HUD published the long-awaited public housing Capital Fund final rule on October 24. Fundamentally, this rule implements changes made as part of the Quality Housing and Work Responsibility Act of 1998 (QHWRA), which created today’s Capital Fund and eliminated former public housing modernization programs such as the Comprehensive Grant Program, Comprehensive Improvement Assistance Program, and the Public Housing Development Program. Proposed regulations were issued on February 7, 2011 (see Memo, 2/11/11). Regulations pertaining to public housing development and mixed-finance development are moved from part 941 of the regulations into an overall Capital Fund rule at part 24 CFR 905.
The final rule also codifies changes made by the 2008 Housing and Economic Recovery Act (HERA), which exempted “qualified” public housing agencies (PHAs) from preparing an annual PHA Plan. The statute defined a “qualified” PHA as one that administers fewer than 550 public housing units and housing choice vouchers combined, is not designated as “troubled,” and did not have a failing score under the Section 8 Management Assessment Program (SEMAP) during the previous year.
Qualified PHAs and the PHA Plan
The proposed rule would have deleted from the PHA Plan regulations at part 903, the statement of purpose of the PHA Plan: “to provide a framework for local accountability and an easily identifiable source by which public housing residents, participants in the tenant-based assistance program, and other members of the public may locate basic PHA policies, rules and requirements concerning the PHA’s operations, programs and services.” NLIHC’s formal comments objected to this potential loss. The final rule restores the statement of purpose and responds to NLIHC’s concern that the proposed rule did not include a definition of “qualified” PHA.
Capital Fund Information Requirements and the PHA Plan
As suggested in a comment letter from the Housing Justice Network (HJN) to which NLIHC contributed (see Memo, 4/8/11), the final rule clarifies that a PHA must annually consult with the Resident Advisory Board (RAB) and conduct an annual public hearing specifically about its Capital Fund submission to HUD. The PHA may do this separately or concurrently with the PHA Plan RAB consultation and public hearing.
The final rule also inserts the RAB and public engagement requirements that are in the PHA Plan rule:
- The PHA must conduct outreach to encourage broad participation in review of the Capital Fund submission.
- The hearing must be held in a location convenient for residents.
- 45 days before the hearing there must be a notice about the hearing stating that the Capital Fund submission and related materials are available to residents and the RAB.
- The PHA must consider comments and attach to the Capital Fund submission any RAB recommendations along with a description of the manner in which the PHA addressed those recommendations.
The final rule requires a PHA to indicate the basic criteria it will use to determine whether a change in its Capital Fund Program 5-Year Action Plan is a “significant amendment.” The rule clearly states that proposed demolition, disposition, homeownership, mixed-finance development, or Capital Fund financing are considered “significant amendments.” Each significant amendment is subject to the RAB and resident and public participation provisions.
The Replacement Housing Factor (RHF)
When PHAs demolish, sell, or otherwise dispose of public housing units, the formula for allocating Capital Funds to the PHA is affected. To compensate, the RHF program enabled PHAs to receive RHF grants for the first five years and to seek an additional five years if certain requirements are met. The proposed rule would reduce the RHF to five years of funding.
The final rule establishes a new five-year Demolition or Disposition Transitional Fund (DDTF) grant that will be included in the regular Capital Fund formula grant for a PHA, and therefore could be used for modernization, whereas RHF can only be used for development. In response to PHA comments concerning the reduction of replacement funds from ten to five years, HUD points to diminished appropriations that fund both the RHF and the Capital Fund. Reducing the RHF to five years will result in more money for the Capital Fund. HUD asserts that the need for replacement housing for a few PHAs has to be balanced with the needs of the majority of PHAs that use Capital Funds to modernize existing public housing.
PHAs that have already begun receiving their first five-year increment of RHF funding in FY14 will receive the remainder of their first increment plus five years of DDTF. PHAs already receiving their second five-year increment in FY14 will receive the remainder. PHAs newly eligible for RHF funding in FY14 will instead receive five years of DDTF from the Capital Fund.
Use of Capital Funds for Management Improvements
As proposed, the final rule reduces the amount of Capital Funds that a PHA may use for management improvements from 20% to 10%. The final rule provides a five-year phase in of this reduction, reducing the percentage by 2% each year, starting with an 18% cap in FY14. HUD points out that on average, PHAs use 8% of their Capital Fund for management improvements.
A PHA with more than 250 public housing units may still use up to 40% of its Capital Fund for costs not associated with physical improvements (10% for administrative costs, 20% for operating costs, as well as 10% for management improvements).
While the final rule does not include advocates’ suggestion that HUD establish a Capital Fund set-aside to strengthen resident capacity to understand and assess a PHA’s capital budget and required physical needs assessment (PNA), the final rule does list “promoting more effective resident participation in the operation of the PHA in its Capital Fund activities “as an eligible management improvement. The final rule also lists other eligible and ineligible management improvements.
Total Development Costs
The HJN comment letter about the proposed rule responded to HUD’s request for feedback regarding the existing standard that public housing modernization be limited to projects at which modernization costs do not exceed 90% of the total development cost (TDC) of constructing similar new housing. The preamble to the proposed rule hinted that HUD wanted to lower the standard to the one adopted for demolition and disposition in 2006, 62.5% for elevator buildings and 57.14% for all others. The lower demolition/disposition standards have resulted in loss of public housing units. Lowering the standard for modernization would effectively prevent PHAs from making energy efficiency improvements and preserving the existing stock.
The final rule retains the 90% of TDC threshold for modernization. It also provides an exception to the TDC limit for integrated utility management, capital planning, and other capital and management activities that promote energy conservation and efficiency.
Site and Neighborhood Standards
The HJN letter recommended restoring text lost in the proposed rule’s streamlining of the site and neighborhood selection provision. The existing text required projects to be located in neighborhoods that are accessible to a range of jobs available to lower income people via “public transportation or private automobile” that does not have “excessive travel times or costs”. The final rule restores the language.
The final Capital Fund rule is quite extensive. Other features include;
- Revised and new definitions.
- Addressing emergency repairs not identified in the Capital Fund 5-Year Action Plan is an eligible use of Capital Funds.
- Requires PHAs with fewer than 250 units to now conduct a Physical Needs Assessment, but provides additional time for them to comply.
- Mixed Finance rules.
The final Capital Fund rule is at: http://1.usa.gov/HOrrr8