Public Housing Capital Fund Program, 6654-6682 [2011-2303]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

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



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Vol. 76

Monday,

No. 25

February 7, 2011

Part II





Department of Housing and Urban Development





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24 CFR Parts 903, 905, 941 et al.



Public Housing Capital Fund Program; Proposed Rule

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

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

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

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


Public Housing Capital Fund Program

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

ACTION: Proposed rule.

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

DATES: Comments Due Date: April 8, 2011.

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

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

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

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

SUPPLEMENTARY INFORMATION:

I. Background

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

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

II. Overview of the Capital Fund Program

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

III. Overview of the Changes to the PHA Annual Plan

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

IV. This Proposed Rule

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

A. Subpart A

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

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

B. Subpart B

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

C. Subpart C

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

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

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

D. Subpart D

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

[[Page 6659]]

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

E. Subpart E

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

F. Subpart F

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

G. Subpart G

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

H. Subpart H

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

V. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements contained in this rule have 
been approved by the Office of Management and Budget (OMB) under the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and given OMB 
control numbers 2577-0157 and 2577-0226. In accordance with the 
Paperwork Reduction Act, an agency may not conduct or sponsor, and a 
person is not required to respond to, a collection of information, 
unless the collection displays a currently valid OMB control number.

Regulatory Planning and Review

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

[[Page 6660]]

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

Unfunded Mandates Reform Act

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

Environmental Impact

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

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements, unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
This rule reflects the transition from PHA-wide accounting to an asset 
management model, and therefore changes some of the language regarding 
the CF formula to reflect the new accounting model. The only 
significant change in the CF formula calculation is a proposal to limit 
the number of years a PHA is eligible to receive RHF grants to replace 
units removed from the inventory by demolition, disposition, or 
homeownership, from 10 years to 5 years. The CF formula amount that is 
freed up because of fewer RHF grants will cause an increase in the 
amount of Capital Funds available to the remainder of the PHAs, which 
includes a large number of small PHAs. Since most small PHAs do not 
demolish or dispose of a significant number of public housing units, 
reducing RHF eligibility to 5 years should benefit small PHAs. 
Therefore, the undersigned certifies that this rule will not have a 
significant economic impact on a substantial number of small entities, 
and an initial regulatory flexibility analysis is not required.
    Notwithstanding the determination that this rule would not have a 
significant impact on a substantial number of small entities, HUD 
specifically invites any comments regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.

Executive Order 13132, Federalism

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

Catalog of Federal Domestic Assistance Number

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

List of Subjects

24 CFR Part 903

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

24 CFR Part 905

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

24 CFR Part 941

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

24 CFR Part 968

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

24 CFR Part 969

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

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

PART 903--PUBLIC HOUSING AGENCY PLANS

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

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


Sec.  903.3  What is the purpose of this subpart?

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

[[Page 6661]]

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

PART 905--THE PUBLIC HOUSING CAPITAL FUND PROGRAM

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

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

Subpart A--General


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

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


Sec.  905.102  Applicability.

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


Sec.  905.104  HUD approvals.

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


Sec.  905.106  Compliance.

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


Sec.  905.108  Definitions.

    The following definitions apply to this part:

[[Page 6662]]

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