Final Rule

Vol. 78

Thursday,

No. 206

October 24, 2013

Part III

Department of Housing and Urban
Development

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24 CFR Parts 903, 905, 941, et al.
Public Housing Capital Fund Program; Final Rule

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Federal Register / Vol. 78, No. 206 / Thursday, October 24, 2013 / Rules and Regulations

DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
24 CFR Parts 903, 905, 941, 968, and
969
[Docket No. FR–5236–F–02]
RIN–2577–AC50

Public Housing Capital Fund Program
Office of the Assistant
Secretary for Public and Indian
Housing, HUD.
ACTION: Final rule.
AGENCY:

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I. Executive Summary

This final rule combines and
streamlines the former legacy public
housing modernization programs,
including the Comprehensive Grant
Program (CGP), the Comprehensive
Improvement Assistance Program
(CIAP), and the Public Housing
Development Program (which
encompasses mixed-finance
development), into the Capital Fund
Program (CFP). This rule defines
qualified PHAs, which are not required
to file annual plans. The rule expands
HUD’s current requirement that a Public
Housing Authority (PHA) submit a
physical needs assessment (PNA) to
include small PHAs as well as large
PHAs, but provides small PHAs
additional time to plan for and
implement this requirement. The rule
allows PHAs to request a total
development cost (TDC) exception for
integrated utility management, capital
planning, and other capital and
management activities that promote
energy conservation and efficiency,
including green construction and
retrofits, which include windows;
heating system replacements; wall
insulation; site-based generation;
advanced energy savings technologies,
including renewable energy generation;
and other such retrofits. The rule also
makes changes to replacement housing
factor funds and the threshold for
management improvements. Because
this rule streamlines programs, several
formerly separate regulations are
eliminated with the implementation of
this rule.
DATES: Effective date: November 25,
2013. The incorporation by reference of
certain publications listed in the rule is
approved by the Director of the Federal
Register as of November 25, 2013.
FOR FURTHER INFORMATION CONTACT:
Jeffrey Riddel, Director, Office of Capital
Improvements, Office of Public and
Indian Housing, Department of Housing
and Urban Development, 451 7th Street
SW., Washington, DC 20410–8000;
telephone number 202–708–1640 (this
is not a toll-free number). Hearing- or
SUMMARY:

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speech-impaired individuals may access
this number through TTY by calling the
toll-free Federal Relay Service at 800–
877–8339.
SUPPLEMENTARY INFORMATION: This final
rule follows a February 7, 2011,
proposed rule and makes changes in
response to public comment on the
proposed rule and further consideration
of issues by HUD.
A. Purpose of the Regulatory Action
This final rule implements section 9
of the United States Housing Act of
1937 (the 1937 Act), which created the
CFP as part of the Quality Housing and
Work Responsibility Act of 1998 (title V,
Pub. L. 105–276, approved October 21,
1998). The Capital Fund consolidated
the former public housing
modernization programs, including the
Comprehensive Grant Program (CGP),
the Comprehensive Improvement
Assistance Program (CIAP), and the
Public Housing Development Program
(which encompasses mixed-finance
development). In 2008, the Housing and
Economic Responsibility Act (HERA)
(Pub. L. 110–289, approved July 30,
2008) made changes to the CFP, namely
the removal of the former emergency
set-aside for natural disasters and
emergencies, and the creation of a
category of ‘‘qualified PHAs,’’ smaller
PHAs that are relieved from certain
paperwork submission requirements. To
date, there has been no comprehensive
regulation implementing these statutory
requirements and updates. Thus, rather
than a comprehensive, user friendly
regulation, PHAs have been required to
use annual processing notices to
supplement outdated regulations in
various parts of title 24 of the Code of
Federal Regulations (CFR), including
parts 905, 941, and 965.
This regulation is necessary to
consolidate the legacy modernization
programs in one part of the CFR and to
update the regulations in accordance
with current law. An updated regulation
with current program requirements is
needed to provide new staff members
with the knowledge necessary to
manage the Capital Fund and Mixed
Finance Development programs
proficiently. In addition, the regulated
community needs a single, clear,
updated regulation in order to have
complete and current information.
The Capital Fund formula itself,
currently codified at 24 CFR 905.10, is
reorganized at § 905.400. This formula
includes a number of coefficients that
are to be inserted into the equation.
These coefficients are unchanged by this
rule. The coefficients were defined as

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part of a negotiated rulemaking that
occurred in 1999 and 2000. The
proposed rule can be found at 64 FR
49924 (September 14, 1999) and the
final rule can be found at 65 FR 14426
(March 16, 2000).
B. Summary of the Major Provisions of
the Regulatory Action
This rulemaking: Establishes a new
definition section and proposes several
new definitions to be included in the
section; clarifies Capital Fund eligible
and ineligible activities, and
incorporates energy efficiency
standards; incorporates into part 905 of
public housing modernization the
regulations at 24 CFR part 968, which
part is removed by this final rule;
incorporates the development and
mixed-finance development
requirements of part 941, which also is
removed; expands the requirement for a
PNA to include small, as well as large,
PHAs (specific requirements pertaining
to the PNA will be addressed in a
separate rulemaking), but delays the
applicability of this provision for small
PHAs until 30 days after the end of a
federal fiscal year quarter following
HUD’s publication of a notice in the
Federal Register announcing
application of the provision.
The rulemaking also incorporates by
reference the 2009 International Energy
Conservation Code (IECC) and American
Society of Heating, Refrigerating, and
Air-Conditioning Engineers (ASHRAE)
standard 90.1–2010, ‘‘Energy Standard
for Buildings Except Low-Rise
Residential Buildings.’’ The ASHRAE
standard can be found at http://
www.ashrae.org/standards-researchtechnology/standards-guidelines. The
2009 IECC can be purchased at http://
shop.iccsafe.org/.
This rulemaking also: Clarifies the
calculation of TDC limits and
establishes the ability for PHAs to
request a TDC exception for integrated
utility management, capital planning,
and other capital and management
activities that promote energy
conservation and efficiency; establishes
5 years of a Demolition or Disposition
Transitional Funding (DDTF) grant that
will be included in the regular Capital
Fund formula grant, to replace the
Replacement Housing Factor (RHF)
grant of up to 10 years; provides for a
DDTF transition period; clarifies at
§ 905.202(b) that because of their
emergent nature, emergencies that are
not identified in the 5-year action plan
(statutorily required by section 5A of the
1937 Act) are eligible costs; revises the
description of eligible amenities at
§ 905.202(c); phases in over 5 years a
cap of 10 percent of a PHA’s Capital

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Fund that the PHA may expend on
management improvements; and revises
the identity of interest regulations in
accordance with HUD’s actual practice
to provide PHAs with the flexibility to
use an instrumentality as a general
contractor in mixed-finance projects, as
long as cost requirements are met,
without having to request a waiver.

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C. Costs and Benefits
This rule does not have any direct
financial impact on the level of funding
for the CFP, but has the potential to
create some financial transfers among
program participants of less than $100
million annually. The rule will cap
management improvement expenditures
from the Capital Fund at 10 percent,
phasing in the cap over 5 years. On
average, PHAs use approximately 8
percent of their Capital Fund grants on
management improvements, with many
PHAs using considerably less, and
larger PHAs of more than 250 units
using 9 percent. The 10 percent cap
would not cause significant transfers
outside of the CFP, though the 10
percent cap would require significant
expenditure changes for some PHAs that
spend a high percentage of their Capital
Fund grants on management
improvements.
This final rule will also have
significant benefits. This rule updates
and consolidates the CFP regulations
and related regulations having to do
with the use of Capital Funds for
development and modernization, as
well as regulations for continuing
operation of low-income housing after
completion of debt service. In addition,
the rule codifies recent statutory
requirements enacted in HERA. The
benefits of the rule such as regulatory
consolidation, program clarification,
removal of obsolete references, and
enhanced efficiencies justify the
promulgation of this rule.
II. Background
Section 9 of the U.S. Housing Act of
1937 (1937 Act) (42 U.S.C. 1437g) is the
statutory basis for the Public Housing
Capital Fund (Capital Fund) and the
Public Housing Operating Fund
(Operating Fund). The Operating Fund
is established by Section 9(e) of the
1937 Act, and the Capital Fund, which
is the focus of this rule, is established
by section 9(d) of the 1937 Act (42
U.S.C. 1437g(d)). Section 9(d) lists the
various items for which the Capital
Fund may be used, including
development, modernization,
maintenance, vacancy reduction, code
compliance, demolition and
replacement, homeownership activities,
and energy efficiency, among others.

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Other important provisions found in
section 9(d) of the 1937 Act are: The
requirement for HUD to develop a
formula to determine the amount of
Capital Funds that are allocated to PHAs
in each fiscal year (42 U.S.C.
1437g(d)(2)); flexibility for a small PHA
to use up to 100 percent of its Capital
Fund grant and for a large PHA to use
up to 20 percent of its Capital Fund
grant for purposes ordinarily pertaining
to the Operating Fund (section 9(g) of
the 1937 Act pertaining to limitation on
use of funds; 42 U.S.C. 1437g(g)); and
penalties for the slow obligation and
expenditure of Capital Funds (section
9(j) of the 1937 Act, 42 U.S.C. 1437g(j).
All of these requirements based in
statute and others added by regulation
constitute the CFP. Additionally, due to
changes made to the annual plan
statutorily required of PHAs (PHA
Annual Plan) by section 5A of the 1937
Act, and the need to have grant
reporting in compliance with the
requirements of the CFP, and other
federal reporting requirements, the CFP
informational requirements will be
decoupled from the PHA Annual Plan
requirements. HUD will make necessary
changes to the HUD forms involving the
CFP budget and reporting requirements.
Section 2702 of the HERA amended
section 5A of the 1937 Act (42 U.S.C.
1437c–1) to provide that certain PHAs,
called ‘‘qualified PHAs,’’ are not
required to file the PHA Annual Plan
called for in section 5A(b)(1) of the 1937
Act (42 U.S.C. 1437c–1(b)(1)), although
these PHAs, along with nonqualified
PHAs, must file the 5-year plan and a
civil rights certification required under
section 5A(d)(16) of the 1937 Act, 42
U.S.C. 1437c–1(d)(16). Qualified PHAs
under section 2702 are those that
administer 550 or fewer units—
considered as the sum of all the public
housing units and vouchers under
section 8(o) of the 1937 Act (42 U.S.C.
1437f(o)) (section 8) administered by a
PHA—and which are not designated as
a troubled PHA under section 6(j)(2),
and which do not have a failing score
under the Section 8 Management
Assessment Program (SEMAP) during
the prior 12 months. Please see the
preamble to the proposed rule of
February 7, 2011 (76 FR 6654–6682), for
further discussion of the statutory
background.
III. The Proposed Rule
Significant changes to the CFP
regulations that were proposed by the
February 7, 2011, rule included the
following:
• Establishment of a new definition
section and proposing several new

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definitions to be included in this
section.
• Clarification of Capital Fund
eligible and ineligible activities and
incorporating energy efficiency
standards.
• Incorporation into part 905 of
public housing modernization the
regulations at 24 CFR part 968, which
part is removed by this final rule.
• Establishment of annual plan
submission requirements for
nonqualified PHAs as defined in section
2702 of HERA and Capital Fund
submission requirements for qualified
and nonqualified PHAs.
• Expansion of the requirement for a
PNA to include small, as well as large,
PHAs. The requirements pertaining to
PNA may be addressed in a separate
rulemaking.1
• Clarification that Energy Star
appliances and systems, and costeffective energy measures, are eligible
costs.
• Incorporation of the IECC and
American Society of Heating,
Refrigerating, and ASHRAE standard
90.1–2010, ‘‘Energy Standard for
Buildings Except Low-Rise Residential
Buildings.’’ The ASHRAE standard can
be found at http://www.ashrae.org/
standards-research-technology/
standards—guidelines. The 2009 IECC
can be purchased at http://
shop.iccsafe.org/
• Clarification of the calculation of
TDC limits and establishment of the
ability for PHAs to request a TDC
exception for integrated utility
management, capital planning, and
other capital and management activities
that promote energy conservation and
efficiency.
• Limitations on the number of years
that PHAs will receive RHF grants.
• Provision for RHF transition
funding for PHAs that have already
begun receiving RHF funding grants at
the time the new 5-year program comes
1 Part 968 promulgated December 21, 1989,
instituted a requirement for large (Comprehensive
Grant) PHAs to complete a PNA as a part of the
Comprehensive Plan (see 968.315(e)(2). This rule
does not add new PNA requirements for large PHAs
but rather continues the current requirements with
the only change being that small PHAs will also
have to comply with those requirements. The
current PNA requirements include completion of a
brief summary of the physical improvements
needed to bring each development to HUD
standards for modernization, energy conservation
life-cycle cost effective performance standards, and
lead-based paint testing and abatement standards;
the replacement needs of equipment and structural
elements during the period covered; a preliminary
estimate of cost; any physical disparities between
buildings occupied predominantly by one racial or
ethnic group and the physical improvements
required to correct the disparity; and the number of
units the PHA is proposing for substantial
rehabilitation and subsequent sale, if any.

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into effect. Those PHAs would receive
10 full years of replacement funding.
• Setting of costs limits for the CFP
fee at 10 percent of the annual Capital
Fund grant.
• Reduction of the amount of the
grant that may be spent on management
improvements from 20 percent to 10
percent over a 3-year period.
• Revisions to the requirements for
timely obligation and expenditure of
Capital Funds currently found at 24 CFR
905.120.
• Incorporation of the design and
construction requirements currently
found in 24 CFR 941.203 into part 905.
• Establishment of requirements for
funding Resident Management
Corporation (RMC) activities.
• Establishment of rules on
contracting requirements and the use of
force account labor.
• Incorporation of development
requirements, including those
pertaining to mixed-finance projects.
• Implementation of section 35(h) of
the 1937 Act, 42 U.S.C. 1437z–7(h),
allowing for deviations from Public
Housing Requirements, under specified
conditions, to ensure the long-term
feasibility of mixed-finance projects,
while still ensuring certain tenant
protections.
• Prohibition on a PHA pledging its
assets without written HUD approval.
• Establishment of sanctions for
noncompliance with HUD contracts and
regulations.

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IV. Summary of Significant Changes in
This Final Rule
The following changes were made to
the proposed rule at this final rule stage:
• Revises the definitions of Capital
Fund Annual Contributions Contract
(CF ACC); Public Housing
Requirements; Qualified PHA; and
public housing funds. This final rule
adds a definition of Declaration of Trust
(DOT) and of Declaration of Restrictive
Covenant.
• Clarifies that the provisions of
direct social services and the costs for
security guards or ongoing security
services are not eligible management
improvements.
• Provides, as one option to the
guaranty of irrevocability of funding,
that the required letter of credit is to be
valued at 10 percent of the contract
price (the proposed rule would have
required a letter of credit to be valued
at 25 percent of the contract price).
• Clarifies at § 905.202(b) that
because of their emergent nature,
emergencies that are not identified in
the 5-year action plan (statutorily
required by section 5A of the 1937 Act)
are eligible costs.

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• Revises the description of eligible
amenities at § 905.202(c).
• Implements, over a 5-year time
period, a 10 percent cap on the amount
of Capital Funds that a PHA may spend
on management improvements. (In
contrast, the proposed rule would have
implemented this cap over 3 years.)
• Establishes 5 years of a DDTF grant
that will be included in the regular
Capital Fund formula grant. Since DDTF
will be included in the formula grant,
the DDTF grant will not be subject to the
same requirements as the RHF grants
and will be usable for modernization as
well as development. PHAs will be able
to use the DDTF for any eligible activity
under the CFP and this funding will not
be subject to accumulation, although the
DDTF grant will be subject to the same
statutory requirements as any Capital
Fund grant and the terms of the
appropriation of Capital Funds from
Congress.
In addition to the above listed
changes, the following changes are also
made via the final rule.
The final rule delays the applicability
of § 905.300(a) for small PHAs. HUD is
taking this action to provide small PHAs
additional time to prepare for the
implementation of the requirement to
submit a PNA. Specifically, small PHAs
will be subject to this provision 30 days
following the end of a federal fiscal year
quarter following HUD’s publication of
a notice in the Federal Register
announcing application of the
provision. Moreover, HUD plans to
delineate a time frame for submission of
a PNA such that the first submission by
a small PHA would not be sooner than
6 months after the end of the federal
fiscal quarter.
The final rule gives PHAs more time
to prepare for the change to DDTF.
Starting in Fiscal Year (FY) 2014, PHAs
that would be newly eligible for RHF
funding will receive instead 5 years of
DDTF. In FY 2014, if a PHA has one or
more years of first-increment RHF
funding, the PHA will receive the
remaining years of first-increment RHF
and an additional 5 years of DDTF. If,
in FY 2014, a PHA has already started
receiving second increment RHF
funding, the PHA will receive the
remaining years of second increment
RHF funding. An Excel spreadsheet that
describes the impact of HUD’s changes
to DDTF is available at http://
portal.hud.gov/hudportal/HUD?src=/
program_offices/public_indian_
housing/programs/ph/capfund.
The final rule provides that PHAs that
remove units because of
homeownership are not eligible for
replacement funding under an RHF.

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This final rule corrects an error in
proposed § 905.602(b), that addressed
limitations on new construction. In the
proposed rule, acquisition was
improperly excluded from the
limitations. HUD’s interpretation of
construction in this context, as
including acquisition, was properly
reflected in the regulatory preamble of
the February 7, 2011, proposed rule at
76 FR 6654, third column, which stated
as follows:
Section 9(g)(3) of the 1937 Act (42 U.S.C.
1437g(g)(3)) imposes limitations on the use of
the Capital Fund or Operating Fund for new
construction. Generally, the CF formula shall
not provide PHAs funding for the purpose of
constructing public housing units (which
includes acquisition), if the construction
would result in a net increase from the
number of housing units owned, operated, or
assisted by the PHA on October 1,
1999. . . .’’

However, the rule text at proposed
§ 905.602 did not correctly reflect this
interpretation. This error is corrected in
final rule § 905.602(b).
The final rule makes changes to
proposed § 905.604(n), which addressed
deviations from HUD requirements
under 35(h) of the 1937 Act (see 42
U.S.C. 1437z–7(h)). The proposed rule
would have required that to allow for
deviations in a mixed-finance project
because of a change in appropriations or
other change in law preventing a PHA
from providing Operating Funds, at
least 20 percent of the units must be
nonpublic housing rental units. In
addition, the proposed rule would have
predetermined specific allowable
deviations. Some commenters objected
to the 20 percent threshold and the
limited allowable deviations. This final
rule allows for more flexibility. As the
statute provides, there must be a
‘‘significant number’’ of units that are
not public housing. Rather than specific
allowable deviations, the PHA, on
behalf of the mixed-finance owner
entity (Owner Entity) would submit an
Alternative Management Plan to HUD,
which would explain the reasons for the
deviation and the proposed changes,
among other details (see § 905.604(k) of
this final rule).
This final rule revises the identity of
interest regulations in accordance with
HUD’s actual practice. This revision
provides PHAs with the flexibility to
use an instrumentality as a general
contractor in mixed-finance projects, as
long as cost requirements are met,
without having to request a waiver. The
identity of interest general contractor
must have submitted the lowest bid in
response to a request for bids, or, in the
alternative, the PHA must submit a
written justification to HUD, including

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an independent cost estimate, that
demonstrates that the identity of interest
general contractor’s costs are less than
or equal to the independent third party
cost estimate. Identity of interest
contractors will be considered by HUD
as part of the development proposal
approval. Since 2008, HUD has
consistently granted waivers to allow
this procedure to be followed; 45 waiver
requests have been granted, and no
waiver request was denied in that
period. Additionally, HUD previously
published this provision for comment
(see HUD’s proposed rule entitled
‘‘Streamlining Public Housing
Programs’’ (FR–4990–P–01), published
on August 8, 2008, at 73 FR 45373 and,
generally, received supportive
comments. The comments on the 2008
proposed rule can be found at http://
www.regulations.gov.

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V. The Public Comments
The public comment period on the
proposed rule closed on April 8, 2011,
and 45 public comments were received.
Comments were received from a variety
of stakeholders, including PHAs, trade
associations, housing advocates, and
individuals.
Definitions (§ 905.108)
Issue: The proposed definition of
‘‘Capital Fund Annual Contributions
Contract (CF ACC)’’ appears to conflate
the definition of the entire ACC (which
is a contract addressing the operation of
public housing) with that of a Capital
Funds amendment (presumably limited
to the special terms applicable to the
provision of Capital Funds).
HUD Response: To avoid possible
ambiguity, this final rule modifies the
proposed definition of CF ACC to more
clearly indicate that this is an
amendment to the Consolidated Annual
Contributions Contract (Consolidated
ACC). It should also be noted that the
ACC is a grant agreement that addresses
not only the operation of public housing
but also the development and
modernization of public housing.
Issue: The definition of
‘‘development’’ in § 905.200(b)(2)
appears to be limited to activities to add
units to inventory; notwithstanding the
reference to nondwelling facilities, it is
unclear what else might be covered
given the limiting phrase. Also, the
definition of ‘‘development’’ should
include a facility that is being
modernized.
HUD Response: The reference to
‘‘development’’ in this paragraph is in
the context of eligible housing, not a
general definition of development, and
is part of a larger list of eligible
activities. The paragraph states that the

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eligible activities under the rubric of
development include ‘‘construction and
acquisition with or without
rehabilitation; any and all undertakings
necessary for planning, design,
financing, land acquisition, demolition,
construction, or equipment, including
development of public housing units,
and buildings, facilities, and/or related
appurtenances (i.e., nondwelling
facilities/spaces). Development of
mixed-finance projects includes the
provision of public housing through a
regulatory and operating agreement,
master contract, individual lease,
condominium or cooperative agreement,
or equity interest.’’
Issue: The definition of ‘‘Community
Renewal Costs’’ in § 905.108 states that
Capital Funds may be used for
community renewal costs, but not what
those costs are, which makes it difficult
to apply the TDC formula at
§ 905.314(e). The commenter states that
this term should be defined.
HUD Response: Community Renewal
costs consist of the sum of the following
HUD-approved costs related to the
development of a public housing
project: planning (including proposal
preparation), administration, site
acquisition, relocation, demolition, and
site remediation of environmental
hazards associated with public housing
units that will be replaced on the project
site, interest and carrying charges, offsite facilities, community buildings and
nondwelling facilities, contingency
allowance, insurance premiums, any
initial operating deficit, on-site streets,
on-site utilities, and other costs
necessary to develop the project that are
not covered under the ACC. This final
rule adds this information to the
definition.
Issue: The definition of ‘‘Public
Housing Requirements’’ should be
revised to specifically reference the
Consolidated ACC and all amendments,
rather than referring to the CF ACC
Amendment without the underlying
document. If there is intended to be a
split between the CF ACC Amendment
and the Mixed-Finance ACC
Amendment, references to the CF ACC
should be corrected accordingly. The
definition should read:
Public Housing Requirements. All
requirements applicable to public housing
including, but not limited to, the 1937 Act;
HUD regulations; the Consolidated Annual
Contributions Contract, including
amendments; HUD notices; and all
applicable federal statutes, executive orders,
and regulatory requirements, as these
requirements may be amended from time to
time.

HUD Response: HUD accepts this
recommendation and the change is

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63751

incorporated into the definition at
§ 905.108.
Issue: HUD’s regulation at § 903.3
does not directly define the term
‘‘qualified’’ PHA. The commenter
recommends that to make the final rule
transparent and conducive to public
understanding, it should list the 3
factors necessary for a small PHA to be
‘‘qualified’’ in order to avoid having a
PHA Annual Plan. The commenter
additionally notes that while the
proposed rule’s summary and overview
declare that the proposed PHA Annual
Plan change would merely incorporate
the definition of ‘‘qualified PHA’’ in the
PHA Annual Plan regulation at § 903.3,
the actual proposed rule text removes
the current subsection explaining the
purpose of the PHA Annual Plan.
HUD Response: For ease of use and
transparency, this final rule
incorporates the definition of ‘‘qualified
PHA’’ that is provided in § 903.3,
which, in turn, adopts the statutory
definition for this term in section 2702
of HERA (codified at 42 U.S.C. 1437c–
1(b)(3)(C)), rather than relying on a
cross-reference:
The term ‘‘qualified PHA’’ means a
public housing agency that meets the
following requirements:
(1) The sum of the number of public
housing dwelling units administered by
the agency, and the number of vouchers
under section 8(o) of the United States
Housing Act of 1937 (42 U.S.C. 1437f(o))
administered by the agency, is 550 or
fewer; and
(2) The agency is not designated
under section 42 U.S.C. 1437d(j)(2) as a
troubled public housing agency and
does not have a failing score under
SEMAP during the prior 12 months.
Issue: The definition of ‘‘Owner
Entity’’ requires that the rule make
clear, either in the definition or
elsewhere, that a mixed-finance
development can be owned by an
Owner Entity, a PHA, or, alternatively,
an instrumentality.
HUD Response: HUD has clarified the
definition of Owner Entity as it relates
to mixed-finance in §§ 905.108 and
905.604(a)(1).
Issue: In proposed § 906.604(b)(4), the
definition of ‘‘participating party’’ is
overbroad.
HUD Response: This term is no longer
used this final rule.
Issue: The rule should include a
definition of ‘‘partners,’’ used in
§ 905.108; a definition of ‘‘declaration of
trust’’; a definition of ‘‘modernization’’;
and a definition of ‘‘mixed-finance
modernization.’’
HUD Response: ‘‘Partner’’ was
proposed to be defined in § 905.604(b);
however, because the term applies

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elsewhere, this final rule moves the
definition to § 905.108. ‘‘Mixed-finance
modernization’’ is defined at § 905.108,
905.200 and 905.604. Definitions of
‘‘Declaration of Trust’’ and
‘‘modernization’’ are added to this final
rule at § 905.108.
Issue: The definition of ‘‘public
housing’’ excludes HOPE VI and other
non-Capital Fund assistance that HUD
regulates.
HUD Response: To capture the Public
Housing Funding that HUD regulates,
this final rule defines ‘‘public housing
funds’’ in a more inclusive manner at
§ 905.108 to include HOPE VI and other
funds appropriated for public housing
uses, including development,
rehabilitation, and operations.
Total Development Cost (TDC)
Issue: Several commenters expressed
support for limiting modernization costs
to 90 percent of TDC as well as for the
TDC exception in § 905.314(c) for
integrated utility management, capital
planning, and other capital and
management activities that promote
energy conservation and efficiency,
including green construction and
retrofits.
One commenter, however, stated that
there is a lack of clarity in the language
of § 905.314(c) because the terminology
varies between ‘‘exception’’ and
‘‘waiver,’’ where a waiver is normally a
more formalized process than a simple
regulatory exception.
HUD Response: This final rule retains
the 90 percent of TDC threshold for
modernization. On the issue of
exception or waiver, the commenter is
correct, ‘‘exception’’ is the correct term
and is used in § 905.314(c) of this final
rule.
Issue: One commenter states that
while the rule deals with Capital Funds,
it should also include other sources of
funding for public housing such as
HOPE VI, Choice Neighborhoods,
‘‘Development funds,’’ and any other
sources that may become available in
the future. The commenter states, for
example, § 905.314(c), on TDC,
currently covers only development with
Capital Funds and that this section
should be revised to include all public
housing funding sources.
HUD Response: HUD agrees that,
because of the federal interest in
maximizing the use of funds, TDC
applies to all public housing funds and
revises § 905.314(c)(1) of this final rule
accordingly.
Issue: Heating-and-cooling-degreedays should continue to be an essential
factor when considering exceptions to
TDC. The unique expenses associated
with implementing energy-saving and

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green features that represent high frontend costs, which may or may not be
‘‘cost saving sensitive’’ but are highly
sensitive to depleting energy sources,
should be treated similarly. The
commenter states that the rule should
directly and specifically address the
eligible high front-end expenses when
green features emphasize renewable
energy sources that far exceed TDC, in
exchange for preserving the other energy
sources that are depleting.
HUD Response: This final rule
provides for a TDC exception for
integrated utility management, capital
planning, and other capital and
management activities that promote
energy conservation and efficiency.
HUD believes that, rather than trying to
address each possible special case in the
rule, this exception preserves PHA
discretion to address the commenter’s
concern as well as other similar
concerns that may arise in individual
cases.
Contracts and Contracting
Issue: This commenter states that the
proposed rule should subordinate its
terms for a covenant to the terms of the
financing deal for development. As for
the covenant for modernization, it
should subordinate such terms only
when Capital Fund financing is
involved in the modernization of the
property. The commenter states that for
all other cases it would appear that the
20-year covenant for modernization
could then be a reasonable provision for
inclusion in a final rule.
HUD Response: Section 9(d)(3)(B) of
the 1937 Act (42 U.S.C. 1437g(d)(3)(B))
requires use restrictions to remain on
the property for 20 years from the date
that modernization is completed with
Capital Funds on any public housing or
portion thereof. HUD retaining a priority
position as to HUD’s financing ensures
that the low-income use requirements
will continue to be met. HUD has
interpreted the 1937 Act to allow
appurtenances to be excepted from the
definition of public housing (e.g.,
nondwelling properties such as
administrative buildings) which, if
included in public housing, would have
had to remain under the Declaration of
Trust for 20 years from the latest date
on which modernization is completed,
but may have liens prior to the
Declaration of Trust.
Issue: The proposed regulation at
§ 905.316(a), which provides that PHA
procurement must comply with 24 CFR
part 85, should be limited to activities
funded with Capital Funds.
HUD Response: Section 905.31(a)
explicitly refers to public housing

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capital activities; no further clarification
is necessary.
Issue: A commenter stated that
§ 905.316(d)(2)(iv), which refers to
irrevocable letters of credit as an
assurance of completion, is insufficient
because the specific terms are not
stated. The rule should require that,
before accepting a letter of credit, the
PHA have its counsel review the
proposal form and opine that the PHA
and HUD are fully protected under its
terms. Another commenter stated that
the 25 percent requirement is
inconsistent with modern private sector
practice and imposes extra costs that do
not materially increase the PHA’s
security, and, in the context of mixed
finance, is unnecessary because the tax
credit investors have a strong monetary
interest in completion.
HUD Response: The main condition
that HUD is concerned about, as stated
in the rule, is irrevocability. The letter
of credit is only one option for the
assurance, and the PHA may select one
of the other options. Therefore, HUD
does not believe a change is necessary
regarding further specificity of the
terms. However, HUD agrees to lower
the percentage requirement to reflect
modern practice, and this final rule now
requires a 10 percent irrevocable letter
of credit at § 905.316(d)(iv).
Issue: Proposed § 905.308(b)(4)
appears to be an incredible expansion of
prevailing wage rate requirements, since
it appears to apply to third party
contracts and to professionals. The
commenter requests clarification as to
whether, under this section, architects,
engineers and technicians must be paid
the prevailing wage rates and
questioned how to find those rates.
HUD Response: The commenter is
incorrect; HUD is not expanding the
Davis-Bacon wage rate requirements in
this rule. These are standard DavisBacon provisions and are required by
statute; specifically, as Davis-Bacon
requirements related to HUD-funded
projects under the 1937 Act (42 U.S.C.
1437j(a)). Guidance can be found at the
Department of Labor’s wage rate site,
http://www.wdol.gov/. HUD also has a
Web page with Davis-Bacon information
at http://portal.hud.gov/hudportal/
HUD?src=/program_offices/labor_
relations.
Issue: One commenter asked whether
§ 905.326, which imposes a 5-year time
frame for record retention, intends to
add an additional 2 years to the record
retention required under 24 CFR
85.36(i)(11) and 85.42(b).
HUD Response: Yes, based on the life
cycle of Capital Funds, this rule adds 2
years to the 3 years required under 24
CFR part 85, for a total of 5 years.

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Issue: As to § 905.318, a commenter
states that a title insurance policy is not
available before a PHA takes title.
HUD Response: Title insurance is
required at the time the property is
acquired by the PHA. This final rule
makes this clarification.

Capital Fund Program (CFP), including
but not limited to the CFP annual
formula grant, CFP annual RHF grants,
the Capital Fund Education and
Training Community Facility Program
grants that were awarded, and mixedfinance grants.

Forms
Issue: The definition of ‘‘Cooperation
Agreement’’ references a form
prescribed by HUD, form HUD–52481,
which is available in HUDClips
(http://portal.hud.gov/hudportal/
HUD?src=/program_offices/
administration/hudclips/forms/), but
one commenter stated that the form
states that it is a drafting guide.
HUD Response: This form has always
been a guide because State and local law
must be considered as well. Many PHAs
have used this form ‘‘as is’’ and that is
acceptable as long as it conforms to
State and local law.
Issue: One commenter stated that
there should be an exception for the use
of American Institute of Architects
forms, such as AIA–B108–2009 under
§ 905.316(b)(use of HUD-prescribed
contract forms).
A commenter stated that one of HUD’s
proposed changes to part 905 would
require that PHAs nationwide use
standard mandated contract forms. The
commenter states that while PHAs
should be required to incorporate
certain terms and conditions in their
contract, they must also have flexibility
to address local legal requirements,
which may vary from state to state.
HUD Response: HUD-prescribed
contract forms include necessary federal
and Public Housing Requirements. HUD
intends to limit the use of contract
forms to HUD forms, because
nonstandard and local forms do not
reflect the appropriate federal
limitations. Therefore, HUD has not
changed the form requirements.
Issue: The rule is inconsistent with
respect to references to ACC forms. The
rule refers variously to a mixed-finance
ACC Amendment (§ 905.604(k)(2)), ACC
Amendment (throughout § 905.604(k)),
and CF Amendment (§ 905.612(b)) in
closely related provisions. The rule
seems to suggest that it intends to
replace 3 ACC forms currently in use
with a single CF ACC amendment, but
is inconsistent in this respect.
HUD Response: It is not the intention
of this rule to replace the 3 ACC forms
with a single ACC Amendment. There is
one consolidated ACC, and separate
ACC Amendments for different sections
of the program. A definition of ACC
Amendment has been added to
§ 905.108. There are separate ACC
Amendments for the various areas of the

Replacement Housing Factor (RHF)
Issue: Reduction in RHF grant. PHAs
that have a reduction in units due to
demolition and disposition have been
eligible for an additional grant, the RHF
grant. PHAs have been entitled to an
initial 5 years of RHF funding and an
additional 5 years of RHF funding if
certain conditions are met. The rule
proposed, for units demolished or
disposed of on or after the effective date
of this rule, to reduce the RHF to 5 years
of funding, in total.
One commenter observed that this
change would have a positive impact on
the availability of Capital Funds.
Several other commenters, however,
objected to this change and stated that
RHF funding should be standardized to
10 years because RHF funding is the
best approach for developing
replacement housing, and many PHAs
have compelling reasons for
demolishing or disposing of public
housing property and need this
resource, which is one of the few
resources remaining to assist with new
public housing. There are still
thousands of distressed housing units,
and until these can be improved, RHF
funding should continue at 10 years.
PHAs have a capital backlog of an
estimated $32 billion and an average of
10,000 units are lost each year. RHF
funding adds up to a vital resource over
the course of 10 years, especially given
the uncertainty of funding from year to
year. PHAs cannot count on an award of
HOPE VI or Choice Neighborhood
grants, because they are scarce and
directed to certain types of projects. The
RHF constitutes the only resource
available that is dedicated to
replacement public housing, and is an
important resource for PHAs that do not
have HOPE VI funds.
One commenter stated that because
the funding is only paid to PHAs that
have removed units, without HUD
development funds it can take years to
develop a viable, fundable plan to for
replacement housing. One commenter
stated that a PHA cannot count on other
resources, and that RHF ‘‘constitutes the
only resource available that is dedicated
to replacement public housing. HUD has
not done a study of RHF, including its
leveraging effectiveness, and has not
established a sound basis for
dramatically cutting this much-needed
resource.’’ Even with 10 years’ worth of

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funding, agencies must look for other
resources, and thus it is not sensible to
reduce the amount provided by the RHF
even more.
HUD Response: While the RHF is an
important tool for development of
replacement housing, in the current
limited funding environment, the need
for replacement housing for a few PHAs
has to be balanced with the needs of the
majority of PHAs whose Capital Funds
modernize existing public housing.
These needs are quantified in a study
released in June 2011 on modernization
needs, ‘‘Capital Needs in the Public
Housing Program,’’ prepared by Abt
Associates, available at http://
portal.hud.gov/hudportal/documents/
huddoc?id=PH_Capital_Needs.pdf. The
study found that the Nation’s 1.2
million public housing units have an
estimated total of $25.6 billion in
existing capital needs. Regarding
demolition and disposition needs, the
Capital Fund and other sources of
funding, such as section 8 funding for
replacement housing, can be used to
meet these needs. The change in the
RHF will result in an increase in Capital
Funds, which is a more flexible
resource.
However, given the significance of the
change, this final rule allows for a
longer transition period than proposed.
PHAs that would be newly eligible for
RHF funding in Federal Fiscal Year
(FFY) 2014 will instead receive 5 years
of DDTF from the Capital Fund. The
Federal Fiscal Year is defined in
§ 905.108 of this rule as the fiscal year
that begins each year on October 1 and
ends on September 30 of the following
year (PHA fiscal years can have different
beginning and ending dates). PHAs that
have already begun receiving firstincrement RHF funding by FFY 2014
will receive the remainder of their first
increment and 5 years of DDTF. If a
PHA is already receiving secondincrement RHF funding by FFY 2014, it
will receive the remainder of its secondincrement RHF funding. DDTF funding
would have fewer limitations than RHF
funding, in that it could be used for
modernization needs (of which there is
a substantial backlog) as well as
development; at the same time, statutory
requirements applicable to the Capital
Fund, such as the requirements for
expenditure and obligation in section
9(j) of the 1937 Act (42 U.S.C. 1437g(j)),
will apply. This is a generous transition
and should ameliorate the issues
discussed by the commenters.
Issue: Scattered site replacement
housing. One commenter stated that
eliminating 5 years of RHF funds would
tie the hands of PHAs that replace older
public housing units with new

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scattered-site units. Such units may take
years to come online and that the local
housing opportunities commission is
inclined to pass over units in areas with
a high affordable housing concentration
in favor of units in wealthier areas. The
commenter also stated that reducing the
time frame for RHF funding may restrict
efforts to develop mixed-finance
developments that include some public
housing because such deals and
regulatory regimes are complex.
HUD Response: Firstly, if the PHA in
question has already received at least
one year of RHF funding as of the
effective date of this final rule, the PHA
will be eligible under § 905.400(k) for an
additional 5 years of RHF funding.
Secondly, the change in RHF grant
funding will increase the amount of
Capital Funds, which is a more flexible
resource that, unlike RHF funds, can be
used for any Capital Fund purpose, be
it development or modernization. This
flexibility is particularly important in
the case of smaller PHAs whose RHF
funds typically are not enough at any
one time to engage in development
activities. In many cases, by the time
these unused funds are recaptured by
HUD, they are lost to their intended use
for assisted housing because the life
cycle of the funding has expired and the
funds must be returned to the
Department of the Treasury as general
revenues. Under DDTF, PHAs in this
situation will be able to use the funds
for modernization needs, thus assuring
that funds intended for housing needs
actually go to that purpose. Also,
because these funds are, in fact, Capital
Funds and not part of a separate
appropriation, the phased-in decrease to
5 years means that there will be more
Capital Funds available to all PHAs
receiving Capital Fund grants.
Issue: Grandfathering. Commenters
stated that PHAs currently receiving
RHF grants should retain their full 10
years of eligibility.
HUD Response: Under this final rule,
PHAs that have received at least one
year of RHF funding as of the effective
date of this rule will be eligible for 10
years of RHF grants if they meet the
regulatory requirements of this rule,
including leveraging (see § 905.400(i)).
Issue: Accumulation of RHF funds.
Commenters stated that 10 years of RHF
grants should be ‘‘banked’’ or
accumulated on a PHA’s behalf, and
paid out if the PHA meets obligations to
develop one or more HUD-approved
mixed-finance projects.
HUD Response: Appropriations
statutes, not regulations, control the
period of availability of federal funds,
including Capital Funds; in the case of
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Funds, the funds are available only until
September 30, 2013; September 30,
2014; and September 30, 2015,
respectively (see, respectively, div. A,
tit. II, Pub. L. 111–117 (approved
December 16, 2009); div. B, tit. I, section
1103, Public Law 112–10 (approved
April 15, 2011); and div. C, tit. II, Public
Law 112–55 (approved November 18,
2011). This limitation prevents lengthy
multiyear accumulations as suggested.
Even were the funds involved to be
appropriated as no-year funds, as a
general matter, HUD finds that it is not
appropriate for public funds to remain
unobligated and unexpended for long
periods of time, a policy also expressed
in section 9(j) of the 1937 Act (42 U.S.C.
1437g(j)), which penalizes PHAs for
delayed obligation and expenditure of
funds.
Issue: Reduce administrative costs
rather than eliminating RHF grants.
Commenters stated that while
administering the RHF grants can be
cumbersome for HUD, the
administration of the program should be
simplified rather than HUD reducing the
amount made available to the program.
The commenters suggested that if the
number of units receiving RHF grants is
relatively stable from year to year, then
after an initial cost, 5 years of RHF
funding may not reduce the remaining
money in the Capital Fund, while
alleviating some of HUD’s
administrative burden.
HUD Response: Administrative costs
are not the major contributor to the need
to reduce the total number of years of
RHF funding. RHF funds and traditional
Capital Fund grants are both funded
from the same appropriation, which was
$2.044 billion in FFY 2011. While RHF
is an important tool for development of
replacement housing, the need for
replacement housing for a few PHAs has
to be balanced with the needs of the
majority of PHAs whose Capital Funds
modernize existing public housing.
Reducing RHF grants from 10 years to
5 years will make more funds available
for modernization. It is also common for
PHAs to accumulate 5 years of funding
and then realize there are insufficient
funds to develop units and,
subsequently, reject the funding, or
allow the funding to be recaptured.
When this occurs, most of the funding
that is returned to HUD must be
transferred to the Treasury, and cannot
be redistributed because, during the
accumulation, the life cycle of the funds
from the first and seconds years of
second-increment funding will have
expired.
Regarding administrative costs, the
replacement housing policy that is
presented in this final rule has been

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revised from the policy presented in the
proposed rule, based on public
comment. The revised policy simplifies
the administration of the program for
both HUD staff and PHAs. While the
revised policy will still only provide 5
years of additional funding for units
removed from inventory due to
demolition or disposition, the
limitations on the current RHF funding
will be eliminated, allowing PHAs to
use the funding for any eligible costs
under the Capital Fund program,
including development.
Issue: Plans for future disposition
activities rely upon RHF grants to fund
the development of new rental and
homeownership units. With the
elimination of the one-for-one
replacement statutory requirement the
need for RHF grants has become greater
over time because it provides critical
financing to demolish outdated
properties. Additionally, the proposed
change would make it more difficult to
maintain significant numbers of highly
subsidized units in mixed-finance
properties.
HUD Response: Capital Funds and
section 8 funds are available for these
purposes. Furthermore, this final rule
provides for a lengthier transition
period and, beginning in FY 2014,
DDTF funds that can be used on the
same basis as Capital Funds.
Issue: RHF grants should not be
available for units lost to
homeownership, but only for units lost
because of demolition or disposition,
and should be limited to highly
leveraged replacement rental
transactions using only HUD’s mixedfinance methodology.
HUD Response: In this final rule, RHF
grants eligibility is based on units lost
as a result of demolition and
disposition, but not homeownership. In
addition, there is a leveraging
requirement for PHAs that have already
received some RHF funding as of the
effective date of this rule and wish to
receive an additional 5 years. HUD does
not agree that RHF grants should be
restricted to mixed-finance as that is
overly inflexible.
Issue: Second-increment RHF funds
continue to be needed to replace
housing losses resulting from ongoing,
necessary demolition and disposition.
PHAs state that they made demolition
and disposition plans based on RHF
funding being available.
HUD Response: As originally
designed, the RHF grants were never
intended to fund the cost of replacement
of every unit demolished or disposed of
from the PHA’s inventory. However, in
order to ease the transition for PHAs
that have already demolished or

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disposed of units that are relying in part
on RHF grants, the proposed RHF
regulation has been modified in this
final rule at § 905.400(j) and
§ 905.400(k). PHAs that have received at
least one year of first increment RHF
funding prior to FFY 2014, the proposed
effective date of the DDTF, will be
eligible to receive up to 10 years of
funding for units removed from
inventory as a result of demolition or
disposition. The additional 5 years of
DDTF funding will not be subject to the
same restrictions as RHF grants because
it will be included in the Capital Fund
grant (although it will be subject to the
same legal requirements as any Capital
Fund grant, including the obligation and
expenditure requirements of section 9(j)
of the 1937 Act (42 U.S.C. 1437g(j)), and
any time limit placed on the
appropriation by the applicable
appropriations act). It should be noted
that the PHA always has the option to
use additional Capital Fund formula
grant funds as a resource in a mixedfinance transaction.
Issue: The change to RHF grants will
severely impact bond funding, where
the 10 years of RHF grants were a major
determinant to the amount of bonds
issued. The commenter cites an example
in which a ‘‘vast majority’’ of units
slated for demolition were demolished
well before FY 2010, but, because a few
units were not demolished until 2010,
the units remained in the Public
Housing Information Center (PIC)
database in FFY 2010 and would
apparently be subject to the proposed
rule limiting RHF grants to a single 5year increment even though 10 years of
RHF grants from the demolition of these
units had been pledged to an
outstanding bond issue. HUD should
use the date of the demolition or
disposition application, not the date of
removal from the PIC system, to
determine the applicability of new RHF
grant rules.
HUD Response: Under this final rule,
the postponement of the RHF transition
to FY 2014, along with the future
provision of DDTF funding, should
allow for bond funding to continue. As
to the issue of using the date of the
application to determine the
applicability of new RHF grant rules,
the mere existence of an application is
far too preliminary a step. First of all, a
given application may or may not be
approved. Secondly, even if approved,
there are cases when demolition does
not occur for a considerable period of
time, even years. Despite the single
example cited by the commenter, the
approach that will generally help ensure
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base the payment of RHF or DDTF funds
on removal of the units from the PIC
system.
Issue: Due to the federal budget crisis,
RHF funding should be eliminated
altogether. Since PHAs also receive
tenant protection vouchers, the
government is ‘‘paying double’’ for each
unit removed.
HUD Response: Removing RHF
funding altogether would have negative
consequences for PHAs that have
planned demolitions and dispositions
based on future availability of RHF grant
increments for replacement housing. On
the other hand, to the extent possible, in
today’s funding environment, PHAs
must use federal funds to leverage other
sources of funding. HUD believes that
the RHF transition provisions in this
final rule for PHAs already receiving,
and relying on, RHF grants offer the best
balance between the need to maximize
sources of funding and the need to fund
adequate replacement housing. PHAs
newly coming into the RHF program as
of FY 2014 will receive 5 years of more
flexible DDTF funds. It should be noted
that in order to prevent duplicative
funding, RHF and DDTF funding is
prohibited for a PHA that will replace
units using another source of federal
funding (see § 905.400(i)(5)(iii) of this
final rule).
Issue: HUD has not undertaken a
study of the RHF grant program,
including its leveraging effectiveness,
and has not established a sound basis
for dramatically cutting this muchneeded resource.
HUD Response: HUD has many years
of experience with RHF grants and
leveraging, which has shown that
without leverage it is quite difficult to
achieve unit replacement. HUD is not
dramatically cutting a much needed
resource. Not only will all activities that
are currently eligible under the RHF
grant program still be eligible under
DDTF, but the DDTF will also allow
PHAs to use this funding on any eligible
activity under the Capital Fund
Program. Further, HUD is providing a
lengthier transition to DDTF to
accommodate PHAs’ concerns. It should
be noted that the funding for the RHF
and DDTF grants is taken out of the
general Capital Fund Appropriation. In
limiting the DDTF funding to 5 years,
the funding that would have gone to
only specific PHAs receiving 10 years of
RHF funding, will now be distributed
among all of the PHAs receiving a
Capital Fund formula grant.
Issue: Several commenters objected to
the apparent retroactive date of the
change to RHF.
HUD Response: The changes to the
RHF grant program will not be

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retroactive, but will be implemented
starting in FFY 2014, which should
ameliorate the impact.
Issue: In order to compensate for RHF
grants that will be ‘‘lost’’ under this
provision, PHAs should have the
freedom to select higher-income
applicants.
HUD Response: Under this final rule,
PHAs that have demolished or disposed
of units, and have begun to receive firstincrement RHF funding as of FFY 2014,
will be eligible for an additional 5 years
of DDTF. Other PHAs will have
significant advance notice that they will
be eligible for only 5 years of DDTF and
can do their financial planning
accordingly. Finally, there is no direct
nexus between funding for replacement
housing and admission of higherincome residents.
Issue: The change to RHF funding is
contrary to the statutory requirement
that the Capital Fund formula be
developed by negotiated rulemaking.
HUD Response: The statutory
requirement of section 9(f) of the 1937
Act (42 U.S.C. 1437g(f)), is that ‘‘the
formulas . . . shall be developed
according to procedures for issuance of
regulations under the negotiated
rulemaking procedure. . . .’’ HUD
interprets this to mean that the formulas
are initially developed by negotiated
rulemaking, not that each subsequent
revision requires negotiated rulemaking.
HUD previously fulfilled this statutory
obligation to this regulation (see HUD’s
final rule published on September 14,
1999 at 64 FR 49924).
Issue: Funding for small numbers of
units. Some PHAs disposed of or
demolished small numbers of units at
various times, which resulted in RHF
allocations too small to acquire or
develop any replacement units. PHAs
should be allowed to use funds that fall
below certain thresholds for other
public housing uses, such as
modernization. One commenter stated
that HUD should consider setting a
minimum threshold for RHF funding,
below which a PHA may elect to use it
for general Capital Fund purposes and
not replacement housing.
HUD Response: The final rule
addresses these issues by providing that
the 5-year DDTF be given to PHAs in
their Capital Fund formula grant. The
formula grant, along with the increment
that has been added, can be used for any
Capital Fund eligible purpose, including
development of replacement housing or
modernization.
Issue: The rule should include an
exception where PHAs that demonstrate
hardship will be eligible for a second
increment of RHF funding. Hardship
could include, but not be limited to, in-

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process development projects that
anticipated second-increment RHF
funding and localities with critical
shortages of affordable housing.
HUD Response: The final rule
addresses the issue of in-process
development by extending the transition
and providing for DDTF. As for other
forms of ‘‘hardship,’’ such as shortages
of affordable housing, HUD already
provides funds for housing development
and for vouchers, among other forms of
funding.
Eligible Activities and Costs
Issue: Is the phrase ‘‘public housing
capital assistance’’ in § 905.314(b)
intended to be broader than ‘‘Capital
Funds?’’ If so, other included funding
sources should be specified.
HUD Response: HUD has added a
definition of ‘‘public housing funds’’ in
§ 905.108 that encompasses a broader
source of funds.
Issue: A commenter stated that the
language in proposed § 905.202
designating those items that are ‘‘not
modest in design and cost,’’ or not
‘‘customary for the locality’’ as
ineligible is overly broad and could
disqualify many green and energy
conservation measures and complicate
the use of Capital Funds for all but the
simplest of projects.
HUD Response: Green and energy
conservation measures that do not
otherwise qualify as eligible activities
will be covered by the TDC exception
found in § 905.314(c) of this final rule.
Further, it has been long-standing
regulatory description and PHA practice
to design, construct, and equip public
housing units to improve substandard
conditions and to harmonize with the
neighborhoods they occupy, meet
building standards, and achieve modest
levels of comfort and liveability for the
low-income public housing residents to
be served, and all at a reasonable costs
as defined under TDC. See e.g., former
24 CFR 941.203 and 968.112(b) and (o).
Issue: Add ‘‘except for emergencies’’
to proposed § 905.202(b), which
identifies activities and costs not
identified in the 5-year action plan as
ineligible costs.
HUD Response: This final rule
clarifies that emergencies that are not
identified in the 5-year action plan are
eligible costs.
Issue: The proposed regulation at
§ 905.202(g) uses a test for ineligible
costs (‘‘in excess of the amount directly
attributable to the public housing
units’’) that may be read more literally
than is appropriate. In a mixed-finance
project, for instance, are the common
areas ‘‘directly attributable’’ to the
public housing units? Costs should be

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deemed ineligible when they are
disproportionate to the benefit received
by the public housing program in
relation to other programs, or similar
standard. The commenter also states
that in § 905.314(a), the concept of
‘‘costs directly attributable to the public
housing program’’ should be replaced
with a reasonability or proportionality
concept. The commenter also states that
it is inappropriate for HUD to reserve
the right in § 905.202(i) to retroactively
find costs ineligible, when such costs
otherwise came within the definition of
eligibility and did not violate some
standard set forth in the rulemaking
provisions of the Administrative
Procedure Act (APA) (5 U.S.C. 501 et
seq.).
Another commenter stated that the
‘‘directly attributable’’ standard does not
provide a standard by which a PHA can
justify a cost’s eligibility. This
commenter states that the principles for
cost allocation in OMB Circular A–87
(Cost Principles for State, Local, and
Indian Tribal Governments) should be
the basis for the eligibility
determination.
HUD Response: HUD disagrees. While
concepts such as proportionality and
reasonability are subjective, direct
attribution to the intended purpose of
the funds is objective. In general
practice, the objective measures would
not exclude eligible costs along the lines
of what the commenter claimed. By
requiring direct attribution to public
housing, HUD is ensuring responsible
use of government funds, and acting in
accordance with 2 CFR Part 225. As to
the APA issue, the APA requires public
notice and an opportunity to comment
on the rule itself, which the public has
received regarding this rule. Each
individual decision that may be made
under this rule is not subject to
additional notice and comment. On the
contrary, it is entirely lawful for federal
agencies to reserve discretion over
managing their own programs.
As to OMB Circular A–87, Cost
Principles for State, Local, Indian, and
Tribal Governments, now codified at 2
CFR part 225 (part 225), the final rule
cites part 225 in relation to reasonable
costs, and as one test for ineligible costs
under § 905.202(d). However, by
suggesting that 2 CFR part 225 be the
sole test for the connection between the
costs and the public housing program,
the comment misunderstands the nature
of the circular. Part 225 is designed to
identify basic principles, not to take the
place of specific program regulations.
Part 225 states, inter alia, ‘‘The
principles are for the purpose of cost
determination and are not intended to
identify the circumstances or dictate the

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extent of Federal or governmental unit
participation in the financing of a
particular program or project.’’ (See 2
CFR part 225, Appendix A, General
Principles for Determining Allowable
Costs, at § A.1). Also, part 225 states that
allowable costs must conform to
‘‘governing regulations as to the types or
amounts of cost items.’’ (See Id. at
§ C.1.d). By requiring direct attribution
to public housing, HUD is acting well
within the scope of 2 CFR part 225, its
statutory authority, and APA principles.
Issue: While § 905.200(b)(12) makes
approved homeownership activities
eligible, some activities—such as
relocation assistance, mobility
counseling, and homeownership
counseling—may appropriately occur
prior to the approval of a specific
homeownership plan. After the
introductory phrase ‘‘activities
associated with approved
homeownership,’’ the rule should add
‘‘provided, however, that activities
under sections C and D may occur prior
to approval of the homeownership
plan.’’
HUD Response: Resident relocation
and mobility counseling, which
includes those items mentioned in the
comment, are separately eligible under
§ 905.200(b)(10) of this final rule. While
the physical relocation has to be after
the approval of the homeownership
plan, the mobility counseling and
surveying of the tenants can be done at
any time. However, as the section in
question does not specify the need for
a homeownership plan or timing in
relation to it, no rule revision is
required.
Issue: Under § 905.312(a), are
amenities such as air conditioners,
dishwashers, washing machines and
dryers eligible costs, or prohibited
luxuries?
HUD Response: HUD agrees that some
further clarification may be helpful with
respect to amenities. This final rule
clarifies that air conditioning is an
eligible modest amenity. Further
clarification on luxury items and
modest amenities will be provided in
future guidance.
Issue: Are Capital Funds eligible to be
used to construct office, resident
service, or maintenance facilities?
HUD Response: Yes.
Issue: How does § 905.202(f), on
direct provision of social services, relate
to management improvements, and
could HUD provide some examples?
HUD Response: Section 905.202(f)
provides that direct provision of social
services is not an eligible Capital Fund
expense. Examples of such ineligible
expenses, provided in the rule, are
salaries for social workers or General

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Educational Developmental (GED)
teachers, and this prohibition would
apply to other benefits for such workers
as well. Statutorily, under 42 U.S.C.
1437g(d), services simply are not Capital
Fund eligible costs; rather, the costs of
the provision of services may be an
operating cost under the Operating
Fund as provided in 42 U.S.C.
1437g(e)(1)(D). While it is not entirely
clear what the commenter means by
‘‘relate to management improvements,’’
the commenter appears to be asking
whether these types of costs may
nonetheless be permitted under the
Capital Fund as management
improvements. Eligible management
improvements under § 905.200(b)(7) of
this rule include activities that have a
linkage between the management
improvement and the correction of an
identified management deficiency.
Generally, the ineligible social services
expenses about which the commenter
asks would not be tied to management
in such a way as to make them eligible
as management improvements. HUD
may issue further guidance on this
subject in the future.
Issue: One commenter states that, in
§ 905.200(b)(8), the discussion of
eligible resident self-sufficiency
activities refers to funding from the
Operating Fund for $25 per-unit, permonth, for resident participation. The
commenter states that Operating Fund
rule at 24 CFR 990.190(e) references
only $25 per annum.
HUD Response: This statement is
corrected in this final rule.
Issue: The examples of Capital Fundrelated legal costs at § 905.200(b)(13) are
too limited and should be expanded.
Costs that specifically should be
mentioned include: negotiating and
drafting mixed-finance arrangements;
negotiating and reviewing property
descriptions; title policies, regulatory
interpretation, opinions, drafting,
reviewing, and negotiating evidentiary
documents for mixed-finance
development, the Capital Fund
financing program, conventional
development, and acquisition
transactions.
HUD Response: Unfortunately,
existing funding does not allow every
potential legal cost that one can
envision to be expressly included. All of
the legal costs mentioned in the
comment would be eligible if they were
reasonable in cost and related to the
Capital Fund development activities.
However, this rule is not intended to be
an exclusive list of eligible and Capital
Fund-related legal costs.
Issue: Section 905.200(b)(7)(iii)
(‘‘Activities that include or foster equal
opportunity’’) should be revised to

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include Limited English
Proficiency(LEP), Reasonable
Accommodation, and Violence against
Women Act (VAWA) policies and their
implementation as part of equal
opportunity requirements.
HUD Response: Housing counseling
for residents and prospective residents,
as well as the design and construction
of accessibility improvements, are
eligible under the Capital Fund. (See
§§ 905.200(b), 905.200(b)(7)(i) and (iv)
and 905.200 (b)(10) of the rule.).
Generally, a PHA would use operating
subsidy or other noncapital resources
for staffing and program materials for
LEP or VAWA, rather than management
improvements under the Capital Fund.
Issue: Proposed § 905.200(b)(4) states
that vacancy reduction may be an
eligible activity. It would be helpful for
the rule to be more explicit about what
is expected, either in the rule itself or
in guidance. Also, compliance with
accessibility requirements should be
explicitly mentioned under proposed
§ 905.200(b)(6) and should be more
specific.
HUD Response: HUD is making no
change to the final rule text, but may
issue future guidance on this and other
issues. As to accessibility specifically,
§ 905.312 addresses accessibility
requirements.
Issue: The rule should allow setasides of capital replacement reserves
for future modernization as an eligible
activity. The inclusion of
‘‘modernization’’ as an eligible activity
in section 9(d)(1)(A) of the 1937 Act (42
U.S.C. 1437g(d)(1)(A))— coupled with
the authorization to accumulate funds to
undertake modernization, substantial
rehabilitation, or new construction of
units in section 9(j)(1)(B) of the 1937
Act (42 U.S.C. 1437g(j)(1)(B))— should
be sufficient legal basis to allow for such
capital replacement reserves.
HUD Response: Replacement reserves
as such are not an authorized use of
Capital Funds under section 9 of the
1937 Act (42 U.S.C. 1437g). Under
section 9(j)(1)(B) of the 1937 Act (42
U.S.C. 1437g(j)(1)(B)), accumulated
funds for modernization are required to
be expended within 24 months once
sufficient funds are accumulated to
undertake an activity.
Issue: Subpart B, starting at § 905.200,
should have more precise language
describing what is covered by the
subpart.
HUD Response: HUD agrees and has
made the suggested revision at
§ 905.200(a) of this final rule.
Issue: The term ‘‘significant’’ in the
phrase ‘‘. . . PHA must have determine
that there is no debt service payments,
significant Capital Fund needs, or

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emergency needs that must be met prior
to transferring 100 percent of its funds
to operating expenses’’ in 24 CFR
905.314(1)(2) should be clarified.
HUD Response: HUD is considering
issuing guidance to assist HUD field
offices and PHAs with what information
should be evaluated prior to allowing a
small PHA to transfer all of its Capital
Funds to Operations.
Federalization and Federalism
Issue: The rule should clarify the
meaning of § 905.602(c) of the proposed
rule, prohibiting federalization of
certain projects. One commenter stated
that the rule should provide that
federalization is prohibited except as
otherwise approved by HUD. Another
commenter stated that there is no
authority for prohibiting nonfederal
public housing owned by a PHA from
being federalized as provided in that
section and that such policy is not in
the interest of preserving affordable
housing. Another commenter noted that
the only authority for allowing
federalization is found in section 9(n) of
the 1937 Act (42 U.S.C. 1437g(n)), and
that any such language should be
carefully limited to apply only to
‘‘covered locally developed public
housing units’’ as defined in section
9(n). This commenter stated that there is
no other statutory authority to limit a
PHA’s decision to bring PHA-owned
properties into the public housing
program, subject to the HUD approvals
generally required for public housing
development. In some instances, such
units may provide the most economical
and best opportunities for the
production of replacement public
housing.
HUD Response: This final rule revises
proposed § 905.602(c) titled
‘‘Federalization,’’ to make a more
general statement that nonpublic
housing properties may be used in the
development of public housing units
provided all requirements of the 1937
Act and the development requirements
of this part are met. For historical
reference, former section 9(n) of the
1937 Act was never used by HUD to
federalize projects. Former section 9(n)
was repealed by the Consolidated
Appropriations Resolution, 2003 (Pub.
L. 108–7, 117 Stat. 1, approved February
20, 2003; see 117 Stat. 502) with
additional directions applicable to
‘‘covered locally developed public
housing units’’ in the states of New York
and Massachusetts. HUD’s regulation at
§ 905.602(c) is neither a development
exception nor a new development
method relying on any form of prior
authority relating to Federalization.
Instead, HUD may consider any

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property presented for development of
public housing units under all of the
existing requirements of the 1937 Act
and 24 CFR part 905.
Issue: HUD’s proposed regulation at
§ 905.602(c) should be revised to
provide that a PHA may acquire and
modernize a building that it already
owns outside the public housing
system, if that same modernization
would be permitted for new
construction under § 905.602(b).
HUD Response: Section 905.602(c),
both as proposed and in this final rule,
allows this activity to occur.
Issue: This rule triggers Executive
Order 13132 on Federalism. This rule
opens the public housing market to
private partnerships with restrictions on
the public on obtaining information and
attending meetings, and without the
accountability required for use of public
funds. The commenter states that
planning issues are under the
jurisdiction of local municipalities
under state requirements.
HUD Response: Executive Order
13132 on Federalism concerns
regulations and proposed legislation
that have substantial direct effects on
the 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 regulation
does not have these direct effects on
states or on the relationship between the
Federal Government and the states. This
rule, which is authorized by statute,
establishes substantive regulations and
procedures for the use of federal funds
by PHAs, as directed by statute, and
does not preempt state law. Therefore,
this rule does not trigger the Executive
Order.
Conversion of Units
Issue: A commenter states that
§ 905.10(f)(3) as codified prior to the
effective date of this final rule indicates
that the total estimated need of the
development is unchanged by
conversion of units. The commenter
states, however, that the preamble to the
final rule adopting the existing
regulation explains that ‘‘reduction of
units is not based only on demolition or
disposition.’’ If the intention of the new
Capital Fund rule is not to change the
formula, the language of the current rule
regarding conversions should remain.
The commenter expressed concern
about the impact of this rule,
considering the unit conversion it must
undertake at one of its developments.
HUD’s policy, as stated in the proposed
rule, would result in a permanent loss
that is difficult for a housing agency of
a small size to absorb. If a small PHA

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has an outstanding Capital Fund
Financing Program loan, the terms of
which require maintaining its public
housing stock to generate sufficient
Capital Fund grants to sustain three-toone debt service coverage, HUD’s
proposed rule also may mean that it
cannot undertake the necessary
reconfiguration without partial
prepayment of the loan.
The commenter further states that
HUD’s funding policy should encourage
rather than discourage PHA action to
convert efficiencies to one-bedroom
units. Because PHAs have the same
square footage to manage and renovate,
it would be reasonable for the Capital
Fund to build in the proper incentive by
not taking away funds when
conversions occur.
HUD Response: The Capital Fund
formula is based on a complex
calculation with a variety of
characteristics including, but not
limited to, the number of units in the
development, the average number of
bedrooms, and the location and age of
the development. Based on the way the
formula is calculated, if one PHA has a
larger formula share it reduces the
formula share for other PHAs. It was
never the intent of the Capital Fund
formula to result in HUD continuing to
pay the modernization needs or the
administrative costs of units that no
longer exist at one housing authority
while making other housing authorities
with modernization needs pay for them,
which would be the result if the Capital
Fund were used to pay for units lost to
conversion. The incentive for
reconfiguration or conversion for the
PHA is to better serve the needs of the
low-income families in the community.
Furthermore, funding for
reconfiguration or preparing units for
conversion, and any necessary
relocation, are eligible Capital Fund
expenses.
Issue: A commenter states that while
the new rule specifically states that
reconfiguration of units will alter
Capital Fund formula funding
allocations, this policy was not
articulated in the Capital Fund rule
prior to the proposed rule and may have
unintended consequences, such as a
decrease of subsidy to the agency.
A commenter states that
§ 905.400(f)(3) differs from the current
regulation, which is that conversion of
public housing units does not change
the Capital Fund formula shares. This
proposed policy will discourage, for
example, combining of unmarketable
efficiency units into one-bedroom units.
HUD Response: HUD is aware that
some PHAs have been confused about
the intent of the proposed provision,

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§ 905.400(f)(3), as well as the current
provision, 24 CFR 905.10. The purpose
of this provision is to clarify HUD’s
policy as it has consistently been
implemented.
Issue: How does the limit on new
units found at § 905.602(b)(1) apply to
merged units? May a PHA replace
merged units, and will the new units be
eligible for Capital Fund and operating
subsidy?
HUD Response: This limit based on
the number of units in management as
of October 1, 1999, would remain the
same. Thus, for example, if a PHA had
a unit count of 100 as of 1999 and in
FY 2005 the PHA decided to merge 6
efficiency units into 3 one-bedroom
units, the PHA’s unit count would be
reduced to 97, and the PHA would be
allowed to build 3 additional units.
Separating CFP Informational
Requirements From PHA Annual Plan
Requirements
Issue: Small PHAs should not have
the same reporting requirements as large
authorities and should operate as stated
in HERA. Removing some reporting
requirements from the annual plan and
making their submission separate would
result in small housing authorities being
obligated to submit forms from which
they are currently exempt. Even with
the passage of HERA, small housing
authorities continue to suffer from an
excessive regulatory structure. HUD
should not reestablish a regulatory
burden that has been lifted by HERA.
HUD should find a less burdensome
method of receiving any necessary
information, such as through an annual
audit.
HUD Response: These commenters
appear to be referring to qualified PHAs,
a category established under HERA as
‘‘a public housing agency meeting the
following requirements: (1) the sum of
public housing dwelling units
administered by the public housing
agency and the number of vouchers
under section 8(o) of the 1937 Act is 550
or fewer, and (2) the public housing
agency is not designated as a troubled
PHA under section 6(j)(2) and does not
have a failing score under SEMAP
during the prior 12 months.’’ While
qualified PHAs are exempt from
submitting a PHA Annual Plan, they are
not exempt from the requirement to
hold an annual public hearing or to
submit a 5-Year Plan. Further, HUD has
authority under section 9 of the 1937
Act (42 U.S.C. 1437g) to obtain
information needed to calculate the
Capital Fund formula and monitor the
implementation of the CFP.
Issue: Large PHAs (over 550 units)
that are required to submit both a PHA

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Annual Plan and a Capital Fund
program submission should be able to
submit those documents at the same
time as permitted under current rules. A
key goal of the PHA planning process
under section 5A of the 1937 Act (42
U.S.C. 1437c-1) is to unify and
consolidate PHA planning and reporting
requirements from the various programs
that PHAs administer in order to create
efficiencies for PHAs and HUD, and also
to provide residents and the community
with an opportunity to review the
PHA’s plans holistically. The changes
included in this proposed rule may have
the impact of requiring a second public
process, reducing efficiency, and
creating confusion in the community
about the opportunities for input. If a
PHA submits their annual plan, and
then subsequently submits a Capital
Fund budget that alters the annual plan,
the PHA will be required to hold a
second public hearing process,
unnecessarily burdening PHAs.
A commenter states that a separate
public process from developing the
agency plan should not be required.
Combining these processes has worked
well. The commenter also stated that it
is difficult to get resident participation
and that all parts of a PHA are tied
together and should be discussed in
total, rather than the context of
individual meetings. The commenter
concluded that combining this public
consultation has worked well for over
10 years. Decoupling the capital
planning from the overall agency
planning will make it more difficult to
see the big picture of the PHA, require
more administrative time and expense
for the PHA with separate resident
advisory board actions, and make it
more challenging for the PHA Board to
pass an agency budget that contains
both operating and capital expenditures.
Furthermore, it may not be feasible to
schedule a resident meeting and a Board
of Directors meeting in time to comply
with HUD deadlines for submission of
the ACC Amendment. This commenter
suggests HUD extend the deadlines.
HUD Response: HUD’s regulations at
§ 905.300(b)(3)-(4) are revised in this
final rule to clarify that the PHA is to
present the Capital Fund submission to
the public and its residents and
Resident Association Board (RAB)
concurrent with the public hearing
being held on the PHA Annual Plan. By
making these submissions concurrent,
the PHA will be able to present an
integrated plan for public housing to the
community and to the RAB. The PHA
must consider the recommendations of
the RAB concerning both the PHA
Annual Plan (under current 24 CFR part
903) and the Capital Fund submission,

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and these submissions must be
consistent with any applicable
Consolidated Plan. This final rule
further clarifies that the required forms
and information on the Capital Fund
submission will be submitted along
with the Annual Contributions Contract
Amendment submitted to HUD when
the annual Capital Fund awards are
made.
Issue: How does HUD have the
discretion to require separate reporting
requirements for the Capital Fund
activities, considering that certain items,
such as capital improvements and asset
management, are required to be in the
PHA Plan?
HUD Response: The PHA Annual
Plan requirements are satisfied with
general information, as opposed to the
more specific information required for
Capital Fund formula purposes. They
are not the same requirements.
Issue: The language regarding budget
submission requires clarification.
According to a commenter, the
proposed rule states that: ‘‘The PHA’s
budget must be approved by the PHA’s
Board of Commissioners, but does not
require HUD approval (see
§ 905.300(b)(1)).’’ If that in fact is the
case, why require the budget to be
submitted to HUD when the CFP ACC
is submitted to HUD? The proposed rule
should state that the budget must be
approved and therefore gets submitted
to HUD for review and approval, or that
the PHA’s budget must be approved by
the PHA’s Board of Commissioners, and
does not need to be submitted to HUD
for its review and approval. One
commenter states that PHA Board
approval only should be required.
HUD Response: This final rule revises
§ 905.300(b)(1)(iv) to state that the
PHA’s 5-Year Action Plan and budget
must have been approved by the PHA’s
Board of Commissioners before it is
submitted to HUD for review and
approval. Under the current process for
Qualified PHAs HUD reviews the PHA’s
budget for eligible activities and
compliance with cost limits and other
requirements. The HUD review is
tantamount to HUD approval. Therefore,
the language has been changed to
signify that HUD approval is required.
Issue: HUD should provide additional
funding to defray the cost of the PNA
inspection. Another commenter
questioned whether PNA inspections
would be conducted by PHA staff or
outside firms, thus resulting in
additional costs. Another commenter
stated that the rule should provide more
details about the PNA. Another
commenter stated that the PNA should
be a flexible planning tool and not
impose requirements.

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HUD Response: The PNA is currently
addressed in a separate rulemaking (see
HUD’s proposed rule published on July
20, 2011, at 76 FR 43219), which
provides details on the PNA.
Unfortunately, due to constraints on
funding, HUD cannot provide extra
funds for this purpose.2
Issue: A commenter stated that in
§ 905.300(b)(3) the reference relating to
the PHA Annual Plan is confusing as
the CFP is being decoupled from the
PHA Annual Plan process. The
commenter questioned whether HUD is
requiring a separate consultation via the
processing of the PHA Annual Plan or
it can be a stand-alone process. Another
commenter states that decoupling CFP
requirements from the PHA annual plan
is ‘‘essential to guaranteeing resident
input’’; however, it may also be
beneficial to maintain explicit
requirements for resident meetings and
input.
HUD Response: In this final rule, most
cross references in § 905.300(b) to 24
CFR part 903 are removed and § 905.300
is expanded to include sections on
resident and RAB participation, public
hearings, definition of significant
amendment, criteria for plan revision,
and procedures for HUD review and
approval. These changes should ensure
that the decoupling is complete.
Development, Redevelopment, and
Modernization
Issue: Since this regulation replaces
part 941 in full, whenever the rule
regulates the development process, it
should refer not only to Capital Funds,
but also HOPE VI, Choice
Neighborhoods, development funds,
and other sources appropriated by
Congress for the development of public
housing.
HUD Response: This final rule
includes a definition of ‘‘public housing
funds’’ at § 905.108 to provide this
broader definition.
Issue: Proposed § 905.314(g) provides
that the modernization cost limit is 90
percent of TDC. One commenter
suggests that the rule allow
determination for redevelopment to be
made when modernization costs reach a
lower threshold such as 70 or 80
percent. In such cases, when the
community believes such
modernization expenditures would not
be prudent use of federal financial
assistance, such a community or PHA
should be able to decide instead to
demolish and develop new affordable
housing.
HUD Response: Demolition of public
housing is governed by section 18 of the
2 Please

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1937 Act (42 U.S.C. 1437p) and is
beyond the scope of this rulemaking.
Issue: The reference to Capital Fund
financing in proposed § 905.600(c) is
unclear.
HUD Response: Proposed § 905.600(c)
on Capital Fund financing is revised in
this final rule. HUD’s final rule on
Capital Fund financing (see final rule
published on October 21, 2010, at 75 FR
65208) is incorporated in subpart E of
this final rule.
Issue: Proposed § 905.600(d) suggests
that a PHA or a PHA’s partner would
solicit construction bids after approval
of a development proposal. At least in
the mixed-finance environment, a final
development proposal cannot be
submitted without a firm construction
price.
HUD Response: In this final rule,
HUD’s regulation at § 905.600(c) on the
development process is revised. HUD
does not dictate when a PHA or a PHA’s
partner solicits construction bids.
However, the PHA must submit, as part
of its Development Proposal (§ 905.606),
an independent construction cost
estimate or actual executed construction
contract that supports the permanent
and construction budgets for the project.
Issue: Proposed § 905.600(e)(7) should
refer to ‘‘proceeds’’ of an Operating
Fund Financing Program (OFFP).
HUD Response: This final rule makes
this revision at § 905.600(d)(8).
Issue: Proposed § 905.202(h) is
overbroad and could be read to prohibit
temporary or bridge funding.
HUD Response: This section, at
§ 905.202(i) of this final rule, refers to
costs that are actually funded by a
duplicate source and temporary or
bridge financing does not result in
duplicate funding.
Issue: Section 9(l) of the 1937 Act (42
U.S.C. 1437g(l)) allows for capital- and
operating-fund-only transactions, and
permits HUD to reduce the period
during which the property must be
operated according to Public Housing
Requirements. However, the proposed
rule does not reflect this flexibility.
Also, following the statute, the rule
should allow PHAs to make section 8
assistance available in cases where there
is operating assistance but not Capital
Fund assistance.
HUD Response: Generally, the
reference in § 905.304(a)(3) to ‘‘such
shorter period as permitted by HUD by
an exception’’ implements the flexibility
under 42 U.S.C. 1437g(l).
In the case of mixed-finance
specifically, § 905.604(j)(3)(ii) states that
the term of the ACC Amendment will be
determined based on the assistance
provided under § 905.304, ‘‘unless
reduced by the Secretary.’’ Also, if the

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PHA is no longer able to provide
operating subsidy, final rule
§ 905.604(j)(3)(iii) permits early
termination of the DOT or Declaration of
Restrictive Covenants and provides
public housing residents with a
relocation option, which may be a unit
in another project or a Housing Choice
Voucher.
Issue: A commenter stated that the
proposed regulation at § 905.312(c)(1)
should not refer to outdated Handbook
7485.2 REV.
HUD Response: This handbook is not
referenced in the rule.
Mixed Finance
Issue: All provisions of this rule
should be premised on the belief that
the interests of all participants are
advanced if the regulations permit a
predictable and efficient restructuring
such that a project can be operated on
a stable basis with whatever level of
federal subsidy is reliably available.
HUD Response: Along with statutory
compliance, this rule also provides for
sufficient flexibility to meet project
goals.
Issue: The rule should provide more
extensive standards. The articulated
standards in the proposed rule bridge
the gap about halfway—they include
some substantive standards, yet do not
include some of the fundamental
‘‘rules’’ that have developed over the
years regarding, for example, funding
and replenishing of reserves and
required segregation of public housing
funds (both direct subsidy and tenant
rents) from attachment in the case of
foreclosure or loan acceleration.
HUD Response: The types of issues to
which the commenter refers are matters
of policy and procedure that are best
stated in guidance, such as PIH Notices
and policy statements.
Issue: HUD’s regulation at
§ 905.600(d) should be revised to take
into account that, in mixed-finance, the
construction contract is virtually always
signed before proposal approval.
Accordingly, the second sentence of
§ 905.600(d)(3) should be revised to
remove the phrase, ‘‘After HUD
approval of the development
proposal. . . .’’
HUD Response: This final rule adopts,
at § 905.600(c)(3), this revision to accord
with general industry practice.
Issue: Commenters questioned
language suggesting why the mixedfinance category includes projects
funded entirely with Capital Funds.
HUD Response: If there is an Owner
Entity other than the PHA, the project
is considered mixed-finance even if 100
percent of the funding is public housing
Capital Funding. However, if the PHA

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holds a 100 percent interest in the
project, it is not a mixed-finance project.
Issue: The rule is overbroad in
requiring the formation of an ‘‘Owner
Entity’’ in situations where nonpublic
housing sources are being utilized, but
no third-party participation in the
ownership is required. There are
instances, where state or local resources
may be used, where the rule would
seem to require another entity, but the
transaction should not require the PHA
to go to the expense of establishing and
maintaining a separate Owner Entity.
HUD Response: This final rule revises
§ 905.604 to clarify this role of the
Owner Entity. The partnership
arrangement to which the commenter
refers applies in mixed-finance
situations; where the PHA owns 100
percent of the units, mixed-finance
development would not apply.
Issue: Proposed § 905.604(a) should
be revised to reflect that in some cases,
such as meeting Davis-Bacon
requirements, only the mixed-finance
owner can comply; the PHA can require
compliance, but cannot directly comply
itself.
HUD Response: HUD agrees, and this
final rule incorporates the suggested
change at § 905.600(a).
Issue: HUD’s regulation at
§ 905.604(h), ‘‘Irrevocability of financial
commitment,’’ should allow alternatives
to the opinion of counsel. The opinion
of counsel will not always be feasible to
obtain.
HUD Response: The opinion of
counsel as to irrevocability is an option,
not a requirement. Please note that this
final rule places this material at
§§ 905.606(a)(6)(iii)(A) through (D).
Issue: HUD’s regulation at
§ 905.604(h)(1) states that, to ensure the
irrevocability of funds, that the PHA or
the Owner Entity be ‘‘ready willing, and
able’’ to attain milestones. Also, the
conditions in the legal documents must
be ‘‘commercially reasonable.’’ These
terms are vague and could lead to a
finding of noncompliance if an auditor
applies a different definition of
commercial reasonableness.
HUD Response: This final rule, in
§ 905.606(a)(6)(iii)(A), revises this
terminology to avoid ambiguity. The
contractual conditions must be
‘‘generally consistent with similar
affordable housing transactions,’’ and
the PHA or Owner Entity must know of
no ‘‘impediments that would prevent
the project from moving forward
consistent with’’ the project milestones.
Issue: The requirement in proposed
§ 905.604(h)(3), that counsel has
examined the availability of financing,
seems to mean that counsel will
examine the funding for the funding

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source, which may be feasible in some
cases, such as funds received from a
city, but not in the case of bank or
Assisted Housing Program (AHP) funds,
because those entities will not reveal
their funding sources.
HUD Response: This proposed section
(now at § 905.606(a)(6)(iii)(D)) is revised
in this final rule to clarify that it is the
participating parties’ financing that is
examined.
Issue: In the case of operating-fundonly assistance under proposed
§ 905.604(k), one commenter stated that
the provisions that require use
restrictions to continue for a substantial
and virtually indefinite period, whether
or not there is operating subsidy to
support them, are highly problematic for
mixed-finance deals. The full flexibility
permitted by 42 U.S.C. 1437g(l) should
be utilized in order to give lenders and
investors assurance that if sufficient
subsidy ceases to be available, they will
be promptly released from the
obligation to house people who require
such subsidy. In operating-fund-only
projects, in such cases, section 8
assistance should be used to allow
residents to remain if they wish.
HUD Response: This final rule
implements the ability for HUD to
reduce the use restriction period found
in 42 U.S.C. 1437g(l) (see
§ 905.604(j)(2)(ii) and (iii)). If the use
restrictions are terminated, the PHA
must provide residents with a decent,
safe, sanitary, and affordable unit to
which they can relocate, which may
include a public housing unit in another
development or a Housing Choice
voucher.
Issue: Proposed § 905.608, which
covers the site acquisition proposal,
only applies to acquisition with Capital
Funds and should include acquisition
with all available sources, including
HOPE VI and other funds.
HUD Response: This final rule adds a
definition of ‘‘public housing funds’’ to
include not only Capital Funds, but also
HOPE VI, Choice Neighborhoods,
development funds, or any other funds
appropriated by Congress for public
housing development.
Issue: There is no justification in
§ 905.608(f) for stating that, absent HUD
approval, the purchase price may not
exceed the appraised value, because the
federal interest in cost reasonableness is
generally accomplished by TDC rules.
HUD Response: TDC is applicable to
new development and acquisition of
existing housing. The TDC operates as a
constraint on excessive payments of
public funds in the context of § 905.608
along with HUD’s requirement for a
PHA to provide an appraisal of the
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Issue: Proposed § 905.612(b)(2) on
mixed-finance drawdown ratios is
unclear as to whether the requirement
applies only to the final drawdown ratio
or to interim ratios as well.
HUD Response: This final rule
clarifies this paragraph to refer to the
overall drawdown ratio.
Issue: While the rule requires that
HUD funds be drawn down in the same
ratio as other funding sources, projects
are more economically feasible when
interest-free HUD funds can be drawn
first.
HUD Response: HUD’s regulation at
§ 905.612(b)(2) clarifies that upon
completion of the project, the ratio of
public housing funds to non-public
housing funds for the overall project
must remain as reflected in the executed
documents. The ratio does not apply to
the construction period.
Issue: HUD’s proposed regulation at
§ 905.604(b)(6) should be revised to
acknowledge that Public Housing
Requirements do not apply to nonmixed-finance development.
HUD Response: This section is
clarified in the final rule. Public
Housing Requirements apply to public
housing-related work or mixed-finance
development as meant in this subpart.
Issue: Proposed §§ 905.316, 905.318,
and 905.320(b) and (c) appear to apply
to both mixed-finance and conventional
development, yet this is not clear from
their language.
HUD Response: This final rule
clarifies these sections.
Issue: HUD’s proposed regulation at
§ 905.604(a) is unclear as to whether it
applies only to the PHA, mixed-finance
owner, or both.
HUD Response: This final rule revises
this section. Final § 905.604(a)(1)
explains the possible ownership
structures under mixed-finance.
Issue: Rather than stating that mixedfinance contracts should ‘‘specify that
they comply’’ with listed requirements,
mixed-finance contracts should be
required simply to contain no
provisions inconsistent with the
applicable regulations.
HUD Response: An affirmative
statement of compliance provides a
basis for HUD to take enforcement
action if the statement is untrue, which
is an assurance that HUD requires when
committing public funds.
Issue: The rule should codify the
authority to retain the original DOFA
that existed prior to a mixed-finance
transaction.
HUD Response: The rule codifies the
current practice. In § 905.604(a)(4) of
this final rule, the Department will
retain the date of full availability

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63761

(DOFA) if a PHA is doing mixed-finance
modernization.
Issue: The rule should be more
specific as to the minimum information
required by a PHA for the release funds
for predevelopment assistance under
proposed § 905.612(a)(3).
Response: HUD reviews each mixedfinance project separately, as the
structure and financing of each project
is unique. HUD has issued ‘‘Cost
Control and Safe Harbor Standards for
Rental Mixed-Finance Development,’’
which contains provisions related to
predevelopment expenses. Further,
HUD has internal mechanisms for
evaluating each mixed-finance project
and issues that arise within the context
of mixed-finance development. These
mechanisms are the best way to manage
mixed-finance projects, including the
use of public housing funds for
predevelopment purposes. Therefore, to
date, there has been no need to issue
generally applicable guidance on the
use of public housing funds for
predevelopment expenses related to
mixed-finance development.
Issue: A commenter asked under what
circumstance HUD would approve a
PHA to exceed the 5 percent limit for
predevelopment costs under
§ 905.612(a)(2).
HUD Response: As the rule states, this
will be determined on a case by case
basis. HUD declines to speculate about
the circumstances under which this may
occur.
Deviations Under Section 35(h) of the
1937 Act, 42 U.S.C. 1437z–7(h)
Issue: A commenter stated that
additional flexibility for mixed-finance
projects is considered helpful, for
instance flexibility with rent and
income eligibility requirements for
projects with 20 percent or more
nonpublic housing units. Another
commenter stated that the threshold
should be the lesser of 10 percent or 10
units. Another commenter stated that
such flexibility should be granted for all
public housing stock.
HUD Response: HUD’s regulation at
§ 905.604(k) of this final rule provides
flexibility where a PHA has a project in
which a ‘‘significant number’’ of units
are other than public housing units,
following the statutory language under
section 35(h) of the 1937 Act (42 U.S.C.
1437z–7(h)), which addresses mixedfinance development. The statute allows
deviations under the specific statutory
conditions stated, which do not apply to
all public housing stock.
Issue: The standard for allowing
‘‘restructuring’’ is too limiting and
‘‘HUD should expand it to the extent
interpretation permits, and should

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generally recognize the ability of parties
to make restructuring decision outside
this standard where the standard need
not be applied.’’ This commenter states
that the phrase ‘‘reduction in
appropriations’’ is meaningless without
a recognized starting point, and suggests
that the per-unit appropriations in 1998
would be a reasonable starting point for
interpretation. In addition, any
definition should recognize the
likelihood of continuing inflation; a flat
appropriation over 10 years would be
the equivalent of a 50 percent effective
reduction in funding at an inflation rate
of 7 percent. This commenter states that
HUD may interpret ‘‘reduction in
appropriations’’ to be a reduction in the
present value of the per-unit
appropriation available. This
commenter also states that HUD should
recognize that many Regulatory and
Operating (R&O) Agreements, for good
reason, limit the operating-subsidy passthrough obligation of the PHA with
reference to what the PHA is receiving
from HUD. For instance, an R&O
Agreement might provide for the PHA to
pass through 90 percent of what it
actually receives for that project. In
literal terms, such a PHA is never
prevented by a funding reduction from
meeting its obligations, because its
obligations automatically decrease, yet
clearly a project receiving 50 percent of
its intended subsidy would be in deep
trouble and require deviation under
section 35(h) of the 1937 Act. The
commenter states that skilled drafters
could provide alternate 35(h) triggers,
such as a PHA failure to provide
alternate non-operating subsidy funding
in specified circumstances. This
commenter states that ‘‘HUD needs to
take care that it does not carelessly
eliminate these triggers.’’ This
commenter states that the rule
eliminates these triggers by replacing
the statutory phrase ‘‘from meeting its
contractual obligations’’ with ‘‘from
providing Operating Funds as provided
in its contractual agreement.’’
HUD Response: This final rule
implements the statutory authority
correctly, and the statute is
unambiguous in referring to ‘‘a
reduction in appropriations under
section 1437g,’’ meaning an actual
reduction in appropriations from
Congress, not a change as a by-product
of inflation. HUD recognizes that
projects are structured differently. For
this reason, this final rule removes the
proposed section on ‘‘Allowable
Deviations.’’ HUD encourages PHAs to
draft R&O agreements that clearly
address the issue of reduction in
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‘‘starting point,’’ or baseline amount,
from which a reduction in operating
subsidy caused by a reduction in
appropriation can be calculated. In
addition, as requested by the
commenter, to avoid unintended
impacts, HUD has revised the language
in the final rule concerning a public
housing agency’s inability to meet its
contractual obligations to mirror the
phrasing in the statue.
Issue: HUD should propose to
Congress legislation allowing deviations
from Public Housing Requirements that
do not rely on section 35 of the 1937 Act
(42 U.S.C. 1437z–7).
HUD Response: HUD, through
rulemaking, interprets and implements
enacted legislation. The subject of
proposing additional legislation is
beyond the scope of this rulemaking
process.
Issue: A commenter stated that the
allowable deviations in the proposed
rule are too limiting and unclear. For
example, it is not clear if the ‘‘increased
public housing rents’’ contemplated by
proposed § 905.604(n)(2)(i) are different
from those contemplated by proposed
§ 905.604(n)(2)(iii). More generally,
HUD should not require a complicated
sequencing of remedies; each situation
will be different, and the paramount
requirement for this rule is that it gives
the PHA and owner the ability to design
a restructuring plan appropriate to their
circumstances.
Commenters objected to specific
allowable deviations in the proposed
rule. A commenter stated that limiting
a rent increase under proposed
§ 905.604(n)(2)(iii) to the ‘‘amount
strictly needed’’ is too inflexible. One
commenter stated that the rule should
not allow PHAs to eliminate eligibility
restrictions altogether as contemplated
in § 905.604(n)(2)(ii).
HUD Response: The allowable
deviations are removed in this final rule
in favor of a case-by-case approach,
under which the Owner Entity will
submit an Alternative Management
Plan, which HUD will review.
Issue: HUD’s annual reevaluation and
approval of the transformation plan
under proposed § 905.604(n)(5) should
provide that, once the annual update is
properly submitted, the existing plan
remains in effect pending HUD action.
HUD Response: The intent is for the
existing plan to remain in effect until
HUD disapproves it or approves a
change. This final rule revises
§ 905.604(k)(4) accordingly.
Issue: One commenter stated that the
tenant protections in § 905.604(n)(2)(iv)
should be limited to 2 years; otherwise,
if a PHA has limited resources to
relocate tenants, it may be unwilling to

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act and leave the mixed-finance owner
without a remedy.
HUD Response: The proposed
regulation at § 905.604(n)(2) is removed
in this final rule. The regulation at
§ 905.604(k)(2)(ii)(C) addresses tenant
protections and states that the
responsibility for relocation is with the
PHA or as included in the agreement
between a PHA and the Owner Entity.
The PHA should address this issue
when negotiating its Regulatory and
Operating Agreement with an Owner
Entity.
Issue: The requirement in proposed
§ 905.604(n)(3)(iii)(D) that Public
Housing Requirements be reinstated
once the PHA restores operating
subsidies to their normal level could be
subject to misinterpretation, and
deviations switch on and off from year
to year.
HUD Response: HUD will consider
providing additional guidance on the
timing of reinstatement in the future,
based on experience with this issue.
Issue: Proposed § 905.604(n)(3)(iv)(A)
does not specify whether the reference
to ‘‘reduced allocation of operating
subsidy’’ refers to the subsidy provided
by HUD or the subsidy passed through
by the PHA.
HUD Response: The statute on which
this section is based refers to reduced
appropriations; what is meant is a
reduction in appropriations resulting in
a reduction of subsidy allocation. This
final rule clarifies this point at
§ 905.604(k)(2)(iv)(B).
Issue: To ensure that project owners
have pursued available alternative
remedies prior to undertaking an
Alternative Management Plan, the rule
should require that project owners
demonstrate that available development
resources are being utilized to offset
deficits with the public housing units.
HUD Response: Along with
eliminating the allowed deviations and
requiring the PHA to submit an
Alternative Management Plan, this final
rule includes such a provision as part of
the supporting documentation that a
PHA will submit with its an Alternative
Management Plan
(§ 905.604(k)(2)(iv)(D)).
Issue: One commenter states that
proposed § 905.604(n)(3)(iv)(E), which
requires prior expenditure of 50 percent
of a named reserve, seems to contradict
§ 905.604(n)(2)(ii), which states that
deviations from Public Housing
Requirements are permitted only if the
owner has expended all operating
subsidy reserve funds put aside for this
eventuality. A commenter states that
this section should be eliminated, as
requirements for operating reserves vary

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greatly in mixed-finance projects, and
may not be appropriate for this use.
HUD Response: This final rule, at
§ 905.604(k)(2)(iv)(D), removes an
expenditure of reserve requirement and
states more generally that the owner
entity must use ‘‘all available means’’ to
offset the reduction in appropriation or
change in applicable law, including the
use of other public and private
development resources, the use of cash
flow from any nonpublic housing units,
funds from other operating deficit
reserves, and so forth.
Issue: A commenter states that to
ensure that project owners have pursued
available alternative remedies prior to
undertaking an Alternative Management
Plan, the rule should require that project
owners demonstrate that available
development resources are being
utilized to offset deficits with the public
housing units.
HUD Response: This final rule at
§ 905.604(k)(2)(iv)(D) requires the PHA
to provide documentation that the
Owner Entity has used all available
means to offset the impact of reduced
operating subsidy.
Issue: Commenter states that HUD’s
regulations implementing 35(h) of the
1937 Act (42 U.S.C. 1437z–7(h)) should
take care to state that they do not affect,
one way or the other, the ability of
PHAs and their partners to restructure a
project consistent with standard Public
Housing Requirements.
HUD Response: That section only
applies to deviations from statutory
requirements under the conditions
specified. It does not affect mixedfinance arrangements consistent with
statute and regulation.
Issue: The word ‘‘solely’’ in proposed
§ 905.604(n)(3)(iv)(B)(‘‘The deficit in
operating revenues is attributable solely
to the reduction in operating subsidy’’),
as such situations are likely to have
multiple causes.
HUD Response: This final rule uses
the term ‘‘primarily’’ instead of ‘‘solely’’
(§ 904.604(k)(2)(iv)(B)).
Issue: Deviations should be allowed
for changes in law other than
appropriations.
HUD Response: The statute allows for
deviations in the case of a reduction in
appropriations or other change in law
that makes a PHA unable to fulfill its
contractual obligations with respect to a
specific number of public housing units.
This final rule implements this statutory
authority at § 905.604(k).
Issue: The reference to ‘‘contractual
agreement’’ in § 905.604(n)(1) should be
changed to ‘‘Regulatory and Operating
Agreement (R&O),’’ which is more
specific.

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HUD Response: There may be
instances where an agreement is not
through an R&O.
Issue: A commenter states that
implementation of ‘‘transformation
remedies’’ (42 U.S.C. 1437z-7(h)) should
be postponed until HUD has had broad
discussions with stakeholders to ensure
that appropriate protections remain in
place for PHAs and residents. This
commenter is particularly concerned
about the potentially serious
consequences of implementing a
regulation that facilitates the loss of
public housing units in the current
political and economic environment.
HUD Response: HUD, at this time,
cannot predict how many or which
projects will require such deviations,
and views that the greater risk is that,
without an Alternative Management
Plan under the statute and regulations,
units will be permanently lost, where
under transformation the deviation may
be temporary. By removing in this final
rule the proposed paragraph allowing
deviations automatically under certain
conditions, HUD will review each
request and apply oversight to the
process. HUD submits that this is the
best choice under current conditions.
Issue: The proposed regulation at
§ 905.604(n) places the risk on PHAs
regardless of the contractually agreed
upon structure of a mixed-finance deal
or the underlying business arrangement
between a public housing authority and,
for example, its private developer
partner. The commenter states that one
example is making the PHA responsible
for tenant relocation, including moving
costs (§ 905.604(n)(2)(iv)). This
commenter states that in many mixedfinance transactions, investors require
reserves to be sized, in part, to pay for
relocation costs. Shifting responsibility
to PHAs for such costs may not be part
of existing deal structures and would
result in a substantial realignment of
risk in a mixed-finance transaction.
HUD Response: This final rule
provides for required relocation
according to the contractual agreement
between the PHA and the Owner Entity
(see § 905.604(k)(2)(ii)(C)).
Issue: The phrase ‘‘in HUD’s sole
discretion’’ should be removed from
proposed § 905.604(n)(4). The
commenter states that this phrase
removes the issue from judicial review.
HUD Response: While HUD does not
agree with the commenter regarding
judicial review, this final rule clarifies
the review of an Alternative
Management Plan, in § 905.604(k)(3), by
providing examples of some, but not all,
of the reasons why HUD might
disapprove an Alternative Management
Plan.

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Energy Conservation Requirements
Issue: Many PHA commenters stated
that HUD should not mandate energy
conservation measures without giving
PHAs the flexibility to determine their
own priorities. The rule should make it
clear that PHAs are not required to
implement everything recommended in
an energy audit, but that energy needs
must be balanced against other PHA
needs. Many of these PHAs supported
energy conservation, generally.
One commenter stated that if energy
audits and their corresponding
recommended energy conservation
measures are to be relied upon clearly,
established and standardized
measurement systems should be
established so that uniformity of results
is achieved. If measurement standards
and recommendations vary from audit
to audit, Capital Funds could be
continuously wasted from year to year
based on the new and/or conflicting
recommendations.
One commenter stated that HUD and
industry would benefit from more
research and discussion on this topic.
Other commenters stated that not all
energy audits produce savings or are
reliable and there could be burdens on
PHAs. Some commenters stated that
they are skeptical of a cost-effectiveness
approach to spend Capital Funds.
Other commenters suggested use of a
20-year, voluntary rolling base freeze on
public housing utility consumption
levels.
One commenter questioned the cost
effectiveness of energy conservation
measures (ECMs), and also stated that
there could be situations where an audit
may find an ECM not to be cost
effective, when in fact it is an
improvement that the PHA should
implement as part of a modernization.
This commenter stated that return on
investment (ROI) should always be a
factor in determining whether or not it
makes sense to implement a
recommendation. Another commenter
stated that in addition to ROI, health
and safety, conflicting modernization
schedules, and the validity of energy
audit results need to be considered.
One commenter stated that it should
be determined whether using the funds
for the energy conservation measures
now would take away from future
development needs or be premature.
One commenter stated that energy
trade-offs need to be easy to plan and
implement, not burdensome and
complicated.
One commenter stated that in
determining which energy conservation
measures should be implemented, it is
important whether the item is

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something that would have been
replaced anyway.
HUD Response: HUD is handling the
energy audit process, ECMs, and ROI
issues under a separate rulemaking (see
the proposed rule of 76 FR 71287 et
seq.). The 20-year rolling base freeze
relates to the current Operating Fund
rule at 24 CFR part 990 and is outside
the scope of this rulemaking.
Issue: One commenter endorsed
incorporating the International Energy
Conservation Code (IECC) in various
subsections of the proposed rule related
to what types of projects are eligible for
Capital Funds. The commenter
suggested that HUD reference the 2009
IECC to promote energy efficiency over
the life of those projects. One
commenter stated that because the
section specifies the required design
and construction requirements for
affected building projects, the
International Building Code (IBC) and
the IECC will also provide compliance
with several other requirements listed in
this section, including compliance with
ASHRAE standard 90.1–2010, ‘‘Energy
Standard for Buildings Except Low-Rise
Residential Buildings,’’ an accepted
alternative means of compliance with
chapter 5 of the IECC.
HUD Response: This final rule
references the 2009 edition of the IECC,
in §§ 905.200 and 905.312, rather than
the 2006 IECC, and references the
ASHRAE standard.
Reductions in the Amount of Capital
Funds for Management Improvements
Issue: Commenters expressed concern
about limiting the amount of Capital
Fund budget that can be used for
management improvements to 10
percent. Although PHA’s on average
only use 8 percent, the flexibility to go
up to 20 percent is important and has
a significant upside without a
corresponding downside; for instance
where PHAs need multiple infusions of
capital for management improvement
purposes at the same time, which may
occur when a PHA becomes neartroubled or troubled. Also, such
flexibility might be needed in an
emergency. PHAs rarely use too much of
their Capital Fund for management
improvement, and HUD provides a
solution to a problem that does not
exist. Often there are statutory
restrictions that prevent overly high
usage, such as using 50 percent. HUD
has not provided evidence that PHAs
are mismanaging their Capital Fund for
nonconstruction activities. It is
counterintuitive that in a period of
underfunding of PHAs, HUD would
introduce a proposal that limits
flexibility, authorized under statute, for

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PHAs to administer their CFP to meet
local needs.
PHAs need the flexibility to use
limited funds to address the evergrowing capital improvements
necessary to ensure continued assisted
housing for low-income residents;
therefore, the current rule should be
kept as is.
A PHA may need additional
assistance for training, consulting,
information technology upgrades, or
security services and, with the prospect
of being forced to use reserves for
operational expenses during the next
fiscal year, the use of CFP for
management improvements will be
crucial. One PHA commenter cited the
need to pay a resident coordinator.
Another commenter cited a possible
need to upgrade computer systems and
train users. Another commenter
referenced ‘‘investments in technology,’’
community policing, and security
measures. Another commenter cited the
Americans with Disabilities Act (42
U.S.C. 12101 et seq.) compliance, the
Violence Against Women Act (VAWA)
(Pub. L. 109–162, approved January 5,
2006), and the Limited English
Proficiency programs.
Another commenter cited the funding
environment and projections of flat or
declining funding. Another commenter
cited resident training and service goals,
and suggested a 15 percent limit as more
reasonable.
HUD Response: In a limited funding
environment, HUD has the obligation to
ensure that PHAs expend their funds to
maintain their properties in good
physical condition. HUD agrees that
resident training and service are
important goals. Capital Funds may be
used for capital expenditures (hard
costs) to facilitate programs to improve
the empowerment and economic selfsufficiency of public housing residents,
as well as for resident-related
management improvements. It is
important to mention this not only with
respect to capital and management
improvement funding, but also that,
generally, Section 3 of the Housing and
Community Development Act of 1968
(12 U.S.C. 1701u) requires, to the
greatest extent feasible, that PHAs make
their best efforts to ensure that
employment and other economic
opportunities generated by certain of
HUD’s Capital Fund- assisted activities
are directed to low- and very-lowincome persons, in accordance with 12
U.S.C. 1701u and HUD’s Section 3
regulations at 24 CFR part 135.3
3 While 12 U.S.C. 1701u uses ‘‘best efforts’’ with
respect to the efforts required of PHAs, their
contractors and subcontractors and uses ‘‘to the

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Examples of such resident training and
economic opportunities would be job
training (e.g., painting and carpentry or
computer skills and data entry) for
residents and resident business
development (e.g., painting contracting
business or jobs in the PHA’s offices,
related to management assistance) for
the purposes of carrying out activities
related to the Capital Fund management
or physical improvements. In addition,
HUD has taken the public comments
into consideration and revises the
Management Improvements Policy in
this final rule in order to allow PHAs
more time for making any necessary
adjustments. This final rule reduces the
standard allowable percentage for
management improvements from up to
20 percent to up to 10 percent for all
PHAs over a 5-year period, rather than
the 3 years proposed.
It should be noted that while some
items mentioned by commenters are
eligible expenses under the Capital
Fund Program (CFP)—such as
compliance with section 504 of the
Rehabilitation Act of 1973 (29 U.S.C.
701 et seq.), housing counseling for
residents and prospective residents, and
the design and construction of
accessibility improvements—others
such as staffing for security services,
VAWA, and Limited English
Proficiency, are not. Based on the
responses to the proposed changes to
the Management Improvements Policy,
it has become evident that there is
confusion over what items are eligible
management improvement activities;
therefore, eligible and ineligible
activities under management
improvements have been clarified at
§§ 905.200(b)(7) and 905.202(h),
respectively.
It should also be noted that the
commenter misunderstands HUD’s
policy to conserve scarce resources as a
statement that PHAs are mismanaging
their Capital Funds, which HUD has
never contended. However, as a recent
modernization study entitled ‘‘Capital
Needs in the Public Housing Program
(available at http://portal.hud.gov/
hudportal/documents/huddoc?id=PH_
Capital_Needs.pdf) has shown, there are
huge outstanding modernization needs
(over $25 billion in 2010 dollars), and
there has been insufficient regulation of
the allocation of management funds.
greatest extent feasible’’ with respect to the efforts
required of program assistance programs (e.g.,
housing and community development programs),
HUD has determined that there is very little
difference between these terms, and that the same
level of effort is to be undertaken by HUD and all
recipients and contractors regardless of the source
of HUD financial assistance. That level of effort is
‘‘to the greatest extent feasible.’’ (See, 59 FR 33866,
33877, June 30, 1994).

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One result has been that large amounts
of management funds have been used to,
for example, fund and operate security
staff, which should be an operating
expense. HUD’s regulation in this area
intends to ensure that in this difficult
fiscal environment sufficient
modernization funds are allocated for
modernization needs.
Issue: The reduction of the amount for
management improvements will cause
an ‘‘undue financial burden to PHAs.’’
Resident Opportunities and Self
Sufficiency (ROSS), Community
Supportive Services, and HOPE VI are
not formula grants, and there is no
guarantee a PHA would be successful in
its grant application to receive such
funding. Without the full 20 percent
management improvement funding,
PHAs that do not receive Public
Housing Drug Elimination Program
(PHDEP) funds might have to cancel
security and drug elimination programs.
While the current Capital Fund formula
does allow for the potential use an
additional 20 percent of appropriated
Capital Funds to be used for operations,
not all PHA’s elect to or are eligible to
utilize this funding mechanism.
Reducing the management improvement
amount by 50 percent would be
penalizing those PHAs that are not
utilizing this option.
Another commenter stated that the
ROSS program has become politically
disfavored, and that HOPE VI funding
will be eliminated. The commenter was
skeptical of HUD equating the 20percent use of Capital Funds for
operations with the 20 percent use of
Capital Funds for management
improvements, while housing
authorities cannot use 20 percent of
Capital Funds for management
improvements as they can for
operations. The commenter also stated
that the proposed rule ignores that
public housing programs are
underfunded and housing authorities
will not benefit from further restrictions
on funding that limits how they operate.
HUD Response: The purpose of
limiting the management improvement
percentage is to help ensure that the
PHAs spend appropriate amounts on the
basic task of providing decent, safe, and
sanitary housing. HUD is aware that this
change may require a period of time of
adjustment for PHAs. Therefore, HUD is
phasing in the 10 percent cap over 5
years rather than the 3 years proposed.
HUD agrees that funding for
operations does not necessarily equate
to funding for management
improvements, although there may be
some overlap and all large PHAs (250
units or greater) are eligible under the
statute to use up to 20 percent of their

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annual Capital Fund grant for
operations, as long as it is in the PHA
Plan and the PHA does not have
emergency conditions that need to be
corrected immediately. However,
generally, all PHAs are working under a
limited funding environment under
which they have a legal obligation to
provide decent, safe, and sanitary
housing. HUD believes that the course it
has chosen—to limit the amount that
can be taken from the Capital Fund and
to provide flexibility for those PHAs
that are clearly spending enough Capital
Fund to maintain the physical condition
of their property—is the best use of
limited funding.
Issue: There should be a direct
correlation of management
improvements to improved program
performance.
HUD Response: HUD believes as a
general matter that the issue is not
performance, but the proper allocation
of limited Capital Funds. HUD believes
that the bulk of those funds should go
to capital needs, and that the vast
majority of PHAs are not using and do
not need to use, more than 10 percent
for eligible management improvements.
Issue: Larger PHAs, in particular, may
have higher management costs that
require flexibility in their use of their
grant, and so those PHAs with 250 or
more units should be allowed to
continue using 20 percent of the Capital
Fund grant for management
improvements.
HUD Response: The actual usage of
management improvements indicates
that most PHAs use 10 percent or less
of their Capital Funds for eligible
management improvements. However,
because some PHAs do use more, HUD
is allowing more time than proposed to
phase in the cap. The 10 percent overall
cap will be phased in over 5 years.
Issue: One commenter stated that the
proposed rule should be modified to
include specific accounting instructions
for the way in which to properly assign
the 10 percent to the Central Office Cost
Center.
HUD Response: As an administrative
rather than regulatory matter, HUD may
address this issue in guidance, but not
in this rulemaking.
Other Issues
Issue: Resident participation. While it
is commendable for the rule to include
resident participation costs as eligible
costs under § 905.200(b)(8)(ii), it would
be helpful for HUD to take some
additional action on resident
participation.
HUD Response: This final rule
incorporates, at § 905.300(b)(3), the
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63765

advisory board requirements formerly in
24 CFR part 903.
Issue: Tenants should be able to
access technical assistance to help them
understand either the budget or
structural issues. The commenter states
that there should be support for
technical assistance through a capital
operating account and that technical
assistance should be offered on the
regional and national level.
HUD Response: Funding for
additional technical assistance (there is
currently limited technical assistance
for RAB training) is outside the scope of
this rulemaking. This is an issue of
appropriations.
Issue: Commenters are concerned
about the dates of implementation in the
proposed rule.
HUD Response: The implementation
dates for the DDTF and the RHF
transition can be found in § 905.400(j)–
(k) and the implementation date for
management improvements will be in
accordance with the effective date of the
rule. The rule only applies
prospectively.
Issue: Adding the Public Housing
Development Program to the list of
programs eligible for the Capital Fund
program may have a negative effect by
spreading already scarce funds to more
places as this program includes mixedfinance development. The commenter
stated that mixed-income finance
development may not have as high a
degree of need as the low-income
housing and that possible renovations
could be more expensive in those
buildings because they are for people of
higher economic standing.
HUD Response: As to the fact that
development is an eligible expense
under the Capital Fund, this is
statutorily required under section
9(d)(1) of the 1937 Act (42 U.S.C.
1437g(d)(1)). As to the potential for
higher costs of renovations in mixedfinance housing, HUD is not aware of
any evidence of these higher costs, and
development of public housing via
mixed-finance development is subject to
the same limitations on TDC and
Housing Construction Costs as nonmixed-finance development of public
housing.
Issue: A commenter disagreed with
language under proposed
§ 905.400(d)(3)(ii), which stated that
units with a DOFA date of October 1,
1991, or after, shall be considered to
have zero existing modernization need.
The commenter stated that it is more
cost effective to maintain a unit than it
is to renovate it to address deferred
maintenance and delayed capital
improvements or to replace it. The
commenter stated that buildings will

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have capital needs in less than 20 years
and need to accrue Capital Funds.
Another commenter stated that the time
frame for having existing modernization
needs should be changed to 10 years.
HUD Response: This calculation was
determined by the original negotiated
rulemaking, and will not be revised in
this rulemaking. However, HUD agrees
that this is one of several components of
the formula that should be reevaluated.
Consequently, HUD is considering
initiating another proposed rule to
solely address the Capital Fund formula.
Issue: A commenter stated that there
is a fundamental illogic in allocating 50
percent of Capital Funds to ‘‘existing
modernization needs,’’ as defined, and
50 percent to ‘‘accrual needs,’’ as
defined. Under the rule, a building
constructed after 1991 would be deemed
to have no modernization needs. The
proportion of buildings in the public
housing inventory that are more than 20
years old will decrease over time.
Therefore, the inventory will be divided
among an ever-smaller group of
buildings, even as the post-1991
buildings age and become needier.
HUD Response: Similar to HUD’s
response to the preceding comment,
these allocations are part of the original
negotiated rulemaking and will not be
revised in this rulemaking, but, as
already noted, HUD is considering
initiating another proposed rule on the
Capital Fund formula.
Issue: A commenter stated that the
proposed guidelines for site and
neighborhood standards are overly rigid
and unnecessarily restrictive. HUD
should revise these standards to allow
for PHAs to provide on-site replacement
housing sufficient to meet community
needs, regardless of the number of units
previously existing on the site. The
commenter also stated that the proposed
requirement that sites used for
replacement housing be accessible to
necessary services through public
transportation would not work in rural
areas and small communities, where
public transportation is limited or
nonexistent.
HUD Response: It is HUD’s
responsibility to help ensure that some
of the public housing that is demolished
or disposed of is replaced, and to help
ensure that there is sufficient public
housing to serve the low-income
community. As a result, PHAs, when
submitting site acquisition or
development proposals, are required to
select sites that support this
responsibility. HUD recognizes that
each site selected for the construction or
rehabilitation of public housing presents
unique circumstances that reflect the
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the construction or rehabilitation.
Consequently, HUD will balance the
need for housing and the overall impact
of the rehabilitation of public housing
on residents when reviewing these
development proposals against the site
and neighborhood criteria identified in
§ 905.602(d). This final rule revises
§ 905.602(d)(9) to reflect the
commenter’s concern about lack of
public transportation in rural areas.
Issue: A commenter stated that the
standard in § 905.602(d)(5)(ii) should be
revised to insert the phrase ‘‘public
housing’’ to read:
. . . the number of public housing units
being constructed is the minimum number
needed to house current residents that want
to remain at the site, so long as the number
of [public housing] units is significantly
fewer than the number being demolished
. . .

HUD Response: HUD agrees with this
clarification and this final rule makes
the suggested revision.
Issue: It is unclear what is meant by
§ 905.306(b), ‘‘Items and costs.’’
HUD Response: This term refers to
items and costs listed in the PHA’s
budget and Capital Fund 5-Year Action
Plan. To be obligated, these items and
costs must meet the definition of
‘‘obligation’’ found in § 905.108.
Issue: HUD should include in
§§ 905.306 and 905.310 the
authorization found in section 35(b)(1)
of the 1937 Act, 42 U.S.C. 1437z–7(b)(1)
for a PHA to deposit funds in an escrow
account in order to collateralize
construction financing, whether through
a bond issue or otherwise. The
commenter states that escrow is a
crucial technique for obtaining 4
percent Low Income Housing Tax
Credits (LIHTC), in particular. In
addition, the regulation should state
explicitly that deposit into the escrow
account constitutes expenditure for all
deadline purposes.
HUD Response: To put this authority
into effect, the statutory language
requires HUD to issue regulations. HUD
will consider doing so in the future.
Issue: The § 905.304(a) requirement to
record a Declaration of Trust on ‘‘all
public housing property’’ is vague. The
commenter suggests reference to a
Declaration of Trust recorded against
real property on which a public housing
project is located.
HUD Response: The phrase ‘‘all
public housing property’’ is an
appropriate phrase that accurately
covers both the PHA’s land and
improvements, each of which must be
subject to the Declaration of Trust.
Issue: HUD’s proposed regulation at
§ 905.304(a)(3) requires projects
receiving operating fund assistance to

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operate as public housing for the
following 10 years, ‘‘except as permitted
by HUD by an exception.’’ This rule
should provide operating-fund-only
projects with the maximum flexibility
permitted by the 1937 Act to cease
public housing operations if subsidies
are reduced or suspended.
HUD Response: Each situation should
be evaluated and determined by its own
merits. A broad exception for an entire
class of projects does not sufficiently
protect the public interest.
Issue: The rule should remove
references to Public Housing
Development and Major Reconstruction
of Obsolete Projects (MROP) funding,
which program no longer exists.
HUD Response: PHAs still have
unobligated balances in Public Housing
Development and MROP grants, and so
MROP cannot yet be removed from the
rule.
Issue: The rule should be revised to
provide that Moving to Work (MTW)
agencies shall submit plans for
expenditures of their Capital Funds
pursuant to the terms of their MTW
agreements, and any contrary
requirements in the regulations will not
apply to MTW PHAs.
HUD Response: HUD’s proposed
regulation at § 905.300(b)(10) has been
revised at this final rule to incorporate
guidance on MTW agencies providing
the Capital Fund submission
information through the MTW plan.
Issue: PHA performance should be
rewarded with respect to timely
obligation and expenditure of funds.
HUD Response: Timely obligating and
expending funds simply means that a
PHA is meeting the statutory legal
requirements of 42 U.S.C. 1437g(j). HUD
does not agree that PHAs should be
rewarded for meeting basic legal
requirements.
Issue: Terminology should be updated
to reflect changes in asset management
and project-level accounting.
HUD Response: HUD believes this
final rule uses the appropriate
terminology.
Issue: One commenter asked for
clarification of whether § 905.312(b), on
inspections of work in progress and
goods delivered, applies only to mixedincome developments.
HUD Response: The section applies to
both mixed-finance and public housing
development.
Issue: One commenter objected to the
fact that § 905.700, ‘‘Other security
interests,’’ may be read to require HUD
approval of transactions that provide
recourse to nonpublic housing property
of a PHA.
HUD Response: HUD’s regulation at
§ 905.700 implements the statutory

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language at section 30 of the 1937 Act,
42 U.S.C. 1437z–2, which states that
HUD, upon such terms and conditions
as it may prescribe, may authorize a
PHA to ‘‘mortgage or otherwise grant a
security interest in any public housing
project or other property of the PHA.’’

The incorporated standards are found
in this final rule at §§ 905.200(b)(6)(ii)
and 905.312(b)(1).

VI. Incorporation by Reference

Under Executive Order 12866
(Regulatory Planning and Review), a
determination must be made whether a
regulatory action is significant and,
therefore, subject to review by the Office
of Management and Budget (OMB) in
accordance with the requirements of the
order. Executive Order 13563
(Improving Regulations and Regulatory
Review) directs executive agencies to
analyze regulations that are ‘‘outmoded,
ineffective, insufficient, or excessively
burdensome, and to modify, streamline,
expand, or repeal them in accordance
with what has been learned. Executive
Order 13563 also directs that, where
relevant, feasible, and consistent with
regulatory objectives, and to the extent
permitted by law, agencies are to
identify and consider regulatory
approaches that reduce burdens and
maintain flexibility and freedom of
choice for the public. This rule was
determined to be a ‘‘significant
regulatory action’’ as defined in section
3(f) of Executive Order 12866 (although
not an economically significant
regulatory action, as provided under
section 3(f)(1) of the Executive Order).
With respect to Executive Order
12866, it is determined that this final
rule would not have any impact on the
level of funding for the CFP—which
level is determined by annual
congressional appropriations—but
would potentially create some financial
transfers among program participants.
The total amount of transfers is
estimated to be less than $100 million
annually, with most of the transfers
being interagency transfers attributable
to the Demolition or Disposition
Transitional Funding (DDTF). However,
the benefits of the rule such as
regulatory consolidation, program
clarification, removal of obsolete
references, and enhanced efficiencies,
justify the rule regardless of the
transfers of funding involved.
A summary of the changes made to
the proposed rule at the final rule stage
can be found in the preamble of the
final rule. These changes can be
aggregated in two groups:

42 U.S.C. 12709 requires HUD to
adopt energy efficiency standards that
meet or exceed the requirements of the
2006 International Energy Conservation
Code (hereafter in this section referred
to as ‘‘the 2006 IECC’’), or, in the case
of multifamily high-rises, the
requirements of the American Society of
Heating, Refrigerating, and AirConditioning Engineers Standard 90.1–
2004. This statute also provides for the
updating of those standards by adopting
amended standards. Accordingly, the
following updated standards are
incorporated by reference in § 905.110
of this final rule with the approval of
the Director of the Office of the Federal
Register under 5 U.S.C. 552(a) and 1
CFR part 51:
• ASHRAE 90.1–2010, ‘‘Energy
Standard for Buildings Except Low-Rise
Residential Buildings.’’
• The 2009 International Energy
Conservation Code (IECC).
All approved material may be
obtained from the organization that
developed the standard. These
standards also are available for
inspection at HUD’s Office of Policy
Development and Research, Affordable
Housing Research and Technology
Division, Department of Housing and
Urban Development, telephone number
202–708–4370 (this is not a toll-free
number). In addition, the standards are
available for inspection at the National
Archives and Records Administration
(NARA). For information on the
availability of this material at NARA,
call 202–741–6030 or go to http://
www.archives.gov/federal_register/
code_of_federal_regulations/ibr_
locations.html.
Other resources are:
• ASHRAE 90.1–2010, ‘‘Energy
Standard for Buildings Except Low-Rise
Residential Buildings,’’ by the American
Society of Heating, Refrigerating, and
Air-Conditioning Engineers, Inc., 1791
Tulle Circle NE., Atlanta, GA 30329
(http://www.ashrae.org/standardsresearch-technology/standardsguidelines), and
• The 2009 International Energy
Conservation Code (IECC) by the
International Code Council, 500 New
Jersey Avenue NW., 6th Floor,
Washington, DC 20001 (1–888–422–
7233) (http://www.iccsafe.org/Store).

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VII. Findings and Certifications
Regulatory Review—Executive Orders
12866 and 13563

1. Revision of Definitions and Other
Clarifications
The final rule accommodates changes
to definitions and provides other
clarifications in response to public
comments on the proposed rule, and

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63767

further consideration of the issues by
HUD. These actions bring much needed
clarity to the Capital Fund Program.
For example, the proposed definition
of ‘‘Capital Fund Annual Contributions
Contract (CF ACC)’’ appeared to conflate
the definition of the entire ACC (which
is a contract addressing the operation of
public housing) with that of a Capital
Funds amendment (presumably limited
to the special terms applicable to the
provision of Capital Funds). To avoid
possible ambiguity, this final rule
modifies the proposed definition of CF
ACC to more clearly indicate that this is
an amendment to the Consolidated
Annual Contributions Contract.
2. Program Requirements
A. Management Improvement
The proposed rule called for the
gradual phase down of the management
improvements funding limit from up to
20 percent to up to 10 percent over a
period of 3 fiscal years. This final rule
extends the phase-in over a 5-year time
period. Following the phase down all
PHAs would be limited to using up to
10 percent for management
improvements. The 20 percent standard
was implemented by regulation; it is not
a statutory limitation.
HUD has determined, using 2008
data, that approximately 440 of the 3129
PHAs expended in excess of 10 percent
of their Capital Funds for management
improvements, corresponding to a total
of $28.4 million. That sum represents an
approximation of the amount of funding
currently allocated to management
improvements that effectively would be
transferred to other eligible Capital
Funds activities.
HUD notes, however, that collectively
and on average, PHAs expend well
below the 10 percent threshold. Still
using the 2008 data, $2.14 billion was
distributed by formula to PHAs under
the Capital Fund Program. Of that
amount, only $99,693,783, or about 4.65
percent, was expended by PHAs for
management improvements. Overall, the
average amount expended by PHAs for
management improvements was 8.1
percent.
These results suggest that the
potential transfer of $28.4 million
would be observed at the level of each
individual PHA. Collectively, and for
the program as a whole, there would not
be any transfers since PHAs, on an
average, budget less than 10 percent for
management improvements.
In reviewing the impact of HUD’s 10
percent cap on management
improvements, it is important to note
that the cap does not imply a cost to the
PHAs or a reduction in funding. With

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the limit, PHAs with a management
improvements budget over 10 percent of
their annual Capital Fund allocation
will simply have to realign their budget
over a 5 year period and transfer the
excess to other eligible capital fund
activities within the PHA.
There is also no cost to be borne by
PHAs and there is no reduction of the
annual Capital Fund allocation to the
PHA when the limit becomes effective.
Further, there should be no disruption
of activities already planned and
included in the PHA plan. In this
regard, it should be noted that Capital
Fund expenditures are guided by the
PHA’s 5-year plan and annual
statement, which describe the work to
be carried out in the budget year. The
fact that this final rule calls for a phasedown over 5 years mitigates any adverse
programmatic impact to the PHA and
allows work items already budgeted to
be funded using management
improvements funds to be completed, if
the PHA so desires.
The restriction established by this
rule is that no new work items in excess
of 10 percent of the PHA’s annual
Capital Fund allocation would be
approved using management
improvements funds. The limitation and
the priority change will leave a larger
percentage of the PHA’s annual Capital
Fund grant available to be used for
physical improvements, and will cause
a transfer from and to an economic
agent outside of the PHAs.
Traditionally, PHAs spend management
improvement funds on management
information systems equipment,
resident initiatives, etc. Stakeholders in
these lines of business may see a
reduction of activities from PHAs that
routinely budget more than 10 percent
to management improvements, as a
result of the 10 percent limit.
Nevertheless, the potential benefit for
capping the management improvements
budget to 10 percent, down from 20
percent is to target the bulk of the
capital funds to other capital fund—
eligible activities, such as physical
improvements. Recent studies, such as
the Capital Needs Assessment, have
stressed an urgent need for additional
funding for physical improvements.
B. Capital Fund Formula
This proposed rule proposes the
phase-down of the Replacement
Housing Factor (RHF) from a 10-year
long RHF program to a 5-year RHF
program for PHAs that remove units
from the inventory based on demolition
or disposition.
The final rule establishes 5 years of a
DDTF grant that will be included in the
regular Capital Fund formula grant. The

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modification would alter the
distribution of funds amongst program
participants and thus create some interagency transfers. It should be noted that
the main difference at this stage is on
the way funds are distributed to eligible
PHAs and the eligible use of funds. The
DDTF grant will not be subject to the
same requirements as the RHF grant,
and it will allow PHAs to fund
modernization as well as development,
and fund any eligible activity under the
Capital Fund Program. The need for
more modernization is quantified in a
study released in June 2011 on
modernization needs, ‘‘Capital Needs in
the Public Housing Program,’’ prepared
by Abt Associates, available at http://
portal.hud.gov/hudportal/documents/
huddoc?id=PH_Capital_Needs.pdf. The
study found that the Nation’s 1.2
million public housing units have an
estimated total of $25.6 billion in
existing capital needs.
This final rule will also have
significant benefits. This rule updates
and consolidates the Capital Fund
Program regulations and related
regulations having to do with the use of
Capital Funds for development and
modernization, as well as regulations for
continuing operation of low-income
housing after completion of debt
service. In addition, the rule codifies
recent statutory requirements enacted in
HERA. The benefits of the rule, such as
regulatory consolidation, program
clarification, removal of obsolete
references, and enhanced efficiencies,
make the rule necessary. Although HUD
established the Capital Fund formula in
2000, HUD has continued to rely on
Capital Fund Program requirements to
the extent that these requirements were
not superseded by statutory
requirements.
The update in energy standards is
made on the basis of a review of
analysis prepared pursuant to the
Energy Independence and Security Act
(Pub. L. 110–140, approved December
19, 2007) showing that the average
simple payback is 3.45 years for the
energy savings resulting from
implementing IECC 2009 to equal the
incremental cost of the improvements.4
This payback period is significantly less
than the useful life of affected
components and as a result the benefits
of compliance with IECC 2009 outweigh
the costs. It is noted that regardless of
HUD’s determination, 37 states have
adopted IECC 2009 or IECC 2012,
making the current HUD IECC 2006
4 Zachary Pachette, John Miller, Mike DeWein,
Incremental Construction Cost Analysis for New
Homes, Building Code Assistance Project, Updated
June 2011. (Retrieved from: http://bcap-ocean.org/
incremental-cost-analysis).

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standard moot in those states in
addition to others, such as California,
that enforce a stricter state standard
than IECC. Generally, the IECC
establishes baseline expectations for
energy efficiency that consumers can
rely upon as a matter of public policy.
Without the requirement of the IECC to
implement baseline energy conservation
measures, real estate owners in both the
public and private sectors generally
would not implement energy
conservation solely on the basis of
energy savings. This is because the
incentive for such measures in the form
of cost savings often does not accrue to
the entity implementing the energy
conservation measure, creating a
misplaced incentive. If there are market
failures or barriers that are not reflected
in the return of the investment, then the
market penetration of energy-efficient
investment will be less than optimal.
Consistent with the search cost
approach to imperfect information,
landlords have a reduced incentive to
provide energy-efficient appliances to
their tenants.5
It is determined that this final rule is
not economically significant. This final
rule accommodates changes made to the
proposed rule in response to public
comments and other consideration of
issues by HUD. Like the proposed rule,
this final has the potential to generate
some transfers caused by the
modification of the formula grant to
accommodate the introduction of the
DDTF. Notwithstanding, the rule will
yield some substantial benefits such as
regulatory consolidation, program
clarification, and removal of obsolete
references.
With respect to Executive Order
13563, the preamble has demonstrated
that, in response to public comment,
and following further consideration of
the issues by HUD, components of the
Capital Fund regulations have been
made more flexible and less
burdensome.
The docket file is available for public
inspection in the Regulations Division,
Office of the General Counsel, Room
10276, 451 7th Street SW., Washington,
DC 20410–0500. Due to security
measures at the HUD Headquarters
building, please schedule an
appointment to review the docket file by
calling the Regulations Division at 202–
708–3055 (this is not a toll-free
5 Allcott, Hunt and Michael Greenstone, 2012, ‘‘Is
there an Energy-Efficiency Gap?’’ National Bureau
of Economic Research, Working Paper 17766;
Gillingham, Kenneth, Matthew Harding, and David
Rapson. 2012. ‘‘Split Incentives and Household
Energy Consumption.’’ Energy Journal 33 (2): 37–
62.
.

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number). Individuals with speech or
hearing impairments may access this
number via TTY by calling the Federal
Relay Service, toll-free at 800–877–
8339.
Paperwork Reduction Act
The information collection
requirements contained in this final rule
have been submitted for review and
approval by the Office of Management
and Budget (OMB) under the Paperwork
Reduction Act of 1995 (44 U.S.C. 3501
et seq.). The information collection
requirements for the Capital Fund
program are assigned OMB control
numbers 2577–0157, 2577–0226, 2577–
0265, and 2577–0275. The information
collection requirements in this final rule
include largely pre-existing information
collection requirements. However, the

information collection requirements of
some preexisting forms are being
revised to reduce the paperwork burden.
Specifically, the information collection
requirements in this rule reflect a
decrease of 32,222 burden hours from
the preexisting forms. This decrease
reflects statutory changes enacted by
sections 2701 and 2702 of the Small
PHA Paperwork Reduction Act, title VII
of the Housing and Economic Recovery
Act of 2008 (HERA) (Pub. L. 110–289,
approved July 30, 2008). Specifically,
HERA excepts qualified PHAs from the
requirement of section 5A of the U.S.
Housing Act of 1937 (42 U.S.C. 1437 et
seq.) to prepare and submit an Annual
PHA Plan. Qualified PHAs under HERA
are defined as those PHAs with less
than 550 public housing units and
Number of
respondents

CFR Section (related forms referenced)
§ 905.604(k), Transition Plan, OMB Control No. 2577–0275 ..........................
§ 905.300(b)(8) Annual Statement/Performance and Evaluation Report,
HUD form 50075.1, OMB Control No. 2577–0265, current .........................
§ 905.300(b)(8) Annual Statement/Performance and Evaluation Report,
HUD form 50075.1, OMB Control No. 2577–0265, pending approval ........
§ 905.300(b)(1) Capital Fund 5-Year Action Plan, HUD form 50075.2, OMB
Control No. 2577–0226, current ..................................................................
§ 905.300(b)(1) Capital Fund 5-Year Action Plan, HUD form 50075.2, OMB
Control No. 2577–0226, pending approval ..................................................
§ 903.3 PHA 5-Year and Annual Plan, HUD form 50075, OMB Control No.
2577–0226, current ......................................................................................
§ 903.3 PHA 5-Year and Annual Plan, HUD form 50075, OMB Control No.
2577–0226, pending approval .....................................................................

Housing Choice Vouchers (HCV)
combined that are not in troubled
performance status. This provision
significantly reduces the paperwork
burdens and associated costs for
qualified PHAs, which represent
approximately 68 percent of the PHAs
that administer public housing
programs. Under HERA, qualified PHAs
are exempt from preparing and
submitting a PHA Annual Plan and are
only required to submit the 5-Year PHA
Plan once every 5 years. The sections in
this rule that contain the current
information collection requirements and
the upcoming revisions that are
awaiting OMB approval, as well as the
estimated adjusted burden of the
pending revisions, are set forth in the
following table.
Total annual
responses

Average hours
per response

Total annual
burden hours

920

920

18.46

16,980

3,163

3,163

8

25,304

1,551

1,551

4.18

6488

3,163

3,163

3.00

9489

1,551

1,551

2.09

3,244

4,139

4,139

4.28

17,719

4,053

4,053

2.6

10,558

Total current burden hours .......................................................................

........................

........................

........................

52,512

Total burden hours once pending forms are approved ....................

........................

........................

........................

20,290

All estimates include the time for
reviewing instructions, searching
existing data sources, gathering or
maintaining the needed data, and
reviewing the information.
The docket file is available for public
inspection. For information or a copy of
the paperwork package submitted to
OMB, contact: Colette Pollard at 202–
708–0306 (this is not a toll free number)
or via email at [email protected].
In accordance with the Paperwork
Reduction Act, an agency may not
conduct or sponsor, and a person is not
required to respond to, a collection of
information, unless the collection
displays a currently valid OMB control
number.
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63769

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

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impose any federal mandate on any
state, local, or tribal government or the
private sector within the meaning of
UMRA.
Environmental Impact
A Finding of No Significant Impact
with respect to the environment has
been made 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.
4332(2)(C)), and remains applicable to
this final rule. The Finding of No
Significant Impact is available for public
inspection between the hours of 8 a.m.
and 5 p.m., weekdays, in the
Regulations Division, Office of General
Counsel, Department of Housing and
Urban Development, 451 7th Street SW.,
Room 10276, Washington, DC 20410–
0500. Due to security measures at the
HUD Headquarters building, an advance
appointment to review the docket file
must be scheduled by calling the

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Regulations Division at 202–708–3055
(this is not a toll-free number). Hearingor speech-impaired individuals may
access this number through TTY by
calling the Federal Relay Service, at tollfree 800–877–8339.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA)
(5 U.S.C. 601 et seq.) generally requires
an agency to conduct a regulatory
flexibility analysis of any rule subject to
notice and comment rulemaking
requirements, unless the agency certifies
that the rule will not have a significant
economic impact on a substantial
number of small entities. This rule
reflects the transition from PHA-wide
accounting to an asset management
model, and therefore changes some of
the language regarding the Capital Fund
formula to reflect the new accounting
model. The only significant change in
the Capital Fund formula calculation is
a proposal to limit the number of years
a PHA is eligible to receive RHF grants

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to replace units removed from the
inventory by demolition, disposition, or
homeownership from 10 years to 5
years. The Capital Fund formula amount
that is freed up because of fewer RHF
grants will cause an increase in the
amount of Capital Funds available to the
remainder of the PHAs, which includes
a large number of small PHAs. Since
most small PHAs do not demolish or
dispose of a significant number of
public housing units, reducing RHF
eligibility to 5 years should benefit
small PHAs. Therefore, the undersigned
certifies that this rule will not have a
significant economic impact on a
substantial number of small entities,
and an initial regulatory flexibility
analysis is not required.
Executive Order 13132, Federalism

Catalog of Federal Domestic Assistance
Number
The Catalog of Federal Domestic
Assistance numbers for 24 CFR parts
905, 941, 968, and 969 are 14.850,
14.872, 14.882, 14.883.
List of Subjects
24 CFR Part 903
Administrative practice and
procedure, Public housing, Reporting
and recordkeeping requirements.
24 CFR Part 905
Grant programs—housing and
community development, Incorporation
by reference, Public housing, Reporting
and recordkeeping requirements.

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Grant programs—housing and
community development, Loan
programs—housing and community
development, Public housing.
24 CFR Part 968
Grant programs—housing and
community development, Loan
programs—housing and community

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Authority: 42 U.S.C. 1437g, 42 U.S.C.
1437z–2, 42 U.S.C. 1437z–7, and 3535(d).

24 CFR Part 969

■

Grant programs—housing and
community development, Low and
moderate income housing, and Public
housing.
Accordingly, for the reasons stated in
the preamble, under the authority of 42
U.S.C. 3535(d), HUD amends 24 CFR
chapter IX as follows:

Subpart A—General
Sec.
905.100 Purpose, general description, and
other requirements.
905.102 Applicability.
905.104 HUD approvals.
905.106 Compliance.
905.108 Definitions.
905.110 Incorporation by reference.

PART 903—PUBLIC HOUSING
AGENCY PLANS

Subpart A—General

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

■

Authority: 42 U.S.C. 1437c; 42 U.S.C.
1437c–1; Pub. L. 110–289; 42 U.S.C. 3535d.
■

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

24 CFR Part 941

development, Public housing, Reporting
and recordkeeping requirements.

2. Revise § 903.3 to read as follows:

§ 903.3 What is the purpose of this
subpart?

(a) This subpart specifies the
requirements for PHA plans, required by
section 5A of the United States Housing
Act of 1937 (42 U.S.C. 1437c–1) (the
Act), as amended.
(b) The purpose of the plans is to
provide a strategic planning framework
for PHA management operations and
capital planning:
(1) Local accountability; and
(2) An easily identifiable source by
which public housing residents,
participants in the tenant-based
assistance program, and other members
of the public may locate basic PHA
policies, rules and requirements
concerning the PHA’s operations,
programs and services.
(c) Title VII of the Housing and
Economic Reform Act, Public Law 110–
289, section 2702, amends 42 U.S.C.
1437c–1(b) to provide qualified PHAs
an exemption from the requirement of
section 5A of the Act to submit an
annual PHA Plan. The term ‘‘qualified
PHA’’ means a public housing agency
that meets the following requirements:
(1) The sum of the number of public
housing dwelling units administered by
the agency, and the number of vouchers
under section 8(o) of the United States
Housing Act of 1937 (42 U.S.C. 1437f(o))
administered by the agency, is 550 or
fewer; and
(2) The agency is not designated
under section 42 U.S.C. 1437d(j)(2) as a
troubled public housing agency, and
does not have a failing score under
SEMAP during the prior 12 months.
PART 905—THE PUBLIC HOUSING
CAPITAL FUND PROGRAM
3. The authority citation for part 905
is revised to read as follows:

■

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4. Revise subpart A to read as follows:

§ 905.100 Purpose, general description,
and other requirements.

(a) Purpose. The Public Housing
Capital Fund Program (Capital Fund
Program or CFP) provides financial
assistance to public housing agencies
(PHAs) and resident management
corporations (RMC) (pursuant to 24 CFR
964.225) to make improvements to
existing public housing. The CFP also
provides financial assistance to develop
public housing, including mixedfinance developments that contain
public housing units.
(b) General description. Congress
appropriates amounts for the Capital
Fund in HUD’s annual appropriations.
In order to receive a Capital Fund grant,
the PHA must:
(1) Validate project-level information
in HUD’s data systems, as prescribed by
HUD;
(2) Have an approved CFP 5-Year
Action Plan;
(3) Enter into a Capital Fund Annual
Contributions Contract (CF ACC)
Amendment to the PHA’s Annual
Contributions Contract (as defined in 24
CFR 5.403) with HUD; and
(4) Provide a written certification and
counsel’s opinion that all property
receiving Capital Fund assistance is
under a currently effective Declaration
of Trust (DOT) and is in compliance
with the CF ACC and the Act.
(c) Informational requirements.
Section 905.300 of this part describes
the information to be submitted to HUD
for the CFP. HUD uses the CF formula
set forth in § 905.400 of this part, along
with data provided by the PHA and
other information, including, but not
limited to, the high-performance
information from the Real Estate
Assessment Center (REAC) and location
cost indices, to determine each PHA’s
annual grant amount. HUD notifies each
PHA of the amount of the grant and
provides a CF ACC Amendment that
must be signed by the PHA and
executed by HUD in order for the PHA
to access the grant. After HUD executes
the CF ACC Amendment, the PHA may
draw down funds for eligible costs that

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have been described in its CFP Annual
Statement/Performance and Evaluation
Report or CFP 5-Year Action Plan.
(d) Eligible activities. Eligible Capital
Fund costs and activities as further
described in subpart B of this part
include, but are not limited to, making
physical improvements to the public
housing stock and developing public
housing units to be added to the existing
inventory. With HUD approval, a PHA
may also leverage its public housing
inventory by borrowing additional
capital on the private market and
pledging a portion of its annual Capital
Funds for debt service, in accordance
with § 905.500 of this part.
(e) Obligation and expenditure
requirements. A PHA must obligate and
expend its Capital Funds in accordance
with § 905.306 of this part. The PHA
will directly employ labor, either
temporarily or permanently, to perform
work (force account) or contract for the
required work in accordance with 24
CFR part 85. Upon completion of the
work, the PHA must submit an Actual
Modernization Cost Certificate (AMCC)
or Actual Development Cost Certificate
(ADCC) and a final Performance and
Evaluation Report (in accordance with
§ 905.322 of this part) to HUD to close
out each Capital Fund grant.
(f) Financing and development.
Section 905.500 of this part regulates
financing activities using Capital Funds
and Operating Funds. Section 905.600
of this part contains the development
requirements, including those related to
mixed-finance development, formerly
found in 24 CFR part 941. Section
905.700 of this part describes the
criteria for the use of Capital Funds for
other security interests. Section 905.800
of this part addresses PHA compliance
with Capital Fund requirements and
HUD capability for review and sanction
for noncompliance.
§ 905.102

Applicability.

All PHAs that have public housing
units under an Annual Contributions
Contract (ACC), as described in 24 CFR
5.403, are eligible to receive Capital
Funds.
§ 905.104

HUD approvals.

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All HUD approvals required in this
part must be in writing and from an
official designated to grant such
approval.
§ 905.106

Compliance.

PHAs or owner/management entities
or their partners are required to comply
with all applicable provisions of this
part. Execution of the CF ACC
Amendment, submissions required by
this part, and disbursement of Capital

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Fund grants from HUD are individually
and collectively deemed to be the PHA’s
certification that it is in compliance
with the provisions of this part and all
other Public Housing Program
Requirements. Noncompliance with any
provision of this part or other applicable
requirements may subject the PHA and/
or its partners to sanctions contained in
§ 905.804 of this part.
§ 905.108

Definitions.

The following definitions apply to
this part:
1937 Act. The term ‘‘1937 Act’’ is
defined in 24 CFR 5.100.
Accessible. As defined in 24 CFR 8.3.
ACC. The Annual Contributions
Contract between HUD and a PHA
covering a public housing project or
multiple public housing projects.
ACC Amendment. An Amendment to
the ACC to reflect specific changes
made to a PHA’s public housing
inventory or funding. An ACC
Amendment may be a Capital Fund
ACC Amendment, a Mixed-Finance
ACC Amendment, a Capital Fund
Financing ACC Amendment, or other
form of amendment specified by HUD.
Additional Project Costs. The sum of
the following HUD-approved costs
related to the development of a public
housing project, which are not included
in the calculation of the Total
Development Cost (TDC) limit, but are
included in the maximum project cost
as stated in § 905.314(b). Additional
project costs include the following:
(1) Costs for the demolition or
remediation of environmental hazards
associated with public housing units
that will not be rebuilt on the original
site; and
(2) Extraordinary site costs that have
been verified by an independent stateregistered, licensed engineer (e.g.,
removal of underground utility systems;
replacement of off-site underground
utility systems; extensive rock and/or
soil removal and replacement; and
amelioration of unusual site conditions,
such as unusual slopes, terraces, water
catchments, lakes, etc.); and
(3) Cost effective energy-efficiency
measures in excess of standard building
codes.
Capital Fund (CF). The fund
established under section 9(d) of the
1937 Act (42 U.S.C.) 1437g(d).
Capital Fund Annual Contributions
Contract Amendment (CF ACC). An
amendment to the Annual Contributions
Contract (ACC) under the 1937 Act
between HUD and the PHA containing
the terms and conditions under which
the Department assists the PHA in
providing decent, safe, and sanitary
housing for low-income families. The

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CF ACC must be in a form prescribed by
HUD, under which HUD agrees to
provide assistance in the development,
modernization, and/or operation of a
low-income housing project under the
1937 Act and the PHA agrees to
modernize and operate the project in
compliance with all Public Housing
Requirements.
Capital Fund Program Fee. A fee that
may be charged to a Capital Fund grant
by the PHA to cover costs associated
with oversight and management of the
CFP by the PHA Central Office Cost
Center (COCC). These costs include
duties related to general capital
planning, preparation of the Annual
Plan, processing of the Line of Credit
Control System (LOCCS), preparation of
reports, drawing of funds, budgeting,
accounting, and procurement of
construction and other miscellaneous
contracts. The CFP fee is the
administrative cost for managing a
Capital Fund grant for a PHA subject to
asset management.
Community Renewal Costs.
Community Renewal Costs consist of
the sum of the following HUD-approved
costs related to the development of a
public housing project: planning
(including proposal preparation);
administration; site acquisition;
relocation; demolition of—and site
remediation of environmental hazards
associated with—public housing units
that will be replaced on the project site;
interest and carrying charges; off-site
facilities; community buildings and
nondwelling facilities; contingency
allowance; insurance premiums; any
initial operating deficit; on-site streets;
on site utilities; and other costs
necessary to develop the project that are
not covered under the Housing
Construction Cost (HCC). Public
housing capital assistance may be used
to pay for Community Renewal Costs in
an amount equivalent to the difference
between the HCC paid for with public
housing capital assistance and the TDC
limit.
Cooperation agreement. An
agreement, in a form prescribed by
HUD, between a PHA and the applicable
local governing body or bodies that
assures exemption from real and
personal property taxes, provides for
local support and services for the
development and operation of public
housing, and provides for PHA
payments in lieu of taxes (PILOT).
Date of Full Availability (DOFA). The
last day of the month in which
substantially all (95 percent or more) of
the units in a public housing project are
available for occupancy.
Declaration of Restrictive Covenant.
The Declaration of Restrictive Covenant

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is a legal instrument that binds the PHA
and the Owner Entity to develop mixedfinance projects in compliance with
Public Housing Requirements and
restricts disposition of the property,
including transferring, conveying,
assigning, leasing, mortgaging, pledging
or otherwise encumbering the property.
Declaration of Trust (DOT). A legal
instrument that grants HUD an interest
in public housing property. It provides
public notice that the property must be
operated in accordance with all public
housing federal requirements, including
the requirement not to convey or
otherwise encumber the property unless
expressly authorized by federal law
and/or HUD.
Development. Any or all undertakings
necessary for planning, land acquisition,
demolition, construction, or equipment
in connection with a public housing
project.
Emergency work. Capital Fund related
physical work items that if not done
pose an immediate threat to the health
or safety of residents, and which must
be completed within one year of
funding. Management Improvements are
not eligible as emergency work and
therefore must be covered by the CFP 5Year Action Plan before the PHA may
carry them out.
Energy audit. A systematic review of
the energy requirements and
consumption for property with the
intent to identify potential opportunities
for energy and water savings through
improved operational efficiency or more
efficient components.
Expenditure. Capital Funds disbursed
by the PHA to pay for obligations
incurred in connection with work
included in a CFP 5-Year Action Plan
that has been approved by the PHA
Board of Commissioners and HUD.
Total funds expended means cash
actually disbursed and does not include
retainage.
Federal Fiscal Year (FFY). The
Federal Fiscal Year begins each year on
October 1 and ends on September 30 of
the following year.
Force account labor. Labor employed
directly by the PHA on either a
permanent or a temporary basis.
Fungibility. As it relates to the Capital
Fund Program, fungibility allows the
PHA to substitute work items between
any of the years within the latest
approved CFP 5-Year Action Plan,
without prior HUD approval.
HCC. The sum of the following HUDapproved costs related to the
development of a public housing
project: dwelling unit hard costs
(including construction and equipment),
builder’s overhead and profit, the cost of
extending utilities from the street to the

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public housing project, finish
landscaping, and the payment of DavisBacon wage rates.
Line of Credit Control System
(LOCCS). LOCCS is a HUD grant
disbursement system. LOCCS currently
provides disbursement controls for over
100 HUD grant programs. LOCCS-Web
is an intranet version of LOCCS for HUD
personnel. eLOCCS is the Internet link
to LOCCS data for HUD business
partners.
Mixed-finance modernization. Use of
the mixed-finance method of
development to modernize public
housing projects described in § 905.604.
Modernization. Modernization means
the activities and items listed in
§ 905.200(b)(4–18).
Natural disaster. An extraordinary
event, such as an earthquake, flood, or
hurricane, affecting only one or few
PHAs, but excluding presidentially
declared emergencies and major
disasters under the Robert T. Stafford
Disaster Relief and Emergency
Assistance Act (42 U.S.C. 5121 et seq).
Obligation. A binding agreement for
work or financing that will result in
outlays, immediately or in the future.
All obligations must be incorporated
within the CFP 5-Year Action Plan that
has been approved by the PHA Board of
Commissioners and HUD. This includes
funds obligated by the PHA for work to
be performed by contract labor (i.e.,
contract award), or by force account
labor (i.e., work actually started by PHA
employees). Capital Funds identified in
the PHA’s CFP 5-Year Action Plan to be
transferred to operations are obligated
by the PHA once the funds have been
budgeted and drawn down by the PHA.
Once these funds are drawn down they
are subject to the requirements of 24
CFR part 990.
Open grant. Any grant for which a
cost certificate has not been submitted
and which has not reached fiscal
closeout as described in § 905.322 of
this part.
Operating fund. Assistance provided
under 24 CFR part 990 pursuant to
section 9(e) of the 1937 Act (42 U.S.C.
1437g(e)) for the purpose of operation
and management of public housing.
Owner entity. An entity that owns
public housing units. In mixed-finance
development, the Owner Entity may be
the PHA, or may be an entity in which
the PHA owns a partial interest, or may
be an entity in which the PHA has no
ownership interest. The Owner Entity is
subject to the applicable requirements of
this subpart.
Partner. A third-party entity with
which the PHA has entered into a
partnership or other contractual
arrangement to provide for the mixed-

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finance development of public housing
units pursuant to this subpart. The
partner has primary responsibility with
the PHA for the development and/or
operation of the public housing units
and is subject to the applicable
requirements of subpart F of this part.
Physical Needs Assessment (PNA). A
systematic review of all the major
physical components of property to
result in a long-term schedule for
replacement of each component and
estimated capital costs required to meet
the replacement need.
PIH Information Center (PIC). PIH’s
current system for recording data
concerning: the public housing
inventory, the characteristics of public
housing and Housing Choice Voucher
—assisted families, the characteristics of
PHAs, and performance measurement of
PHAs receiving Housing Choice
Voucher funding.
Public Housing Agency (PHA). Any
state, county, municipality, or other
governmental entity or public body or
agency or instrumentality of these
entities that is authorized to engage or
assist in the development or operation
of public housing under this part.
Public Housing Assessment System
(PHAS). The assessment system under
24 CFR part 902 for measuring the
properties and PHA management
performance in essential housing
operations, including rewards for high
performers and consequences for poor
performers.
Public housing capital assistance.
Assistance provided by HUD under the
Act in connection with the development
of public housing under this part,
including Capital Fund assistance
provided under section 9(d) of the Act,
public housing development assistance
provided under section 5 of the Act,
Operating Fund assistance used for
capital purposes under section 9(g)(2) or
9(e)(1)(I) (with HUD’s approval of such
financing of rehabilitation and
development of public housing units) of
the Act, and HOPE VI grant assistance.
Public housing funds. Any funds
provided through the Capital Fund or
Other Public Housing Development
Sources, such as HOPE VI, Choice
Neighborhoods, Development Funds,
disposition proceeds that a PHA may
realize under section 18 of the 1937 Act
(42 U.S.C. 1437p), or any other funds
appropriated by Congress for public
housing.
Public housing project. The term
‘‘public housing’’ means low-income
housing, and all necessary
appurtenances thereto, assisted under
the 1937 Act, other than assistance
under 42 U.S.C. 1437f of the 1937 Act
(section 8). The term ‘‘public housing’’

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includes dwelling units in a mixedfinance project that are assisted by a
public housing agency with public
housing capital assistance or Operating
Fund assistance. When used in
reference to public housing, the term
‘‘project’’ means housing developed,
acquired, or assisted by a PHA under
the 1937 Act, and the improvement of
any such housing.
Public housing requirements. All
requirements applicable to public
housing including, but not limited to,
the 1937 Act; HUD regulations; the
Consolidated Annual Contributions
Contract, including amendments; HUD
notices; and all applicable federal
statutes, executive orders, and
regulatory requirements, as these
requirements may be amended from
time to time.
Reasonable cost. An amount to
rehabilitate or modernize an existing
structure that is not greater than 90
percent of the TDC for a new
development of the same structure type,
number, and size of units in the same
market area. Reasonable costs are also
determined with consideration of HUD
regulations including 24 CFR part 85,
and 2 CFR part 225 (codifying OMB
Circular A–87).
Reconfiguration. The altering of the
interior space of buildings (e.g., moving
or removing interior walls to change the
design, sizes, or number of units).
Uniform Federal Accessibility
Standards (UFAS). As defined in 24
CFR 8.32; see also 24 CFR part 40.

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§ 905.110

Incorporation by reference.

(a) Certain material is incorporated by
reference into this part, with the
approval of the Director of the Federal
Register, under 5 U.S.C. 552(a) and 1
CFR part 51. To enforce any edition
other than that specified in this section,
HUD must publish notice of change in
the Federal Register and the material
must be available to the public.
Incorporated material is available from
the sources listed below and is available
for inspection at HUD’s Office of Policy
Development and Research, Affordable
Housing Research and Technology
Division, Department of Housing and
Urban Development, telephone number
202–408–4370 (this is not a toll-free
number). This material is also available
for inspection at the National Archives
and Records Administration (NARA).
For information on the availability of
this material at NARA, call
202-741-6030 (this is not a toll-free
number) or go to http://
www.archives.gov/federal_register/
code_of_federal_regulations/ibr_
locations.html.

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(b) American Society of Heating,
Refrigerating, and Air-Conditioning
Engineers, Inc., 1791 Tulle Circle NE.,
Atlanta, GA 30329 (http://
www.ashrae.org/standards-researchtechnology/standards-guidelines).
(1) ASHRAE 90.1–2010, ‘‘Energy
Standard for Buildings Except Low-Rise
Residential Buildings,’’ copyright 2010,
IBR approved for §§ 905.200(b) and
905.312(b) of this part.
(2) [Reserved].
(c) International Code Council, 500
New Jersey Avenue NW., 6th Floor,
Washington, DC 20001.
(1) International Energy Conservation
Code (IECC), January 2009, IBR
approved for §§ 905.200(b) and
905.312(b).
(2) [Reserved].
■ 5. Add subparts B, C, and D to read
as follows:
Subpart B—Eligible Activities
Sec.
905.200 Eligible activities.
905.202 Ineligible activities and costs.
905.204 Emergencies and natural disasters.
Subpart C—General Program Requirements
905.300 Capital fund submission
requirements.
905.302 Timely submission of the CF ACC
amendment by the PHA.
905.304 CF ACC term and covenant to
operate.
905.306 Obligation and expenditure of
Capital Fund grants.
905.308 Federal requirements applicable to
all Capital Fund activities.
905.310 Disbursements from HUD.
905.312 Design and construction.
905.314 Cost and other limitations.
905.316 Procurement and contract
requirements.
905.318 Title and deed.
905.320 Contract administration and
acceptance of work.
905.322 Fiscal closeout.
905.324 Data reporting requirements.
905.326 Records.
Subpart D—Capital Fund Formula
905.400 Capital Fund formula (CF formula).

Subpart B—Eligible Activities
§ 905.200

Eligible activities.

(a) General. Activities that are eligible
to be funded with Capital Funds as
identified in this section include only
items specified in an approved CFP 5Year Action Plan as identified in
§ 905.300, or approved by HUD for
emergency and natural disaster
assistance, other than presidentially
declared natural disasters and
emergencies.
(b) Eligible activities. Eligible
activities include the development,
financing, and modernization of public
housing projects, including the

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redesign, reconstruction, and
reconfiguration of public housing sites
and buildings (including compliance
with the accessible design and
construction requirements contained in
24 CFR 8.32, 24 CFR part 40, 24 CFR
part 100, 28 CFR 35.151, and 28 CFR
part 36, as applicable) and the
development of mixed-finance projects,
including the following:
(1) Modernization. Modernization is
defined in § 905.108 of this part;
(2) Development. Development refers
to activities and related costs to add
units to a PHA’s public housing
inventory under § 905.600 of this part,
including: construction and acquisition
with or without rehabilitation; any and
all undertakings necessary for planning,
design, financing, land acquisition,
demolition, construction, or equipment,
including development of public
housing units, and buildings, facilities,
and/or related appurtenances (i.e.,
nondwelling facilities/spaces).
Development of mixed-finance projects
include the provision of public housing
through a regulatory and operating
agreement, master contract, individual
lease, condominium or cooperative
agreement, or equity interest.
(3) Financing. Debt and financing
costs (e.g., origination fees, interest)
incurred by PHAs for development or
modernization of PHA projects that
involves the use of Capital Funds,
including, but not limited to:
(i) Mixed finance as described in
§ 905.604 of this part;
(ii) The Capital Fund Financing
Program (CFFP) as described in
§ 905.500 of this part; and
(iii) Any other use authorized by the
Secretary under section 30 of the 1937
Act (42 U.S.C. 1437).
(4) Vacancy reduction. Physical
improvements to reduce the number of
units that are vacant. Not included are
costs for routine vacant unit turnaround,
such as painting, cleaning, and minor
repairs. Vacancy reduction activities
must be remedies to a defined vacancy
problem detailed in a vacancy reduction
program included in the PHA’s CFP 5Year Action Plan.
(5) Nonroutine maintenance. Work
items that ordinarily would be
performed on a regular basis in the
course of maintenance of property, but
have become substantial in scope
because they have been postponed and
involve expenditures that would
otherwise materially distort the level
trend of maintenance expenses. These
activities also include the replacement
of obsolete utility systems and dwelling
equipment.
(6) Planned code compliance.
Building code compliance includes

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design and physical improvement costs
associated with:
(i) Correcting violations of local
building code or the Uniform Physical
Condition Standards (UPCS) under the
Public Housing Assessment System
(PHAS), and
(ii) A national building code, such as
those developed by the International
Code Council or the National Fire
Protection Association; and the IECC or
ASHRAE 90.1–2010 (both incorporated
by reference, see, § 905.110 of this part),
for multifamily high-rises (four stories
or higher), or a successor energy code or
standard that has been adopted by HUD
for new construction pursuant to section
109 of the Cranston-Gonzales National
Affordable Housing Act, Public Law
101–625, codified at 42 U.S.C. 12709, or
other relevant authority.
(7) Management improvements.
Noncapital activities that are projectspecific or PHA-wide improvements
needed to upgrade or improve the
operation or maintenance of the PHA’s
projects, to promote energy
conservation, to sustain physical
improvements at those projects, or
correct management deficiencies. PHAs
must be able to demonstrate the linkage
between the management improvement
and the correction of an identified
management deficiency, including
sustaining the physical improvements.
HUD encourages PHAs, to the greatest
extent feasible, to hire residents as
trainees, apprentices, or employees to
carry out activities under this part, and
to contract with resident owned
businesses as required by section 3 of
the Housing and Community
Development Act of 1968, 12 U.S.C.
1701u. Management improvement costs
shall be fundable only for the
implementation period of the physical
improvements, unless a longer period,
up to a maximum of 4 years, is clearly
necessary to achieve performance
targets. Eligible activities include the
following costs:
(i) Training for PHA personnel in
operations and procedures, including
resident selection, rent collection and
eviction;
(ii) Improvements to management,
financial, and accounting control
systems of the PHA;
(iii) Improvement of resident and
project security;
(iv) Activities that assure or foster
equal opportunity; and
(v) Activities needed in conjunction
with capital expenditures to facilitate
programs to improve the empowerment
and economic self-sufficiency of public
housing residents, including the costs
for resident job training and resident
business development activities to

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enable residents and their businesses to
carry out Capital Fund-assisted
activities.
(vi) Resident management costs not
covered by the Operating Fund include:
(A) The cost of technical assistance to
a resident council or RMC to assess
feasibility of carrying out management
functions for a specific development or
developments;
(B) The cost to train residents in skills
directly related to the operation and
management of the development(s) for
potential employment by the RMC;
(C) The cost to train RMC board
members in community organization,
board development, and leadership;
(D) The cost of the formation of an
RMC; and
(E) Resident participation costs that
promote more effective resident
participation in the operation of the
PHA in its Capital Fund activities,
including costs for staff support,
outreach, training, meeting and office
space, childcare, transportation, and
access to computers that are modest and
reasonable.
(8) Economic self-sufficiency. Capital
expenditures to facilitate programs to
improve the empowerment and
economic self-sufficiency of public
housing residents.
(9) Demolition and reconfiguration. (i)
The costs to demolish dwelling units or
nondwelling facilities subject to prior
approval by HUD, where required, and
other related costs for activities such as
relocation, clearing, and grading the site
after demolition, and subsequent site
improvements to benefit the remaining
portion of the existing public housing
property, as applicable.
(ii) The costs to develop dwelling
units or nondwelling facilities approved
by HUD, where required, and other
related costs for activities such as
relocation, clearing and grading the site
prior to development.
(iii) The costs to reconfigure existing
dwelling units to units with different
bedroom sizes or to a nondwelling use.
(10) Resident relocation and mobility
counseling. Relocation and other
assistance (e.g., reimbursement to
affected residents of reasonable out-ofpocket expenses incurred in connection
with temporary relocation, including
the cost of moving to and from
temporary housing and any increase in
monthly rent/utility costs) as may be
required or permitted by applicable
Public Housing Requirements for
permanent or temporary relocation, as a
direct result of modernization,
development, rehabilitation, demolition,
disposition, reconfiguration,
acquisition, or an emergency or disaster.

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(11) Security and safety. Capital
expenditures designed to improve the
security and safety of residents.
(12) Homeownership. Activities
associated with public housing
homeownership, as approved by HUD,
such as:
(i) The cost of a study to assess the
feasibility of converting rental units to
homeownership units and the
preparation of an application for the
conversion to homeownership or for the
sale of units;
(ii) Construction or acquisition of
units;
(iii) Downpayment assistance;
(iv) Closing cost assistance;
(v) Subordinate mortgage loans;
(vi) Construction or permanent
financing such as write downs for new
construction, or acquisition with or
without rehabilitation; and
(vii) Other activities in support of the
primary homeownership activities
above, including but not limited to:
(A) Demolition to make way for new
construction;
(B) Abatement of environmentally
hazardous materials;
(C) Relocation assistance and mobility
counseling;
(D) Homeownership counseling;
(E) Site improvements; and
(F) Administrative and marketing
costs.
(13) Capital Fund-related legal costs
(e.g., legal costs related to preparing
property descriptions for the DOT,
zoning, permitting, environmental
review, procurement, and contracting).
(14) Energy efficiency. Allowed costs
include:
(i) Energy audit or updated energy
audits to the extent Operating Funds are
not available and the energy audit is
included within a modernization
program.
(ii) Integrated utility management and
capital planning to promote energy
conservation and efficiency measures.
(iii) Energy and water conservation
measures identified in a PHA’s most
recently updated energy audit.
(iv) Improvement of energy and wateruse efficiency by installing fixtures and
fittings that conform to the American
Society of Mechanical Engineers/
American National Standards Institute
standards A112.19.2–1998 and
A112.18.1–2000, or any revision thereto,
applicable at the time of installation,
and by increasing energy efficiency and
water conservation by such other means
as the Secretary determines are
appropriate.
(v) The installation and use of Energy
Star appliances whenever energy
systems, devices, and appliances are
replaced, unless it is not cost-effective

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to do so, in accordance with Section 152
of the Energy Policy Act of 2005, 42
U.S.C. 15841.
(vi) Utility and energy management
system automation, and metering
activities, including changing
mastermeter systems to individually
metered systems if installed as a part of
a modernization activity to upgrade
utility systems; for example, electric,
water, or gas systems of the PHA
consistent with the requirements of 24
CFR part 965.
(15) Administrative costs. Any
administrative costs, including salaries
and employee benefit contributions,
other than the Capital Fund Program
Fee, must be related to a specific public
housing development or modernization
project and detailed in the CFP 5-Year
Action Plan.
(16) Audit. Costs of the annual audit
attributable to the portion of the audit
covering the CFP in accordance with
§ 905.322(c) of this part.
(17) Capital Fund Program Fee. This
fee covers costs associated with
oversight and management of the CFP
attributable to the HUD-accepted COCC
as described in 24 CFR part 990 subpart
H. These costs include duties related to
capital planning, preparing the CFP
Annual Statement/Performance and
Evaluation Report, preparing the CFP 5Year Action Plan, the monitoring of
LOCCS, preparing reports, drawing
funds, budgeting, accounting, and
procuring construction and other
miscellaneous contracts. This fee is not
intended to cover costs associated with
construction supervisory and inspection
functions that are considered a frontline cost of the project.
(18) Emergency activities. Capital
Fund related activities identified as
emergency work, as defined in § 905.108
of this part, whether or not the need is
indicated in the CFP 5-Year Action
Plan.

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§ 905.202

Ineligible activities and costs.

The following are ineligible activities
and costs for the CFP:
(a) Costs not associated with a public
housing project or development, as
defined in § 905.604(b)(1);
(b) Activities and costs not included
in the PHA’s CFP 5-Year Action Plan,
with the exception that expenditures for
emergencies and disasters, as defined in
§ 905.204 of this subpart, that are not
identified in the 5-year Action Plan
because of their emergent nature are
eligible costs;
(c) Improvements or purchases that
are not modest in design and cost
because they include amenities,
materials, and design in excess of what
is customary for the locality. Air

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conditioning is an eligible modest
amenity;
(d) Any costs not authorized as
outlined in 2 CFR part 225 (codifying
OMB Circular A–87), including, but not
limited to, indirect administrative costs
and indemnification;
(e) Public housing operating
assistance, except as provided in
§ 905.314(l) of this part;
(f) Direct provision of social services
through either force account or contract
labor. Examples of ineligible direct
social services include, but are not
limited to, salaries for social workers or
GED teachers;
(g) Eligible costs that are in excess of
the amount directly attributable to the
public housing units when the physical
or management improvements,
including salaries and employee
benefits and contributions, will benefit
programs other than public housing,
such as section 8 Housing Choice
Voucher or local revitalization
programs;
(h) Ineligible management
improvements include:
(1) Costs for security guards or
ongoing security services (Capital Funds
may only be used for the initial capital
(e.g., fencing, lights, and cameras) or
noncapital (e.g., training of in-house
security staff) management
improvements but may not be used for
the ongoing costs, such as security
guards after the end of the
implementation period of the physical
improvements);
(2) General remedial education; and
(3) Job counseling, job development
and placement, supportive services
during training, and the hiring of a
resident coordinator. No continued
Capital Funds will be provided after the
end of the implementation period of the
management improvements. The PHA
shall be responsible for finding other
funding sources, reducing its ongoing
management costs, or terminating the
management activities;
(i) Eligible cost that is funded by
another source and would result in
duplicate funding; and
(j) Any other activities and costs that
HUD may determine on a case-by-case
basis.
§ 905.204 Emergencies and natural
disasters.

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

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aside from the Capital Fund
appropriation for emergencies and
natural disasters, the procedures in this
section apply.
(b) Emergencies and natural disasters.
An emergency is an unforeseen or
unpreventable event or occurrence that
poses an immediate threat to the health
and safety of the residents that must be
corrected within one year of funding. A
natural disaster for purposes of the
Capital Fund reserve, is a nonpresidentially declared disaster. In the
event an emergency or natural disaster
arises, HUD may require a PHA to use
any other source that may legally be
available, including unobligated Capital
Funds, prior to providing emergency or
natural disaster funds from the setaside. The Department will review, on
a case-by-case basis, requests for
emergency and natural disaster funding
from PHAs.
(c) Procedure to request emergency or
natural disaster funds. To obtain
emergency or natural disaster funds, a
PHA shall submit a written request in
the form and manner prescribed by
HUD. In a natural disaster where the
PHA requires immediate relief to
preserve the property and safety of the
residents, the PHA may submit a
preliminary request outlined in
paragraph (d) of this section.
Subsequently, the PHA is required to
complete and submit the remaining
information outlined in paragraph (e) of
this section, at a time prescribed by
HUD. For emergency requests, PHAs are
to follow the procedures outlined in
paragraph (e) of this section.
(d) Procedure to request preliminary
natural disaster grant for immediate
preservation. A PHA may request a
preliminary grant only for costs
necessary for immediate preservation of
the property and safety of the residents.
The application should include the
reasonable identification of damage and
preservation costs as determined by the
PHA. An independent assessment will
be required when the PHA submits the
final request or when the PHA
reconciles the preliminary application
grant with the actual amounts received
from the Federal Emergency
Management Agency (FEMA), insurance
carriers, and other natural disaster relief
sources. Regardless of whether further
funding from the set-aside is requested,
at a time specified by HUD, the PHA
will be expected to provide a
reconciliation of all funds received, to
ensure that the PHA does not receive
duplicate funding.
(e) Procedure for an emergency or a
final request for natural disaster funds.
In the request the PHA shall:

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(1) Identify the public housing
project(s) with the emergency or natural
disaster condition(s).
(2) Identify and provide the date of
the conditions that present an
unforeseen or unpreventable threat to
the health, life, or safety of residents, in
the case of emergency; or Natural
disaster (e.g., hurricane, tornado, etc.).
(3) Describe the activities that will be
undertaken to correct the emergency or
the conditions caused by the natural
disaster and the estimated cost.
(4) Provide an independent
assessment of the extent of and the cost
to correct the condition. The assessment
must be specific as to the damage and
costs associated with the emergency or
natural disaster. An independent
estimate of damage and repair cost is
required as a part of the final natural
disaster application. For natural
disasters, the assessment must identify
damage specifically caused by the
natural disaster. The set-aside can be
used only to pay costs to repair or
replace a public housing project
damaged as a result of the natural
disaster, not for nonroutine
maintenance or other improvements.
(5) Provide a copy of a currently
effective DOT covering the property and
an opinion of counsel that there are no
preexisting liens or other encumbrances
on the property.
(6) Demonstrate that without the
requested funds from the set-aside, the
PHA does not have adequate funds
available to correct the emergency
condition(s).
(7) Identify all other sources of
available funds (e.g., insurance
proceeds, FEMA).
(8) Any other material required by
HUD.
(f) HUD Action. HUD shall review all
requests for emergency or natural
disaster funds. If HUD determines that
a PHA’s request meets the requirements
of this section, HUD shall approve the
request subject to the availability of
funds in the set-aside, in the order in
which requests are received and are
determined approvable.
(g) Submission of the CF ACC. Upon
being provided with a CF ACC
Amendment from HUD, the PHA must
sign and date the CF ACC Amendment
and return it to HUD by the date
established by HUD. HUD will execute
the signed and dated CF ACC
Amendment submitted by the PHA.
Subpart C—General Program
Requirements
§ 905.300 Capital fund submission
requirements.

(a) General. Unless otherwise stated,
the requirements in this section apply to

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both qualified PHAs (as described in
§ 903.3(c) of this chapter) and
nonqualified PHAs. Each PHA must
complete a comprehensive physical
needs assessment (PNA).
(1) Applicability. Small PHAs (PHAs
that own or operate fewer than 250
public housing units) must comply with
the requirements of this section
beginning 30 days after the end of the
federal fiscal year quarter following
HUD’s publication of a notice in the
Federal Register.
(2) [Reserved].
(b) Capital Fund program submission
requirements. At the time that the PHA
submits the ACC Amendment(s) for its
Capital Fund Grants(s) to HUD, the PHA
must also submit the following items:
(1) CFP 5-Year Action Plan. (i)
Content. The CFP 5-Year Action Plan
must describe the capital improvements
necessary to ensure long-term physical
and social viability of the PHA’s public
housing developments, including the
capital improvements to be undertaken
within the 5-year period, their estimated
costs, status of environmental review,
and any other information required for
participation in the CFP, as prescribed
by HUD. In order to be entitled to
fungibility, PHA’s must have an
approved 5-year Action Plan. Except in
the case of emergency/disaster work, the
PHA shall not spend Capital Funds on
any work that is not included in an
approved CFP 5-Year Action Plan and
its amendments.
(ii) Budget. The Capital Fund Budget
for each of the 5 years shall be prepared
by a PHA using the form(s) prescribed
by HUD. Work items listed in the budget
must include, but are not limited to, the
following:
(A) Where a PHA has an approved
Capital Fund Financing Program (CFFP)
loan, debt service payments for the
grants from which the payments are
scheduled;
(B) Where a PHA has an approved
CFFP loan, the PHA shall also include
all work and costs, including debt
service payments, in the CFP 5-Year
Action Plan. Work associated with the
use of financing proceeds will be
reported separately in a form and
manner prescribed by HUD; or
(C) Work affecting health and safety
and compliance with regulatory
requirements such as section 504 of the
Rehabilitation Act of 1973 and HUD’s
implementing regulations at 24 CFR part
8, and the lead-based paint poisoning
prevention standards at 24 CFR part 35,
before major systems (e.g., heating, roof,
etc.) and other costs of lower priority.
(iii) PHA Criteria for Significant
Amendment or Modification. The PHA
must include in the basic criteria that

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the PHA will use for determining a
significant amendment or modification
to the CFP 5-Year Action Plan. In
addition to the criteria established by
the PHA, for the purpose of the CFP, a
proposed demolition, disposition,
homeownership, Capital Fund
financing, development, or mixedfinance proposal are considered
significant amendments to the CFP 5Year Action Plan.
(iv) Submission. The PHA must
submit a Board-approved CFP 5-Year
Action Plan at least once every 5 years.
The PHA may choose to update its CFP
5-Year Action Plan every year. The PHA
shall indicate whether its CFP 5-Year
Action Plan is fixed or rolling. Prior to
submission to HUD, the 5-Year Action
Plan must have been approved by the
PHA’s Board of Commissioners. In any
given year that a PHA does not have a
CFP 5-Year Action Plan that is approved
by the PHA Board of Commissioners
and HUD, the Capital Fund grant(s) for
these PHAs will be reserved and
obligated; however, the PHA will not
have access to those funds until its CFP
5-Year Action Plan is approved by the
PHA Board of Commissioners and HUD.
(v) Significant amendments or
modification to the CFP 5 Year Action
Plan. PHAs making significant
amendments or modifications to the
CFP 5-Year Action Plan, as defined in
paragraph (b)(1)(iii) of this section, must
follow the requirements of this section.
(A) A PHA after submitting its 5-Year
Action Plan may amend or modify the
plan. If the amendment or modification
is a significant amendment or
modification, as defined in paragraph
(b)(1)(iii) of this section, the PHA:
(1) May not adopt the amendment or
modification until the PHA has duly
called a meeting of its Board of
Commissioners (or similar governing
body) and the meeting at which the
amendment or modification is adopted,
is open to the public; and
(2) May not implement the
amendment or modification until
notification of the amendment or
modifications are provided to HUD and
approved by HUD in accordance with
HUD’s plan review procedures, as
provided in paragraph (b)(6) of this
section.
(B) Each significant amendment or
modification to a plan submitted to
HUD is subject to the requirement of
paragraph (b)(3) of this section.
(2) Certifications required for receipt
of Capital Fund grants. The PHA is also
required to submit various certifications
to HUD, in a form prescribed by HUD,
including, but not limited to:
(i) Certification of PIC Data;

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Federal Register / Vol. 78, No. 206 / Thursday, October 24, 2013 / Rules and Regulations
(ii) Standard Form—Disclosure of
Lobbying Activities;
(iii) Civil Rights Compliance, in a
form prescribed by HUD; and
(iv) Certification of Compliance with
Public Hearing Requirements.
(3) Conduct of public hearing and
Resident Advisory Board Consultation.
A PHA must annually conduct a public
hearing and consult with the Resident
Advisory Board (RAB) of the PHA to
discuss the Capital Fund submission.
The PHA may elect to conduct a
separate annual public hearing in order
to solicit public comments or to hold
the annual public hearing at the same
time as the hearing for the Annual PHA
Plan, the 5-Year Plan, or the required
annual hearing for qualified public
housing authorities. The hearing must
be conducted at a location that is
convenient to the residents served by
the PHA.
(i) Not later than 45 days before the
public hearing is to take place, the PHA
must:
(A) Make the Capital Fund
submission along with the material
required under this paragraph (b)
available to the residents and the RAB;
and
(B) Publish a notice informing the
public that the information is available
for review and inspection; that a public
hearing will take place on the plan; and
of the date, time, and location of the
hearing.
(C) PHAs shall conduct reasonable
outreach activities to encourage broad
public participation in the review of the
Capital Fund submission.
(4) Public and RAB comments. The
PHA must consider the comments from
the residents, the public, and the RAB
on the Capital Fund submission, or any
significant modification thereto. In
submitting the final CFP 5-Year Action
Plan to HUD for approval, or any
significant amendment or modification
to the 5-Year Action Plan to HUD for
approval, the PHA must include a copy
of the recommendations made by the
RAB(s) and a description of the manner
in which the PHA addressed these
recommendations.
(5) Consistency with Consolidated
Plan. The Capital Fund submission
must be consistent with any applicable
Consolidated Plan.
(6) HUD review and approval. The
CFP submission requirements must
meet the requirements of this part as
well as the Public Housing Program
Requirements as defined in § 905.108 of
this part. A PHA is required to revise or
correct information that is not in
compliance, and HUD has the authority
to impose administrative sanctions until
the appropriate revisions are made.

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HUD will review the CFP submission
requirements to determine whether:
(i) All of the information that is
required to be submitted is included;
(ii) The information is consistent with
the needs identified in the PNA and
data available to HUD; and
(iii) There are any issues of
compliance with applicable laws,
regulations, or contract requirements
that have not been addressed with the
proposed use of the Capital Fund.
(7) Time frame for submission of CFP
requirements. The requirements
identified in this paragraph (b) must be
submitted to HUD, in a format
prescribed by HUD, at the time that the
PHA submits its signed CF ACC
Amendment.
(8) Performance and Evaluation
Report. (i) All PHAs must prepare a CFP
Annual Statement/Performance and
Evaluation Report at a time and in a
format prescribed by HUD. These
reports shall be retained on file for all
grants for which a final Actual
Modernization Cost Certificate (AMCC)
or an Actual Development Cost
Certificate (ADCC) has not been
submitted. A final Performance and
Evaluation Report must be submitted in
accordance with 24 CFR 905.322, at the
time the PHA submits its AMCC or
ADCC.
(ii) PHAs that are designated as
troubled performers under PHAS (24
CFR part 902) or as troubled under the
Section 8 Management Assessment
Program (SEMAP) (24 CFR part 985),
and/or were identified as noncompliant
with section 9(j) obligation and
expenditure requirements during the
fiscal year, shall submit their CFP
Annual Statement/Performance and
Evaluation Reports to HUD for review
and approval.
(iii) All other PHAs, that are not
designated as troubled performers under
PHAS and are not designated as
troubled under SEMAP, and that were
in compliance with section 9(j)
obligation and expenditure
requirements during the fiscal year,
shall prepare a CFP Annual Statement/
Performance and Evaluation report for
all open grants and shall retain the
report(s) on file at the PHA, to be
available to HUD upon request.
(9) Moving to Work (MTW) PHAs.
MTW PHAs are to submit the Capital
Fund submissions as part of the MTW
Plan annually, as required by the MTW
Agreement.
(c) [Reserved]
(d) [Reserved]

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

Upon being provided with a CF ACC
Amendment from HUD, the PHA must
sign and date the CF ACC Amendment
and return it to HUD by the date
established. HUD will execute the
signed and dated CF ACC Amendment
submitted by the PHA. If HUD does not
receive the signed and dated
Amendment by the submission
deadline, the PHA will receive the
Capital Fund grant for that year;
however, it will have less than 24
months to obligate 90 percent of the
Capital Fund grant and less than 48
months to expend these funds because
the PHA’s obligation start date and
disbursement end date for these grants
will remain as previously established by
HUD.
§ 905.304
operate.

CF ACC term and covenant to

(a) Period of obligation to operate as
public housing. The PHA shall operate
all public housing projects in
accordance with the CF ACC, as
amended, and applicable HUD
regulations, for the statutorily
prescribed period. These periods shall
be evidenced by a recorded DOT on all
public housing property. If the PHA
uses Capital Funds to develop public
housing or to modernize existing public
housing, the CF ACC term and the
covenant to operate those projects are as
follows:
(1) Development activities. Each
public housing project developed using
Capital Funds shall establish a restricted
use covenant, either in the DOT or as a
Declaration of Restrictive Covenants, to
operate under the terms and conditions
applicable to public housing for a 40year period that begins on the date on
which the project becomes available for
occupancy, as determined by HUD.
(2) Modernization activities. For PHAs
that receive Capital Fund assistance, the
execution of each new CF ACC
Amendment establishes an additional
20-year period that begins on the latest
date on which modernization is
completed, except that the additional
20-year period does not apply to a
project that receives Capital Fund
assistance only for management
improvements.
(3) Operating Fund. Any public
housing project developed that receives
Operating Fund assistance shall have a
covenant to operate under requirements
applicable to public housing for a 10year period beginning upon the
conclusion of the fiscal year for which
such amounts were provided, except for
such shorter period as permitted by
HUD by an exception.

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(b) Mortgage or security interests. The
PHA shall not allow any mortgage or
security interest in public housing
assets, including under section 30 of the
1937 Act (42 U.S.C. 1437z–2), without
prior written approval from HUD. PHAs
that undertake financing unsecured by
public housing assets shall include the
following nonrecourse language in all
financing documents as follows:
‘‘This financing is non-recourse to any
public housing property (real or
personal property including all public
housing assets or income), or
disposition proceeds approved pursuant
to Section 18 of the United States
Housing Act of 1937 (unless explicitly
permitted by HUD in the Section 18
approval letter).’’
(c) Applicability of latest expiration
date. All public housing subject to this
part or required by law shall be
maintained and operated as public
housing, as prescribed, until the latest
expiration date provided in section
9(d)(3) of the 1937 Act (42 U.S.C.
1437g(d)(3)) or any other provision of
law or regulation mandating the
operation of the housing as public
housing, or under terms and conditions
applicable to public housing, for a
specified period of time.

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§ 905.306 Obligation and expenditure of
Capital Fund grants.

(a) Obligation. A PHA shall obligate
each Capital Fund grant, including
formula grants, Replacement Housing
Factor (RHF) grants, Demolition and
Disposition Transitional Funding
(DDTF) grants, and natural disaster
grants, no later than 24 months after,
and emergency grants no later than 12
months after, the date on which the
funds become available to the PHA for
obligation, except as provided in
paragraphs (c) and (d) of this section.
However, a PHA with unobligated funds
from a grant shall disregard this
requirement for up to not more than 10
percent of the originally allocated funds
from that grant. The funds become
available to the PHA when HUD
executes the CF ACC Amendment. With
HUD approval, and subject to the
availability of appropriations, the PHA
can accumulate RHF grants for up to 5
years or until it has adequate funds to
undertake replacement housing. The
PHA shall obligate 90 percent of the
RHF grant within 24 months from the
date that the PHA accumulates adequate
funds, except as provided in paragraph
(c) of this section.
(b) Items and costs. For funds to be
considered obligated, all items and costs
must meet the definition of ‘‘obligation’’
in § 905.108 of this part.

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(c) Extension to obligation
requirement. The PHA may request an
extension of the obligation deadline,
and HUD may grant an extension for a
period of up to 12 months, based on:
(1) The size of the PHA;
(2) The complexity of the CFP of the
PHA;
(3) Any limitation on the ability of the
PHA to obligate the amounts allocated
for the PHA from the Capital Fund in a
timely manner as a result of state or
local law; or
(4) Any other factors that HUD
determines to be relevant.
(d) HUD extension for other reasons.
HUD may extend the obligation
deadline for a PHA for such a period as
HUD determines to be necessary, if HUD
determines that the failure of the PHA
to obligate assistance in a timely manner
is attributable to:
(1) Litigation;
(2) Delay in obtaining approvals from
the Federal Government or a state or
local government that is not the fault of
the PHA;
(3) Compliance with environmental
assessment and abatement
requirements;
(4) Relocating residents;
(5) An event beyond the control of the
PHA; or
(6) Any other reason established by
HUD by notice in the Federal Register.
(e) Failure to obligate. (1) For any
month during the fiscal year, HUD shall
withhold all new Capital Fund grants
from any PHA that has unobligated
funds in violation of paragraph (a) of
this section. The penalty will be
imposed once the violations of
paragraph (a) are known. The PHA may
cure the noncompliance by:
(i) Requesting in writing that HUD
recapture the unobligated balance of the
grant; or
(ii) Continuing to obligate funds for
the grant in noncompliance until the
noncompliance is cured.
(2) After the PHA has cured the
noncompliance, HUD will release the
withheld Capital Fund grant(s) minus a
penalty of one-twelfth of the grant for
each month of noncompliance.
(f) Expenditure. The PHA shall
expend all grant funds within 48
months after the date on which funds
become available, as described in
paragraph (a) of this section. The
deadline to expend funds may be
extended only by the period of time of
a HUD-approved extension of the
obligation deadline. No other extensions
of the expenditure deadline will be
granted. All funds not expended will be
recaptured.

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§ 905.308 Federal requirements applicable
to all Capital Fund activities.

(a) The PHA shall comply with the
requirements of 24 CFR part 5 (General
HUD Program Requirements; Waivers),
24 CFR part 85 (Administrative
Requirements for Grants and
Cooperative Agreements to State, Local
and Federally Recognized Indian Tribal
Governments), and this part.
(b) The PHA shall also comply with
the following program requirements.
(1) Nondiscrimination and equal
opportunity. The PHA shall comply
with all applicable nondiscrimination
and equal opportunity requirements,
including, but not limited to, the
Department’s generally applicable
nondiscrimination and equal
opportunity requirements at 24 CFR
5.105(a) and the Architectural Barriers
Act of 1968 (42 U.S.C. 4151 et seq.), and
its implementing regulations at 24 CFR
parts 40 and 41. The PHA shall
affirmatively further fair housing in its
use of funds under this part, which
includes, but is not limited to,
addressing modernization and
development in the completion of
requirements at 24 CFR 903.7(o).
(2) Environmental requirements. All
activities under this part are subject to
an environmental review by a
responsible entity under HUD’s
environmental regulations at 24 CFR
part 58 and must comply with the
requirements of the National
Environmental Policy Act of 1969
(NEPA)(42 U.S.C. 4321 et seq.) and the
related laws and authorities listed at 24
CFR 58.5. HUD may make a finding in
accordance with 24 CFR 58.11 and may
perform the environmental review itself
under the provisions of 24 CFR part 50.
In those cases where HUD performs the
environmental review under 24 CFR
part 50, it will do so before approving
a proposed project, and will comply
with the requirements of NEPA and the
related requirements at 24 CFR 50.4.
(3) Wage rates. (i) Davis-Bacon wage
rates. For all work or contracts
exceeding $2,000 in connection with
development activities or modernization
activities (except for nonroutine
maintenance work, as defined in
§ 905.200(b)(5) of this part), all laborers
and mechanics employed on the
construction, alteration, or repair shall
be paid not less than the wages
prevailing in the locality, as determined
by the Secretary of Labor pursuant to
the Davis-Bacon Act (40 U.S.C. 3142).
(ii) HUD-determined wage rates. For
all operations work and contracts,
including routine and nonroutine
maintenance work (as defined in
§ 905.200(b)(5) of this part), all laborers
and mechanics employed shall be paid

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not less than the wages prevailing in the
locality, as determined or adopted by
HUD pursuant to section 12(a) of the
1937 Act, 42 U.S.C. 1437j(a).
(iii) State wage rates. Preemption of
state prevailing wage rates as provided
at 24 CFR 965.101.
(iv) Volunteers. The prevailing wage
requirements of this section do not
apply to volunteers performing
development, modernization, or
nonroutine maintenance work under the
conditions set out in 24 CFR part 70.
(4) Technical wage rates. All
architects, technical engineers,
draftsmen, and technicians (other than
volunteers under the conditions set out
in 24 CFR part 70) employed in a
development or modernization project
shall be paid not less than the wages
prevailing in the locality, as determined
or adopted (subsequent to a
determination under applicable state or
local law) by HUD.
(5) Lead-based paint poisoning
prevention. The PHA shall comply with
the Lead-Based Paint Poisoning
Prevention Act (LPPPA) (42 U.S.C. 4821
et seq.), the Residential Lead-Based
Paint Hazard Reduction Act (42 U.S.C.
4851 et seq.), and the Lead Safe Housing
Rule and the Lead Disclosure Rule at 24
CFR part 35.
(6) Fire safety. A PHA shall comply
with the requirements of section 31 of
the Federal Fire Prevention and Control
Act of 1974 (15 U.S.C. 2227).
(7) Flood insurance and floodplain
requirements. The PHA will not engage
in the acquisition, construction, or
improvement of a public housing
project located in an area that has been
identified by the FEMA as having
special flood hazards, unless:
(i) The requirements of 24 CFR part
55, Floodplain Management, have been
met, including a determination by a
responsible entity under 24 CFR part 58
or by HUD under 24 CFR part 50 that
there is no practicable alternative to
locating in an area of special flood
hazards and the minimization of
unavoidable adverse impacts;
(ii) Flood insurance on the building is
obtained in compliance with the Flood
Disaster Protection Act of 1973 (42
U.S.C. 4001 et seq.); and
(iii) The community in which the area
is situated is participating in the
National Flood Insurance Program in
accordance with 44 CFR parts 59
through 79, or less than one year has
passed since FEMA notification
regarding flood hazards.
(8) Coastal barriers. In accordance
with the Coastal Barriers Resources Act
(16 U.S.C. 3501 et seq.), no financial
assistance under this part may be made

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available within the Coastal Barrier
Resources System.
(9) Displacement, relocation, and real
property acquisition. All acquisition or
rehabilitation activities carried out
under the Capital Fund, including
acquisition of any property for
development, shall comply with the
Uniform Relocation Assistance and Real
Property Acquisition Policies Act of
1970 (URA) (42 U.S.C. 4601–4655) and
with implementing regulations at 49
CFR part 24. Demolition or disposition
under section 18 of the 1937 Act, 42
U.S.C. 1437p, is covered by the
relocation provisions at 24 CFR 970.21.
(10) Procurement and contract
requirement. PHAs and their contractors
shall comply with section 3 of the
Housing and Community Development
Act of 1968 (12 U.S.C. 1701u) and
HUD’s implementing rules at 24 CFR
part 135.
§ 905.310

Disbursements from HUD.

(a) The PHA shall initiate a fund
requisition from HUD only when funds
are due and payable, unless HUD
approves another payment schedule as
authorized by 24 CFR 85.21.
(b) The PHA shall maintain detailed
disbursement records to document
eligible expenditures (e.g., contracts or
other applicable documents), in a form
and manner prescribed by HUD.
§ 905.312

Design and construction.

The PHA shall meet the following
design and construction standards, as
applicable, for all development and
modernization.
(a) Physical structures shall be
designed, constructed, and equipped to
be consistent with the neighborhoods
they occupy; meet contemporary
standards of modest design, comfort,
and livability (see also § 905.202(c) of
this part); promote security; promote
energy conservation; and be attractive so
as to harmonize with the community.
(b) All development projects shall be
designed and constructed in compliance
with:
(1) A national building code, such as
those developed by the International
Code Council or the National Fire
Protection Association; and the IECC or
ASHRAE 90.1–2010 (both incorporated
by reference, see § 905.110 of this part),
for multifamily high-rises (four stories
or higher), or a successor energy code or
standard that has been adopted by HUD
pursuant to 42 U.S.C. 12709 or other
relevant authority;
(2) Applicable state and local laws,
codes, ordinances, and regulations;
(3) Other federal requirements,
including fire protection and safety
standards implemented under section

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31 of the Fire Administration
Authorization Act of 1992, 15 U.S.C.
2227 and HUD minimum property
standards (e.g., 24 CFR part 200, subpart
S);
(4) Accessibility Requirements as
required by section 504 of the
Rehabilitation Act (29 U.S.C. 794) and
implementing regulations at 24 CFR part
8; title II of the Americans with
Disabilities Act (42 U.S.C. 12101 et seq.)
and implementing regulations at 28 CFR
part 35; and, if applicable, the Fair
Housing Act (42 U.S.C. 3601–3619) and
implementing regulations at 24 CFR part
100; and
(5) Occupancy of high-rise elevator
structures by families with children.
Pursuant to 42 U.S.C. 1437d(a), a highrise elevator structure shall not be
provided for families with children
regardless of density, unless the PHA
demonstrates and HUD determines that
there is no practical alternative.
(c) All modernization projects shall be
designed and constructed in compliance
with:
(1) The modernization standards as
prescribed by HUD;
(2) Accessibility requirements as
required by section 504 of the
Rehabilitation Act (29 U.S.C. 794) and
implementing regulations at 24 CFR part
8; title II of the Americans with
Disabilities Act (42 U.S.C. 12101 et seq.)
and implementing regulations at 28 CFR
part 35; and, if applicable, the Fair
Housing Act (42 U.S.C. 3601–3619) and
implementing regulations at 24 CFR part
100; and
(3) Cost-effective energy conservation
measures, identified in the PHA’s most
recently updated energy audit.
(d) Pursuant to the Energy Policy Act
of 2005, in purchasing appliances, PHAs
shall purchase appliances that are
Energy Star products or Federal Energy
Management Program designed
products, unless the PHA determines
that the purchase of these appliances is
not cost effective.
§ 905.314

Cost and other limitations.

(a) Eligible administrative costs.
Where the physical or management
improvement costs will benefit
programs other than Public Housing,
such as the Housing Choice Voucher
program or local revitalization
programs, eligible administrative costs
are limited to the amount directly
attributable to the public housing
program.
(b) Maximum project cost. The
maximum project cost represents the
total amount of public housing capital
assistance used in connection with the
development of a public housing
project, and includes:

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(1) Project costs that are subject to the
TDC limit (i.e., HCC and Community
Renewal Costs); and
(2) Project costs that are not subject to
the TDC limit (i.e., Additional Project
Costs). The total project cost to be
funded with public housing capital
assistance, as set forth in the proposal
and as approved by HUD, becomes the
maximum project cost stated in the ACC
Amendment. Upon completion of the
project, the actual project cost is
determined based upon the amount of
public housing capital assistance
expended for the project, and this
becomes the maximum project cost for
purposes of the ACC Amendment.
(c) TDC limit. (1) Public housing
funds, including Capital Funds, may not
be used to pay for HCC and Community
Renewal Costs in excess of the TDC
limit, as determined under paragraph
(b)(2) of this section. However, HOPE VI
grantees will be eligible to request a
TDC exception for public housing and
HOPE VI funds awarded in FFY 1996
and prior years. PHAs may also request
a TDC exception for integrated utility
management, capital planning, and
other capital and management activities
that promote energy conservation and
efficiency. HUD will examine the
request for TDC exceptions to ensure
that they would be cost-effective, so as
to ensure that up-front expenditures
subject to the exceptions would be
justified by future cost savings.
(2) Determination of TDC limit. HUD
will determine the TDC limit for a
public housing project as follows:
(i) Step 1: Unit construction cost
guideline. HUD will first determine the
applicable ‘‘construction cost guideline’’
by averaging the current construction
costs as listed in two nationally
recognized residential construction cost
indices for publicly bid construction of
a good and sound quality for specific
bedroom sizes and structure types. The
two indices HUD will use for this
purpose are the R.S. Means cost index
for construction of ‘‘average’’ quality
and the Marshall & Swift cost index for
construction of ‘‘good’’ quality. HUD
has the discretion to change the cost
indices to other such indices that reflect
comparable housing construction
quality through a notice published in
the Federal Register.
(ii) Step 2: Bedroom size and structure
types. The construction cost guideline is
then multiplied by the number of units
for each bedroom size and structure
type.
(iii) Step 3: Elevator and nonelevator
type structures. HUD will then multiply
the resulting amounts from step 2 by 1.6
for elevator type structures and by 1.75
for nonelevator type structures.

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(iv) Step 4: TDC limit. The TDC limit
for a project is calculated by adding the
resulting amounts from step 3 for all the
public housing units in the project.
(3) Costs not subject to the TDC limit.
Additional project costs are not subject
to the TDC limit.
(4) Funds not subject to the TDC limit.
A PHA may use funding sources not
subject to the TDC limit (e.g.,
Community Development Block Grant
(CDBG) funds, low-income housing tax
credits, private donations, private
financing, etc.) to cover project costs
that exceed the TDC limit or the HCC
limit described in this paragraph (c).
Such funds, however, may not be used
for items that would result in
substantially increased operating,
maintenance, or replacement costs, and
must meet the requirements of section
102 of the Department of Housing and
Urban Development Reform Act of 1989
(Pub. L. 101–235, approved December
15, 1989) (42 U.S.C. 3545). These funds
must be included in the project
development cost budget.
(d) Housing Construction Costs (HCC).
(1) General. A PHA may not use Capital
Funds to pay for HCC in excess of the
amount determined under paragraph
(d)(2) of this section.
(2) Determination of HCC limit. HUD
will determine the HCC limit as listed
in at least two nationally recognized
residential construction cost indices for
publicly bid construction of a good and
sound quality for specific bedroom sizes
and structure types. The two indices
HUD will use for this purpose are the
R.S. Means cost index for construction
of ‘‘average’’ quality and the Marshal &
Swift cost index for construction of
‘‘good’’ quality. HUD has the discretion
to change the cost indices to other such
indices that reflect comparable housing
construction quality through a notice
published in the Federal Register. The
resulting construction cost guideline is
then multiplied by the number of public
housing units in the project, based upon
bedroom size and structure type. The
HCC limit for a project is calculated by
adding the resulting amounts for all
public housing units in the project.
(3) The HCC limit is not applicable to
the acquisition of existing housing,
whether or not such housing will be
rehabilitated. The TDC limit is
applicable to such acquisition.
(e) Community Renewal Costs. Capital
Funds may be used to pay for
Community Renewal Costs in an
amount equivalent to the difference
between the HCC paid for with public
housing capital assistance and the TDC
limit.
(f) Rehabilitation of existing public
housing projects. The HCC limit is not

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applicable to the rehabilitation of
existing public housing projects. The
TDC limit for modernization of existing
public housing is 90 percent of the TDC
limit as determined under paragraph (c)
of this section. This limitation does not
apply to the rehabilitation of any
property acquired pursuant to § 905.600
of this part.
(g) Modernization cost limits. If the
modernization costs are more than 90
percent of the TDC, then the project
shall not be modernized. Capital Funds
shall not be expended to modernize an
existing public housing development
that fails to meet the HUD definition of
reasonable cost found in § 905.108 of
this part, except for:
(1) Emergency work;
(2) Essential maintenance necessary to
keep a public housing project habitable
until the demolition or disposition
application is approved; or
(3) The costs of maintaining the safety
and security of a site that is undergoing
demolition.
(h) Administrative cost limits and
Capital Fund Program Fee. (1)
Administrative cost limits (for nonasset-management PHAs). The PHA
shall not budget or expend more than 10
percent of its annual Capital Fund grant
on administrative costs, in accordance
with the CFP 5-Year Action Plan.
(2) Capital Fund Program Fee (for
asset-management PHAs). For a PHA
that is under asset management, the
Capital Fund Program Fee and
administrative cost limits are the same.
For the Capital Fund Program Fee, a
PHA may charge a management fee of
up to 10 percent of the annual CFP
formula grant(s) amount, excluding
emergency and disaster grants and also
excluding any costs related to leadbased paint or asbestos testing, in-house
architectural and engineering work, or
other special administrative costs
required by state or local law.
(i) Modernization. The PHA shall not
budget or expend more than 10 percent
of its annual Capital Fund grant on
administrative costs, in accordance with
its CFP 5-Year Action Plan. The 10
percent limit excludes any costs related
to lead-based paint or asbestos testing,
in-house Architectural and Engineering
work, or other special administrative
costs required by state or local law.
(ii) Development. For development
work with Capital Fund and RHF grants,
the administrative cost limit is 3 percent
of the total project budget, or, with
HUD’s approval, up to 6 percent of the
total project budget.
(i) Management improvement cost
limits. In Fiscal Year (FY) 2014, a PHA
shall not use more than 18 percent of its
annual Capital Fund grant for eligible

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Federal Register / Vol. 78, No. 206 / Thursday, October 24, 2013 / Rules and Regulations
management improvement costs
identified in its CFP 5-Year Action Plan.
In FY 2015, a PHA shall not use more
than 16 percent of its annual Capital
Fund grant for eligible management
improvement costs identified in its CFP
5-Year Action Plan. In FY 2016, a PHA
shall not use more than 14 percent of its
annual Capital Fund grant for eligible
management improvement costs
identified in its CFP 5-Year Action Plan.
In FY 2017, a PHA shall not use more
than 12 percent of its annual Capital
Fund grant for eligible management
improvement costs identified in its CFP
5-Year Action Plan. In FY 2018 and
thereafter, a PHA shall not use more
than 10 percent of its annual Capital
Fund grant for eligible management
improvement costs identified in its CFP
5-Year Action Plan. Management
improvements are an eligible expense
for PHAs participating in asset
management.
(j) Types of labor. A PHA may use
force account labor for development and
modernization activities if included in a
CFP 5-Year Action Plan that is approved
by the PHA Board of Commissioners
and HUD. HUD approval to use force
account labor is not required when the
PHA is designated as a high performer
under PHAS.
(k) RMC activities. When the entire
development, financing, or
modernization activity, including the
planning and architectural design, is
administered by an RMC, the PHA shall
not retain any portion of the Capital
Funds for any administrative or other
reason, unless the PHA and the RMC
provide otherwise by contract.
(l) Capital Funds for operating costs.
A PHA may use Capital Funds for
operating costs only if it is included in
the CFP 5-Year Action Plan that is
approved by the PHA Board of
Commissioners and HUD, and limited
as described in paragraphs (l)(1) and (2)
of this section. Capital Funds identified
in the CFP 5-Year Action Plan to be
transferred to operations are obligated
once the funds have been budgeted and
drawn down by the PHA. Once such
transfer of funds occurs, the PHA must
follow the requirements of 24 CFR part
990 with respect to those funds.
(1) Large PHAs. A PHA with 250 or
more units may use no more than 20
percent of its annual Capital Fund grant
for activities that are eligible under the
Operating Fund at 24 CFR part 990.
(2) Small PHAs. A PHA with less than
250 units, that is not designated as
troubled under PHAS, may use up to
100 percent of its annual Capital Fund
grant for activities that are eligible
under the Operating Fund at 24 CFR
part 990, except that the PHA must have

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determined that there are no debt
service payments, significant Capital
Fund needs, or emergency needs that
must be met prior to transferring 100
percent of its funds to operating
expenses.
§ 905.316 Procurement and contract
requirements.

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

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63781

satisfactory level of competition, where
the purchase price of the item exceeds
$10,000 or the value of the quantity
acquired in the preceding fiscal year
exceeded $10,000; must procure solid
waste management services in a manner
that promotes energy and resource
recovery; and must have established an
affirmative procurement program for
procurement of recovered materials
identified in the EPA guidelines.
§ 905.318

Title and deed.

The PHA, or, in the case of mixedfinance, the Owner Entity, shall obtain
title insurance that guarantees the title
is good and marketable before taking
title to any and all sites and properties
acquired with public housing funds.
Immediately upon taking title to a
property, the PHA or Owner Entity shall
record the deed and a Declaration of
Trust or, in the case of mixed finance,
a Declaration of Restrictive Covenants,
in the form and in the manner and order
prescribed by HUD. The PHA shall at all
times maintain a recorded Declaration
of Trust or Declaration of Restrictive
Covenants in the form and in the
manner and order prescribed by HUD
on all public housing projects covering
the term required by this part.
§ 905.320 Contract administration and
acceptance of work.

(a) Contract administration. The PHA
is responsible, in accordance with 24
CFR 85.36, for all contractual and
administrative issues arising out of their
procurements. The PHA shall maintain
full and complete records on the history
of each procurement transaction.
(b) Inspection and acceptance. The
PHA, or, in the case of mixed finance,
the Owner Entity shall carry out
inspections of work in progress and
goods delivered, as necessary, to ensure
compliance with existing contracts. If,
upon inspection, the PHA determines
that the work and/or goods are
complete, satisfactory and, as
applicable, otherwise undamaged,
except for any work that is appropriate
for delayed completion, the PHA shall
accept the work. The PHA shall
determine any holdback for items of
delayed completion and the amount due
and payable for the work that has been
accepted, including any conditions
precedent to payment that are stated in
the construction contract or contract of
sale. The contractor shall be paid for
items only after the PHA inspects and
accepts that work.
(c) Guarantees and warranties. The
PHA or, in the case of mixed finance,
the Owner Entity, shall specify the
guaranty period and amounts to be
withheld, as applicable, and shall

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provide that all contractor,
manufacturer, and supplier warranties
required by the construction and
modernization documents shall be
assigned to the PHA. The PHA shall
inspect each dwelling unit and the
overall project approximately 3 months
after the beginning of the project
guaranty period, 3 months before its
expiration, and at other times as may be
necessary to exercise its rights before
expiration of any warranties. The PHA
shall require repair or replacement of all
defective items prior to the expiration of
the guaranty or warranty periods.
(d) Notification of completion. The
PHA, or in the case of mixed finance,
the Owner Entity, shall require that all
contractors and developers notify the
PHA in writing when the contract work,
including any approved off-site work,
will be completed and ready for
inspection.

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§ 905.322

Fiscal closeout.

(a) General. Each Capital Fund grant
and/or development project is subject to
fiscal closeout. Fiscal closeout includes
the submission of a cost certificate; an
audit, if applicable; a final Performance
and Evaluation Report; and HUD
approval of the cost certificate.
(b) Submission of cost certificate. (1)
When an approved development or
modernization activity is completed or
when HUD terminates the activity, the
PHA must submit to HUD the:
(i) Actual Development Cost
Certificate (ADCC) within 12 months.
For purposes of the CF ACC, costs
incurred between the completion of the
development and the date of full
availability (DOFA) becomes the actual
development cost; and
(ii) Actual Modernization Cost
Certificate (AMCC) for each grant, no
later than 12 months after the
expenditure deadline but no earlier than
the obligation end date. A PHA with
under 250 units with an approved CFP
5-Year Action Plan for use of 100
percent of the Capital Fund grant in
operations may submit the cost
certificate any time after the funds have
been budgeted to operations and
withdrawn, as described in § 905.314(l)
of this part.
(2) If the PHA does not submit the
cost certificate and the final CFP Annual
Statement/Performance and Evaluation
Report within the period prescribed in
this section, HUD may impose
restrictions on open Capital Fund
grants; e.g., establish review thresholds,
set the grant to ‘‘auto review’’ (HUD
automatically reviews it on a periodic
basis), or suspend grants, until the cost
certificate for the affected grant is
submitted. These restrictions may be

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imposed by HUD after notification of
the PHA.
(c) Audit. The cost certificate is a
financial statement subject to audit
pursuant to 24 CFR 85.26. After
submission of the cost certificate to
HUD, the PHA shall provide the cost
certificate to its independent public
auditor (IPA) as part of its annual audit.
After audit, the PHA will notify HUD of
the grants included in the audit, any
exceptions noted by the PHA auditor,
and the schedule to complete corrective
actions recommended by the auditor.
(d) Review and approval. For PHAs
exempt from the audit requirements,
HUD will review and approve the cost
certificate based on available
information regarding the Capital Fund
grant. For PHAs subject to an audit,
HUD will review the information from
the annual audit provided by the PHA
and approve the certificate after all
exceptions, if any, have been resolved.
(e) Recapture. All Capital Funds in
excess of the actual cost incurred for the
grant are subject to recapture. Any funds
awarded to the PHA that are returned or
any funds taken back from the PHA in
a fiscal year after the grant was awarded
are subject to recapture.
§ 905.324

Data reporting requirements.

The PHA shall provide, at minimum,
the following data reports, at a time and
in a form prescribed by HUD:
(a) The Performance and Evaluation
Report as described in § 905.300(b)(8) of
this part;
(b) Updates on the PHA’s building
and unit data as required by HUD;
(c) Reports of obligation and
expenditure; and
(d) Any other information required for
participation in the Capital Fund
Program.
§ 905.326

Records.

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

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Subpart D—Capital Fund Formula
§ 905.400
formula).

Capital Fund formula (CF

(a) General. This section describes the
formula for allocating Capital Funds to
PHAs.
(b) Formula allocation based on
relative needs. HUD shall allocate
Capital Funds to the PHAs in
accordance with the CF formula. The CF
formula measures the existing
modernization needs and accrual needs
of PHAs.
(c) Allocation for existing
modernization needs under the CF
formula. HUD shall allocate one-half of
the available Capital Fund amount
based on the relative existing
modernization needs of PHAs,
determined in accordance with
paragraph (d) of this section.
(d) PHAs with 250 or more units in
FFY 1999, except the New York City and
Chicago Housing Authorities. The
estimates of the existing modernization
needs for these PHAs shall be based on
the following:
(1) Objective measurable data
concerning the following PHA,
community, and project characteristics
applied to each project:
(i) The average number of bedrooms
in the units in a project (Equation
coefficient 4604.7);
(ii) The total number of units in a
project (Equation coefficient: 10.17);
(iii) The proportion of units in a
project in buildings completed in 1978
or earlier. In the case of acquired
projects, HUD will use the DOFA unless
the PHA provides HUD with the actual
date of construction completion. When
the PHA provides the actual date of
construction completion, HUD will use
that date (or, for scattered sites, the
average dates of construction of all the
buildings), subject to a 50-year cap.
(Equation coefficient: 4965.4);
(iv) The cost index of rehabilitating
property in the area (Equation
coefficient: ¥10608);
(v) The extent to which the units of
a project were in a nonmetropolitan area
as defined by the United States Bureau
of the Census (Census Bureau) during
FFY 1996 (Equation coefficient: 2703.9);
(vi) The PHA is located in the
Southern census region, as defined by
the Census Bureau (Equation coefficient:
¥269.4);
(vii) The PHA is located in the
Western census region, as defined by
the Census Bureau (Equation coefficient:
¥1709.5);
(viii) The PHA is located in the
Midwest census region as defined by the
Census Bureau (Equation coefficient:
246.2); and

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(2) An equation constant of 13851.
(i) Newly constructed units. Units
with a DOFA date of October 1, 1991,
or after, shall be considered to have a
zero existing modernization need.
(ii) Acquired projects. Projects
acquired by a PHA with a DOFA date
of October 1, 1991, or after, shall be
considered to have a zero existing
modernization need.
(3) For New York City and Chicago
Housing Authorities, based on a large
sample of direct inspections. Prior to the
cost calibration in paragraph (d)(5) of
this section, the number used for the
existing modernization need of family
projects shall be $16,680 in New York
City and $24,286 in Chicago, and the
number for elderly projects shall be
$14,622 in New York City and $16,912
in Chicago.
(i) Newly constructed units. Units
with a DOFA date of October 1, 1991,
or after, shall be considered to have a
zero existing modernization need.
(ii) Acquired projects. Projects
acquired by a PHA with a DOFA date
of October 1, 1991, or after, shall be
considered to have a zero existing
modernization need.
(4) PHAs with fewer than 250 units in
FFY 1999. The estimates of the existing
modernization need shall be based on
the following:
(i) Objective measurable data
concerning the PHA, community, and
project characteristics applied to each
project:
(A) The average number of bedrooms
in the units in a project. (Equation
coefficient: 1427.1);
(B) The total number of units in a
project. (Equation coefficient: 24.3);
(C) The proportion of units in a
project in buildings completed in 1978
or earlier. In the case of acquired
projects, HUD shall use the DOFA date
unless the PHA provides HUD with the
actual date of construction completion,
in which case HUD shall use the actual
date of construction completion (or, for
scattered sites, the average dates of
construction of all the buildings),
subject to a 50-year cap. (Equation
coefficient: ¥1389.7);
(D) The cost index of rehabilitating
property in the area, as of FFY 1999.
(Equation coefficient: ¥20163);
(E) The extent to which the units of
a project were in a nonmetropolitan area
as defined by the Census Bureau during
FFY 1996. (Equation coefficient:
6157.7);
(F) The PHA is located in the
Southern census region, as defined by
the Census Bureau. (Equation
coefficient: 4379.2);

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(G) The PHA is located in the Western
census region, as defined by the Census
Bureau. (Equation coefficient: 3747.7);
(H) The PHA is located in the
Midwest census region as defined by the
Census Bureau. (Equation coefficient:
¥2073.5); and
(ii) An equation constant of 24762.
(A) Newly constructed units. Units
with a DOFA date of October 1, 1991,
or after, shall be considered to have a
zero existing modernization need.
(B) Acquired projects. Projects
acquired by a PHA with a DOFA date
of October 1, 1991, or after, shall be
considered by HUD to have a zero
existing modernization need.
(5) Calibration of existing
modernization need for cost index of
rehabilitating property in the area. The
estimated existing modernization need
determined under paragraphs (d)(1), (2),
or (3) of this section shall be adjusted by
the values of the cost index of
rehabilitating property in the area.
(6) Freezing of the determination of
existing modernization need. FFY 2008
is the last fiscal year that HUD will
calculate the existing modernization
need. The existing modernization need
will be frozen for all developments at
the calculation as of FFY 2008 and will
be adjusted for changes in the inventory
and paragraph (d)(4) of this section.
(e) Allocation for accrual needs under
the CF formula. HUD shall allocate the
other half of the remaining Capital Fund
amount based on the relative accrual
needs of PHAs, determined in
accordance with this paragraph of this
section.
(1) PHAs with 250 or more units,
except the New York City and Chicago
Housing Authorities. The estimates of
the accrual need shall be based on the
following:
(i) Objective measurable data
concerning the following PHA,
community, and project characteristics
applied to each project:
(A) The average number of bedrooms
in the units in a project. (Equation
coefficient: 324.0);
(B) The extent to which the buildings
in a project average fewer than 5 units.
(Equation coefficient: 93.3);
(C) The age of a project, as determined
by the DOFA date. In the case of
acquired projects, HUD shall use the
DOFA date unless the PHA provides
HUD with the actual date of
construction completion, in which case
HUD shall use the actual date of
construction (or, for scattered sites, the
average dates of construction of all the
buildings), subject to a 50-year cap.
(Equation coefficient: ¥7.8);

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63783

(D) Whether the development is a
family project. (Equation coefficient:
184.5);
(E) The cost index of rehabilitating
property in the area. (Equation
coefficient: ¥252.8);
(F) The extent to which the units of
a project were in a nonmetropolitan area
as defined by the Census Bureau during
FFY 1996. (Equation coefficient:
¥121.3);
(G) PHA size of 6,600 or more units
in FFY 1999. (Equation coefficient:
¥150.7);
(H) The PHA is located in the
Southern census region, as defined by
the Census Bureau. (Equation
coefficient: 28.4);
(I) The PHA is located in the Western
census region, as defined by the Census
Bureau. (Equation coefficient: ¥116.9);
(J) The PHA is located in the Midwest
census region as defined by the Census
Bureau. (Equation coefficient: 60.7); and
(ii) An equation constant of 1371.9.
(2) For the New York City and
Chicago Housing Authorities, based on
a large sample of direct inspections.
Prior to the cost calibration in paragraph
(e)(4) of this section the number used for
the accrual need of family developments
is $1,395 in New York City, and $1,251
in Chicago, and the number for elderly
developments is $734 in New York City
and $864 in Chicago.
(3) PHAs with fewer than 250 units.
The estimates of the accrual need shall
be based on the following:
(i) Objective measurable data
concerning the following PHA,
community, and project characteristics
applied to each project:
(A) The average number of bedrooms
in the units in a project. (Equation
coefficient: 325.5);
(B) The extent to which the buildings
in a project average fewer than 5 units.
(Equation coefficient: 179.8);
(C) The age of a project, as determined
by the DOFA date. In the case of
acquired projects, HUD shall use the
DOFA date unless the PHA provides
HUD with the actual date of
construction completion. When
provided with the actual date of
construction completion, HUD shall use
this date (or, for scattered sites, the
average dates of construction of all the
buildings), subject to a 50-year cap.
(Equation coefficient: ¥9.0);
(D) Whether the project is a family
development. (Equation coefficient:
59.3);
(E) The cost index of rehabilitating
property in the area. (Equation
coefficient: ¥1570.5);
(F) The extent to which the units of
a project were in a nonmetropolitan area
as defined by the Census Bureau during

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FFY 1996. (Equation coefficient:
¥122.9);
(G) The PHA is located in the
Southern census region, as defined by
the Census Bureau. (Equation
coefficient: ¥564.0);
(H) The PHA is located in the Western
census region, as defined by the Census
Bureau. (Equation coefficient: ¥29.6);
(I) The PHA is located in the Midwest
census region as defined by the Census
Bureau. (Equation coefficient: ¥418.3);
and
(ii) An equation constant of 3193.6.
(4) Calibration of accrual need for the
cost index of rehabilitating property in
the area. The estimated accrual need
determined under either paragraph
(e)(2) or (3) of this section shall be
adjusted by the values of the cost index
of rehabilitation.
(f) Calculation of number of units. (1)
General. For purposes of determining
the number of a PHA’s public housing
units and the relative modernization
needs of PHAs:
(i) HUD shall count as one unit:
(A) Each public housing and section
23 bond-financed CF unit, except that
each existing unit under the Turnkey III
program shall count as one-fourth of a
unit. Units receiving operating subsidy
only shall not be counted.
(B) Each existing unit under the
Mutual Help program.
(ii) HUD shall add to the overall unit
count any units that the PHA adds to its
inventory when the units are under CF
ACC amendment and have reached
DOFA by the date that HUD establishes
for the FFY in which the CF formula is
being run (hereafter called the
‘‘reporting date’’). New CF units and
those reaching DOFA after the reporting
date shall be counted for CF formula
purposes in the following FFY.
(2) Replacement units. Replacement
units newly constructed on or after
October 1, 1998, that replace units in a
project funded in FFY 1999 by the
Comprehensive Grant formula system or
the Comprehensive Improvement
Assistance Program (CIAP) formula
system shall be given a new CF ACC
number as a separate project and shall
be treated as a newly constructed
development as outlined in § 905.600 of
this part.
(3) Reconfiguration of units.
Reconfiguration of units may cause the
need to be calculated by the new
configuration based on the formula
characteristics in the building and unit’s
PIC module (refer to the formula
sections here). The unit counts will be
determined by the CF units existing
after the reconfiguration.
(4) Reduction of units. For a project
losing units as a result of demolition

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and disposition, the number of units on
which the CF formula is based shall be
the number of units reported as eligible
for Capital Funds as of the reporting
date. Units are eligible for funding until
they are removed due to demolition and
disposition in accordance with a
schedule approved by HUD.
(g) Computation of formula shares
under the CF formula. (1) Total
estimated existing modernization need.
The total estimated existing
modernization need of a PHA under the
CF formula is the result of multiplying
for each project the PHA’s total number
of formula units by its estimated
existing modernization need per unit, as
determined by paragraph (d) of this
section, and calculating the sum of these
estimated project needs.
(2) Total accrual need. The total
accrual need of a PHA under the CF
formula is the result of multiplying for
each project the PHA’s total number of
formula units by its estimated accrual
need per unit, as determined by
paragraph (e) of this section, and
calculating the sum of these estimated
accrual needs.
(3) PHA’s formula share of existing
modernization need. A PHA’s formula
share of existing modernization need
under the CF formula is the PHA’s total
estimated existing modernization need
divided by the total existing
modernization need of all PHAs.
(4) PHA’s formula share of accrual
need. A PHA’s formula share of accrual
need under the CF formula is the PHA’s
total estimated accrual need divided by
the total existing accrual need of all
PHAs.
(5) PHA’s formula share of capital
need. A PHA’s formula share of capital
need under the CF formula is the
average of the PHA’s share of existing
modernization need and its share of
accrual need (by which method each
share is weighted 50 percent).
(h) CF formula capping. (1) For units
that are eligible for funding under the
CF formula (including replacement
housing units discussed below), a PHA’s
CF formula share shall be its share of
capital need, as determined under the
CF formula, subject to the condition that
no PHA’s CF formula share for units
funded under the CF formula can be less
than 94 percent of its formula share had
the FFY 1999 formula system been
applied to these CF formula-eligible
units. The FFY 1999 formula system is
based upon the FFY 1999
Comprehensive Grant formula system
for PHAs with 250 or more units in FFY
1999 and upon the FFY 1999
Comprehensive Improvement
Assistance Program (CIAP) formula

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system for PHAs with fewer than 250
units in FFY 1999.
(2) For a Moving to Work (MTW) PHA
whose MTW agreement provides that its
CF formula share is to be calculated in
accordance with the previously existing
formula, the PHA’s CF formula share,
during the term of the MTW agreement,
may be approximately the formula share
that the PHA would have received had
the FFY 1999 formula funding system
been applied to the CF formula eligible
units.
(i) Replacement Housing Factor to
reflect formula need for developments
with demolition or disposition occurring
on or after October 1, 1998, and prior to
September 30, 2013. (1) RHF generally.
PHAs that have a reduction in the
number of units attributable to
demolition or disposition of units
during the period (reflected in data
maintained by HUD) that lowers the
formula unit count for the CFF
calculation qualify for application of an
RHF, subject to satisfaction of criteria
stated in paragraph (i)(5) of this section
(2) When applied. The RHF will be
added, where applicable:
(i) For the first 5 years after the
reduction of units described in
paragraph (i)(1) of this section; and
(ii) For an additional 5 years if the
planning, leveraging, obligation, and
expenditure requirements are met. As a
prior condition of a PHA’s receipt of
additional funds for replacement
housing provided for the second 5-year
period or any portion thereof, a PHA
must obtain a firm commitment of
substantial additional funds, other than
public housing funds, for replacement
housing, as determined by HUD.
(3) Computation of RHF. The RHF
consists of the difference between the
CFF share without the CFF share
reduction of units attributable to
demolition or disposition and the CFF
share that resulted after the reduction of
units attributable to demolition or
disposition.
(4) Replacement housing funding in
FFYs 1998 and 1999. Units that received
replacement housing funding in FFY
1998 will be treated as if they had
received 2 years of replacement housing
funding by FFY 2000. Units that
received replacement housing funding
in FFY 1999 will be treated as if they
had received one year of replacement
housing funding as of FFY 2000.
(5) PHA Eligibility for the RHF. A
PHA is eligible for this factor only if the
PHA satisfies the following criteria:
(i) The PHA will use the funding in
question only for replacement housing;
(ii) The PHA will use the restored
funding that results from the use of the
replacement factor to provide

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Federal Register / Vol. 78, No. 206 / Thursday, October 24, 2013 / Rules and Regulations
replacement housing in accordance with
the PHA’s 5-Year Action Plan, as
approved by HUD under part 903 of this
chapter as well as the PHA’s Board of
Commissioners;
(iii) The PHA has not received
funding for public housing units that
will replace the lost units under Public
Housing Development, Major
Reconstruction of Obsolete Public
Housing, HOPE VI, Choice
Neighborhoods, Rental Assistance
Payment (RAP), or programs that
otherwise provide for replacement with
public housing units;
(iv) The PHA, if designated as a
troubled PHA by HUD, and not already
under the direction of HUD or an
appointed receiver, in accordance with
part 902 of this chapter, uses an
Alternative Management Entity, as
defined in part 902 of this chapter, for
development of replacement housing
and complies with any applicable
provisions of its Memorandum of
Agreement executed with HUD under
that part; and
(v) The PHA undertakes any
development of replacement housing in
accordance with applicable HUD
requirements and regulations.
(6) Failure to provide replacement
housing in a timely fashion. (i) A PHA
will be subject to the actions described
in paragraph (i)(7)(ii) of this section if
the PHA does not:
(A) Use the restored funding that
results from the use of the RHF to
provide replacement housing in a timely
fashion, as provided in paragraph
(i)(7)(i) of this section and in accordance
with applicable HUD requirements and
regulations, and
(B) Make reasonable progress on such
use of the funding, in accordance with
applicable HUD requirements and
regulations.
(ii) If a PHA fails to act as described
in paragraph (i)(6)(i) of this section,
HUD will require appropriate corrective
action under these regulations, may
recapture and reallocate the funds, or
may take other appropriate action.
(7) Requirement to obligate and
expend RHF funds within the specified
period. (i) In addition to the
requirements otherwise applicable to
obligation and expenditure of funds,
PHAs are required to obligate assistance
received as a result of the RHF within:
(A) 24 months from the date that
funds become available to the PHA; or
(B) With specific HUD approval, 24
months from the date that the PHA
accumulates adequate funds to
undertake replacement housing.
(ii) To the extent the PHA has not
obligated any funds provided as a result
of the RHF within the time frames

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required by this paragraph, or has not
expended such funds within a
reasonable time, HUD shall recapture
the unobligated amount of the grant.
(j) Demolition and Disposition
Transitional Funding (DDTF) to reflect
formula need for developments with
demolition or disposition on or after
October 1, 2013. (1) DDTF generally. In
FFY 2014 and thereafter, PHAs that
have a reduction in the number of units
occurring in FFY 2013 and attributable
to demolition or disposition are
automatically eligible to receive
Demolition and Disposition Transitional
Funding. The DDTF will be included in
their annual Capital Fund grant for a 5year period to offset the reduction in
funding a PHA would receive from
removing units from inventory. DDTF is
subject to the criteria stated in
paragraph (j)(4) of this section.
(2) When applied. DDTF will be
added to a PHA’s annual CFP grant,
where applicable, for 5 years after the
reduction of units described in
paragraph (j)(1) of this section.
(3) Computation of DDTF. The DDTF
consists of the difference between the
CFF share without the CFF share
reduction of units attributable to
demolition or disposition and the CFF
share that resulted after the reduction of
units attributable to demolition or
disposition.
(4) PHA eligibility for the DDTF. A
PHA is eligible for this factor only if the
PHA satisfies the following criteria:
(i) The PHA will automatically
receive the DDTF for reduction of units
in accordance with paragraph (j)(1) of
this section, unless the PHA rejects the
DDTF funding for that fiscal year in
writing;
(ii) The PHA will use the funding in
question for eligible activities under the
Capital Fund Program, found at
905.200—such as modernization and
development—that are included in the
PHA’s HUD approved CFP 5-Year
Action Plan.
(iii) The PHA has not received
funding for public housing units that
will replace the lost units from
disposition proceeds, or under Public
Housing Development, Major
Reconstruction of Obsolete Public
Housing, HOPE VI, Choice
Neighborhoods, RAP, or programs that
otherwise provide for replacement with
public housing units;
(iv) The PHA, if designated as a
troubled PHA by HUD, and not already
under the direction of HUD or an
appointed receiver, in accordance with
part 902 of this chapter, uses an
Alternative Management Entity, as
defined in part 902 of this chapter, and
complies with any applicable provisions

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63785

of its Memorandum of Agreement
executed with HUD under that part; and
(v) The PHA undertakes any eligible
activities in accordance with applicable
HUD requirements and regulations.
(5) Requirement to obligate and
expend DDTF funds within the specified
period. (i) In addition to the
requirements otherwise applicable to
obligation and expenditure of Capital
Funds, including 42 U.S.C. 1437g(j) and
the terms of the appropriation from
Congress, PHAs are required to obligate
funds received as a result of the DDTF
within 24 months from the date that
funds become available to the PHA; or
(ii) To the extent the PHA has not
obligated any funds provided as a result
of the DDTF within the time frames
required by this paragraph, or expended
such funds within a reasonable time
frame, HUD shall reduce the amount of
DDTF to be provided to the PHA.
(k) RHF Transition. (1) PHAs that
would be newly eligible for RHF in FFY
2014 will receive 5 years of DDTF.
(2) PHAs that received a portion of a
first increment RHF grant in FY 2013,
for units removed from inventory prior
to the reporting date of June 30, 2012,
will receive up to 10 years of funding
consisting of the remainder of firstincrement RHF, subject to the
requirements of § 905.400(i) of this part,
and, if eligible, 5 years of DDTF, subject
to the requirements of § 905.400(j) of
this part.
(3) PHAs that received a portion of a
second increment RHF grant in FY
2013, for units removed from inventory
prior to the reporting date of June 30,
2012, will continue to receive the
remaining portion of the 5-year
increment as a separate second
increment RHF grant, as described in
§ 905.400(i) of this part.
(l) Performance reward factor. (1)
High performer. A PHA that is
designated a high performer under the
PHA’s most recent final PHAS score
may receive a performance bonus that
is:
(i) Three (3) percent above its base
formula amount in the first 5 years these
awards are given (for any year in this 5year period in which the performance
reward is earned); or
(ii) Five (5) percent above its base
formula amount in future years (for any
year in which the performance reward
is earned);
(2) Condition. The performance bonus
is subject only to the condition that no
PHA will lose more than 5 percent of its
base formula amount as a result of the
redistribution of funding from nonhigh
performers to high performers.
(3) Redistribution. The total amount of
Capital Funds that HUD has recaptured

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or not allocated to PHAs as a sanction
for violation of expenditure and
obligation requirements shall be
allocated to the PHAs that are
designated high performers under
PHAS.
■ 6. Add subparts F, G, and H to read
as follows:
Subpart F—Development Requirements
Sec.
905.600 General.
905.602 Program requirements.
905.604 Mixed-finance development.
905.606 Development proposal.
905.608 Site acquisition proposal.
905.610 Technical processing.
905.612 Disbursement of Capital Funds—
predevelopment costs.
Subpart G—Other Security Interests
905.700 Other security interests.
Subpart H—Compliance, HUD Review,
Penalties, and Sanctions
905.800 Compliance.
905.802 HUD review of PHA performance.
905.804 Sanctions.

Subpart F—Development
Requirements

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§ 905.600

General.

(a) Applicability. This subpart F
applies to the development of public
housing units to be included under an
ACC and which will receive funding
from public housing funds. PHAs must
comply, or cause the Owner Entity and
its contractors to comply, as applicable,
with all of the applicable requirements
in this subpart. Pursuant to § 905.106 of
this part, when a PHA, a PHA partner,
and/or an Owner Entity submits a
development proposal and, if
applicable, a site acquisition proposal,
and executes an ACC covering the
public housing units being developed, it
is deemed to have certified by those
executed submissions its compliance
with this subpart. Noncompliance with
any provision of this subpart or other
applicable statutes or regulations, or the
ACC Amendment, and any amendment
thereto may subject the PHA, the PHA’s
partner and/or the Owner Entity to
sanctions contained in § 905.804 of this
part.
(b) Description. A PHA may develop
public housing through the construction
of new units or the acquisition, with or
without rehabilitation, of existing units.
A PHA may use any generally accepted
method of development including, but
not limited to:
(1) Conventional. The PHA designs a
project on a property it owns. The PHA
then competitively selects an entity to
build or rehabilitate the project.
(2) Turnkey. The PHA advertises for
and competitively selects a developer

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who will develop public housing units
on a site owned or to be owned by the
developer. Following HUD approval of
the development proposal, the PHA and
the developer execute a contract of sale
and the developer builds the project.
Once the project is complete, the
developer sells it to the PHA.
(3) Acquisition with or without
rehabilitation. The PHA acquires an
existing property that requires
substantial, moderate, or no repair. Any
repair work is done by PHA staff or
contracted out by the PHA. The PHA
must certify that the property was not
constructed with the intent of selling it
to the PHA or, alternatively, the PHA
must certify that HUD requirements
were followed in the development of the
property.
(4) PHA use of force account labor.
The PHA uses staff to carry out new
construction or rehabilitation, as
provided in § 905.314(j) of this part.
(5) Mixed finance. Development or
modernization of public housing units
where the public housing units are
owned in whole or in part by an entity
other than a PHA, pursuant to Section
905.604.
(c) Development process. The general
development process for public housing
development, using any method and
with any financing, is as follows:
(1) The PHA will identify a site to be
acquired or a public housing project to
be developed or redeveloped. The PHA
or its Partner and/or the Owner Entity
will prepare a site acquisition proposal
pursuant to § 905.608 of this part and/
or a development proposal pursuant to
§ 905.606 of this part for submission to
HUD or as otherwise directed by HUD.
The PHA may request predevelopment
funding necessary for preparation of the
acquisition proposal and/or
development proposal, as stated in
§ 905.612(a) of this part.
(2) The PHA must consult with
affected residents prior to submission of
an acquisition proposal, development
proposal, or both to HUD to solicit
resident input into development of the
public housing project.
(3) After HUD approval of the site
acquisition proposal and/or
development proposal, HUD and the
PHA shall execute the applicable ACC
Amendment for the public housing
units and record a Declaration of Trust
or Declaration of Restrictive Covenants
on all property acquired and/or to be
developed. The PHA may then
commence development of the units.
(4) Upon completion of the public
housing project, the PHA will establish
the DOFA. After the DOFA, the PHA
will submit a cost certificate to HUD

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attesting to the actual cost of the project
that will be subject to audit.
(d) Funding sources. A PHA may
engage in development activities using
any one or a combination of the
following sources of funding:
(1) Capital Funds;
(2) HOPE VI funds;
(3) Choice Neighborhoods funds;
(4) Proceeds from the sale of units
under a homeownership program in
accordance with 24 CFR part 906;
(5) Proceeds resulting from the
disposition of PHA-owned land or
improvements;
(6) Private financing used in
accordance with § 905.604 of this part,
Mixed-finance development;
(7) Capital Fund Financing Program
(CFFP) proceeds under § 905.500 of this
part;
(8) Proceeds resulting from an
Operating Fund Financing Program
(OFFP) approved by HUD pursuant to
24 CFR part 990; and
(9) Funds available from any other
eligible sources.
§ 905.602

Program requirements.

(a) Local cooperation. Except as
provided under § 905.604(i) of this part
for mixed-finance projects, the PHA
must enter into a Cooperation
Agreement with the applicable local
governing body that includes sufficient
authority to cover the public housing
being developed under this subpart, or
provide an opinion of counsel that the
existing, amended, or supplementary
Cooperation Agreement between the
jurisdiction and the PHA includes the
project or development.
(b) New construction limitation. These
requirements apply to the development
(including new construction and
acquisition) of public housing. All
proposed new development projects
must meet both of the following
requirements:
(1) Limitation on the number of units.
A PHA may not use Capital Funds to
pay for the development cost of public
housing units if such development
would result in a net increase in the
number of public housing units that the
PHA owned, assisted, or operated on
October 1, 1999. Subject to approval by
the Secretary, a PHA may develop
public housing units in excess of the
limitation if:
(i) The units are available and
affordable to eligible low-income
families and the CF formula does not
provide additional funding for the
specific purpose of constructing,
modernizing, and operating such excess
units; or
(ii) The units are part of a mixedfinance project or otherwise leverage

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significant additional investment, and
the cost of the useful life of the projects
is less than the estimated cost of
providing tenant-based assistance under
section 8(o) of the 1937 Act.
(2) Limitations on cost. A PHA may
not construct public housing unless the
cost of construction is less than the cost
of acquisition or acquisition and
rehabilitation of existing units,
including the amount required to
establish, as necessary, an upfront
reserve for replacement accounts for
major repairs. A PHA shall provide
evidence of compliance with this
subpart either by:
(i) Demonstrating through a cost
comparison that the cost of new
construction in the neighborhood where
the PHA proposes to construct the
housing is less than the cost of
acquisition of existing housing, with or
without rehabilitation, in the same
neighborhood; or
(ii) Documenting that there is
insufficient existing housing in the
neighborhood to acquire.
(c) Existing PHA-owned nonpublic
housing properties. Nonpublic housing
properties may be used in the
development of public housing units
provided all requirements of the 1937
Act and the development requirements
of this part are met.
(d) Site and neighborhood standards.
Each proposed site to be newly acquired
for a public housing project or for
construction or rehabilitation of public
housing must be reviewed and approved
by the field office as meeting the
following standards, as applicable:
(1) The site must be adequate in size,
exposure, and contour to accommodate
the number and type of units proposed.
Adequate utilities (e.g., water, sewer,
gas, and electricity) and streets shall be
available to service the site.
(2) The site and neighborhood shall be
suitable to facilitating and furthering
full compliance with the applicable
provisions of title VI of the Civil Rights
Act of 1964, title VIII of the Civil Rights
Act of 1968, Executive Order 11063, and
HUD regulations issued under these
statutes.
(3) The site for new construction shall
not be located in an area of minority
concentration unless:
(i) There are already sufficient,
comparable opportunities outside areas
of minority concentration for housing
minority families in the income range
that is to be served by the proposed
project; or
(ii) The project is necessary to meet
overriding housing needs that cannot
feasibly be met otherwise in that
housing market area. ‘‘Overriding
housing needs’’ shall not serve as the

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basis for determining that a site is
acceptable if the only reason that these
needs cannot otherwise feasibly be met
is that, due to discrimination because of
race, color, religion, creed, sex,
disability, familial status, or national
origin, sites outside areas of minority
concentration are unavailable.
(4) The site for new construction shall
not be located in a racially mixed area
if the project will cause a significant
increase in the proportion of minority to
nonminority residents in the area.
(5) Notwithstanding the foregoing,
after demolition of public housing units
a PHA may construct public housing
units on the original public housing site
or in the same neighborhood if the
number of replacement public housing
units is significantly fewer than the
number of public housing units
demolished. One of the following
criteria must be satisfied:
(i) The number of public housing
units being constructed is not more than
50 percent of the number of public
housing units in the original
development; or
(ii) In the case of replacing an
occupied development, the number of
public housing units being constructed
is the number needed to house current
residents who want to remain at the site,
so long as the number of public housing
units being constructed is significantly
fewer than the number being
demolished; or
(iii) The public housing units being
constructed constitute no more than 25
units.
(6) The site shall promote greater
choice of housing opportunities and
avoid undue concentration of assisted
persons in areas containing a high
proportion of low-income persons.
(7) The site shall be free from adverse
environmental conditions, natural or
manmade, such as: Toxic or
contaminated soils and substances;
mudslide or other unstable soil
conditions; flooding; septic tank
backups or other sewage hazards;
harmful air pollution or excessive
smoke or dust; excessive noise or
vibrations from vehicular traffic; insect,
rodent, or vermin infestation; or fire
hazards. The neighborhood shall not be
seriously detrimental to family life. It
shall not be filled with substandard
dwellings nor shall other undesirable
elements predominate, unless there is a
concerted program in progress to
remedy the undesirable conditions.
(8) The site shall be accessible to
social, recreational, educational,
commercial, and health facilities; health
services; and other municipal facilities
and services that are at least equivalent
to those typically found in

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neighborhoods consisting largely of
similar unassisted standard housing.
The availability of public transportation
must be considered.
(9) The site shall be accessible to a
range of jobs for low-income workers
and for other needs. The availability of
public transportation must be
considered, and travel time and cost via
public transportation and private
automobile must not be excessive. This
requirement may be given less
consideration for elderly housing.
(10) The project may not be built on
a site that has occupants unless the
relocation requirements at
§ 905.308(b)(9) of this part are met.
(11) The site shall not be in an area
that HUD has identified as having
special flood hazards and in which the
sale of flood insurance has been made
available under the National Flood
Insurance Act of 1968, unless the
development is covered by flood
insurance required by the Flood Disaster
Protection Act of 1973 and meets all
applicable HUD standards and local
requirements.
(e) Relocation. All acquisition or
rehabilitation activities carried out with
public housing funds must comply with
the provisions of § 905.308(b)(9).
(f) Environmental requirements. All
activities under this part are subject to
an environmental review by a
responsible entity under HUD’s
environmental regulations at 24 CFR
Part 58 and must comply with the
requirements of the National
Environmental Policy Act of 1969
(NEPA) (42 U.S.C. 4321 et seq.) and the
related laws and authorities listed at 24
CFR 58.5. HUD may make a finding in
accordance with 24 CFR 58.11 and may
perform the environmental review itself
under the provisions of 24 CFR Part 50.
In those cases where HUD performs the
environmental review under 24 CFR
Part 50, it will do so before approving
a proposed project, and will comply
with the requirements of NEPA and the
related requirements at 24 CFR 50.4.
§ 905.604

Mixed-finance development.

(a) General. Mixed-finance
development refers to the development
(through new construction or
acquisition, with or without
rehabilitation) or modernization of
public housing, where the public
housing units are owned in whole or in
part by an entity other than a PHA. If
the public housing units being
developed are 100 percent owned by the
PHA, the project is not a mixed-finance
project and will be not be subject to
mixed-finance development
requirements. However, all other
development requirements of part 905

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are applicable, and, if the project
includes both public housing funds and
private funding for development, the
project may be subject to other
applicable program requirements; e.g.,
the Capital Fund Financing Program,
Operating Fund Financing Program,
Public Housing Mortgage Program, etc.
(1) Ownership. There are various
potential scenarios for the ownership
structure of a mixed-finance project,
such as: public housing units may be
owned entirely by a private entity; a
PHA may co-own with a private entity;
or a PHA affiliate or instrumentality
may own or co-own the units.
(2) Partnerships. PHAs may choose to
enter into a partnership or other
contractual arrangement with a third
party entity for the mixed-finance
development and/or ownership of
public housing units.
(3) Funding. Funding for mixedfinance developments may include one
or a combination of funding sources,
pursuant to § 905.600(d) of this part.
(4) Modernization. A mixed-finance
project that involves modernization,
rather than new construction, shall
maintain the DOFA date that existed
prior to modernization and shall be
subject to the provisions of
§ 905.304(a)(2) of this part regarding the
applicable period of obligation to
operate the public housing units.
(b) Definitions applicable to this
subpart. (1) Mixed-finance. The
development (through new construction
or acquisition, with or without
rehabilitation) or modernization of
public housing, using public housing,
nonpublic housing, or a combination of
public housing and nonpublic housing
funds, where the public housing units
are owned in whole or in part by an
entity other than the PHA. A mixedfinance development may include 100
percent public housing (if there is an
Owner Entity other than the PHA) or a
mixture of public housing and
nonpublic housing units.
(2) Owner Entity. As defined in
§ 905.108 of this part.
(3) PHA instrumentality. An
instrumentality is an entity related to
the PHA whose assets, operations, and
management are legally and effectively
controlled by the PHA, and through
which PHA functions or policies are
implemented, and which utilizes public
housing funds or public housing assets
for the purpose of carrying out public
housing development functions of the
PHA. An instrumentality assumes the
role of the PHA, and is the PHA under
the Public Housing Requirements, for
purposes of implementing public
housing development activities and
programs, and must abide by the Public

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Housing Requirements.
Instrumentalities must be authorized to
act for and to assume such
responsibilities. For purposes of
development, ownership of public
housing units by an instrumentality
would be considered mixed-finance
development.
(4) PHA affiliate. An affiliate is an
entity, other than an instrumentality,
formed by a PHA and in which a PHA
has a financial or ownership interest or
participates in its governance. The PHA
has some measure of control over the
assets, operations, or management of the
affiliate, but such control does not rise
to the level of control to qualify the
entity as an instrumentality. For the
purposes of development, ownership of
public housing units by an affiliate
would be considered mixed-finance
development.
(5) Public housing funds. As defined
in § 905.108 of this part.
(c) Structure of projects. Each mixedfinance project must be structured to:
(1) Ensure the continued operation of
the public housing units in accordance
with all Public Housing Requirements;
(2) Ensure that public housing funds
committed to a mixed-finance project
are used only to pay for costs associated
with the public housing units, including
such costs as demolition, site work,
infrastructure, and common area
improvements.
(3) To ensure that the amount of
public housing funds committed to a
project is proportionate to the number of
public housing units contained in the
project. To meet this ‘‘pro rata test,’’ the
proportion of public housing funds
compared to total project funds
committed to a project must not exceed
the proportion of public housing units
compared to total number of units
contained in the project. For example, if
there are a total of 120 units in the
project and 50 are public housing units,
the public housing units are 42 percent
of the total number of units in the
project. Therefore the amount of public
housing funds committed to the project
cannot exceed 42 percent of the total
project budget, unless otherwise
approved by the Secretary. However, if
public housing funds are to be used to
pay for more than the pro rata cost of
common area improvements, HUD will
evaluate the proposal to ensure that
common area improvements will benefit
the residents in the development in a
mixed-income project; and
(4) Ensure that the project is within
the Total Development Cost (TDC) and
Housing Construction Cost (HCC) limits
pursuant to § 905.314(c) and (d) of this
part.

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(d) Process. Except as provided in this
section, development of a mixed-finance
project under this subpart is subject to
the same requirements as development
of public housing by a PHA entirely
with public housing funds, as stated in
§ 905.600 of this part. PHAs must
submit an acquisition proposal under
§ 905.608 and/or a development
proposal under § 905.606 or as
otherwise specified by HUD.
(e) Conflicts. In the event of a conflict
between the requirements for a mixedfinance project and other requirements
of this subpart, the mixed-finance
Public Housing Requirements shall
apply, unless HUD determines
otherwise.
(f) HUD approval. For purposes of this
section only, any action or approval that
is required by HUD pursuant to the
requirements set forth in this section
shall be construed to mean HUD
Headquarters, unless the field office is
authorized in writing by Headquarters
to carry out a specific function in this
section.
(g) Comparability. Public housing
units built in a mixed-financed
development must be comparable in
size, location, external appearance, and
distribution to nonpublic housing units
within the development.
(h) Mixed-finance procurement. The
requirements of 24 CFR Part 85 and 24
CFR 905.316 are applicable to this
subpart with the following exceptions:
(1) PHAs may select a development
partner using competitive proposals
procedures for qualifications-based
procurement, subject to negotiation of
fair and reasonable compensation and
compliance with TDC and other
applicable cost limitations;
(2) An Owner Entity (which, as a
private entity, would normally not be
subject to 24 CFR Part 85) shall be
required to comply with 24 CFR Part 85
if HUD determines that the PHA or PHA
instrumentality, or either of their
members or employees, exercises
significant decision making functions
within the Owner Entity with respect to
managing the development of the
proposed units. HUD may, on a case-bycase basis, exempt such an Owner
Entity from the need to comply with 24
CFR Part 85 if it determines that the
Owner Entity has developed an
acceptable alternative procurement
plan.
(i) Identity of interest. If the Owner
Entity or partner (or any other entity
with an identity of interest with the
Owner Entity or partner) of a mixedfinance project wants to serve as the
general contractor for the mixed-finance
project, it may award itself the
construction contract only if:

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(1) The identity of interest general
contractor’s bid is the lowest bid
submitted in response to a request for
bids; or
(2) The PHA submits a written
justification to HUD that includes an
independent third-party cost estimate
that demonstrates that the identity of
interest general contractor’s costs are
less than or equal to the independent
third-party cost estimate; and
(3) HUD approves the identity of
interest general contractor in
conjunction with HUD’s approval of the
development proposal for the mixedfinance project.
(j) Operating Subsidy-Only and
Capital Fund-Only Assistance. (1)
General. This section refers to the
mixed-finance development of public
housing units that will be developed
without public housing funds but will
receive operating subsidy, or will be
developed with public housing funds
but will not receive operating subsidy.
(2) Operating Subsidy-Only
Development. Operating Subsidy-Only
Development refers to mixed-finance
projects where public housing units are
developed without the use of public
housing funds, but for which HUD
agrees to provide operating subsidies
under Section 9(e) of the 1937 Act.
These types of project are subject to the
following provisions:
(i) The newly developed public
housing units will be included in the
calculation of the Capital Fund formula
in § 905.400 of this part.
(ii) An ACC Amendment will be
executed to include the new public
housing units. The term of the ACC
Amendment will be determined based
on the assistance as provided in
§ 905.304, unless reduced by the
Secretary.
(iii) There shall be no disposition of
the public housing units without the
prior written approval of HUD, during,
and for 10 years after the end of, the
period in which the public housing
units receive operating subsidy from the
PHA, as required by 42 U.S.C. 1437g(3),
as those requirements may be amended
from time to time. However, if the PHA
is no longer able to provide operating
subsidies to the Owner Entity pursuant
to Section 9(e) of the 1937 Act, the PHA
may (on behalf of the Owner Entity)
request that HUD terminate the
Declaration of Trust or Declaration of
Restrictive Covenants, as applicable.
Termination under this section does not
require disposition approval from HUD
pursuant to Section 18 of the 1937 Act,
42 U.S.C. 1437p. However, the PHA
must provide public housing residents
with a decent, safe, sanitary, and
affordable unit to which they can

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relocate, which may include a public
housing unit in another development or
a Housing Choice Voucher, and pay for
the tenant’s reasonable moving costs.
The URA is not applicable in this
situation.
(iv) Where the PHA elects in the
future to use public housing funds for
modernization of these units, the PHA
must execute an ACC Amendment with
a 20-year use restriction and record a
Declaration of Trust or Declaration of
Restrictive Covenants, in accordance
with § 905.304. There may be no
disposition of the public housing units
without the prior written approval of
HUD during the 20-year period, and the
public housing units shall be
maintained and operated in accordance
with all applicable Public Housing
Requirements (including the ACC), as
those requirements may be amended
from time to time.
(3) Capital Fund-Only Development.
Capital Fund-Only projects refers to
mixed-finance projects where a PHA
and its partners may develop public
housing units using public housing
funds for development of new units, but
for which HUD will not be providing
operating subsidy under Section 9(e) of
the Act, 42 U.S.C. 1437g(e). These types
of projects are subject to the following
provisions:
(i) The newly developed public
housing units will not be included in
the calculation of the Operating Fund
formula.
(ii) The PHA must sign an ACC
Amendment, with a 40-year use
restriction, for development of new
units and record a Declaration of Trust
or Declaration of Restrictive Covenants
in accordance with § 905.304 of this
part, unless the time period is reduced
by the Secretary.
(iii) There shall be no disposition of
the public housing units, without the
prior written approval of HUD, during a
40-year period, and the public housing
units shall be maintained and operated
in accordance with all applicable Public
Housing Requirements (including the
ACC), as required by section 9(d)(3) of
the 1937 Act, 42 U.S.C. 1437g(d)(3), as
those requirements may be amended
from time to time.
(4) Procedures. PHAs must follow the
development approval process
identified in § 905.600.
(k) Mixed-finance operations:
Deviation from HUD requirements
pursuant to section 35(h) of the 1937
Act, 42 U.S.C. 1437z–7(h). (1) Deviation.
If a PHA enters into a contract with an
entity that owns or operates a mixedfinance project, and the terms of the
contract obligate the entity to operate
and maintain a specified number of

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units in the project as public housing
units, the contract may include terms
that allow the Owner Entity to deviate
from otherwise applicable Public
Housing Requirements regarding rents,
income eligibility, and other areas of
public housing management with
respect to all or a portion of the public
housing units, subject to the following
conditions:
(i) There are a significant number of
units in the mixed-finance project that
are not public housing units;
(ii) There is a reduction in
appropriations under Section 9(e) of the
1937 Act (see 42 U.S.C. 1437g(e)) or a
change in applicable law that results in
the PHA being unable to fulfill its
contractual obligation to the Owner
Entity with respect to the public
housing units;
(iii) Prior to implementation of the
contractual terms related to deviation
from the Public Housing Requirements,
HUD approves an Alternative
Management Plan for the mixed-finance
project; and
(iv) The deviation shall be to the
extent necessary to preserve the
viability of those units while
maintaining the low-income character of
the units to the maximum extent
practicable.
(2) Preparation of an Alternative
Management Plan. Should the PHA and
the Owner Entity determine a need to
deviate from the Public Housing
Requirements, the PHA, on behalf of the
Owner Entity, must submit an
Alternative Management Plan to HUD
for review and approval prior to
implementation of any changes. The
Plan must include the following:
(i) A statement describing the Owner
Entity’s reasons for deviating from the
Public Housing Requirements;
(ii) An explanation of the Owner
Entity’s proposed remedies, including,
but not limited to:
(A) How the Owner Entity will select
the residents (including the number and
income levels of the families proposed
to be admitted to the public housing
units) and units to be affected by the
proposed change;
(B) The Owner Entity’s timetable for
implementing the Alternative
Management Plan;
(C) The impact on existing residents.
Note that for any resident who is unable
to remain in the unit as a result of
implementation of the Alternative
Management Plan, the resident must be
relocated to a public housing unit or
given a Housing Choice Voucher by the
PHA or by another entity as provided
for in the contractual agreement
between the PHA and the Owner Entity;

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(iii) An amendment to the existing
contractual agreement between the PHA
and the Owner Entity that includes
provisions which ensure that:
(A) An update on the Alternative
Management Plan is submitted annually
to HUD to ensure that implementation
of the provisions of the Alternative
Management Plan continue to be
appropriate;
(B) The Owner Entity complies with
the requirements of this subpart in its
management and operation of the public
housing units in accordance with the
Alternative Management Plan;
(C) The Owner Entity provides the
PHA any income that is generated by
the public housing units in excess of the
Owner Entity’s expenses on behalf of
those units, as a result of
implementation of provisions in the
Alternative Management Plan;
(D) The Owner Entity reinstates all
Public Housing Requirements
(including rent and income eligibility
requirements) with respect to the
original number of public housing units
and number of bedrooms in the mixedfinance development, following the
PHA’s reinstatement of operating
subsidies at the level originally agreed
to in its contract with the Owner Entity;
and
(iv) Additional evidence. The PHA
must provide documentation that:
(A) The Owner Entity has provided
copies of the Alternative Management
Plan to residents of the project and
provided the opportunity for review and
comment prior to submission to HUD.
The Owner Entity must have provided
written notice to each of the public
housing residents in the mixed-finance
development of its intention to
implement the Alternative Management
Plan. Such notice must comply with all
relevant federal, state, and local
substantive and procedural
requirements and, at a minimum,
provide public housing residents 90
days advance notice of any proposal to
increase rents or to relocate public
housing residents to alternative housing;
(B) The revenues being generated by
the public housing units (in
combination with the reduced
allocation of Operating Subsidy
resulting primarily from a reduction in
appropriations or changes in applicable
law such that the PHA is unable to
comply with its contractual obligations
to the Owner Entity) are inadequate to
cover the reasonable and necessary
operating expenses of the public
housing units. Documentation should
include a financial statement showing
actual operating expenses and revenues
over the past 5 years and the projected

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expenses and revenues over the next 10
years;
(C) A demonstration that the PHA
cannot meet its contractual obligation,
and;
(D) The Owner Entity has attempted
to offset with regard to the project, the
impact of reduced operating subsidies
or changes in applicable law by all
available means; including the use of
other public and private development
resources, the use of cash flow from any
nonpublic housing units, and funds
from other operating deficient reserves.
(3) HUD review. HUD will review the
Alternative Management Plan to ensure
that the plan meets the requirements of
this subpart and that any proposed
deviation from the Public Housing
Requirements will be implemented only
to the extent necessary to preserve the
viability of the public housing units.
Upon completion of HUD’s review,
HUD will either approve or disapprove
the Alternative Management Plan.
Reasons for HUD disapproval may
include, but are not limited to, the
following:
(i) The justification for deviation from
the Public Housing Requirements does
not qualify in accordance with section
35(h) of the Act (42 U.S.C. 1437z–7(h)).
(ii) The proposed deviation(s) from
the Public Housing Requirements are
not limited to preserving the viability of
the public housing units.
(iii) The information that HUD
requires to be included in the
Alternative Management Plan has not
been included, is not accurate, or does
not support the need for deviation from
the Public Housing Requirements.
(iv) HUD has evidence that the
proposed Alternative Management Plan
is not in compliance with other federal
requirements, including civil rights
laws.
(4) HUD reevaluation and reapproval.
The PHA, on behalf of the Owner Entity,
must provide to HUD, for HUD
approval, an annual update on the
implementation of the Alternative
Management Plan. The update must
provide the status of the project and
whether the circumstances originally
triggering the need for the conditions
contained in the Alternative
Management Plan remain valid and
appropriate. Any proposed changes in
the Alternative Management Plan
should also be identified. Once the
annual update of the Alternative
Management Plan is properly submitted,
the existing Alternative Management
Plan shall remain in effect until such
time as HUD takes additional action to
approve or disapprove the annual
update.

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§ 905.606

Development proposal.

(a) Development proposal. Prior to
developing public housing, either
through new construction or through
acquisition, with or without
rehabilitation, a PHA must submit a
development proposal to HUD in the
form prescribed by HUD, which will
allow HUD to assess the viability and
financial feasibility of the proposed
development. A development proposal
must be submitted for all types of public
housing development, including mixedfinance. Failure to submit and obtain
HUD approval of a development
proposal may result in the public
housing funds used in conjunction with
the project being deemed ineligible
expenses. In determining the amount of
information to be submitted by the PHA,
HUD shall consider whether the
documentation is required for HUD to
carry out mandatory statutory,
regulatory, or Executive order reviews;
the quality of the PHA’s past
performance in implementing
development projects under this
subpart; the PHA’s demonstrated
administrative capability; and other
program requirements. The
development proposal shall include
some or all of the following
documentation, as deemed necessary by
HUD.
(1) Project description. A description
of the proposed project, including:
(i) Proposed development method
(e.g., mixed-finance, new construction,
acquisition with or without
rehabilitation, turnkey, etc.), including
the extent to which the PHA will use
force account labor and use procured
contractors. For new construction
projects, the PHA must meet the
program requirements contained in
§ 905.602. For projects involving
acquisition of existing properties less
than 2 years old, the PHA must include
an attestation from the PHA and the
owner of the property that the property
was not constructed with the intent that
it would be sold to the PHA or, if it was
constructed with the intent that it be
sold to the PHA, that it was constructed
in compliance with all applicable
requirements (e.g., Davis Bacon wage
rates, accessibility, etc.);
(ii) Type of residents to occupy the
units (e.g., family, elderly, persons with
disabilities, or families that include
persons with disabilities);
(iii) Number and type of unit
(detached, semidetached, row house,
walkup, elevator), with bedroom count,
broken out by public housing vs.
nonpublic housing, if applicable;
(iv) The type and size of nondwelling
space, if applicable; and

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(v) Schematic drawings of the
proposed buildings, unit plans, and
additional information regarding plans
and specifications, as needed by HUD to
review the project.
(2) Site information. An identification
and description of the proposed site and
neighborhood, a site plan, and a map of
the neighborhood.
(3) Participant description.
Identification of participating parties
and a description of the activities to be
undertaken by each of the participating
parties and the PHA; and the legal and
business relationships between the PHA
and each of the participating parties, as
applicable.
(4) Development project schedule. A
schedule for the development project
that includes each major stage of
development, through and including the
submission of an Actual Development
Cost Certificate to HUD.
(5) Accessibility. A PHA must provide
sufficient information for HUD to
determine that dwelling units and other
public housing facilities meet
accessibility requirements specified at
§ 905.312 of this part, including, but not
limited to, the number, location, and
bedroom size distribution of accessible
dwelling units (see 24 CFR 8.32 and 24
CFR part 40).
(6) Project costs. (i) Budgets. To allow
HUD to assess sources of funding and
projected uses of funds, the PHA shall
submit a project budget, in the form
prescribed by HUD, reflecting the total
permanent development budget for the
project, including all sources and uses
of funds, including hard and soft costs.
The PHA shall also submit a budget for
the construction period and a
construction draw schedule showing the
timing of construction financing
contributions and disbursements. In
addition, the PHA shall submit an
independent construction cost estimate
or actual construction contract that
supports the permanent and
construction budgets.
(ii) TDC calculation. The PHA must
submit a calculation of the TDC and
HCC, subject to § 905.314 of this part.
(iii) Financing. A PHA must submit a
detailed description of all financing
necessary for the implementation of the
project, specifying the sources and uses.
In addition, HUD may require
documents related to the financing (e.g.,
loan documents, partnership or
operating agreement, regulatory and
operating agreement, etc.) to be
submitted in final draft form as part of
the development proposal. Upon
financial closing, HUD may also require
final, executed copies of these
documents to be submitted to HUD for

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final approval, per § 905.612(b)(2) of
this part.
(A) Commitment of funds. Documents
submitted pursuant to this section must
irrevocably commit funds to the project.
Irrevocability of funds means that
binding legal documents—such as loan
agreements, mortgages, deeds of trust,
partnership agreements or operating
agreements, or similar documents
committing funds—have been executed
by the applicable parties; though
disbursement of such funds may be
subject to meeting progress milestones,
the absence of default, and/or other
conditions generally consistent with
similar non-public housing transactions.
For projects involving revolving loan
funds, the irrevocability of funds means
that funds in an amount identified to
HUD as the maximum revolving loan
have been committed pursuant to
legally binding documents; though
disbursement of such funds may be
subject to meeting progress milestones,
the absence of default, and/or other
conditions generally consistent with
similar affordable housing transactions.
The PHA must confirm the availability
of each party’s financing, the amount
and source of financing committed to
the proposal by the parties, and the
irrevocability of those funds.
(B) Irrevocability of funds. To ensure
the irrevocable nature of the committed
funds, the PHA shall review the legal
documents committing such funds to
ensure that the progress milestones and
conditions precedent contained in such
contracts are generally consistent with
similar affordable housing transactions;
that the PHA and/or its Owner Entity
know of no impediments that would
prevent the project from moving
forward consistent with the project
milestones and conditions precedent;
and, after conducting sufficient due
diligence, that such documents are
properly executed by persons or entities
legally authorized to bind the entity
committing such funds.
(C) Third-party documents. The PHA
is not required to ensure the availability
of funds by enforcing documents to
which it is not a party.
(D) Opinion of counsel. As part of the
proposal, the PHA may certify as to the
irrevocability of funds through the
submission of an opinion of the PHA’s
counsel attesting that counsel has
examined the availability of the
participating parties’ financing, and the
amount and source of financing
committed to the project by the
participating parties, and has
determined that such financing has been
irrevocably committed, as defined in
paragraph (a)(6)(iii)(A) of this section,
and that such commitments are

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consistent with the project budget
submitted under paragraph (a)(6)(i) of
this section.
(7) Operating pro-forma/Operating
Fund methodology. To allow HUD to
assess the financial feasibility of
projects, PHAs shall submit a 10-year
operating pro-forma, including all
assumptions, to assure that operating
expenses do not exceed operating
income. For mixed-finance
development, the PHA must describe its
methodology for providing and
distributing operating subsidy to the
Owner Entity for the public housing
units.
(8) Local Cooperation Agreement. A
PHA may elect to exempt all public
housing units in a mixed-finance project
from the payment in lieu of taxes
provisions under section 6(d) of the Act,
42 U.S.C. 1437d(d), and from the
finding of need and cooperative
agreement provisions under sections
5(e)(1)(ii) and (e)(2) of the Act, 42 U.S.C.
1437c(e)(1)(ii) and (e)(2), and instead
subject units to local real estate taxes,
but only if the PHA provides
documentation from an authorized
official of the local jurisdiction that
development of the units is consistent
with the jurisdiction’s comprehensive
housing affordability strategy. If the
PHA does not elect this exemption, the
Cooperation Agreement as provided in
§ 905.602(a) is required and must be
submitted.
(9) Environmental requirements. The
PHA must provide an approved Request
for Release of Funds and environmental
certification, submitted in accordance
with 24 CFR part 58, or approval in
accordance with 24 CFR part 50. HUD
will not approve a development
proposal without the appropriate
environmental approval.
(10) Market analysis. For a mixedfinance development that includes
nonpublic housing units, the PHA must
include an analysis of the projected
market for the proposed project.
(11) Program income and fees. The
PHA must provide information
identifying fees to be paid to the PHA,
the PHA’s partner(s), the Owner Entity,
and/or other participating parties
identified by HUD and on the receipt
and use of program income.
(b) Additional HUD-requested
information. PHAs are required to
provide any additional information that
HUD may need to assess the
development proposal.
§ 905.608

Site acquisition proposal.

(a) Submission. When a PHA
determines that it is necessary to
acquire vacant land for development of
public housing through new

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construction, using public housing
funds, prior to submission and approval
of a development proposal under
§ 905.606 of this part, the PHA must
submit an acquisition proposal to HUD
for review and approval prior to
acquisition. The acquisition proposal
shall include the following:
(b) Justification. A justification for
acquiring property prior to development
proposal submission and approval.
(c) Description. A description of the
property (i.e., the proposed site and/or
project) to be acquired.
(d) Project description; site and
neighborhood standards. An
identification and description of the
proposed project, site plan, and
neighborhood, together with
information sufficient to enable HUD to
determine that the proposed site meets
the site and neighborhood standards at
§ 905.602(d) of this part.
(e) Zoning. Documentation that the
proposed project is permitted by current
zoning ordinances or regulations, or
evidence to indicate that needed
rezoning is likely and will not delay the
project.
(f) Appraisal. Documentation attesting
that an appraisal of the proposed
property by an independent, state
certified appraiser has been conducted
and that the acquisition is in
compliance with § 905.308(b)(9) of this
part. The purchase price of the site/
property may not exceed the appraised
value without HUD approval.
(g) Schedule. A schedule of the
activities to be carried out by the PHA.
(h) Environmental assessment. An
environmental review or request for
HUD to perform the environmental
review pursuant to § 905.308(b)(2) of
this part.

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§ 905.610

Technical processing.

(a) Review. HUD shall review all
development proposals and site
acquisition proposals for compliance
with the statutory, Executive order, and
regulatory requirements applicable to
the development of public housing and
the project. HUD’s review will evaluate
whether the proposed sources and uses
of funds are eligible and reasonable, and
whether the financing and other
documentation establish to HUD’s
satisfaction that the development is
financially viable and structured so as to
adequately protect the federal
investment of funds in the development.
For this purpose, HUD will consider the
PHA’s proposed methodology for
allocating operating subsidies on behalf
of the public housing units, the
projected revenue to be generated by
any nonpublic housing units in a
mixed-finance development, and the 10-

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year operating pro forma and other
information contained in the
development proposal.
(b) Subsidy layering analysis. After
the PHA submits the documentation
required under paragraph (a) of this
section, HUD or its designee (e.g., the
State Housing Finance Agency) shall
carry out a subsidy layering analysis,
pursuant to section 102(d) of the
Department of Housing and Urban
Development Reform Act of 1989 (42
U.S.C. 3545) (see 24 CFR part 4), to
determine that the amount of assistance
being provided for the development is
not more than necessary to make the
assisted activity feasible after taking into
account the other governmental
assistance.
(c) Safe harbor standards. For mixedfinance projects, in order to expedite the
mixed-finance review process and
control costs, HUD may make available
safe harbor and maximum fee ranges for
a number of costs. If a project is at or
below a safe harbor standard, no further
review will be required by HUD. If a
project is above a safe harbor standard,
additional review by HUD will be
necessary. In order to approve terms
above the safe harbor, the PHA must
demonstrate to HUD in writing that the
negotiated terms are appropriate for the
level of risk involved in the project, the
scope of work, any specific
circumstances of the development, and
the local or national market for the
services provided.
(d) Approval. If HUD determines that
a site acquisition proposal or a
development proposal is approvable,
HUD shall notify the PHA in writing of
its approval. The HUD approval of a
development proposal will include the
appropriate form of ACC for signature.
The PHA must execute the ACC and
return it to HUD for execution. Until
HUD approves a development proposal,
a PHA may only expend public housing
funds for predevelopment costs, as
provided in § 905.612 of this part.
(e) Amendments to approved
development proposals. HUD must
approve any material change to an
approved development proposal. HUD
defines material change as:
(1) A change in the number of public
housing units;
(2) A change in the number of
bedrooms by an increase/decrease of
more than 10 percent;
(3) A change in cost or financing by
an increase/decrease of more than 10
percent; or
(4) A change in the site.

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§ 905.612 Disbursement of Capital
Funds—predevelopment costs.

(a) Predevelopment costs. After a new
development project has been included
in the CFP 5-Year Action Plan that has
been approved by the PHA Board of
Commissioners and HUD, a PHA may
use funding for predevelopment
expenses. Predevelopment funds may be
expended in accordance with the
following requirements:
(1) Predevelopment assistance may be
used to pay for materials and services
related to proposal development and
project soft costs. It may also be used to
pay for costs related to the demolition
of units on a proposed site. Absent HUD
approval, predevelopment assistance
may not be used to pay for site work,
installation of infrastructure,
construction, or other hard costs related
to a development.
(2) For non-mixed-finance projects,
predevelopment funding up to 5 percent
of the total amount of the public
housing funds committed to a project
does not require HUD approval. HUD
shall determine on a case-by-case basis
that an amount greater than 5 percent
may be drawn down by a PHA to pay
for necessary and reasonable
predevelopment costs, based upon a
consideration of the nature and scope of
activities proposed to be carried out by
the PHA. Before a request for
predevelopment assistance in excess of
5 percent may be approved, the PHA
must provide to HUD information and
documentation specified in §§ 905.606
and 905.608 of this part, as HUD deems
appropriate.
(3) For mixed-finance projects, all
funding for predevelopment costs must
be reviewed and approved by HUD prior
to expenditure.
(4) The requirements in paragraph (b)
of this section to disburse funds for
mixed-financed projects in an approved
ratio to other public and private funding
do not apply to disbursement of
predevelopment funds.
(b) Standard drawdown requirements.
(1) General. If HUD determines that the
proposed development is approvable, it
may execute with the PHA the
applicable ACC Amendment to provide
funds for the purposes and in the
amounts approved by HUD. Upon
approval of the development proposal
and all necessary documentation
evidencing and implementing the
development plan, the PHA may
disburse amounts as are necessary and
consistent with the approved
development proposal without further
HUD approval, unless HUD determines
that such approval is necessary. Once
HUD approves the site acquisition
proposal, the PHA may request funds

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Federal Register / Vol. 78, No. 206 / Thursday, October 24, 2013 / Rules and Regulations
for acquisition activities. Each Capital
Fund disbursement from HUD is
deemed to be an attestation of
compliance by the PHA with the
requirements of this part, as prescribed
in § 905.106 of this part. If HUD
determines that the PHA is in
noncompliance with any provision of
this part, the PHA may be subject to the
sanctions in § 905.800, subpart H, of this
part.
(2) Mixed-finance projects. For mixedfinance projects, prior to PHA
disbursement of public housing funds,
except predevelopment funds identified
in paragraph (a) of this section, HUD
may require a PHA to submit to HUD,
for review and approval, copies of final,
fully executed, and, where appropriate,
recorded documents, submitted as part
of the development proposal process.
Upon completion of the project, the
ratio of public housing funds to nonpublic housing funds for the overall
project must remain as reflected in the
executed documents. The ratio does not
apply during the construction period.
Subpart G—Other Security Interests
§ 905.700

Other security interests.

(a) The PHA may not pledge,
mortgage, enter into a transaction that
provides recourse to public housing
assets, or otherwise grant a security
interest in any public housing project,
portion thereof, or other property of the
PHA without the written approval of
HUD.
(b) The PHA shall submit the request
in the form and manner prescribed by
HUD.
(c) HUD shall consider:
(1) The ability of the PHA to complete
the financing, the improvements, and
repay the financing;
(2) The reasonableness of the
provisions in the proposal; or
(3) Any other factors HUD deems
appropriate.
Subpart H—Compliance, HUD Review,
Penalties, and Sanctions
§ 905.800

Compliance.

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As provided in § 905.106 of this part,
PHAs or other owner/management
entities and their partners are required
to comply with all applicable provisions
of this part. Execution of the CF ACC
Amendment received from the PHA,

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submissions required by this part, and
disbursement of Capital Fund grants
from HUD are individually and
collectively deemed to be the PHA’s
certification that it is in compliance
with the provisions of this part and all
other Public Housing Program
Requirements. Noncompliance with any
provision of this part or other applicable
requirements may subject the PHA and/
or its partners to sanctions contained in
§ 905.804 of this part.
§ 905.802 HUD review of PHA
performance.

(a) HUD determination. HUD shall
review the PHA’s performance in
completing work in accordance with
this part. HUD may make such other
reviews when and as it determines
necessary. When conducting such a
review, HUD shall, at minimum, make
the following determinations:
(1) HUD shall determine whether the
PHA has carried out its activities under
this part in a timely manner and in
accordance with its CFP 5-Year Action
Plan and other applicable requirements.
(2) HUD shall determine whether the
PHA has a continuing capacity to carry
out its Capital Fund activities in a
timely manner.
(3) HUD shall determine whether the
PHA has accurately reported its
obligation and expenditures in a timely
manner.
(4) HUD shall determine whether the
PHA has accurately reported required
building and unit data for the
calculation of the formula.
(5) HUD shall determine whether the
PHA has obtained approval for any
CFFP or OFFP proposal and any PHA
development proposal.
(b) [Reserved]
§ 905.804

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specific program requirements that the
PHA has violated, and specifying that
any of the corrective actions listed in
this section must be taken. Any
corrective action ordered by HUD shall
become a condition of the CF ACC
Amendment.
(2) Require reimbursement from nonHUD sources.
(3) Limit, withhold, reduce, or
terminate Capital Fund or Operating
Fund assistance.
(4) Issue a Limited Denial of
Participation or Debar responsible PHA
officials, pursuant to 2 CFR parts 180
and 2424.
(5) Withhold assistance to the PHA
under section 8 of the Act, 42 U.S.C.
1437f.
(6) Declare a breach of the CF ACC
with respect to some or all of the PHA’s
functions.
(7) Take any other available corrective
action or sanction as HUD deems
necessary.
(b) Right to appeal. Before taking any
action described in paragraph (a) of this
section, HUD shall notify the PHA of its
finding and proposed action and
provide to the PHA an opportunity,
within a prescribed period of time, to
present any arguments or additional
facts and data concerning the finding
and proposed action to HUD’s Assistant
Secretary for Public and Indian
Housing.
PART 941—[REMOVED]
7. Under the authority of 42 U.S.C.
3535(d), remove part 941, consisting of
§§ 941.101–941.616.

■

PART 968—[REMOVED]
8. Under the authority of 42 U.S.C.
3535(d), remove part 968, consisting of
§§ 968.101–968.435.

■

Sanctions.

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

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PART 969—[REMOVED]
9. Under the authority of 42 U.S.C.
3535(d), remove part 969, consisting of
§§ 969.101–969.107.

■

Dated: September 18, 2013.
Sandra B. Henriquez,
Assistant Secretary for Public and Indian
Housing.
[FR Doc. 2013–23230 Filed 10–23–13; 8:45 am]
BILLING CODE 4210–67–P

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