Reserve Account, 40253-40255 [2012-16731]
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Federal Register / Vol. 77, No. 131 / Monday, July 9, 2012 / Rules and Regulations
15-day comment period ending May 10,
2012, was provided to allow interested
persons to respond to the proposal. No
comments were received.
A small business guide on complying
with fruit, vegetable, and specialty crop
marketing agreements and orders may
be viewed at: www.ams.usda.gov/
MarketingOrdersSmallBusinessGuide.
Any questions about the compliance
guide should be sent to Laurel May at
the previously mentioned address in the
expansion outlets are eligible for
handler diversion credit for a period of
one year from the handler’s first date of
shipment into such outlets.
*
*
*
*
*
Dated: July 3, 2012.
David R. Shipman,
Administrator, Agricultural Marketing
Service.
[FR Doc. 2012–16699 Filed 7–6–12; 8:45 am]
BILLING CODE 3410–02–P
FOR FURTHER INFORMATION CONTACT
section.
After consideration of all relevant
matter presented, including the
information and recommendation
submitted by the Board and other
available information, it is hereby found
that this rule, as hereinafter set forth,
will tend to effectuate the declared
policy of the Act.
It is further found that good cause
exists for not postponing the effective
date of this rule until 30 days after
publication in the Federal Register (5
U.S.C. 553) because handlers are already
beginning to make plans for the
upcoming season. Further, handlers are
aware of these changes, which were
recommended at public meetings. Also,
a 15-day comment period was provided
for in the proposed rule.
List of Subjects in 7 CFR Part 930
Marketing agreements, Reporting and
recordkeeping requirements, Tart
cherries.
For the reasons set forth in the
preamble, 7 CFR part 930 is amended as
follows:
PART 930—TART CHERRIES GROWN
IN THE STATES OF MICHIGAN, NEW
YORK, PENNSYLVANIA, OREGON,
UTAH, WASHINGTON, AND
WISCONSIN
1. The authority citation for 7 CFR
part 930 continues to read as follows:
■
Authority: 7 U.S.C. 601–674.
2. A new § 930.150 is added to read
as follows:
■
§ 930.150
Primary inventory reserve.
tkelley on DSK3SPTVN1PROD with RULES
Beginning July 1, 2012, the primary
inventory reserve may not exceed 100
million pounds.
■ 3. Section 930.162 is amended by
adding a sentence at the end of section
(b)(2) to read as follows:
§ 930.162
Exemptions.
*
*
*
*
*
(b) * * *
(2) * * * In addition, shipments of
tart cherries or tart cherry products in
new market development and market
VerDate Mar<15>2010
16:36 Jul 06, 2012
Jkt 226001
DEPARTMENT OF AGRICULTURE
7 CFR Part 3560
RIN 0575–AC66
Reserve Account
Rural Housing Service, USDA.
Final rule.
AGENCY:
Through this action, the Rural
Housing Service (RHS) is amending its
regulation to change the Reserve
Account for new construction for the
Sections 514/516 Farm Labor Housing
(FLH) program and the Section 515
Rural Rental Housing (RRH) program.
This action will not affect reserve
accounts for existing portfolios.
DATES: Effective Date: This rule is
effective September 7, 2012.
FOR FURTHER INFORMATION CONTACT:
Michael Steininger, Acting Director,
Multi-Family Housing Preservation and
Direct Loan Division, Rural Housing
Service, U.S. Department of Agriculture,
STOP 0781, 1400 Independence Avenue
SW., Washington, DC 20250–0781.
Telephone: 202–720–1610 (this is not a
toll-free number); email: michael.
steininger@wdc.usda.gov.
SUPPLEMENTARY INFORMATION:
SUMMARY:
Classification
This final rule has been determined to
be not significant and was reviewed by
the Office of Management and Budget
(OMB) under Executive Order 12866.
Civil Justice Reform
This final rule has been reviewed
under E.O. 12988, Civil Justice Reform.
If this final rule is adopted: (1) Unless
otherwise specifically provided, all
State and local laws that are in conflict
with this rule will be preempted; (2) no
retroactive effect will be given to this
rule except as specifically prescribed in
the rule; and (3) administrative
proceedings of the National Appeals
Division of the Department of
Agriculture (7 CFR part 11) must be
exhausted before bringing suit.
PO 00000
Frm 00005
Fmt 4700
Sfmt 4700
Regulatory Flexibility Act
The final rule has been reviewed with
regard to the requirements of the
Regulatory Flexibility Act (5 U.S.C.
601–612). The undersigned has
determined and certified by signature
on this document that this rule will not
have a significant economic impact on
a substantial number of small entities.
This rulemaking action does not involve
a new or expanded program nor does it
require any more action on the part of
a small business than required of a large
entity.
Paperwork Reduction Act
There are no new reporting and
recordkeeping requirements associated
with this rule.
Rural Housing Service
ACTION:
40253
E-Government Act Compliance
RHS is committed to complying with
the E-Government Act, by promoting the
use of the Internet and other
information technologies in order to
provide increased opportunities for
citizen access to Government
information, services, and other
purposes.
Unfunded Mandate Reform Act
(UMRA)
This rule contains no Federal
mandates (under the regulatory
provisions of Title II of the UMRA) for
state, local and tribal governments or
the private sector. Therefore, this rule is
not subject to the requirements of
Sections 202 and 205 of the UMRA.
Environmental Impact Statement
This document has been reviewed in
accordance with 7 CFR part 1940,
subpart G, ‘‘Environmental Program.’’
RHS determined that the proposed
action does not constitute a major
Federal action significantly affecting the
quality of the environment. Therefore in
accordance with the National
Environmental Policy Act of 1969,
Public Law 91–190, an Environmental
Impact Statement is not required.
Programs Affected
The programs affected by this
regulation are listed in the Catalog of
Federal Domestic Assistance under
numbers 10.405—Farm Labor Housing
Loans and Grants; 10.415—Rural Rental
Housing Loans; and 10.427—Rural
Rental Assistance Payments.
Federalism
For the reasons discussed above, this
rule does not have significant
Federalism implications that warrant
the preparation of a Federalism
assessment under Executive Order
13132.
E:\FR\FM\09JYR1.SGM
09JYR1
40254
Federal Register / Vol. 77, No. 131 / Monday, July 9, 2012 / Rules and Regulations
tkelley on DSK3SPTVN1PROD with RULES
Intergovernmental Consultation
These loans are subject to the
provisions of E.O. 12372 which require
intergovernmental consultation with
state and local officials. RHS conducts
intergovernmental consultations for
each loan in a manner delineated in 7
CFR part 1940, subpart J (available in
any Rural Development office and on
the Internet at https://www.rurdev.usda.
gov).
Background Information
In the past, Rural Development based
its reserve account on a set percentage
of a property’s total development cost
(TDC). With this final rule Rural
Development will now base the reserve
account amount on a life-cycle analysis
or Capital Needs Assessment (CNA).
Either reserve account analysis that
meets Rural Development approval will
be prepared by a third-party. The
reserve account analysis will be used to
determine the expected useful life of the
building components and furnishings
and to determine which building
components or furnishings are the most
cost efficient over the life of the
building. The reserve account deposit
level will be maintained through steady
deposits to meet the needs of the project
as they become due. The exact
contribution amounts will be articulated
in the borrower’s loan agreement.
Adjustments may be made at five or ten
year intervals, either CNA or as part of
the original analysis. Any adjustments
that were not reflected in the original
loan agreement will be reflected in an
amendment to the loan agreement. The
requirement for a reserve account
analysis will be used for new
construction rental housing funded
under Sections 514/516 and Section 515
of the Housing Act of 1949. The new
requirement is intended to assure
quality construction as well as long term
viability of the complexes. Reserve
levels will be based on life cycle costs
or capital needs in order to ensure
necessary resources are available when
needed to replace essential building
components. Current agency regulations
require an annual minimum deposit of
1 percent of the TDC be put in a reserve
account for FLH and RRH programs.
The Agency has found over the years
that the 1 percent requirement does not
necessarily correlate to the long term
needs of the property. This final
regulatory change will ensure that
reserve accounts properly sized to meet
the capital needs anticipated at the time
of construction. Due to the
administrative burden involved, this
change will only affect reserve account
requirements of new construction rental
VerDate Mar<15>2010
16:36 Jul 06, 2012
Jkt 226001
housing funded under Sections 515
RRH or Sections 514/516 FLH.
Public Comments
The Agency received the following
comments as a result of the publication
as a Proposed Rule published in the
Federal Register on April 5, 2007 (72 FR
16730–16731).
The Agency received eight responses
to the proposed regulatory change. The
commentators represented Rural
Development employees who work with
the Multi-Family Housing Direct
Programs, a Multi-Family developer and
rental property owner, and Interest
Groups. The comments are summarized
as follows:
1. Defining the formula that will be
used in the life cycle analysis. A
commenter suggested defining the
formula to be used in the life cycle
analysis as this could serve as a chart.
Having the chart could alleviate
people’s resistance to calculating a full
life cycle analysis for each component
in the Multi Family Housing Direct
Projects. Defining the formula could
ease the concerns of Multi-Family
Housing (MFH) borrowers regarding
what basis was used to calculate the life
cycle costs.
The Agency does not have a general
formula that is used for the life cycle
cost analysis. The life cycle cost
analysis is a professional report that is
performed by a third-party that
primarily describes a detailed analysis
and review of the components and
estimates the replacement cost in the
future. The life cycle cost analysis is
defined in 7 CFR 3560.11. The Agency
reviews the results of the life cycle cost
analysis for its acceptability and
compliance with the definition
contained in 7 CFR 3560.11. The
Agency has made no changes in
response to this comment.
2. Increasing the Reserve Fund
Requirement in excess of 1 percent,
addressing the overcharging of gross
rental incomes and the over-inflation of
property taxes which are causes of
underfunded reserve accounts. Two
commenters supported increasing the
amount of contribution to the reserve
account in excess of 1 percent as the
commenters think the current system
requiring this funding level is flawed
and inadequate in regards to providing
funding for improvements and/or
renovations to existing properties. The
comments suggested an increase in the
amount of the contribution to the
reserve account is a step in the right
direction for newly built and
rehabilitated properties in the future.
Their comments also mentioned the
gross overcharging of property
PO 00000
Frm 00006
Fmt 4700
Sfmt 4700
management related costs that generally
range from 20 percent to 30 percent of
gross rental incomes. The private sector
residential property management costs
typically run less than 8 percent. Lastly,
they discussed the over-inflation of
property taxes which are causes of
underfunded reserve accounts.
Management companies and owners do
not have a personal risk at stake with
the Section 515 property and therefore
fail to challenge their annual overinflated tax bills and assessments. As a
result, rent income funding that could
be used to properly fund reserve
accounts instead goes to the local
Government. The Agency will not make
a change to the regulation in response
to these comments. The goal of the
regulation is to move the reserve
deposits off a percentage basis and base
the reserve account amount on the facts
of the CNA or life cycle cost analysis.
The Agency agrees that the reserve
accounts based on a percentage can be
underfunded and the change to the
reserve account rule should help with
that problem for new construction.
While these comments related to
operating expense are appreciated, the
focus of this change will remain solely
on properly sizing reserve accounts.
3. One commentator also agreed with
the change to the reserve account
requirements as the change would
benefit MFH projects by linking reserve
account amounts to anticipated needs
for repair and replacement of building
systems and components instead of the
current 1 percent of TDC that are now
set-aside in the reserve accounts.
4. Two commentators agreed with the
change to the reserve account
requirements, but cautioned the Agency
that it might be cost prohibitive for
smaller properties to review the CNA or
life cycle cost analysis every 5 years. In
response to this comment, the Agency
has added a clause to the regulation that
states contributions adjustments can be
made every 5 or 10 years based on a
revised CNA or as part of the original
life cycle cost analysis. So a revised
CNA will not be required in 5 years.
5. Addressing the Reserve
Requirements during ownership
transfers and assumptions and/or
subsequent loans. One commenter
suggested in addition to reserve
requirements for new construction, the
rule should address reserve
requirements during ownership
transfers and assumptions and/or
subsequent loans. The Agency does not
see a need to adopt this comment
because the change to the regulation
only addresses new construction and
the regulations at 7 CFR 3560.406(d)(5)
provide adequate guidance concerning
E:\FR\FM\09JYR1.SGM
09JYR1
tkelley on DSK3SPTVN1PROD with RULES
Federal Register / Vol. 77, No. 131 / Monday, July 9, 2012 / Rules and Regulations
reserve requirements meeting the capital
needs of the property when there is an
‘‘ownership transfer or sale’’. The
change in the regulation only concerns
new construction so it does not address
the reserve requirements in the case of
a subsequent loan, with an ownership
transfer or sale and without an
ownership transfer of sale. The Agency
does not plan on making a change to the
regulation in response to this comment
at this time.
6. Changing the wording in Section
3560.65. A commenter recommended
changing the wording in Section
3560.65, as the analysis is really based
upon the CNA or the Life Cycle Cost
Analysis, prepared by a consultant or
architect hired by the developer, not
developed by Rural Development. We
would note that the language
‘‘Acceptable to Rural Development’’ still
allows for the CNA to be prepared by
others but establish Rural Development
as the final approval authority. The
Agency agrees and will make the change
to the regulation.
7. Performing a CNA every 5 years,
incurring the cost of the assessment and
sharing the information. Two
commenters suggested that Rural
Development perform a CNA every 5
years. The first of the two commenters
suggested, if the cost of updating a CNA
every 5 years is prohibitive for a specific
project, it may be more appropriate to
allow the Rural Development staff and
the project management to conduct
reviews, with a process for resolving
disparities in their recommendations.
The second of the two commenters
suggested the Rural Development
program incur the cost of the assessment
and share the information and adjust the
reserve requirements accordingly, as
rents cannot be raised to an amount that
will cover all current and future reserve
expenses. Utilizing Rural Development
staff and project management to update
a CNA is a potentially beneficial
practice, and the Agency understands
that CNAs can be cost prohibitive.
Therefore, a revision as to the regulation
has been made to allow for contribution
adjustments every 5 or 10 years rather
than every 5 years. These updated CNAs
must be paid for by the borrower and
conducted by a third-party.
8. Basing the reserve account deposits
on a CNA or Life Cycle Cost Analysis.
A commentator agreed that the Agency
should base the reserve account
deposits on a CNA or life cycle cost
analysis. By doing this, MFH projects
would have better project cash flow and
improved long term performance which
would benefit the low-income families
residing in these units and provide
sufficient reserves to maintain these
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16:36 Jul 06, 2012
Jkt 226001
40255
projects in the long term, as well as the
communities in which these projects are
located. There is no need to change the
rule for this comment.
Dated: May 29, 2012.
˜
Tammye Trevino,
Administrator, Rural Housing Service.
List of Subjects in 7 CFR Part 3560
BILLING CODE 3410–XV–P
Accounting, Government property
management, Grant programs—housing
and community development,
Insurance, Loan programs—Agriculture,
Loan programs—housing and
community development, Mortgage.
Therefore, chapter XXXV, Title 7 of
the Code of Federal Regulations, is
amended as follows:
[FR Doc. 2012–16731 Filed 7–6–12; 8:45 am]
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 25
[Docket No. FAA–2012–0499; Special
Conditions No. 25–466–SC]
Part 3560—Direct Multi-Family Housing
Loans and Grants
Special Conditions: Boeing, Model
737–800; Large Non-Structural Glass in
the Passenger Compartment
1. The authority citation for Part 3560
continues to read as follows:
AGENCY:
■
Authority: 42 U.S.C. 1480.
Subpart B—Direct Loan and Grant
Origination
2. Section 3560.65 is revised to read
as follows:
■
§ 3560.65
Reserve account.
(a) For new construction, to meet
major capital expenses of a housing
project, applicants must establish and
fund a reserve account that meets the
requirements of § 3560.306. The
applicant must agree to make monthly
contributions to the reserve account
pursuant to a reserve account analysis
which sets forth how the reserve
account funds will meet the capital
needs of the property over an acceptable
20-year period. The reserve account
analysis is based on either a Capital
Needs Assessment or life cycle cost
analysis, provided and acceptable to
Rural Development by the applicant.
Adjustments may be made to the
contribution amount at 5 or 10-year
intervals, either through an updated
Capital Needs Assessment or as part of
the original life cycle cost analysis. The
cost of conducting either a Capital
Needs Assessment or life cycle cost
analysis will be paid for by the
applicant. The cost of the initial Capital
Needs Assessment or life cycle cost
analysis may be included in the loan
financing.
(b) For ownership transfers or sales,
the requirements of § 3560.406(d)(5)
will be met.
(c) For other existing properties, at a
minimum the borrower must agree to
make monthly contributions to the
reserve account at the rate of 1 percent
annually of the amount of total
development cost until the reserve
account equals 10 percent of the total
development cost.
PO 00000
Frm 00007
Fmt 4700
Sfmt 4700
Federal Aviation
Administration (FAA), DOT.
ACTION: Final special conditions.
These special conditions are
issued for the Boeing Model 737–800
airplane. This airplane as modified by
Lufthansa Technik will have a novel or
unusual design feature associated with
the installation of large non-structural
glass items in the cabin area of an
executive interior occupied by
passengers and crew. The installation of
these items in a passenger compartment,
which can be occupied during taxi,
takeoff, and landing, is a novel or
unusual design feature with respect to
the material used. The applicable
airworthiness regulations do not contain
adequate or appropriate safety standards
for this design feature. These special
conditions contain the additional safety
standards that the Administrator
considers necessary to establish a level
of safety equivalent to that established
by the existing airworthiness standards.
DATES: Effective Date: June 25, 2012.
FOR FURTHER INFORMATION CONTACT: John
Shelden, FAA, Cabin Safety Branch,
ANM–115, Transport Airplane
Directorate, Aircraft Certification
Service, 1601 Lind Avenue SW.,
Renton, Washington 98057–3356;
telephone 425–227–2785; facsimile
425–227–1232.
SUPPLEMENTARY INFORMATION:
SUMMARY:
Background
On December 16, 2010, Lufthansa
Technik AG, Weg Beim Jaeger 193,
22335 Hamburg Germany applied for a
supplemental type certificate for the
installation of large non-structural glass
items in the cabin area of the executive
interior occupied by passengers and
crew in a Boeing Model 737–800. The
Boeing Model 737–800, approved under
Type Certificate No. A16WE, is a large
transport category airplane that is
E:\FR\FM\09JYR1.SGM
09JYR1
]]>Agencies
[Federal Register Volume 77, Number 131 (Monday, July 9, 2012)]
[Rules and Regulations]
[Pages 40253-40255]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16731]
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
Rural Housing Service
7 CFR Part 3560
RIN 0575-AC66
Reserve Account
AGENCY: Rural Housing Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: Through this action, the Rural Housing Service (RHS) is
amending its regulation to change the Reserve Account for new
construction for the Sections 514/516 Farm Labor Housing (FLH) program
and the Section 515 Rural Rental Housing (RRH) program. This action
will not affect reserve accounts for existing portfolios.
DATES: Effective Date: This rule is effective September 7, 2012.
FOR FURTHER INFORMATION CONTACT: Michael Steininger, Acting Director,
Multi-Family Housing Preservation and Direct Loan Division, Rural
Housing Service, U.S. Department of Agriculture, STOP 0781, 1400
Independence Avenue SW., Washington, DC 20250-0781. Telephone: 202-720-
1610 (this is not a toll-free number); email:
michael.steininger@wdc.usda.gov.
SUPPLEMENTARY INFORMATION:
Classification
This final rule has been determined to be not significant and was
reviewed by the Office of Management and Budget (OMB) under Executive
Order 12866.
Civil Justice Reform
This final rule has been reviewed under E.O. 12988, Civil Justice
Reform. If this final rule is adopted: (1) Unless otherwise
specifically provided, all State and local laws that are in conflict
with this rule will be preempted; (2) no retroactive effect will be
given to this rule except as specifically prescribed in the rule; and
(3) administrative proceedings of the National Appeals Division of the
Department of Agriculture (7 CFR part 11) must be exhausted before
bringing suit.
Regulatory Flexibility Act
The final rule has been reviewed with regard to the requirements of
the Regulatory Flexibility Act (5 U.S.C. 601-612). The undersigned has
determined and certified by signature on this document that this rule
will not have a significant economic impact on a substantial number of
small entities. This rulemaking action does not involve a new or
expanded program nor does it require any more action on the part of a
small business than required of a large entity.
Paperwork Reduction Act
There are no new reporting and recordkeeping requirements
associated with this rule.
E-Government Act Compliance
RHS is committed to complying with the E-Government Act, by
promoting the use of the Internet and other information technologies in
order to provide increased opportunities for citizen access to
Government information, services, and other purposes.
Unfunded Mandate Reform Act (UMRA)
This rule contains no Federal mandates (under the regulatory
provisions of Title II of the UMRA) for state, local and tribal
governments or the private sector. Therefore, this rule is not subject
to the requirements of Sections 202 and 205 of the UMRA.
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR part 1940,
subpart G, ``Environmental Program.'' RHS determined that the proposed
action does not constitute a major Federal action significantly
affecting the quality of the environment. Therefore in accordance with
the National Environmental Policy Act of 1969, Public Law 91-190, an
Environmental Impact Statement is not required.
Programs Affected
The programs affected by this regulation are listed in the Catalog
of Federal Domestic Assistance under numbers 10.405--Farm Labor Housing
Loans and Grants; 10.415--Rural Rental Housing Loans; and 10.427--Rural
Rental Assistance Payments.
Federalism
For the reasons discussed above, this rule does not have
significant Federalism implications that warrant the preparation of a
Federalism assessment under Executive Order 13132.
[[Page 40254]]
Intergovernmental Consultation
These loans are subject to the provisions of E.O. 12372 which
require intergovernmental consultation with state and local officials.
RHS conducts intergovernmental consultations for each loan in a manner
delineated in 7 CFR part 1940, subpart J (available in any Rural
Development office and on the Internet at https://www.rurdev.usda.gov).
Background Information
In the past, Rural Development based its reserve account on a set
percentage of a property's total development cost (TDC). With this
final rule Rural Development will now base the reserve account amount
on a life-cycle analysis or Capital Needs Assessment (CNA). Either
reserve account analysis that meets Rural Development approval will be
prepared by a third-party. The reserve account analysis will be used to
determine the expected useful life of the building components and
furnishings and to determine which building components or furnishings
are the most cost efficient over the life of the building. The reserve
account deposit level will be maintained through steady deposits to
meet the needs of the project as they become due. The exact
contribution amounts will be articulated in the borrower's loan
agreement. Adjustments may be made at five or ten year intervals,
either CNA or as part of the original analysis. Any adjustments that
were not reflected in the original loan agreement will be reflected in
an amendment to the loan agreement. The requirement for a reserve
account analysis will be used for new construction rental housing
funded under Sections 514/516 and Section 515 of the Housing Act of
1949. The new requirement is intended to assure quality construction as
well as long term viability of the complexes. Reserve levels will be
based on life cycle costs or capital needs in order to ensure necessary
resources are available when needed to replace essential building
components. Current agency regulations require an annual minimum
deposit of 1 percent of the TDC be put in a reserve account for FLH and
RRH programs. The Agency has found over the years that the 1 percent
requirement does not necessarily correlate to the long term needs of
the property. This final regulatory change will ensure that reserve
accounts properly sized to meet the capital needs anticipated at the
time of construction. Due to the administrative burden involved, this
change will only affect reserve account requirements of new
construction rental housing funded under Sections 515 RRH or Sections
514/516 FLH.
Public Comments
The Agency received the following comments as a result of the
publication as a Proposed Rule published in the Federal Register on
April 5, 2007 (72 FR 16730-16731).
The Agency received eight responses to the proposed regulatory
change. The commentators represented Rural Development employees who
work with the Multi-Family Housing Direct Programs, a Multi-Family
developer and rental property owner, and Interest Groups. The comments
are summarized as follows:
1. Defining the formula that will be used in the life cycle
analysis. A commenter suggested defining the formula to be used in the
life cycle analysis as this could serve as a chart. Having the chart
could alleviate people's resistance to calculating a full life cycle
analysis for each component in the Multi Family Housing Direct
Projects. Defining the formula could ease the concerns of Multi-Family
Housing (MFH) borrowers regarding what basis was used to calculate the
life cycle costs.
The Agency does not have a general formula that is used for the
life cycle cost analysis. The life cycle cost analysis is a
professional report that is performed by a third-party that primarily
describes a detailed analysis and review of the components and
estimates the replacement cost in the future. The life cycle cost
analysis is defined in 7 CFR 3560.11. The Agency reviews the results of
the life cycle cost analysis for its acceptability and compliance with
the definition contained in 7 CFR 3560.11. The Agency has made no
changes in response to this comment.
2. Increasing the Reserve Fund Requirement in excess of 1 percent,
addressing the overcharging of gross rental incomes and the over-
inflation of property taxes which are causes of underfunded reserve
accounts. Two commenters supported increasing the amount of
contribution to the reserve account in excess of 1 percent as the
commenters think the current system requiring this funding level is
flawed and inadequate in regards to providing funding for improvements
and/or renovations to existing properties. The comments suggested an
increase in the amount of the contribution to the reserve account is a
step in the right direction for newly built and rehabilitated
properties in the future. Their comments also mentioned the gross
overcharging of property management related costs that generally range
from 20 percent to 30 percent of gross rental incomes. The private
sector residential property management costs typically run less than 8
percent. Lastly, they discussed the over-inflation of property taxes
which are causes of underfunded reserve accounts. Management companies
and owners do not have a personal risk at stake with the Section 515
property and therefore fail to challenge their annual over-inflated tax
bills and assessments. As a result, rent income funding that could be
used to properly fund reserve accounts instead goes to the local
Government. The Agency will not make a change to the regulation in
response to these comments. The goal of the regulation is to move the
reserve deposits off a percentage basis and base the reserve account
amount on the facts of the CNA or life cycle cost analysis. The Agency
agrees that the reserve accounts based on a percentage can be
underfunded and the change to the reserve account rule should help with
that problem for new construction. While these comments related to
operating expense are appreciated, the focus of this change will remain
solely on properly sizing reserve accounts.
3. One commentator also agreed with the change to the reserve
account requirements as the change would benefit MFH projects by
linking reserve account amounts to anticipated needs for repair and
replacement of building systems and components instead of the current 1
percent of TDC that are now set-aside in the reserve accounts.
4. Two commentators agreed with the change to the reserve account
requirements, but cautioned the Agency that it might be cost
prohibitive for smaller properties to review the CNA or life cycle cost
analysis every 5 years. In response to this comment, the Agency has
added a clause to the regulation that states contributions adjustments
can be made every 5 or 10 years based on a revised CNA or as part of
the original life cycle cost analysis. So a revised CNA will not be
required in 5 years.
5. Addressing the Reserve Requirements during ownership transfers
and assumptions and/or subsequent loans. One commenter suggested in
addition to reserve requirements for new construction, the rule should
address reserve requirements during ownership transfers and assumptions
and/or subsequent loans. The Agency does not see a need to adopt this
comment because the change to the regulation only addresses new
construction and the regulations at 7 CFR 3560.406(d)(5) provide
adequate guidance concerning
[[Page 40255]]
reserve requirements meeting the capital needs of the property when
there is an ``ownership transfer or sale''. The change in the
regulation only concerns new construction so it does not address the
reserve requirements in the case of a subsequent loan, with an
ownership transfer or sale and without an ownership transfer of sale.
The Agency does not plan on making a change to the regulation in
response to this comment at this time.
6. Changing the wording in Section 3560.65. A commenter recommended
changing the wording in Section 3560.65, as the analysis is really
based upon the CNA or the Life Cycle Cost Analysis, prepared by a
consultant or architect hired by the developer, not developed by Rural
Development. We would note that the language ``Acceptable to Rural
Development'' still allows for the CNA to be prepared by others but
establish Rural Development as the final approval authority. The Agency
agrees and will make the change to the regulation.
7. Performing a CNA every 5 years, incurring the cost of the
assessment and sharing the information. Two commenters suggested that
Rural Development perform a CNA every 5 years. The first of the two
commenters suggested, if the cost of updating a CNA every 5 years is
prohibitive for a specific project, it may be more appropriate to allow
the Rural Development staff and the project management to conduct
reviews, with a process for resolving disparities in their
recommendations. The second of the two commenters suggested the Rural
Development program incur the cost of the assessment and share the
information and adjust the reserve requirements accordingly, as rents
cannot be raised to an amount that will cover all current and future
reserve expenses. Utilizing Rural Development staff and project
management to update a CNA is a potentially beneficial practice, and
the Agency understands that CNAs can be cost prohibitive. Therefore, a
revision as to the regulation has been made to allow for contribution
adjustments every 5 or 10 years rather than every 5 years. These
updated CNAs must be paid for by the borrower and conducted by a third-
party.
8. Basing the reserve account deposits on a CNA or Life Cycle Cost
Analysis. A commentator agreed that the Agency should base the reserve
account deposits on a CNA or life cycle cost analysis. By doing this,
MFH projects would have better project cash flow and improved long term
performance which would benefit the low-income families residing in
these units and provide sufficient reserves to maintain these projects
in the long term, as well as the communities in which these projects
are located. There is no need to change the rule for this comment.
List of Subjects in 7 CFR Part 3560
Accounting, Government property management, Grant programs--housing
and community development, Insurance, Loan programs--Agriculture, Loan
programs--housing and community development, Mortgage.
Therefore, chapter XXXV, Title 7 of the Code of Federal
Regulations, is amended as follows:
Part 3560--Direct Multi-Family Housing Loans and Grants
0
1. The authority citation for Part 3560 continues to read as follows:
Authority: 42 U.S.C. 1480.
Subpart B--Direct Loan and Grant Origination
0
2. Section 3560.65 is revised to read as follows:
Sec. 3560.65 Reserve account.
(a) For new construction, to meet major capital expenses of a
housing project, applicants must establish and fund a reserve account
that meets the requirements of Sec. 3560.306. The applicant must agree
to make monthly contributions to the reserve account pursuant to a
reserve account analysis which sets forth how the reserve account funds
will meet the capital needs of the property over an acceptable 20-year
period. The reserve account analysis is based on either a Capital Needs
Assessment or life cycle cost analysis, provided and acceptable to
Rural Development by the applicant. Adjustments may be made to the
contribution amount at 5 or 10-year intervals, either through an
updated Capital Needs Assessment or as part of the original life cycle
cost analysis. The cost of conducting either a Capital Needs Assessment
or life cycle cost analysis will be paid for by the applicant. The cost
of the initial Capital Needs Assessment or life cycle cost analysis may
be included in the loan financing.
(b) For ownership transfers or sales, the requirements of Sec.
3560.406(d)(5) will be met.
(c) For other existing properties, at a minimum the borrower must
agree to make monthly contributions to the reserve account at the rate
of 1 percent annually of the amount of total development cost until the
reserve account equals 10 percent of the total development cost.
Dated: May 29, 2012.
Tammye Trevi[ntilde]o,
Administrator, Rural Housing Service.
[FR Doc. 2012-16731 Filed 7-6-12; 8:45 am]
BILLING CODE 3410-XV-P
