulations at 49 CFR 24.208;
(iii) The family has a right to appeal the PHA's determination as
to the family's application for relocation assistance for which the
family may be eligible under this subpart and URA;
(iv) Families residing in the development will be provided with the
URA Notice of Relocation Eligibility or Notice of Non-displacement (as
applicable) as of the date HUD approves the conversion plan (for
purposes of this subpart, the date of HUD's approval of the conversion
plan shall be the ``date of initiation of negotiations'' as that term
is used in URA and the implementing regulations at 49 CFR part 24); and
(v) Any family that moves into the development after submission of
the conversion plan to HUD will also be eligible for relocation
assistance, unless the PHA issues a written move-in notice to the
family prior to leasing and occupancy of the unit advising the family
of the development's possible conversion, the impact of the conversion
on the family, and that the family will not be eligible for relocation
assistance.
(c) The conversion plan may not be more than a 5-year plan, unless
the PHA applies for and receives approval from HUD for a longer period
of time. HUD may allow the PHA up to 10 years to remove the units from
the inventory, in exceptional circumstances where HUD determines that
this is clearly the most cost effective and beneficial means of
providing housing assistance over that same period. For example, HUD
may allow a longer period of time to remove the units from the public
housing inventory, where more than one development is being converted,
and a larger number of families require relocation than can easily be
absorbed into the rental market at one time, provided the housing has a
remaining useful life of longer than five years and the longer time
frame will assist in relocation.
Sec. 972.133 Public and resident consultation process for developing
a conversion plan.
(a) The PHA must consult with appropriate public officials and with
the appropriate public housing residents in developing the conversion
plan.
(b) The PHA may satisfy the requirement for consultation with
public officials by obtaining a certification from the appropriate
government official that the conversion plan is consistent with the
applicable Consolidated Plan. This may be the same certification as is
required for the PHA Annual Plan that includes the conversion plan, so
long as the certification specifically addresses the conversion plan.
(c) To satisfy the requirement for consultation with the
appropriate public housing residents, in addition to the public
participation requirements for the PHA Annual Plan, the PHA must:
(1) Hold at least one meeting with the residents of the affected
sites (including the duly elected Resident Council, if any, that covers
the development in question) at which the PHA must:
(i) Explain the requirements of this section, especially as they
apply to the residents of the affected developments; and
(ii) Provide draft copies of the conversion plan to the residents;
(2) Provide a reasonable comment period for residents; and
(3) Summarize the resident comments for HUD, in the conversion
plan, and consider these comments in developing the final conversion
plan.
Sec. 972.136 Timing of submission of conversion plans to HUD.
The requirements of this section are on-going requirements. If the
PHA must submit a plan for conversion, it must submit the conversion
plan as part of the PHA's Annual Plan, beginning with PHA fiscal years
that commence six months after the effective date of HUD's final rule
establishing the cost methodology for required conversions.
HUD Actions With Respect to Required Conversions
Sec. 972.139 HUD actions with respect to required conversions.
(a) HUD will take appropriate steps to ensure that distressed
developments subject to this subpart are properly identified and
converted. If a PHA fails to properly identify a development for
required conversion, or does not submit a conversion plan for a
development in the PHA Annual Plan following the Annual Plan in which
the development was identified as subject to required conversion, HUD
will take the actions described in paragraph (b) of this section, and
may also take any or all of the actions described in paragraph (c) of
this section.
(b) If a PHA fails to take the conversion activities described in
paragraph (a) of this section, HUD will:
(1) Disqualify the PHA from HUD funding competitions; and
(2) Direct the PHA to cease additional spending in connection with
a development that meets, or is likely to meet the statutory criteria,
except to the extent that failure to expend such amounts would endanger
health or safety.
(c) If a PHA fails to take the conversion activities described in
paragraph (a) of this section, HUD may also take any or all of the
following actions:
(1) Identify developments that fall within the statutory criteria
where the PHA has failed to do so properly;
(2) Take appropriate actions to ensure the conversion of
developments where the PHA has failed to adequately develop or
implement a conversion plan;
(3) Require the PHA to revise the conversion plan, or prohibit
conversion, where HUD has determined that the PHA has erroneously
identified a development as being subject to the requirements of this
section;
(4) Authorize or direct the transfer of capital or operating funds
committed to or on behalf of the development (including comprehensive
improvement assistance, comprehensive grant or Capital Fund amounts
attributable to the development's share of funds under the formula, and
major reconstruction of obsolete projects funds) to tenant-based
assistance or appropriate site revitalization for the agency; and
(5) Any other action that HUD determines appropriate and has the
authority to undertake.
[[Page 54612]]
Dated: August 11, 2003.
Michael M. Liu,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 03-23026 Filed 9-16-03; 8:45 am]
BILLING CODE 4210-33-P