Project-Based Voucher Program, 59892-59930 [05-20035]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 70, Number 197 (Thursday, October 13, 2005)]
[Rules and Regulations]
[Pages 59892-59930]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-20035]



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Part IV





Department of Housing and Urban Development





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24 CFR Part 983



Project-Based Voucher Program; Final Rule

Federal Register / Vol. 70, No. 197 / Thursday, October 13, 2005 / 
Rules and Regulations

[[Page 59892]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 983

[Docket No. FR-4636-F-02]
RIN 2577-AC25


Project-Based Voucher Program

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

ACTION: Final rule.

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SUMMARY: This rule replaces the current project-based certificate (PBC) 
regulations with a comprehensive new project-based voucher program. 
This rule is based on statutory authorities enacted in 1998 and 2000, 
and follows a proposed rule and public comment.

DATES: Effective date: November 14, 2005.

FOR FURTHER INFORMATION CONTACT: David Vargas, Director, Office of 
Voucher Programs, Department of Housing and Urban Development, 451 
Seventh Street, SW., Room 4210, Washington, DC 20410; telephone (202) 
708-2815 (this is not a toll-free number). Persons with hearing or 
speech impairments may access these numbers via TTY by calling the 
federal Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    The project-based voucher law was initially enacted in 1998, as 
part of the statutory merger of the certificate and voucher tenant-
based assistance programs. (See section 545 of the Quality Housing and 
Work Responsibility Act of 1998 (Pub L. 105-276) approved October 21, 
1998) (QHWRA) amending 42 U.S.C. 1437f(o).) Under QHWRA, a public 
housing agency (PHA), as defined under section 3(b)(6) of the U.S. 
Housing Act of 1937, 42 U.S.C. 1437a(b)(6), has the option to use a 
portion of its available tenant-based voucher funds for project-based 
rental assistance. The project-based voucher law replaced an authority 
for project-based rental assistance in the former Section 8 certificate 
program.
    In 2000, Congress substantially revised the project-based voucher 
law. (Section 8(o)(13) of the United States Housing Act of 1937, 42 
U.S.C. 1473f(o)(13), as amended by section 232 of the Fiscal Year 2001 
Departments of Veterans Affairs and Housing and Urban Development and 
Independent Agencies Appropriations Act (Pub. L. 106-377, 114 S-tat. 
1441, approved October 27, 2000)). The statutory basis for project-
based housing is codified at 42 U.S.C. 1437f(o)(13) under the heading, 
``PHA project-based assistance.''
    Significant changes made by QHWRA and the FY 2001 Appropriations 
Act include:
     A PHA may project-base up to 20 percent of the PHA's 
voucher funding.
     A PHA may provide project-based assistance for existing 
housing that does not need rehabilitation, as well as for newly 
constructed or rehabilitated housing.
     Project-based assistance must be consistent with the ``PHA 
Plan.''
     Project-basing must be consistent with the statutory goals 
of ``deconcentrating poverty and expanding housing and economic 
opportunities.''
     After one year of assistance, a family may move from a 
project-based voucher unit. When a slot is available, the family may 
switch to the PHA's tenant-based voucher program or another comparable 
program.
     Except for units designated for families that are elderly, 
disabled, or receiving supportive services, no more than 25 percent of 
units in a building may have project-based voucher assistance.
     A PHA may enter into a housing assistance payments (HAP) 
contract for a term of up to 10 years. However, the PHA's contractual 
commitment is subject to availability of appropriated funds.
     At the end of the contract term, the PHA may extend the 
HAP contract with an owner for a period appropriate to achieve long-
term affordability or to expand housing opportunities. Extensions are 
subject to availability of appropriated funds.
     Generally, project-based voucher rents (rent to owner plus 
the allowance for tenant-paid utilities) may not exceed the lower of 
the reasonable rent, or 110 percent of the applicable Fair Market Rent 
(FMR) (or any exception payment standard approved by the Secretary), 
or, if applicable, the tax credit rent. This limit applies both to the 
initial rent and rent adjustments over the term of the HAP contract.
     There are special provisions for establishing the project-
based voucher rent for a unit in a tax credit building located outside 
a ``qualified census tract.'' These provisions are found at 42 U.S.C. 
1437f(o)(13)(H).
     Admission to project-based units is subject to the overall 
voucher ``income-targeting'' requirement. Under 42 U.S.C. 
1437f(o)(13)(J), the income targeting provisions of section 16(b) of 
the U.S. Housing Act of 1937 apply. Under these provisions, at least 75 
percent of the families admitted to the PHA tenant-based and project-
based voucher programs each year must be families with annual incomes 
below 30 percent of median income for the area. HUD's regulations 
define such families as ``extremely low-income families'' at 24 CFR 
5.603.
     All units must be inspected for housing quality standards 
(HQS) compliance before the PHA enters into a HAP contract with an 
owner. After the initial inspection, the PHA is not required to re-
inspect each unit annually. Instead, the PHA may inspect a 
representative sample of units at the annual re-inspection.
     If a family moves out, the PHA may continue payments to 
the owner for up to 60 days. The PHA has discretion whether to provide 
such vacancy payments.
    On January 16, 2001, (66 FR 3605), HUD published a Federal Register 
notice with guidance on the changes made to the project-based voucher 
(PBV) program in the FY 2001 Appropriations Act. By ``project-based 
voucher program,'' this regulation means the program statutorily 
codified at 42 U.S.C. 1437f(o)(13), which allows PHAs to attach to 
dwelling units up to 20 percent of the funding available for tenant-
based assistance. The HUD guidance notice described the law, identified 
statutory requirements that are effective immediately, and provided 
guidance on how to implement the law and existing program regulations.

II. The Proposed Rule

    HUD published a proposed rule for comment on March 18, 2004 (69 FR 
12950). A summary overview of the proposed rule can be found at 69 FR 
12950-12953. The proposed rule text begins at 69 FR 12954. The comment 
period for this proposed rule closed on May 17, 2004. Forty-seven 
commenters submitted comments during the comment period on a wide 
variety of issues related to this proposed rule. The commenters 
included a variety of entities, including PHAs, professional and trade 
organizations, and individuals. In response to the comments, this final 
rule makes certain changes to the proposed rule as described in the 
following section of the preamble. In addition, a summary of the issues 
raised by the public commenters and HUD's responses is found at section 
IV of this preamble.

III. This Final Rule

    This final rule implements the project-based voucher program. As of 
its effective date, this rule supersedes the January 2001 notice. The 
following

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changes to the proposed rule are made by this final rule. Section IV of 
this preamble summarizes the public comments and HUD's responses to 
them.

Subpart A--General

1. Section 983.1

    This final rule makes a technical correction in Sec.  983.1(c), 
``Specific 24 CFR part 982 provisions that do not apply to PBV 
assistance.'' References to Sec.  982.551-982.555 are removed. It is 
not necessary to mention these sections as excepted from the sections 
that do not apply, because the same result is obtained by simply not 
mentioning them.

2. Section 983.3

    In the PBV definitions under Sec.  983.3(b), the definition of 
``baseline units'' is deleted. Instead, the rule uses the concept of 
``budget authority'' to indicate the amount of appropriated funds 
available to a PHA for its housing choice voucher program.
    The definition of ``HUD'' is removed because it is unnecessary to 
restate it in this part. ``HUD'' is defined in 24 CFR 5.100.
    The definition of PHA-owned unit is revised to clarify that ``PHA 
owned'' includes any interest by the PHA in the building in which a 
unit is located. This change is necessary because HUD's experience to 
date has been that the definition has been misunderstood and applied 
differently in different geographical areas. Also, in the proposed 
rule, this definition cross-referenced a non-applicable portion of part 
982.
    The definition of ``proposal selection date'' is revised to 
reference the PHA's administrative plan. Section 983.51(b) of this rule 
requires that the PHA's procedures for selecting proposals be stated in 
the administrative plan.
    The definition of ``rent to owner'' is amended. Examples of non-
housing services that are not included in rent are added, and the 
adjective ``reasonable'' is removed. The rent reasonableness test is an 
overall limitation on the amount of rent to owner under the rule, and 
it is not necessary to include it in the definition.
    A number of terms defined in the proposed rule are removed because 
those terms are defined in 24 CFR part 982 and are applicable to this 
rule under Sec.  983.3(a)(2)(ii). These terms are: Fair market rent 
(FMR); family; gross rent; group home; HAP contract; owner; 
participant; reasonable rent; tenant; and tenant rent.
    Definitions were removed and replaced with cross references for 
``utility allowance'' and ``utility reimbursement.'' Both of these 
terms are defined at 24 CFR 5.603.

3. Section 983.5

    The final rule makes two minor technical corrections. Section 
983.5(a)(4) is amended to change ``rental assistance payments'' to 
``housing assistance payments.'' Section 983.5(b)(2) is amended to 
change ``project-basing'' to ``project-based vouchers'' (a similar 
change is made in Sec.  983.6(c)).

4. Section 983.6

    In paragraphs (a) and (c) of this section dealing with the amount 
of project-based assistance available to a PHA, the phrase ``baseline 
units'' is removed. Instead, the amount of project-based funding is 
expressed as a percentage of the amount of budget authority allocated 
to the PHA.

5. Section 983.7

    The Notice of Proposed Rulemaking (NPRM) proposed that voucher 
program funds could not be used to pay for relocation costs under the 
Uniform Relocation Act in connection with assistance under this part. 
This final rule allows administrative fee reserves to be used for this 
purpose provided that payment of relocation benefits is consistent with 
state and local law and HUD regulations on the use of reserves, 
including 24 CFR 982.155, and that all other program administrative 
expenses have been satisfied.

6. Section 983.10

    This final rule revises Sec.  983.10(b) to clarify that PHAs may 
renew PBC HAP contracts for terms of up to five years, to an aggregate 
total including the original term and all extensions, of 15 years, 
depending on the availability of appropriated funds.

Subpart B--Selection of PBV Owner Proposals

7. Section 983.51

    The final rule makes several editorial changes to this section. In 
addition, Sec.  983.51(b)(2) is revised to allow PHAs to select owner 
proposals without a separate competition for projects that were 
competitively selected under another program within three years of the 
PBV proposal selection date. The prior competitive selection cannot 
have considered future PBV assistance, because such a consideration 
could give such projects an unfair advantage by wrongly affecting the 
original competition and thereby tainting the process. Also, the non-
competitive selection of a project for low income housing tax credits 
(LIHTCs) does not satisfy the requirement of a prior competition.

8. Section 983.52

    This section adds additional detail to the general description of 
housing types to which assistance may be attached under this program. 
Existing housing is defined to exclude housing for which new 
construction or rehabilitation has been started. The rule cross-
references subpart D as applicable to newly constructed and 
rehabilitated housing.

9. Section 983.53

    This section makes an editorial change to combine Sec.  
983.53(a)(2) and (a)(4). Substantively, Sec.  983.53(b) is revised to 
give PHAs the responsibility to make an initial determination (and HUD 
approves such determination as the statute requires) as to whether 
assistance may be attached to a high-rise elevator project that may be 
occupied by families with children because there is no practical 
alternative. PHAs may make this initial determination for its entire 
project-based program, a portion of it, or case-by-case, and HUD may 
approve the determination on the same basis.

10. 983.56

    The NPRM proposed that the overall cap of 25 percent of the total 
number of dwelling units in the building include units receiving any 
type of federal, project-based assistance. This final rule limits the 
units that count against the cap to units receiving PBV assistance 
under this program, revising paragraph (a)(1) accordingly and removing 
paragraph (a)(2). Additionally, Sec.  983.56(b)(2)(B) is revised. In 
the proposed rule, this exception to the 25 percent cap on project-
basing units was limited to families in a housing voucher Family Self-
Sufficiency (FSS) program under section 23 of the 1937 Act, 42 U.S.C. 
1437u.
    This final rule revises this exemption to include units that are 
made available to families that are receiving any type of supportive 
services that the PHA specifies as qualifying services in its PHA 
administrative plan. If a family at the time of initial tenancy is 
receiving, and while the resident of an excepted unit has received, FSS 
supportive services or any other supportive services as defined in the 
PHA administrative plan, and successfully completes the FSS contract of 
participation or the supportive services requirement, the unit 
continues to count as an excepted unit for as long as the family 
resides in the unit. If a family in an excepted unit fails to complete 
the FSS contract of

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participation or fails to complete another program of supportive 
services, such failure results in termination of assistance by the PHA, 
and is grounds for lease termination by the owner. The PHA is 
responsible for monitoring and ensuring compliance with this 
requirement. At the time of initial lease execution between the family 
and the owner, the family and the PHA sign a statement of family 
responsibility, and HUD will include this requirement in this 
statement, thus ensuring that the family is aware that the PHA will 
terminate assistance if the family fails to meet its obligation.
    If the unit at the time of such termination is an excepted unit 
outside the 25 percent cap, the exception continues to apply to the 
unit as long as the unit is made available to another family receiving 
qualifying services. A family is deemed to be receiving supportive 
services if it has at least one family member receiving at least one 
qualifying service.
    The section also is revised to clarify that, generally, a PHA may 
not require participation in medical or disability-related services. 
The one exception is that a PHA may require current drug and alcohol 
abusers to receive drug and alcohol treatment. This requirement is in 
accordance with HUD's overall policy to ensure that drug and alcohol 
abusers do not interfere with other residents' health, safety, or right 
to reasonable enjoyment of the premises of assisted housing. See, for 
example, 24 CFR 5.858 and 5.860.

11. Section 983.57

    The NPRM proposed at Sec.  983.57(b)(1) that a proposed site for 
project-based assistance be ``consistent with the goal of 
deconcentrating poverty and expanding housing and economic 
opportunities.'' This final rule revises proposed Sec.  983.57(b)(1) 
and adds seven factors that the PHA must consider in determining 
whether a proposed PBV site is consistent with these goals. Under this 
final rule, the housing site must be consistent with the 
deconcentration goals stated in the PHA plan and with civil rights laws 
and regulations, including HUD's rules on accessibility at 24 CFR 
8.4(b)(5). These include whether the site is in an Enterprise Zone, 
Economic Community, or Renewal Community (EZ/EC/RC); whether the 
concentration of assisted units will be or has decreased as a result of 
public housing demolition; whether the census tract is undergoing 
significant revitalization; whether government funding has been 
invested in the area; whether new market rate units are being developed 
in the area, which are likely to positively impact the poverty rate in 
the area; if the poverty rate in the area is greater than 20 percent, 
whether in the past five years there has been an overall decline in the 
poverty rate; and whether there are meaningful opportunities for 
educational and economic advancement in the area. Housing under the PBV 
program may be selected only if consistent with the goal of 
deconcentrating poverty and expanding housing and economic 
opportunities.

12. Section 983.58

    Section 983.58(c) is revised to indicate that in the case of 
existing housing, the responsible entity must determine whether or not 
PBV assistance is categorically excluded from review under the National 
Environmental Policy Act and whether or not the assistance is subject 
to review under the laws and authorities listed in 24 CFR 58.5. The 
responsible entity must either complete the environmental review 
requirements of 24 CFR part 58, or HUD must perform the review under 
part 50, or the project must be determined to be exempt or 
categorically excluded. Section 983.58(d)(ii) of this final rule 
clarifies that in the case of review by the responsible entity under 
part 58, that entity makes the determination whether the project to be 
assisted is exempt or categorically excluded, and that if the project 
is exempt or categorically excluded, no further environmental review is 
needed.

Subpart C--Dwelling Units

    There are no substantive changes to this subpart made in this final 
rule. There are some minor editorial changes.

Subpart D--Requirements for Rehabilitated and Newly Constructed Units

13. Section 983.155

    The NPRM proposed that the PHA and HUD could set requirements for 
the evidence of completion of a housing project under this program at 
Sec.  983.155(b), along with additional documentation that could be 
required under proposed Sec.  983.155(b)(2). In the final rule, 
reference to HUD is removed so that the PHA alone sets these 
requirements.

Subpart E--Housing Assistance Payments Contract

14. Section 983.202

    This final rule removes an unnecessary sentence from Sec.  
983.202(b)(2). This is an editorial change that does not alter the 
overall intent of the section. The sentence stated that HUD provides 
funds to PHAs to make housing assistance payments to owners. This 
sentence is redundant as the same idea is stated in the first two 
sentences of the paragraph.

15. Section 983.203

    This final rule conforms Sec.  983.203(h) to the change to the 
exception to the 25 percent cap, making the exception generally 
applicable to families receiving supportive services, rather than only 
to families with a contract of participation under the statutory FSS 
program at 42 U.S.C. 1437u (see also Sec.  983.57, redesignated from 
proposed Sec.  983.56).

16. Section 983.205

    The NPRM proposed that extensions of the HAP contract be in one-
year increments. The final rule revises Sec.  983.205(a) to allow for 
extensions of up to five years.

17. Section 983.206

    In Sec.  983.206(b), on ``amendments to add contract units,'' this 
final rule removes ``compliance with Davis-Bacon wage rates during 
construction'' as an example of the legal requirements for a HAP 
amendment and replaces it with ``rents are reasonable.''

18. Section 983.209

    This final rule adds ``spouse'' to the list of prohibited family 
relationships between the owner of a PBV unit and the resident(s) of 
this unit at Sec.  983.209(e).

Subpart F--Occupancy

19. Section 983.251

    This section relates to protection of in-place families; that is, 
families that are eligible to participate in the program as of the date 
the proposal is selected, and which reside in a unit that will be 
placed under a project-based assistance contract. This final rule 
finalizes similar protections for in-place families that were 
originally proposed, with the one difference that Sec.  983.251(b)(2) 
is revised to require that such families be placed on the PHA's waiting 
list, with an absolute preference for referral to owners and placement 
in units that become available.
    This final rule adds a new Sec.  983.251(d), entitled ``Preference 
for services offered,'' and redesignates proposed Sec.  983.251(d) as 
Sec.  983.251(e). This new section allows PHAs to grant a preference to 
families with disabilities that require the services offered at a 
particular project. The preference may be applied to those families, 
including individuals, whose disabilities

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significantly interfere with their ability to obtain and maintain 
themselves in housing; who, without such services, will not in the 
future be able to maintain themselves in housing; and for whom such 
services cannot be provided in a non-segregated setting. Disabled 
residents cannot be required to accept the particular services offered. 
The project may be advertised as being for a particular type of 
disability; however, the project must be open to all otherwise eligible 
persons with disabilities who may benefit from the services offered.
    Section 983.252, relating to information to be provided to 
families, is slightly revised for consistency and to make changes. 
Paragraph (c) is revised to include alternative formats for persons 
with disabilities. A new 24 CFR 983.252(d) is added regarding 
information for families with limited English proficiency.
    Section 983.253 is revised in this final rule. Section 
983.253(a)(2), stating that the owner ``may apply its own admission 
standards,'' is replaced with a statement that, like current 24 CFR 
983.203(c)(4)(i), the owner is responsible for having written tenant 
selection procedures. These procedures must be consistent with the 
purpose of improving housing opportunities for very low-income families 
and be reasonably related both to program eligibility requirements and 
to the applicant family's ability to perform its obligations under the 
lease.

20. Section 983.255

    The NPRM proposed in Sec.  983.255(a) that a PHA has no obligation 
but ``may opt to screen applicants for family behavior and suitability 
for tenancy.'' This final rule specifies that a PHA may deny admission 
based on this screening. Proposed Sec.  983.255(b)(2)(vi) gave the 
owner broad latitude to screen a family's background for a variety of 
factors, including ``other factors determined by the owner.'' This 
paragraph is removed from the final rule. The owner may screen for 
factors ``such as'' the factors listed in Sec.  983.255(b)(2)(i)-(v). A 
variety of minor revisions are made to proposed Sec.  983.255 on 
information that a PHA must provide. These include the provision to the 
owner of any prior address of the applicant (rather than any 
immediately prior address) and information relating to drug trafficking 
by family members. This section also provides that the PHA may give the 
owner certain information about an applicant family, and that the PHA 
must disclose to the family a description of the PHA's policy regarding 
such information. The requirement that this disclosure must be included 
specifically in the information package given to a family is removed, 
although the underlying requirement to give the disclosure to the 
family is retained.

21. Section 983.256

    This final rule strengthens the PHA's ability to ensure that the 
lease meets the requirements of state and local law. Proposed Sec.  
983.256(b)(4) would have allowed the PHA to require revisions to the 
lease, if necessary. This final rule allows the PHA to decline to 
approve the tenancy if the lease does not meet the requirements of law.
    This final rule adds an item to Sec.  983.256(c), entitled 
``Required information.'' New Sec.  983.256(c)(6) requires the lease to 
specify ``the amount of any charges for food, furniture, or supportive 
services.''
    The final rule revises Sec.  983.256(f). The NPRM had proposed 
that, under certain conditions, leases could be for a term of less than 
one year. This final rule eliminates that option.

22. Section 983.257

    The final rule refines the section on owner termination of tenancy 
and eviction by specifying in a new Sec.  983.257(b) that the owner 
shall not terminate a lease under the PBV program without good cause as 
meant in 24 CFR 982.310 (except for 24 CFR 982.310(d)(1)(iii) and (iv), 
and under the eviction provisions of 24 CFR 5.858-5.861). Otherwise, an 
owner may renew or non-renew a lease upon expiration, but if the owner 
does not renew without good cause, the family must be provided tenant-
based assistance and the unit must be removed from the coverage of the 
HAP contract. A new Sec.  983.257(c) is added to make the section 
consistent with Sec.  983.56 and clarify that, if a family is living in 
a unit excepted from the 25 percent per-building cap on project-basing 
because of the family's participation in an FSS or other supportive 
services program, failure of the family without good cause to complete 
its FSS or supportive services program is grounds for lease termination 
by the owner.

23. Section 983.258

    This section provides that the owner may collect a security deposit 
from the tenant, and that the deposit may be used when the tenant moves 
out to reimburse the owner for any unpaid rent, damages to the unit, or 
other money that the tenant owes to the owner. This final rule makes 
only minor editorial revisions.

24. Section 983.260

    This final rule makes a minor technical change to this section to 
make the second sentence of paragraph (a) into a new stand-alone 
paragraph at Sec.  983.260(d). This change is made because this 
sentence is actually a separate consideration from the remainder of 
paragraph (a). Paragraph (a) generally concerns termination of the 
lease at the family's option after one year of occupancy; the new Sec.  
983.260(d) concerns termination before one year of occupancy, which is 
treated differently.

25. Section 983.261

    This section governs referrals to units that are excepted from the 
25 percent cap on project basing. Under Sec.  983.56(b), units in a 
multifamily building that are occupied by the elderly, families with 
disabilities, or families receiving supportive services are exempt from 
the overall 25 percent cap. This final rule revises Sec.  983.261 in 
accordance with Sec.  983.56 to expand the exemption from families with 
a contract of participation in the statutory FSS program under 42 
U.S.C. 1437u to units made available to all families receiving 
supportive services as stated in Sec.  983.57(b)(2)(ii). A family is 
``receiving supportive services'' if it has at least one member 
receiving at least one such service. If a family successfully completes 
its supportive services program, the unit remains an excepted unit as 
long as the family resides in the unit. If a family fails to complete 
its FSS or other supportive services participation, or no longer has a 
member qualifying as elderly or disabled, the family must vacate the 
unit in a reasonable time established by the PHA and the PHA shall 
cease paying housing assistance on behalf of the non-qualifying family. 
In the case of a partially assisted building, the owner has the choice 
of substituting a different unit in accordance with 983.206(a) or 
terminating the lease. The assistance for a family that is not in 
compliance with its obligations, such as non-completion of its FSS 
program without good cause, shall be terminated by the PHA.

Subpart G--Rent to Owner

26. Section 983.301

    The proposed rule would have provided for annual redeterminations 
of the rent to owner (at Sec.  983.301(a)(3)), and for the amount of 
rent to owner (except for certain tax credit units) to be up to the 
lowest of the payment standard amount for the bedroom size minus any 
utility allowance, the reasonable rent, or the rent requested by the 
owner. This final rule significantly

[[Page 59896]]

revises these provisions in response to public comments, which are 
described below at section IV of this preamble. Under this final rule, 
the rent to owner is established at the beginning of the HAP contract 
term. The rent to owner, for non-LIHTC units, may not exceed the lowest 
of an amount determined by the PHA, not to exceed 110 percent of the 
applicable FMR or HUD-approved exception payment standard for the unit 
size less any utility allowance; the reasonable rent; or the rent 
requested by the owner. The tax credit rent is similar, except that the 
first of the three amounts is the tax credit rent minus any utility 
allowance. The tax-credit rent provision applies to certain tax credit 
projects not located in a qualified census tract. A ``qualified census 
tract'' is defined as any census tract or equivalent area defined by 
the Census Bureau in which: (1) At least 50 percent of households have 
an income of less than 60 percent of Area Median Gross Income; or (2) 
the poverty rate is at least 25 percent and where the census tract is 
designated as a qualified census tract by HUD. The rent must be 
redetermined at the owner's request or whenever there is a five percent 
or greater decrease in the published FMRs. The owner must request any 
rent increase at the annual anniversary of the HAP by written notice to 
the PHA.
    Under final Sec.  983.301(f), when determining the initial rent to 
the owner, the most recently published fair market rent (FMR) and 
utility allowance schedule applies, rather than, as proposed, the 
payment standard amount on the PHA's payment standard schedule.

27. Sections 983.302 and 983.303

    These sections apply to redeterminations of the rent to owner. This 
final rule revises these sections so that, consistent with Sec.  
983.301, the time for redetermination is upon the owner's request and 
when there is a five percent or greater decrease in the published FMR.

28. Section 983.304

    This section addresses limitations on the rent to owner for units 
that have subsidies under programs in addition to the PBV program. 
Proposed Sec.  983.304(b)(2) would have provided that the rent to owner 
could not exceed the amounts allowed in these programs, enumerated 
under proposed Sec.  983.304(b)(1). This final rule adds tax credit 
projects to this list. In addition, in order to provide paragraph 
designations for all sections, the proposed undesignated introductory 
section is redesignated Sec.  983.304(a) in this final rule, and the 
following sections are redesignated (b)-(f), accordingly.

Subpart H--Payment to Owner

29. Section 983.354

    This section provides that meals and supportive services, 
generally, may not be charged as part of the rent to the owner, and 
that an owner may not use non-payment of such charges as grounds for 
termination of tenancy. The exception to this general rule is that in 
an assisted living development, owners may charge families or their 
members for meals or supportive services. In the case of such a 
development, the final rule adds a proviso that non-payment of such 
charges may be grounds for the owner to terminate the lease. The HAP 
payment may not be used for the costs of meals and supportive services.

IV. Responses to Public Comments

Comments Addressed to the Rule Generally

    Comment: One commenter questioned why the provisions applicable to 
the project-based voucher program do not also apply to the former PBC 
program. Another commenter stated that HUD should combine the 
certificate and voucher programs and stop having multiple versions of 
one program in operation.
    HUD Response: The Department is required by its regulations on 
rulemaking at 24 CFR 10.2 to publish regulations to implement, 
interpret, and prescribe law and policy for future effect. Thus, these 
regulations cannot be made retroactive to apply to the former program.
    Comment: A commenter stated that PHAs are currently being funded 
from quarter to quarter based on actual utilization, and that, as a 
result, would likely have to hold or set aside some of their tenant-
based funding in order to facilitate project-based voucher development 
proposals. ``The proposed rule should more specifically address the 
allocation of funding for the PBV program as it relates to this 
issue.''
    HUD Response: HUD does not agree that this rule should address 
funding issues as it relates to the PBV program. In Calendar Year 2005, 
PHAs were provided with a specified amount of funding that was 
determined at the beginning of the calendar year and was not subject to 
quarterly or other utilization changes. PHAs are charged with managing 
their resources within program requirements to ensure that they do not 
incur costs beyond their annual funding allocation. If a PHA elects to 
project-base any of its voucher units, it must manage its resources to 
ensure that the agreement to enter into a HAP contract agreement and 
HAP contract commitments will be honored.
    Comment: One commenter stated that PHAs should be able to give 
preferences to ``CHDOs, HOME, HOPE VI, LIHTC properties'' and similar 
projects, and to housing providers with a history of ``responsible 
practices and proper reporting.''
    HUD Response: CHDOs most likely refers to community housing 
development organizations that are eligible to participate in certain 
HUD Community Development Block Grant programs. The requirements for 
CHDOs are stated at 570.204(c). HOME probably refers to the HOME 
Investment Partnerships Act, 42 U.S.C. 12701 note. HOPE VI is the 
popular name for the program for revitalization of public housing now 
codified at 42 U.S.C. 1437v.
    The final rule provides that in cases where a federal, state, or 
local housing assistance, community development, or supportive services 
program that requires a competitive selection of proposals has already 
competitively selected proposals, a second competition for PBV is not 
required. The original competition, however, cannot have considered the 
possibility of future PBV assistance, but the selection must have been 
based on the project's merits at the time of the competition. However, 
the PHA, if it is in accordance with its administrative plan, can give 
a preference to CHDOs, HOME, and LIHTC projects.
    Comment: A commenter stated ``we remain concerned about the need 
for HUD's continued involvement in a given PHA's administration of the 
PBV program.'' This commenter stated that PHAs are independent 
governmental agencies and can police themselves with respect to the 
proper and needed use of public funds. This commenter cited proposed 
Sec.  983.51 (referenced by the commenter as ``dealing with PHA-owned 
units'') and Sec.  983.55 (subsidy layering) as particular concerns. 
Because many PHAs are heavily involved in real estate development and 
subsidy layering reviews--``perhaps even better than a HUD staff person 
who is not intimate with the local real estate development market''--
PHAs should be allowed to make determinations in both those areas.
    HUD Response: Congress specifically set in place safeguards against 
possible program abuse regarding PHA-owned units by requiring HUD to 
ensure that Housing Quality Standards (HQS) inspections and rent 
determinations are conducted by outside entities. To

[[Page 59897]]

protect against possible PHA bias or abuse, and to ensure fairness, HUD 
has promulgated program regulations to carry out Congress' intent. The 
Office of Public and Indian Housing will be issuing a separate 
regulation to delegate subsidy layering reviews (see response to 
comments on Sec.  983.55).
    Comment: Five commenters commented on the relationship between 24 
CFR part 982 and part 983. Four commenters stated that HUD should add a 
general provision that in the event of a conflict between parts 982 and 
983, part 983 shall prevail over any inconsistent provisions of part 
982 with respect to the PBV program. Another commenter stated that in 
the event that HUD has missed something in part 982 that is not 
applicable to the PBV program, there should be leeway for HUD to 
determine, short of a regulatory waiver, that the provision is 
inapplicable to the PBV program.
    HUD Response: 24 CFR 982 is the regulation for the tenant-based 
voucher program. The rule identifies the provisions in 24 CFR 982 that 
do not apply to PBV assistance under part 983. HUD believes it has 
accurately cross-referenced part 982 in the 983 regulation, but if HUD 
determines that any errors have been made, HUD will publish corrections 
in the Federal Register.
    Comment: A commenter stated that there is a disincentive to 
participation in the PBV program because PHAs want to designate a 
portion of their Section 8 allocation to leverage investment or LIHTCs. 
However, while these units are undergoing construction or substantial 
rehabilitation, they are counted adversely in the PHA's lease-up rate 
calculation. This commenter recommends a grace period for such PHAs 
during construction or substantial rehabilitation. This grace period 
should be provided as long as there is a well-defined construction plan 
in place with specific time frames that are documented and submitted to 
HUD.
    HUD Response: During construction or substantial rehabilitation, 
units that will have PBV assistance attached pursuant to an agreement 
do not require the setting aside of vouchers and budget authority 
committed for those units. Rather such set asides are required only 
after completion of the project. However, the PHA must ensure that 
budget authority is available for those units upon execution of the HAP 
contract. If a PHA is leased up to its budget authority, it must ensure 
that through the turnover of vouchers it will have the necessary units 
and dollars to meet its contractual commitments when the project is 
ready to be occupied. PHAs are responsible for monitoring their leasing 
and turnover to ensure that they do not over-lease units or expend more 
budget authority than is available.
    Comment: A commenter also stated that ``Agencies should be able to 
lease the necessary number of vouchers through monthly turnover by the 
time they are needed for occupancy under the PBV program. To allow for 
this, HUD should not consider budget authority committed to PBV 
assistance for this reason to be unutilized.'' This change should also 
be reflected in HUD's Section Eight management assessment (SEMAP). HUD 
should change its procedures for determining agencies' lease-up rates 
and corresponding budget authority. Similarly, another commenter stated 
that, should a PHA set aside vouchers to project-base, the vouchers 
set-aside should not count against SEMAP or any other indicator. PHAs 
should be able to set-aside vouchers based on projections of the 
expected availability of vouchers due to turnover, attrition, or 
expected allocation of additional vouchers.
    HUD Response: See response to comment above.
    Comment: One commenter stated that HUD should increase the total 
number of vouchers available. ``This is the best and most successful 
housing subsidy program in the country.''
    HUD Response: The appropriations for the voucher program, as well 
as the percentage of voucher funding that may be project-based, are 
both set by Congress.
    Comment: A commenter stated that ``The rule proposed is still 
inconsistent with the congressional intent to simplify the process for 
project-basing vouchers * * *. Regrettably, the proposed rule continues 
to make the program too cumbersome to be appealing to many housing 
agencies.''
    HUD Response: HUD disagrees that the proposed rule makes the 
program too cumbersome. The proposed rule has simplified and 
deregulated many aspects of the PBV program, such as competition and 
HQS inspections. The rule also eliminates any HUD approval actions 
during the development process resulting in a decrease in the necessity 
for HUD-approved exceptions and regulatory waivers. The final rule also 
simplifies the selection of proposals even further than originally 
proposed.
    Comment: A commenter stated generally that transitional housing is 
important because it assists the homeless with skills necessary to 
become good tenants to whom landlords would be willing to rent. 
Accordingly, the PBV rule should be modified so that it will work with 
transitional housing serving homeless persons and persons with special 
needs.
    HUD Response: The final rule provides that transitional housing is 
ineligible housing under the project-based voucher program. The statute 
governing the project-based voucher program specifically provides that 
low-income families assisted under the program may move after the 
family has occupied a unit for 12 months. If a transitional housing 
agreement requires a family to move prior to 12 months, the law 
governing the project-based voucher program does not give families the 
right to a tenant-based voucher prior to 12 months. Thus, in the 
situation described, a family would not be entitled to tenant-based 
assistance under the law governing the project-based voucher program.
    Also, if a transitional housing agreement requires a family to move 
some time after the initial 12 months, a PHA would be required under 
the law to provide such a family with tenant-based assistance. If the 
project-based voucher contract with the owner extends beyond the 
transitional housing agreement, the PHA would also be required to 
refill the units vacated by the previous transitional housing 
participant. Given the scarcity of funding, such a result is 
undesirable. Additionally, if a family must leave after the initial 12-
month lease in accordance with the transitional housing requirements, 
the PHA may not have a voucher or other form of assistance readily 
available. Since the participant would be required to move, the 
participant would have to do so without the benefit of subsidy since 
the PBV law only requires PHAs, after the initial 12 months, to issue a 
voucher or other form of assistance if available. The Department 
believes that transitional housing is inconsistent with the project-
based voucher program. Thus, the final rule makes transitional housing 
an ineligible housing type under the project-based voucher program.

Subpart A (Proposed Sec. Sec.  983.1-983.10)

    Comment: In reference to proposed 24 CFR 983.2(c)(6)(iv), one 
commenter stated that the proposed rule incorrectly identifies 24 CFR 
Sec. Sec.  982.551-.555 as being under part 982, subpart K. These 
sections are codified under subpart L.
    HUD Response: HUD agrees and this final rule includes this 
technical correction.
    Comment: A number of commenters questioned the definition of 
``existing housing'' in Sec.  983.3, seeking specificity about dollar 
amounts of repair that would distinguish substantial rehabilitation 
from existing housing.

[[Page 59898]]

Five commenters suggested that there be a ``safe harbor'' dollar amount 
of repairs that constitute existing housing. One of these commenters 
asked, if existing housing requires less than $1,000 of rehabilitation, 
and ``rehabilitation'' is any unit that requires $3,000 or more, how 
are units requiring $1,000-$3,000 worth of work categorized?
    HUD Response: In this final rule, HUD has retained the language 
contained in the proposed rule. HUD has decided not to accept the 
suggestion of specifying a dollar amount since costs attributable to 
repairs and rehabilitation are market-driven and may vary widely 
depending upon individual market areas. Such decisions are properly 
left up to the PHAs.
    Comment: Commenters objected to the definition of ``comparable 
rental assistance'' in proposed Sec.  983.3, stating that the 
definition should define comparable rental assistance as gross rent 
that costs the family no more that 30 percent of their adjusted income, 
rather than 40 percent. One of these commenters stated that setting the 
standard at 40 percent violates the statute, and argued that the 
standard should be 30 percent, subject to a limited exception if the 
gross rent is greater than the PHA's payment standard.
    HUD Response: The final rule defines comparable rental assistance 
as ``a subsidy or other means to enable a family to obtain decent 
housing in the PHA jurisdiction renting at a gross rent that requires 
the tenant to pay no more than 40 percent of its adjusted monthly gross 
income for rent.'' Section 8(o)(3) of the United States Housing Act of 
1937 governing the voucher program provides that at any time a family 
initially receives voucher assistance, the family rent contribution is 
limited to 40 percent of adjusted income. The definition of comparable 
rental assistance contained within the final rule does not violate the 
statute.
    Comment: A commenter stated that the lobbying restriction in 
proposed Sec.  983.4 is obsolete.
    HUD Response: HUD reviewed the lobbying restrictions in Sec.  983.4 
and determined that they are not obsolete and therefore continue to 
apply to the project-based voucher program.
    Comment: A commenter stated that Sec.  983.5, which describes the 
project-based program, should specify when PBVs count toward the PHA's 
utilization rate. This commenter states that ``the Agreement to enter 
into a Housing Assistance Payment (HAP) contract is the appropriate 
trigger for SEMAP purposes.''
    HUD Response: HUD has considered this comment. Currently SEMAP does 
not exclude units under an Agreement from total units for SEMAP scoring 
purposes under the leasing indicator. Since units and dollars that are 
committed under an agreement do not have to be set aside during the 
development or rehabilitation phase of a project, these units will not 
be excluded from the SEMAP leasing indicator. PHAs must monitor their 
leasing and turnover to ensure that they do not over-lease units or 
expend more budget authority than available. If a PHA is fully leased, 
it may have to withhold issuance of vouchers for a number of months 
based on attrition rates to ensure that units and dollars will be 
available at the time the HAP contract is executed.
    Comment: A commenter stated that Sec.  983.5(b), which references 
Section 8 administrative fees, should be revised. This commenter stated 
that PHAs that own PBV developments are restricted to a significantly 
lower administrative fee than private owners. However, PHAs must also 
contract for services at increasing administrative costs. This creates 
a disincentive to participation. Therefore, PHAs should be entitled to 
the same administrative fee as private owners.
    HUD Response: HUD has considered this comment, but is not adopting 
it for the following reasons. The United States Housing Act of 1937 
requires that a unit of state or local government or another entity 
approved by HUD perform certain functions for PHA-owned units. The act 
also authorizes HUD to decrease the administrative fees for PHA-owned 
units. In the case of PHA-owned units, some activities for which an 
owner is compensated from rental income under other HUD project-based 
programs result in a reduced administrative fee. For example, income-
certification and re-examination are tasks for which PHAs are 
reimbursed as an owner through rental income under the PBV program.
    Comment: Two commenters expressed concerns about the 20 percent cap 
on project basing. One of these commenters stated that the cap is too 
high and would force consumers ``to use their vouchers in projects, at 
least for a period of time,'' and will not have the option of using 
them with private landlords. The commenter stated that this does 
nothing to increase the amount of affordable, accessible housing and 
that the proposed regulation promotes segregation, loss of affordable 
units, and subjects tenants to impossible compliance regulations like 
workfare. This commenter recommends full funding of the Section 8 
program in its present form, as well as additional changes in 
regulations to allow those with very low incomes to qualify for housing 
under LIHTC programs, such as the 80/20 program, HPD programs, and the 
Mitchell-Llama programs.
    Another of these commenters stated that the 20 percent cap is a 
``significant restriction'' on a PHA's ability to project-base vouchers 
and that HUD should pursue statutory changes to make the same 
flexibility that exists in the Moving to Work (MTW) program available 
to all PHAs.
    HUD Response: The commenter refers to various assisted housing 
programs. The 80/20 program is a form of bond-financed tax credit that 
derives its name from the requirement that no more than 80 percent of 
the units in an LIHTC project financed with tax-exempt private activity 
bonds are to be occupied by individuals or families at market-rate 
rents, while the other 20 percent must be rented to low-income (no more 
than 50 percent of median) households. HPD is the New York City 
Department of Housing Preservation and Development. Mitchell-Lama is a 
New York State program of moderate- and middle-income rental and 
limited-equity cooperative developments. MTW is a HUD demonstration 
program codified under 42 U.S.C. 1437 note, which allows PHAs to design 
and test ways to promote self-sufficiency among assisted families, 
achieve programmatic efficiency and reduce costs, and increase housing 
choice for low-income households.
    HUD must work under the current statutory framework that restricts 
project-based assistance to 20 percent of a PHA's budget authority 
under the voucher program.
    Comment: Four commenters stated that proposed Sec.  983.7(a)(2), 
which provides that relocation costs may not be paid out of voucher 
program funds, should not prohibit PHAs from using funds in the Section 
8 administrative fee reserve account to pay relocation costs.
    HUD Response: HUD has considered this comment and decided to adopt 
it. Provided payment of relocation benefits is consistent with state 
and local law, and provided the use of the administrative fee reserve 
is consistent with 24 CFR 982.155, PHAs may use their administrative 
fee reserves to pay for relocation assistance after all other program 
administrative expenses are satisfied. Program participants should also 
be mindful that HUD and Congress have from time to time restricted the 
use of administrative fee reserves.
    Comment: Proposed Sec. Sec.  983.9 and 983.53(a) prohibit voucher 
funding to be

[[Page 59899]]

used with cooperative housing and shared housing. Two commenters stated 
that they object to this exclusion of cooperative housing. These 
commenters stated that this ``is an arbitrary exclusion, not required 
by statute, and represents a change from the Initial Guidance.'' These 
commenters also state that the exclusion is against HUD's ``regulations 
and policies for other project-based Section 8 programs, as well as 
tenant-based Section 8,'' and that there are numerous examples of 
cooperative projects that have been good housing providers. One of 
these commenters stated that ``denying project-based Section 8 to* * * 
co-ops would make the projects unfeasible and be unfair to the low-
income seniors who benefit from the creation of this affordable 
housing.'' This commenter also states that cooperatives have been 
proven to have lower operating costs than comparable rentals, and, 
therefore, it is in the government and public interest to encourage 
Section 8 in cooperatives.
    Another commenter similarly objected to the exclusion of shared 
housing. The commenter stated that ``[shared housing] can be an 
extremely effective supportive transitional housing model that is being 
extensively used around the country.''
    HUD Response: HUD considered these comments, but did not adopt them 
for the following reasons. Cooperative housing is not a permitted 
housing type under the project-based voucher program. Cooperative 
housing is considered homeownership and Section 8(y) of the United 
States Housing Act, which governs homeownership under the voucher 
program, limits the form of subsidy PHAs may use to provide 
homeownership assistance to tenant-based assistance. The comment 
regarding shared housing is also rejected since there are provisions to 
allow the use of group homes and congregate housing that are similar to 
shared housing. Additionally, to permit shared housing under the PBV 
program would require PHAs to refer families to an owner to occupy a 
unit with families that are not acquainted with each other, which may 
not be a desirable housing situation. This would result in many 
families refusing to share housing and as a result have families living 
in oversized units in violation of program guidelines.

Subpart B (Proposed Sec. Sec.  983.51-983.59)

    Comment: A number of commenters submitted comments regarding 
proposed Sec.  983.51, which requires competitive selection of 
proposals for project-basing with an exception for proposals already 
selected pursuant to a competitive government housing assistance, 
supportive services, or community development program.
    More than ten commenters supported the exception to competitive 
selection for units that have been previously competed. Four commenters 
stated that this proposal would save time and money and avoid needless 
duplication.
    Some commenters opposed requiring any competition. One commenter 
stated that the competitive selection procedure, including the 
requirement for prior competitive selection, is too rigid. This 
commenter stated that these Reform Act requirements do not apply to 
PHAs. Since there is no statutory requirement for a competitive 
process, PHAs should be given discretion in how they award vouchers. 
Another commenter stated that selection should be allowed based on a 
request from a developer or owner; based on a HOPE VI site or similar 
endeavor having PHA participation; or public notice inviting 
competitive proposals. Another commenter stated that proposals subject 
to previous competitive selection should be exempt from additional 
environmental, site selection, and subsidy layering reviews; however, 
the rule should allow PHAs to use PBVs without any competition because 
``agencies that need to lay out annual budgets and support their annual 
program operations would be placed in a compromising position. Agencies 
could thus face financial disincentives and opt out of using this 
important program.'' Another commenter stated that there should be no 
competition, but PHAs should develop and provide a clear set of 
guidelines to applicants. This commenter stated that the statute does 
not require competitive selection, but does require that HAP contracts 
be consistent with the agency's plan. This commenter stated that 
competitive selection is neither practical nor necessary, given the 
limited number of vouchers that will be available. Most affordable 
housing developments have funding from a variety of sources, and adding 
yet another competitive funding cycle complicates the process of 
financing affordable housing units, and adds unnecessary time and 
costs.
    Some commenters criticized specific aspects of the competition 
provisions. Two commenters, while agreeing generally with the proposal 
on competitive selection, stated that the rule should make clear 
whether the PHA must include in its administrative plan its intent to 
make PBVs available based on a prior competition. Another commenter 
supported the prior competition exemption and also stated that the rule 
should give PHAs some discretion in establishing the competitive 
criteria whereby they will select units for project basing. A commenter 
stated that a news release and web publication should be sufficient to 
satisfy the advertising requirement in proposed Sec.  983.51(c). A 
commenter, while agreeing with competitive selection generally, stated 
that the prior competition exception would appear to allow subsidy 
layering.
    HUD Response: No response is necessary to the supportive comments. 
As to other comments, HUD believes that many commenters misunderstand 
the nature of the competitive selection of proposals. The purpose of 
the notice is to provide interested parties a fair opportunity to 
participate in the program. The final rule clarifies that PHAs must 
publish a general notice in accordance with 983.51(c) to inform the 
public that the PHA is soliciting proposals for the PBV program. The 
notice must indicate that the PHA's selection policy is available for 
viewing at the PHA's office. In addition, the PHA's selection criteria 
must be stated in the PHA's administrative plan. HUD will clarify that 
PHAs may target particular units in desirable neighborhoods or key 
``turning point'' buildings in established revitalizing areas. One 
commenter suggested allowing PHAs to substitute environmental, site 
selection, and subsidy layering reviews conducted under previous 
competitions for the project-based voucher program. In response to the 
suggestion, HUD believes it would be impractical and infeasible for HUD 
to monitor requirements under individual state and local programs to 
assure consistency with federal statutory and regulatory requirements. 
HUD, therefore, is not adopting that comment. Site and neighborhood, 
site selection standards, environmental reviews, and subsidy layering 
requirements continue to apply.
    Comment: Proposed Sec.  983.51(e) prohibits PHAs from using PBV 
assistance with public housing units. A number of commenters suggested 
that this language was overbroad and should be clarified. Two 
commenters stated that the language ``could be read too broadly to 
include non-public housing units in a HOPE VI or public housing mixed 
finance project that contains both public housing units and non-public 
housing units.'' Three commenters stated that the definition of 
``public housing'' in the U.S. Housing Act includes units receiving 
both capital and operating assistance. Therefore, under this rule, PHAs 
could not use

[[Page 59900]]

PBVs in HOPE VI developments. The commenters object to this result. One 
commenter stated that using PBV assistance in conjunction with HOPE VI 
and replacement housing factor (RHF) funds is especially important in 
areas where there has been a significant amount of public housing 
demolition. Therefore, more replacement housing could be produced. In 
many markets, PBVs alone do not provide enough of an incentive to 
develop affordable housing. This commenter and another commenter stated 
that pairing PBV with capital funds would provide enough operating and 
capital subsidy to develop long-term affordable housing, and suggests 
that the first sentence of proposed Sec.  983.51(e) be revised to read: 
``Under no circumstances may PBV assistance be used with a unit 
receiving public housing operating funds.'' Another commenter agreed 
and stated that ``Congress made substantial changes to the PBV program 
in Section 232 of the 2001 HUD Appropriations Act, with the intent of 
making the program more flexible and workable. One of the important 
changes Congress made was to repeal a former statutory prohibition of 
project-based assistance for units to be constructed or rehabilitated 
with funds under the United States Housing Act of 1937.'' Proposed 
Sec.  983.51(e) could be read to reinstate the bar on providing PBV 
assistance for units to be constructed or rehabilitated with U.S. 
Housing Act funds notwithstanding Congress' repeal of that bar.
    HUD Response: The Department believes that Congress' adoption of 
disparate or parallel statutory provisions for the public housing and 
voucher programs affirms that public housing and voucher programs are 
intended to operate as separate, and mutually exclusive, subsidy 
systems under the U.S. Housing Act of 1937. It is not permissible by 
law to combine voucher funds with public housing funds. For HOPE VI 
funds that predate FY 2000, it is generally permissible to combine 
these funds in accordance with the terms of the relevant HOPE VI 
appropriations act if the HOPE VI funds were not used to develop or 
operate public housing units. It is not permissible in any case to 
combine HOPE VI funds appropriated on and after FY 2000 (Section 24 
funds), because Section 24 funds are public housing funds. If Capital 
Funds or Section 24 funds are used in the development of affordable 
housing, pro-ration must occur. For example, if a project receives 
$2,000 in non-public housing HOPE VI funds and $1,000 in Capital Funds 
and there are 60 units in the development, 20 of the units (one-third) 
are being funded with capital funds and, therefore, cannot be combined 
with project-based vouchers. Provided that the remaining 40 units (two-
thirds) are not receiving any Public Housing funds, the units may be 
assisted under the PBV program.
    Comment: Proposed Sec.  983.53 provides that certain types of 
housing are ineligible for PBV assistance. A number of commenters 
commented on this section. One commenter stated that there may be 
situations where location of a facility, especially supportive housing, 
on the grounds of a medical or mental institution is appropriate (see 
proposed Sec.  983.53(a)(2)). If the intent of the rule is to prevent 
subsidizing of hospital rooms, that can be accomplished another way.
    HUD Response: HUD has considered this comment and is not adopting 
it for the following reasons. To allow project-based assistance units 
on the grounds of medical or mental institutions would be inappropriate 
since the residency requirements for such housing facilities are 
usually limited to patients of the medical or mental institution. 
Housing for medical and mental institutions is generally funded 
privately or by local or state governments. The PBV program is not 
intended to be used to substitute for financing of housing that already 
exists for individuals who are residents of mental or medical 
facilities with federal funds appropriated to assist low-income 
families.
    Comment: Five commenters stated that the PHA, not HUD, should 
determine when there is no practical alternative for a high-rise 
elevator project that may be occupied by families with children (see 
proposed Sec.  983.53(b)). This could be particularly important where a 
PHA has a better understanding of the preservation needs of the 
community. Another commenter stated that the term ``high-rise'' should 
be defined because even two, three, or four story buildings that 
provide excellent family housing may have elevators. Another commenter 
stated that some existing high-rise developments provide good housing 
and should be preserved. The limitation on high-rise buildings with 
elevators should apply only to new construction. Another commenter 
stated that in Baltimore, high-rise buildings with elevators may be a 
significant source of housing. ``We believe that that high-rise 
elevator buildings with one and two bedroom apartments * * * should be 
eligible.''
    HUD Response: While the statute gives the authority to make the 
determination about high-rise elevator projects to the Secretary, HUD 
is also mindful of the commenters' concerns. Therefore, this final rule 
revises the rule so that PHAs may make an initial determination, but 
HUD must approve a PHA's finding that there is no practical 
alternative.
    Comment: Proposed Sec.  983.58(c)(2) makes the release of PBV funds 
contingent on an environmental review being performed. A number of 
commenters stated that it is unclear what ``release of funds'' means 
because the funds will have already been allocated to the PHA.
    HUD Response: Under part 58, HUD may allocate funds to the PHA, but 
the PHA may not commit or expend these funds until an environmental 
finding is completed by the responsible entity (RE). If the finding is 
that of an exempt activity (Sec.  58.34) or a