[Federal Register Volume 79, Number 122 (Wednesday, June 25, 2014)]
[Rules and Regulations]
[Pages 36145-36170]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-14632]



[[Page 36145]]

Vol. 79

Wednesday,

No. 122

June 25, 2014

Part II





 Department of Housing and Urban Development





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24 CFR Parts 5, 982, and 983





The Housing and Economic Recovery Act of 2008 (HERA): Changes to the 
Section 8 Tenant-Based Voucher and Section 8 Project-Based Voucher 
Programs; Final Rule

Federal Register / Vol. 79 , No. 122 / Wednesday, June 25, 2014 / 
Rules and Regulations

[[Page 36146]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 5, 982, and 983

[Docket No. FR-5242-F-02]
RIN 2577-AC83


The Housing and Economic Recovery Act of 2008 (HERA): Changes to 
the Section 8 Tenant-Based Voucher and Section 8 Project-Based Voucher 
Programs

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

ACTION: Final rule.

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SUMMARY: HERA, enacted into law on July 30, 2008, made comprehensive 
and significant reforms to several HUD programs, including HUD's Public 
Housing, Section 8 Tenant-Based Voucher, and Project-Based Voucher 
programs. On November 24, 2008, HUD published a notice that provided 
information about the applicability of certain HERA provisions to these 
programs. The notice identified: those statutory provisions that are 
self-executing and required no action on the part of HUD for the 
program changes made by HERA to be implemented; and those statutory 
provisions that require new regulations or regulatory changes by HUD 
for the HERA provisions to be implemented. The notice also offered the 
opportunity for public comment on the guidance provided. HUD followed 
the November 2008 notice with a May 15, 2012, rule that proposed to 
establish, in regulation, the reforms made by HERA solely to the 
Section 8 Tenant-Based Voucher and Project-Based Voucher programs as 
discussed in the November 2008 notice, to make other related changes to 
the regulations, and to further solicit public comment. This final rule 
conforms the regulations of the Section 8 Tenant-Based Voucher and 
Project-Based Voucher programs to the statutory program changes made by 
HERA, makes other related changes to these regulations as discussed in 
the May 2012 proposed rule, and makes further changes to the two 
voucher program regulations as a result of issues raised by public 
comment or as a result of further consideration by HUD of issues 
pertaining to these programs.

DATES: Effective Date: July 25, 2014.

FOR FURTHER INFORMATION CONTACT: For information about HUD's Voucher 
programs, contact Michael Dennis, Director, Office of Housing Voucher 
Programs, Office of Public and Indian Housing, Room 4228, telephone 
number 202-402-3882. The address is the Department of Housing and Urban 
Development, 451 7th Street SW., Washington, DC 20410. The listed 
telephone number is not a toll-free number. Persons with hearing or 
speech impairments may access this number through TTY by calling the 
toll-free Federal Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background--November 2008 Notice and May 2012 Proposed Rule

    HERA (Pub. L. 110-289, 122 Stat. 2654, approved July 30, 2008) made 
several changes to the U.S. Housing Act of 1937 (42 U.S.C. 1437 et 
seq.) (1937 Act) that affect programs administered by HUD's Office of 
Public and Indian Housing (PIH), including, but not limited to, changes 
to the definition of income, which also affect the Office of Housing's 
project-based assistance programs; the public housing agency (PHA) 
plan; the voucher program; and the capital and operating funds with 
respect to emergency funds.
    November 24, 2008, Notice. HUD published a notice in the Federal 
Register on November 24, 2008, at 73 FR 71037, that provided 
information about the applicability of the 1937 Act provisions amended 
by HERA to HUD's Public Housing, Section 8 Tenant-Based Voucher, and 
Section 8 Project-Based Voucher programs. To assist PHAs and assisted 
housing providers, the notice identified those provisions that are 
self-executing and required no action on the part of HUD for the 
program changes to be implemented, and those provisions that require 
new regulations or regulatory changes by HUD to be implemented. The 
notice also solicited public comment.
    May 15, 2012, Proposed Rule, Generally. HUD followed the November 
24, 2008 notice with a proposed rule published on May 15, 2012, at 77 
FR 28742, for the purpose of: (1) Establishing, in regulation, the 
reforms made by HERA to the Section 8 Tenant-Based Voucher and Section 
8 Project-Based Voucher programs as discussed in the November 2008 
notice, taking into consideration public comment received on the 
notice, and (2) making other related regulatory changes. In the May 15, 
2012, proposed rule, HUD explained that whether the HERA program 
changes are self-executing or not self-executing, a rule is necessary 
to ensure that the codified regulations for the programs revised by 
HERA reflect the HERA changes. In some cases, the regulatory change is 
simply a conforming change; that is, the regulatory revisions conform 
the language of the regulation to the language of the 1937 Act, as 
amended by HERA. In other cases, however, HUD was required to exercise 
discretionary authority to determine how the statutory change should be 
implemented. HUD further explained that with respect to the conforming 
regulatory changes, a conforming change does not necessarily mean that 
HUD is adopting in regulation the statutory language verbatim. For 
purposes of clarity or to give precision to the statutory language or 
statutory intent, the conforming regulatory change may be worded 
differently than the statutory language.
    May 15, 2012, Proposed Amendments. The following presents a brief 
summary of the key regulatory revisions proposed by the May 15, 2012 
rule. A detailed description of all proposed amendments, including 
correction or updating of regulatory or statutory citations, specific 
terminology changes, and redesignation of regulatory sections as a 
result of the inclusion of new sections, and the reasons for the 
amendments can be found in the preamble to the proposed rule at 77 FR 
28743 to 28748.
    Annual Income (24 CFR 5.609(c)(14)). A conforming change was made 
to 24 CFR 5.609 to include the Veterans Administration (VA) disability 
benefits with the exclusion from income for deferred Social Security 
benefits in Sec.  5.609(c)(14).
    Rent to Owner: Reasonable Rent (24 CFR 982.507). The procedure for 
determining the rent reasonableness standard applicable to dwelling 
units receiving low-income housing tax credits (LIHTC) or assistance 
under the HOME Investments Partnerships (HOME) program was streamlined 
by section 2835(a)(2) of HERA, and the proposed rule revised Sec.  
982.507(c) to provide the streamlined process, with the exception of 
HOME-assisted units. As advised in the May 15, 2012, proposed rule, the 
rent reasonable applicable to HOME-assisted units would be addressed by 
separate rulemaking for the HOME program and included a placeholder to 
cross-reference to the HOME program regulations pending this issue 
being addressed by HOME program rulemaking.
    Applicability of the Tenant-Based Voucher Rule (24 CFR 983.2). The 
proposed rule removed reference to ``cooperative housing'' from Sec.  
983.2(b)(3). Section 983.2(b) lists the types of situations to which 
the tenant-based voucher provisions of 24 CFR part 982 do not apply to 
the PBV program, and paragraph (b)(3) lists the special housing types 
to which the part 982

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provisions do not apply. The inclusion of ``cooperative housing'' in 
the list of special housing types to which the part 982 provisions do 
not apply is incorrect, and HUD proposed to correct this error.
    PBV Definitions (24 CFR 983.3). The proposed rule added new 
definitions, and removed and revised others to reflect HERA's amendment 
to section 8(o) of the 1937 Act and to remove reference to cooperative 
housing. In addition, the rule proposed to revise the definition of 
``existing housing'' for the purpose of establishing clear and 
measurable standards in determining whether a proposed project is 
eligible for selection as existing housing. The proposed revision was 
intended to address the potential circumvention of rehabilitation 
program requirements by selecting a project as existing housing when 
rehabilitation will be performed on the project shortly after execution 
of the housing assistance payment (HAP) contract.
    Description of the PBV Program (24 CFR 983.5). The proposed rule 
amended Sec.  983.5(c) to provide that although a PHA has the 
discretion to decide whether to operate a PBV program, the PHA must 
notify HUD of its intent to project-base its vouchers.
    Maximum Amount of PBV Assistance (24 CFR 983.6). The proposed rule 
amended Sec.  983.6 to require advance notification to HUD of the PHA's 
intent to project-base its vouchers.
    Special Housing Types (24 CFR 983.9). The proposed rule made a 
conforming amendment to Sec.  983.9 to clarify that cooperative housing 
is an eligible special housing type under the PBV program.
    Project-Based Certificate (PBC) Program (24 CFR 983.10). Section 
6904 of the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and 
Iraq Accountability Appropriations Act, 2007 (Pub. L. 110-28, approved 
May 7, 2007) provides that a PHA may renew or extend PBC housing 
assistance payment (HAP) contracts as PBV HAP contracts, under certain 
conditions. The amendment to Sec.  983.10 implemented this change.
    Owner Proposal Selection Procedures (24 CFR 983.51). The proposed 
rule revised paragraph (a) of Sec.  983.51 to substitute the term 
``project'' for ``building'', consistent with the statutory change made 
by HERA to section 8(o) of the 1937 Act. Additionally, the proposed 
rule slightly reworded paragraph (b)(2) to further clarify that a PHA 
may select, without competition, a proposal for housing assisted under 
a federal, state or local government housing assistance, community 
development, or supportive services program that required a competition 
for the selection of proposals; that is, the PHA need not conduct 
another competition.
    Housing Type (24 CFR 983.52). The proposed rule revised Sec.  
983.52, which provides standards by which a unit will be considered an 
existing unit for purposes of the PBV program, to provide that a unit 
must satisfy Housing Quality Standards (HQS) requirements within 60 
days of the date of selection by a PHA. The proposed revision also 
would limit the total amount of work that must be performed to 
facilitate compliance with HQS to $1,000 per assisted unit. 
Additionally, the proposed revision provided that to be considered an 
existing unit for purposes of the PBV program, the owner must not plan 
to perform rehabilitation work on the units within one year after HAP 
contract execution that would cause the units to be in noncompliance 
with HQS and that would total more than $1,000 per assisted unit.
    Prohibition of Assistance for Ineligible Units (24 CFR 983.53). 
Section 2835(a)(1)(F) of HERA allows PHAs to enter into HAP contracts 
with respect to units in cooperative housing and in high-rise elevator 
projects, and provides that such authority may be exercised without 
review and approval by HUD. The proposed rule revised Sec.  983.53 to 
remove the requirement of advance HUD approval for HAP contracts with 
respect to units in high-rise elevators projects and to make 
cooperative housing an eligible housing type.
    Prohibition of Excess Public Assistance (24 CFR 983.55). Section 
2835(a)(1)(F) of HERA removes the requirement to conduct a subsidy 
layering review in the case of a HAP contract for an existing structure 
or if such a review has been conducted by the applicable state or local 
agency. The proposed rule, in Sec.  983.55, clarified that the subsidy 
layering requirements are not applicable to existing housing.
    Applicability of 25 Percent Cap on Number of PBV Units (24 CFR 
983.56). Prior to amendment by HERA, PBV assistance was limited to 25 
percent of the units in a building. Section 2835(a)(1)(A) of HERA 
amended 8(o)(13)(D)(i) of the 1937 Act to replace the term ``building'' 
with the term ``project,'' which is defined to mean a single building, 
multiple contiguous buildings, or multiple buildings on contiguous 
parcels of land. The proposed rule clarified that the exception to the 
25 percent cap on the number of PBV units in a project includes units 
for elderly families and/or disabled families; that is, a project for 
elderly families, a project for disabled families, or a project that 
serves both categories of families.
    Environmental Review (24 CFR 983.58). As stated in both the 
November 2008 notice and the May 2012 proposed rule, HUD noted that any 
federally required environmental review is ``required by law or 
regulation,'' and HUD has not identified any federally required 
environmental reviews that would be eliminated by Section 
8(o)(13)(M)(ii) of the 1937 Act, as added by Section 2835(a)(1)(F) of 
HERA. Accordingly, HUD proposed no changes to Sec.  983.58, except to 
make a minor change to Sec.  983.58(d) to note that the term ``release 
of funds'' is defined in Sec.  983.3, which is the definition section,
    PHA-Owned Units (24 CFR 983.59). The proposed rule added a new 
paragraph Sec.  983.59 to provide a clarification of the term of the 
initial and renewal HAP contract that is consistent with section 
8(o)(13)(F) of the 1937 Act, which provides that the PHA and the 
independent HUD-approved entity must agree on the term of the HAP 
contract and any HAP contract renewal for PHA-owned units. 
Additionally, the proposed rule removed the requirement that the 
independent entity approved by HUD to determine initial contract rents 
to owner must be based on an appraisal by a licensed, state-certified 
appraiser.
    Housing Quality Standards (24 CFR 983.101). The proposed rule 
revised Sec.  983.101 to exclude cooperative housing from the list of 
special housing types that are inapplicable to the PBV program.
    Purpose and Content of the Agreement to Enter into a HAP Contract 
(24 CFR 983.152). The May 15, 2012 rule proposed to clarify Sec.  
983.152 by striving to establish a bright-line definition of 
``commencement of construction'' to ensure there is no confusion 
concerning the requirement that a PHA must enter into an agreement with 
the owner prior to the start of construction or rehabilitation on a 
project. The clarification provided that construction commences when 
excavation or site preparation (including clearing of the land) begins 
for the housing.
    When Agreement Is Executed (24 CFR 983.153). The proposed rule 
clarified when the Agreement, referenced in Sec.  983.153, must be 
executed.
    Purpose of HAP contract (24 CFR 983.202). The proposed rule made 
explicit the existing practice authorized by Sec.  983.153, which is 
that a HAP contract covers a single project, with the exception of 
single-family scattered site projects. If an owner has multiple 
projects, then each project must be

[[Page 36148]]

covered by a separate HAP contract under the proposed clarification.
    HAP Contract Information (24 CFR 983.203). The proposed rule 
revised Sec.  983.203 to substitute the term ``project'' for 
``building'', consistent with the statutory change.
    Extension of Term of Initial Housing Assistance Payment (HAP) 
Contract (24 CFR 983.205(a)). The maximum term of the initial HAP 
contract provided in section 8(o)(13)(F) of the 1937 Act is extended 
from 10 to 15 years as a result of the amendment to the 1937 Act made 
by section 2835(a)(1)(B) of HERA, and the proposed rule made a 
conforming change to 24 CFR 983.205 to reflect the new HAP term.
    Extension of Initial Term (24 CFR 983.205). The proposed rule made 
a conforming change to Sec.  983.205(b) to reflect the new HAP term. 
Section 8(o)(13)(G) of the 1937 Act, as amended by section 
2835(a)(1)(C) of HERA, provides that the maximum term for an extension 
of the HAP contract is 15 years, at the election of the PHA and owner. 
The proposed rule provided that a PHA may provide for multiple 
extensions; however, under no circumstances may extensions exceed 15 
years cumulatively.
    The proposed rule also made a clarifying change to Sec.  983.205(d) 
to require HUD approval when an owner seeks to terminate a HAP contract 
when the rent for any contract unit is adjusted below the initial rent 
level.
    Proposed Statutory Notice Requirements: Contract Termination or 
Expiration (Adding a New 24 CFR 983.206). The proposed rule added a new 
Sec.  983.206 to address the notification requirements established by 
section 8(c)(8)(A) of the 1937 Act, as amended by HERA, that the owner 
must meet.
    HAP Contract Amendments (to Add or Substitute Units) (Redesignated 
24 CFR 983.207). Section 983.207 (formerly Sec.  983.206) was revised 
to substitute the term ``project'' for ``building'', consistent with 
the statutory change made by HERA.
    Owner Certification (Redesignated 24 CFR 983.210). Consistent with 
the change to Sec.  983.53 (Prohibition of Assistance for Ineligible 
Units), the May 15, 2012, rule proposed to revise paragraph (i) in 
Sec.  983.210 (formerly Sec.  983.209) to clarify that the owner's 
certification does not apply in the case of an assisted family's 
membership in a cooperative. The proposed rule also added a new 
paragraph (j) to Sec.  983.210, consistent with the revised definition 
of ``existing housing'', to reflect what constitutes existing PBV 
housing.
    Removal of Unit from HAP Contract (24 CFR 983.211). The proposed 
rule added a new section to define when units are to be removed from 
the HAP contract. The proposed rule inadvertently stated that this new 
section clarified existing policy, but in fact the new section 
reflected a proposed change. In addition, the preamble explanation that 
the change is already referenced in part 983 was also inaccurate. The 
preamble language should have been included in the preceding section 
which discussed the owner certification requirements in Sec.  983.210. 
New Sec.  983.211 addressed removing a unit from the HAP contract. PHAs 
receive administrative fees based on the number of units under a HAP 
contract. If the PHA has not paid a housing assistance payment on 
behalf of a family for 180 days, the family is no longer considered a 
participant in the program and, as such, the PHA should no longer 
receive administrative fees for the unit.
    How Participants Are Selected (24 CFR 983.251(a) and (d)). In Sec.  
983.251(a), the proposed rule clarified the pre-existing policy that 
restricts owners from leasing to family members or relatives. This 
section was revised to remove any ambiguity that a PHA may not approve 
the tenancy of a family if the owner (including a principal or other 
interested party) of the unit to be leased is the parent, child, 
grandparent, grandchild, sister, or brother of any member of the 
family, unless the PHA determines that approving the unit would provide 
reasonable accommodation for a family member who is a person with a 
disability. The proposed rule also provided that the owner 
certification, already required under Sec.  983.209, include language 
that makes explicit that the unit will not be rented to the enumerated 
list of relatives.
    The Lease: Provisions Governing Term of Lease and Governing Absence 
from Unit (24 CFR 983.256). The proposed rule revised Sec.  983.256(f) 
pertaining to the initial term of lease to more fully address the 
requirements pertaining to the lease, and not simply the initial term. 
Revised paragraph (f) provides that the lease must allow for automatic 
renewal after the initial term of the lease. Consequently, the PBV 
program will provide tenants with long-term leases unless the owner 
provides a good cause for termination or nonrenewal of the lease.
    Owner Termination of Tenancy and Eviction (24 CFR 983.257). The 
proposed rule revised Sec.  983.257 to substitute the term ``project'' 
for ``building'', consistent with the statutory change. The proposed 
rule also removed paragraph (b)(3) from Sec.  983.257, which allows an 
owner to refuse to renew a lease without good cause upon lease 
expiration. This change was made for the same reasons the change was 
made to Sec.  983.256(f), which is to put in place, for the PBV 
program, a reliable long-term lease for a tenant unless the owner 
provides good cause for termination of the lease or nonrenewal of the 
lease.
    Continuation of Housing Assistance Payments (24 CFR 983.258). The 
proposed rule added a new Sec.  983.258 to clarify that housing 
assistance payments continue until the tenant rent equals the rent to 
owner. After 180 days of no subsidy payments being made on behalf of 
the family, the unit is to be removed from the HAP contract pursuant to 
Sec.  983.211.
    Overcrowded, Under-Occupied, and Accessible Units (Redesignated 24 
CFR 983.260). The proposed rule revised Sec.  983.260 (formerly Sec.  
983.259) to include the term ``project'' in paragraph (b)(2)(i) of this 
section. The proposed rule also revised Sec.  983.260 to clarify, in 
paragraph (c), that if a PHA offers the family tenant-based rental 
assistance, a PHA must terminate the HAP contract for a wrong-sized or 
accessible unit, the earlier of the expiration of the term of the 
family's voucher (including any extension granted by the PHA) or the 
date upon which the family vacates the unit.
    When Occupancy May Exceed 25 Percent Cap on the Number of PBV Units 
in Each Project (Redesignated 24 CFR 983.262). The proposed rule 
revised Sec.  983.262(d) (formerly Sec.  983.261) to substitute the 
term ``project'' for ``building'', consistent with the HERA change in 
terminology, and to correct an incorrect regulatory reference. Section 
983.262(b) was also revised to clarify existing policy that a PHA, in 
referring families to excepted units, need not choose between elderly 
or disabled families, but may refer both.
    Determination of Rent to Owner (24 CFR 983.301). Section 
2835(a)(1)(D) of HERA amended section 8(o)(13)(H) of the 1937 Act to 
permit a PHA to use the higher section 8 rent for certain tax credit 
units if the LIHTC rent is less than the amount that would be permitted 
under section 8. The amendment made by the proposed rule to Sec.  
983.301(d) reflects the discretion granted to PHAs.
    Redetermination of Rent to Owner (24 CFR 983.302). The proposed 
rule added a new paragraph (2) to Sec.  983.302(c) to provide that rent 
paid to the owner shall not be reduced below the initial rent to owner 
for dwelling units under the initial HAP, except in the following

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situations: (1) To correct errors in calculations in accordance with 
HUD requirements; (2) if additional housing assistance has been 
combined with PBV assistance after execution of the initial HAP 
contract and a rent decrease is required pursuant to a subsidy layering 
review; or (3) if a decrease in rent to owner is required based on 
changes in the allocation of responsibility for utilities between the 
owner and the tenant.
    Reasonable Rent (24 CFR 983.303). The proposed rule revised Sec.  
983.303(a) to include the exception to the comparability requirement of 
rent reasonableness, provided by the amendment to section 
8(o)(13)(I)(i) made by HERA. This revision provides that the rent to 
owner for a contract may not exceed the reasonable rent as determined 
by the PHA, except that the rent to owner shall not be reduced below 
the initial rent in accordance with Sec.  983.302(c)(2).
    Other Subsidy: Effect on Rent to Owner (24 CFR 983.304). The 
proposed rule revised Sec.  983.304(e) to clarify that rent reduction 
is mandatory when the results of a subsidy layering review disclose the 
need for rent reduction.

II. Changes Made at the Final Rule Stage

    In response to public comment and further consideration of certain 
issues by HUD, this final rule makes the following revisions to the 
proposed rule. With respect to changes made in response to public 
comment, the issues raised by the commenter and HUD's basis for 
responding to the comments are addressed in Section III of this 
preamble.
    Rent to Owner: Reasonable Rent (24 CFR 982.507)--Preamble 
Clarification. As noted in Section I of this preamble, at the proposed 
rule stage, the procedure for determining the rent reasonableness 
standard applicable to dwelling units receiving low-income housing tax 
credits (LIHTC) was streamlined by section 2835(a)(2) of HERA. In the 
preamble to the proposed rule, at 77 FR 28743, HUD noted that HERA 
makes several changes to coordinate tax incentives for private housing 
and federal housing programs, including the Section 8 voucher program. 
In this preamble to the final rule, HUD clarifies that this provision 
is applicable only to the Section 8 tenant-based voucher program and 
not to the Section 8 project-based voucher program.
    Additionally, at 77 FR 28743, HUD stated that the rent is to be 
considered reasonable if the rent does not exceed the greater of: (1) 
The rent for other LIHTC- or HOME-assisted units in the project not 
occupied by families with tenant-based assistance, and (2) the payment 
standard established by a PHA for a unit of the size involved. However, 
the more accurate way for HUD to have stated this provision is as 
follows: ``Rent reasonableness is not required if the voucher rent does 
not exceed the rent for other LIHTC- or HOME-assisted units in the 
project not occupied by families with tenant-based assistance.'' The 
regulatory text for Sec.  982.507 was stated correctly in the proposed 
rule and no change is required at this final rule stage.
    As advised in the May 15, 2012, proposed rule, the revision to the 
HOME program is being made by separate rulemaking. Although a final 
rule making several regulatory amendments to the HOME program was 
published on July 24, 2013, that rule did not address this issue. 
Therefore, this final rule will continue to include, as a placeholder, 
a cross-reference to the HOME program regulations pending this issue 
being addressed by HOME program rulemaking.
    PBV Definitions (24 CFR 983.3)--Withdrawn Proposed Revised 
Definition of ``Existing Housing'' but Added Revised Definition of 
``Special Housing Type''. At this final rule stage, HUD determined to 
withdraw its proposed changes to the definition of ``existing 
housing.'' HUD leaves in place the currently codified definition of 
existing housing. Overall, commenters did not favor HUD's proposed 
changes, and suggested alternatives to HUD's proposal, which are 
described in Section III of this preamble. Given the many comments on 
HUD's proposed changes to the definition of ``existing housing'', HUD 
has decided to further consider proposed revisions to the definition of 
``existing housing.'' HUD will further consider what may be the best 
metric for determining compliance with HQS; that is, whether HUD should 
measure the amount of time that must pass from the date of selection to 
date of compliance, or identify an appropriate dollar standard of the 
total amount of work that must be performed, or determine some other 
mechanism. HUD will resubmit for public comment any proposed changes to 
the definition of ``existing housing.''
    At this final rule stage, HUD is adopting the proposed revised 
definition of ``special housing type'' but with one additional change. 
HUD has revised the definition of ``special housing type'' to remove 
reference to cooperative housing.
    Cross-reference to other Federal requirements (24 CFR 983.4) 
Revision to ``Labor standards'' cross-reference. In this final rule, 
HUD updates the reference to labor standards provisions applicable to 
assistance under the PBV program to remove the reference to labor 
standards ``applicable to an Agreement'' covering nine or more assisted 
units and substitutes a reference to labor standards ``applicable to 
development (including rehabilitation) of a project comprising'' nine 
or more units. This language clarifies that Davis-Bacon requirements 
may apply to existing housing (which is not subject to the agreement) 
when the nature of any work planned to be performed prior to HAP 
contract execution or after HAP contract execution, within such post-
execution period as may be specified by HUD, constitutes development of 
the project.
    Description of the PBV Program (24 CFR 983.5) and Maximum Amount of 
PBV Assistance (24 CFR 983.6)--Clarification of Timing of Notification 
Requirements. As noted in Section I of the preamble, the proposed rule 
amended Sec.  983.5(c) and Sec.  983.6 to provide that a PHA must 
notify HUD of its intent to project-base its vouchers.
    This final rule clarifies in Sec.  983.6 that the notification 
provided by a PHA to HUD of the PHA's intent to project-base its 
vouchers must be provided before issuance of a Request for Proposals or 
a selection made pursuant to Sec.  983.51(b)(2). This clarification is 
also made in Sec.  983.5(c) by cross-reference to Sec.  983.6(d).
    Special Housing Types (24 CFR 983.9). As noted in section I the 
proposed rule made a conforming amendment to Sec.  983.9 to clarify 
that cooperative housing is an eligible special housing type under the 
PBV program. This final rule clarifies the requirements for rental 
assistance when families lease cooperative housing from cooperative 
members in Sec.  983.9(c)(3).
    Owner Proposal Selection Procedures (24 CFR 983.51). In addition to 
the changes noted in Section I from the proposed rule, HUD is adopting 
a new paragraph (g) to clarify that an owner proposal selection does 
not require submission of a Form HUD-2530 or HUD previous participation 
clearance. Questions are raised from time to time as to the 
applicability of the previous participation review and clearance 
procedures and requirements that are codified in 24 CFR part 200, 
subpart H, to the PBV program. Section 200.213 of these regulations, 
entitled ``Applicability of procedure'' correctly lists the HUD 
programs to which the previous participation requirements apply. The 
PBV program is not listed as one of the programs governed by these 
procedures, and nor have the

[[Page 36150]]

regulations in 24 CFR part 983 ever cross-referenced to the 
requirements in 24 CFR part 200, subpart H, to confirm the 
applicability of these requirements and procedures.
    Housing Type (24 CFR 983.52)--Withdrawn--Proposed Revised 
Definition of ``Existing Housing''. For the same reasons that HUD is 
withdrawing its originally proposed definition of ``existing housing'' 
in Sec.  983.3, HUD similarly does not adopt the originally proposed 
definition of ``existing housing'' in Sec.  983.52. However, in Sec.  
983.52, HUD clarifies that units for which rehabilitation or new 
construction commenced after the owner's proposal submission but prior 
to execution of the AHAP do not qualify as existing housing. Changes to 
the definition of ``existing housing'' will be addressed through the 
Federal Register notice described under the above discussion of Sec.  
983.3.
    Prohibition of Assistance for Ineligible Units (24 CFR 983.53)--
Addition of Prohibition on Assistance for Units for which Construction 
or Rehabilitation Commenced Prior to AHAP. As noted in Section I of 
this preamble, HERA allows PHAs to enter into HAP contracts with 
respect to units in cooperative housing and in high-rise elevator 
projects, and provides that such authority may be exercised without 
review and approval by HUD. Accordingly, the proposed rule revised 
Sec.  983.53 to remove the requirement of advance HUD approval for HAP 
contracts with respect to units in high-rise elevators projects and to 
make cooperative housing an eligible housing type.
    This final rule adds a new paragraph (d) to Sec.  983.53 to clarify 
that a PHA may not attach or pay PBV assistance for units for which 
construction or rehabilitation has commenced, as defined in Sec.  
983.152 (discussed below), prior to execution of the AHAP.
    Prohibition of Excess Public Assistance (24 CFR 983.55)--Further 
Clarification of When Subsidy Layering is Not Required. As noted in 
Section I of the preamble, the proposed rule clarified that the subsidy 
layering requirements are not applicable to existing housing. The final 
rule revises Sec.  983.55 to add language that further clarifies that a 
``further subsidy layering review is not required for housing selected 
as new construction or rehabilitation of housing, if HUD's designee has 
conducted a review, which included a review of PBV assistance, in 
accordance with HUD's PBV subsidy layering review guidelines.''
    Applicability of 25 Percent Cap on Number of PBV Units (24 CFR 
983.56)--Removal of Substitution of ``Project'' for ``Building'' in 
Sec.  983.56(b)(1)(i). As noted in Section I of the preamble, HERA 
amended 8(o)(13)(D)(i) of the 1937 Act to replace the term ``building'' 
with the term ``project,'' which is defined to mean a single building, 
multiple contiguous buildings, or multiple buildings on contiguous 
parcels of land. The proposed rule clarified that the exception to the 
25 percent cap on the number of PBV units in a project includes units 
for elderly families and/or disabled families; that is, a project for 
elderly families, a project for disabled families, or a project that 
serves both categories of families. In response to public comment, HUD 
agreed with commenters that the terminology for paragraph (b)(1)(i), 
which addresses when PBV units are not counted in the exception to the 
25 percent building cap, was ambiguous. In the final rule, HUD retains 
the term ``building'' when used in paragraph (b)(1)(i) to refer to a 
single-family building.
    Purpose and Content of the Agreement to enter into HAP Contract (24 
CFR 983.152)--Clarification of Prohibition on Execution of Agreement 
when Construction or Rehabilitation Has Commenced. As noted in Section 
I of the preamble, the proposed rule clarifies when the Agreement must 
be executed and defines the start of construction or rehabilitation. 
The final rule adds a cross-reference to Sec.  983.153 and states that 
the prohibition on construction or rehabilitation applies after 
proposal submission.
    When Agreement Is Executed (24 CFR 983.153)--Clarification of 
Prohibition on Execution of Agreement when Construction or 
Rehabilitation Has Commenced. As noted in Section I of the preamble, 
the proposed rule clarified when the Agreement, referenced in Sec.  
983.153, must be executed. The final rule further clarifies that a PHA 
is prohibited from entering an Agreement when after proposal submission 
construction or rehabilitation has started prior to the execution of 
the Agreement.
    Extension of Initial Term (24 CFR 983.205)--Clarification of 
Additional Extensions beyond Initial Extension of Term. As noted in 
Section I of this preamble, the proposed rule made a conforming change 
to Sec.  983.205(b) to reflect the new HAP term. Section 8(o)(13)(G) of 
the 1937 Act, as amended by HERA, provides that the maximum term for an 
extension of the HAP contract is 15 years, at the election of the PHA 
and owner. The proposed rule provided that a PHA may provide for 
multiple extensions; however, under no circumstances may extensions 
exceed 15 years cumulatively.
    In response to public comment, the final rule revises this section 
to clarify that future extensions beyond the initial extension are 
allowed at the end of any extension term provided that not more than 24 
months prior to the expiration of the previous extension contract, the 
PHA agrees to extend the term, and that such extension is appropriate 
to continue providing affordable housing for low-income families or to 
expand housing opportunities. The final rule amendment further provides 
that extensions after the initial extension term shall not begin prior 
to the expiration date of the previous extension term.
    In response to public comment, the final rule also amends Sec.  
983.205(d) to remove the requirement of notice to and advance approval 
by HUD when owners decides to terminate the HAP contract, and maintains 
the existing requirement that owners provide notice to the PHA.
    HAP Contract Amendments (to Add or Substitute Units) (Redesignated 
24 CFR 983.207)--Addition of Language to Specify How to Add Contract 
Units. As noted in Section I of the preamble, the proposed rule revised 
Sec.  983.207 (formerly Sec.  983.206) to substitute the term 
``project'' for ``building'', consistent with the statutory change made 
by HERA. In response to public comment, the final rule revises 
paragraph (b) to clarify how PBV contract units may be added in the 
same project. The revision provides that, at the discretion of the PHA, 
and provided that the total number of units in a project that will 
receive PBV assistance will not exceed 25 percent of the total number 
of dwelling units in the project (assisted and unassisted), (unless 
units were initially identified in the HAP contract as excepted from 
the 25 percent limitation in accordance with Sec.  983.56(b)), or the 
20 percent of authorized budget authority as provided in Sec.  983.6, a 
HAP contract may be amended during the three-year period immediately 
following the execution date of the HAP contract to add additional PBV 
contract units in the same project.
    Owner Certification (Redesignated 24 CFR 983.210)--Proposed 
Revision for Existing Housing Withdrawn. Although, at this final rule 
stage, HUD is withdrawing its proposed definition of ``existing 
housing'' in Sec. Sec.  983.3 and 983.52, HUD retains proposed new 
paragraph (j), with certain revisions. As noted above in the discussion 
of Sec.  983.4, HUD revises the reference to labor standards provisions 
applicable to assistance under the PBV program to clarify that Davis-
Bacon requirements may apply to existing housing when the

[[Page 36151]]

nature of any work (including rehabilitation) planned to be performed 
prior to HAP contract execution or after HAP contract execution, within 
such post-execution period as may be specified by HUD, constitutes 
development of the project. Paragraph (j) of the final rule reflects 
that in such case, it will be necessary for the certification to 
encompass compliance with Davis-Bacon wage requirements.
    Removal of Unit from HAP Contract (24 CFR 983.211). As noted in 
Section I of the preamble, the proposed rule added a new section to 
define when units are to be removed from the HAP contract. Section 
983.211(a) requires that units with families whose income has increased 
during their tenancy to an amount equivalent to the rent provider to 
the owner, shall be removed from the HAP Contract. If the project is 
partially assisted, the PHA may substitute a different unit for the 
unit removed from the Contract if it is possible for the HAP contract 
to be amended. In response to public comment, HUD at the final rule 
stage is providing that if the project is not partially assisted, the 
unit removed from the HAP contract can be re-instated when the 
ineligible family vacates. In addition, HUD is clarifying that the PHA 
may substitute a different unit for the unit removed from the contract 
when the first eligible substitute becomes available even if at the 
time a unit is removed another unit is not immediately available to 
substitute under the HAP contract.
    How Participants Are Selected (983.251(d))--Clarification of 
Preferences for Services Offered. In Sec.  983.251(d), the proposed 
rule substituted the word ``qualify'' for ``need'' and added ``or in 
conjunction with specific units.'' The language submitted at the 
proposed rule stage stated that a preference could be provided for 
disabled families who ``qualify for services at a particular project or 
in conjunction with specific units.'' The substitution was proposed on 
the basis that ``qualify'' may better convey the intent of this 
section. However, at the final rule stage and following further 
consideration of ``qualify'' versus ``need'', HUD is returning to the 
original language of ``need services'' out of concern that ``qualify 
for'' may be interpreted in such a way to limit the population eligible 
for the preference. Additionally, HUD is returning to the original 
language ``services at a particular project'' out of concern that ``or 
in conjunction with specific units'' may be unclear. Although HUD is 
retaining the language currently codified in HUD's regulations, HUD 
will continue to examine the language of this section and how it may be 
improved, recognizing that neither term --`` need'' or ``qualify''--may 
provide the clear distinction that PHAs are looking for. The best 
approach to helping PHAs understand the intent of this section may be 
for HUD to issue guidance that provides examples of how a preference 
may be structured.
    The Lease: Provisions Governing Term of Lease and Governing Absence 
from Unit (24 CFR 983.256)--Clarification of Owner Termination of Lease 
for Good Cause. As noted in Section I of the preamble, the proposed 
rule revised Sec.  983.256(f) pertaining to the initial term of lease 
to more fully address the requirements pertaining to the lease.
    The final rule clarifies that that if the owner terminates the 
lease, the termination must be for good cause.
    Overcrowded, Under-Occupied, and Accessible Units (Redesignated 24 
CFR 983.260). The proposed rule revised Sec.  983.260 (formerly Sec.  
983.259) to include the term ``project'' in paragraph (b)(2)(i) of this 
section. The proposed rule also revised Sec.  983.260 to clarify, in 
paragraph (c), that, if a PHA offers the family tenant-based rental 
assistance under the PBV program, a PHA must terminate the HAP contract 
for a wrong-sized or accessible unit, the earlier of the expiration of 
the term of the family's voucher (including any extension granted by 
the PHA) or the date upon which the family vacates the unit.
    The final rule further clarifies PHA termination of housing 
assistance payments for wrong-sized or accessible unit by revising 
paragraph (c) in two respects. Paragraph (c)(1) provides that if the 
PHA offers the family the opportunity to receive tenant-based rental 
assistance under the voucher program, the PHA must terminate the 
housing assistance payments for a wrong-sized or accessible unit at the 
earlier of the expiration of the term of the family's voucher 
(including any extension granted by the PHA) or the date upon which the 
family vacates the unit, and, as clarified in this final rule, if the 
family does not move out of the wrong-sized unit or accessible unit by 
the expiration date of the term of the family's voucher, the PHA must 
remove the unit from the HAP contract.
    Paragraph (c)(2) provides that if the PHA offers the family the 
opportunity for another form of continued housing assistance in 
accordance with paragraph (b)(2) of Sec.  983.260 (not in the tenant-
based voucher program), and the family does not accept the offer, does 
not move out of the PBV unit within a reasonable time as determined by 
the PHA, or both, the PHA must terminate the housing assistance 
payments for the wrong-sized or accessible unit, at the expiration of a 
reasonable period as determined by the PHA, and, as clarified by this 
final rule, remove the unit from the HAP contract.
    When Occupancy May Exceed 25 Percent Cap on the Number of PBV Units 
in Each Project (Redesignated 24 CFR 983.262)--Providing PHAs with the 
Option to Continue to Count an Excepted Unit Based on Elderly or 
Disabled Family Status, without an Elderly or Disabled Member under 
Certain Conditions. As noted in Section I of this preamble, the 
proposed rule revised Sec.  983.262 (formerly Sec.  983.261) to 
substitute the term ``project'' for ``building'', and to clarify in 
Sec.  983.262(b) that a PHA, in giving a preference to excepted units, 
need not choose between the elderly or disabled families, but may give 
a preference to both.
    This final rule also makes a change to respond to existing concerns 
with respect to excepted units based on elderly or disabled family 
status and the loss of occupancy of the unit by the elderly or disabled 
family member through death, illness, or other circumstances beyond the 
family's control. Under current requirements, the family must vacate 
the unit and the PHA must cease paying housing assistance payments on 
behalf of the family because they no longer qualify for the excepted 
unit. The result of such requirements is often displacement of the 
family during a time when the family is dealing with hardship due to 
the loss, permanent or temporary of the elderly or disabled family 
member. The final rule adds a new paragraph (e) to Sec.  983.262 to 
give PHAs the discretion to allow the family to continue to reside in 
the excepted unit, and to continue to count the unit as an excepted 
unit for as long as the family resides in that unit. Once the family 
vacates the unit, then in order to continue as an excepted unit under 
the HAP contract, the unit must be made available to and occupied by a 
qualifying family member.
    Determination of Rent to Owner (24 CFR 983.301)--Clarification that 
the PHA Has the Discretion to Elect in the HAP Contract that Rent to 
Owner Shall Not be Reduced. As noted in Section I of this preamble, 
HERA amended section 8(o)(13)(H) of the 1937 Act to permit a PHA to use 
the higher section 8 rent for certain tax credit units if the LIHTC 
rent is less than the amount that would be permitted under section 8. 
The preamble to the proposed rule noted that HERA did not alter the 
rent reasonableness requirements of section 8(o)(10)(A), and that 
therefore these requirements must continue to be met. The proposed rule 
revised Sec.  983.301(e)

[[Page 36152]]

to provide that that the rent to owner shall not be reduced below the 
initial rent, with certain limitations, in accordance with Sec.  
983.302(c)(2).
    The final rule revises paragraph (e) to clarify that the PHA has 
the discretion to elect in the HAP contract that the rent to owner 
shall not be reduced below the initial rent subject to the limitations 
of Sec.  983.302(c)(2). Accordingly, in this final rule, paragraph (e) 
provides that the PHA shall determine the reasonable rent in accordance 
with Sec.  983.303. The rent to the owner for each contract unit may at 
no time exceed the reasonable rent, except in cases where the PHA has 
elected within the HAP contract not to reduce rents below the initial 
rent to owner and where, upon redetermination of the rent to owner, the 
reasonable rent would result in a rent below the initial rent. If the 
PHA has not elected within the HAP contract to establish the initial 
rent to owner as the rent floor, the rent to owner shall not at any 
time exceed the reasonable rent.
    Redetermination of Rent to Owner (24 CFR 983.302)--Further 
Clarification of When Rent to Owner Shall Not Be Reduced. As noted in 
Section I of this preamble, the proposed rule added a new paragraph (2) 
to Sec.  983.302(c) to provide that rent paid to the owner shall not be 
reduced below the initial rent to owner for dwelling units under the 
initial HAP, except under certain circumstances. The final rule revises 
paragraph (c)(2) of Sec.  983.302 to clarify that ``if the PHA elected 
within the HAP contract to not reduce rents below the initial rent to 
owner,'' then the rent to owner shall not be reduced below the initial 
rent to owner for dwelling units under the initial HAP contract except 
for the ``exception'' circumstances provided in the regulation.
    Reasonable Rent (24 CFR 983.303). As noted in Section I of this 
preamble, the proposed rule revised Sec.  983.303(a) to include the 
exception to the comparability requirement of rent reasonableness, 
provided by the amendment to section 8(o)(13)(I)(i) made by HERA. This 
revision provides that the rent to owner for a contract may not exceed 
the reasonable rent as determined by the PHA, except that the rent to 
owner shall not be reduced below the initial rent in accordance with 
Sec.  983.302(c)(2).
    This final rule further clarifies the comparability requirement of 
Sec.  983.303(a). Section 983.303(a) is revised to provide that at all 
times during the term of the HAP contract, the rent to the owner for a 
contract unit may not exceed the reasonable rent as determined by the 
PHA, except, as provided in this final rule, where the PHA has elected 
in the HAP contract to not reduce rents below the initial rent under 
the initial HAP contract, the rent to owner shall not be reduced below 
the initial rent in accordance with Sec.  983.302(e)(2).

III. Discussion of Public Comments and HUD's Responses

    The public comment period on the proposed rule closed on July 16, 
2012, and 22 public comments were received in response to HUD's May 15, 
2012 proposed rule. Comments were submitted by individual members of 
the public, Fair Housing interest groups, housing associations, and 
public housing authorities. The following presents the significant 
issues and questions related to the proposed rule raised by the 
commenters.
    A few commenters submitted comments generally about their views of 
the rule. These comments, for which no response is required, included 
such comments as the following.
    A commenter stated that HUD must ``broaden its thinking with regard 
to administration of the project-based voucher program to recognize the 
important preservation tool that project-based vouchers are and will 
continue to be (particularly in light of the new Rental Assistance 
Demonstration (RAD) program). The commenter stated that, in reading the 
proposed changes, it was struck by a tension between expanding program 
use and flexibility with a desire to keep the program the small 
boutique program that it started out to be. The commenter stated that 
the tension is understandable in that the project-based voucher program 
was originally intended to be a very small (and voluntary) program to 
address tight rental market, but as Congress cuts back on funding for 
federal housing programs, the ability to preserve the existing housing 
stock has become more critical and Congress has recognized that it must 
use its scarce resources to the best outcome (in this case the 
preservation of a scarce supply of affordable rental housing). Other 
commenters stated that ``the PBV program is an essential component of 
state and local supportive housing strategies to reduce reliance on 
restrictive settings which violate the Americans with Disabilities Act, 
such as state institutions, board and care homes, adult care homes, and 
nursing homes.'' Another commenter recommended that HUD revise the 
program further to allow greater flexibility to support PBV assistance. 
The commenter stated that ``HUD should lobby to increase the percentage 
of budget authority for PBV units when the PHA is utilizing PBVs as 
replacement housing for public housing.''
    The following presents specific issues raised by commenter and 
HUD's response to the comments.

Issue: Rent to Owner: Reasonable Rent (Sec.  982.507)

    Comment: Commenters stated that HUD's proposed language at Sec.  
982.507, regarding the rent reasonableness test, is contrary to 
statutory intent by limiting the rent to the lesser of the reasonable 
rent and the payment standard. The commenters repeated the statutory 
language that states ``the rent shall be considered reasonable if it 
does not exceed the greater of (1) the rent for other LIHTC or HOME 
assisted units in the project not occupied by families with tenant 
based assistance, or (2) the payment standard established by the PHA 
for a unit of the size involved.'' The commenters recommend that HUD 
re-evaluate the proposed language. A commenter stated that Congress 
also has provided that the rent is not reasonable if it exceeds both 
the rents charged for comparable units receiving tax credits that are 
not occupied by voucher holders and the PHA payment standard for the 
unit. The commenter stated that, in other words, if the tax credit rent 
is $600 and the payment standard is $650, a PHA can approve a voucher 
rent at $650, subject to a rent reasonableness test. Using this 
example, HUD could not approve a rent of $675 because it is greater 
than the payment standard and the tax credit rent.
    HUD Response: HUD disagrees with the first commenter's 
interpretation of the statute. The first subsection in the HERA 
amendment plainly states that a rent comparability analysis is not 
required by the PHA if the rent to owner does not exceed the rent for 
other comparable, non-voucher LIHTC units in the project. However, the 
second subsection of the HERA amendment is properly read as stating 
that if the proposed rent to owner will exceed the amount in the 
preceding paragraph, the amendment does not create an exception to the 
normal rent comparability requirement in section 8(o)(10)(A) of the 
U.S. Housing Act of 1937. In addition, the HERA amendment imposes an 
additional rent cap based on the payment standard in these cases. 
Therefore, if the rent requested by the owner exceeds the LIHTC rents 
for non-voucher families, the PHA must perform a rent comparability 
analysis in accordance with program requirements. In addition, the PHA 
must cap the rent at the payment standard. The rent to owner in these 
cases is therefore set at the lesser

[[Page 36153]]

of the comparable market rent determined by the PHA and the payment 
standard.
    HUD generally agrees with the commenter that used dollar amounts to 
illustrate the test that must be performed when the rent requested by 
the owner is greater than the rents charged for other comparable LIHTC 
units in the project that are not occupied by voucher families. 
However, the commenter excluded the possible impact of the required 
rent comparability analysis performed by the PHA. For instance, if the 
PHA's comparability analysis determined that the reasonable rent was 
$625 that would be the rent to owner, notwithstanding the fact that the 
payment standard was $650.
    Comment: Commenters stated that the statute does not require PHAs 
``to conduct a rent reasonableness test if the requested voucher rent 
is at or below the tax credit rent for units not occupied by a voucher 
holder.'' A commenter gives an example, stating that ``if the tax 
credit rent paid by unassisted tenants is $600 and the rent for the 
voucher unit is $550, the PHA would not be required to compare the unit 
rent to unassisted units in the private market -- the rent would be 
deemed reasonable.
    HUD Response: Rent reasonableness is required to be determined as 
otherwise provided by paragraph 8(o)(10) of the 1937 Act except that 
rent reasonableness shall not be required if the voucher rent is equal 
to or lesser than other comparable LIHTC units occupied by non-voucher 
families. The statute does not state that such rents shall be ``deemed 
reasonable'' as suggested by commenters. Therefore, HUD submits that 
the statutory language is permissive, and that while HUD may not 
require a rent comparability determination in the situation described, 
the statute does not prohibit a PHA from performing such determination 
if it so chooses.
    Comment: Commenters stated that the proposed language could result 
in reducing rents below existing rents and undercut the statute. The 
commenters recommended that HUD revise the language ``to follow the 
`greater of' statutory language and avoid the unintended penalty for 
owners requesting legitimate rent increases that threaten no additional 
harm to assisted tenants.'' Other commenters stated that requiring an 
owner to reduce rent below existing rents would be contrary to HUD's 
own intentions.
    HUD Response: Commenters appear to believe the statute states that 
the rent shall be considered reasonable if it does not exceed the 
greater of (1) the rent for other LIHTC or HOME assisted units in the 
project not occupied by families with tenant based assistance, or (2) 
the payment standard established by the PHA for a unit of the size 
involved. The statute actually states that the rent shall not be 
considered reasonable if it exceeds the greater of (1) the rents 
charged for other comparable units receiving LIHTC or HOME assistance 
in the project that are not occupied by families with tenant based 
assistance, and (2) the payment standard established by the PHA for a 
unit of the size involved. The statutory language imposes a payment 
standard cap in addition to the required rent reasonableness test both 
at the time of initial rent setting and when an owner requests a rent 
increase. As noted previously, if the rent to owner (at initial rent 
setting or during rent increases) does not exceed the LIHTC rent for 
comparable, non-voucher units, a PHA rent reasonableness analysis is 
not required and there is no payment standard limitation.
    Comment: A commenter requested that HUD explain why it is adding 
the additional rent reasonableness requirement and why HERA was able to 
waive the rent comparison when the rent does not exceed other LIHTC 
projects but not when the requested rent exceeds other LIHTC rents?
    HUD Response: HUD has clarified in the preamble that if the 
requested rent does not exceed the rent for other LIHTC units in the 
project not occupied by families with tenant-based assistance, that a 
rent reasonableness determination is not required. HUD believes that 
the statute is permissive and that a PHA may perform a rent 
reasonableness comparison in this instance if it so chooses. The 
statute states that the requirements of 8(o)(10) of the 1937 Act apply 
including 8(o)(10)(A), which requires that the rent for dwelling units 
for which a housing assistance payment contract is established under 
subsection 8(o) of the statute shall be reasonable in comparison with 
rents charged for comparable dwelling units in the private, unassisted 
local market. The HERA amendment does not render the requirement for a 
rent comparison analysis pursuant to section 8(o)(10)(A) of the 1937 
Act inapplicable when the test under section 8(o)(10)(F)(ii) is met. 
Rent reasonableness requirements pursuant to section (8)(o)(10)(A) 
continue to apply.
    Comment: A commenter recommended that HUD clarify ``that the HERA 
policy for determination of `reasonable rents' for LIHTC units with 
tenant-based vouchers, incorporated in Sec.  982.507(c)(2), does not 
apply to project-based vouchers.''
    HUD Response: HUD agrees with this comment and in this preamble to 
this final rule HUD has clarified that the regulatory change is only 
applicable to the tenant-based voucher program.
    Comment: A commenter stated that the HUD should leave the existing 
regulatory language as is because the regulatory language complies with 
the requirements in HERA and HERA ``does not require PHAs to lower PBV 
owners' rents if/when applicable FMRs decrease by five percent or more, 
as has been directed by some HUD Field Offices.'' The commenter stated 
that the regulation should allow ``PHAs to conduct rent reasonableness 
if warranted, but not for PHAs to necessarily lower the existing PBV 
rent in these circumstances.'' The commenter stated that ``under the 
circumstances described above, regarding decreases in FMR values of 
five percent or more, a PHA receives a property owners' annual rent 
increase request for a given unit but a PHA's rent reasonableness 
determination justifies a lower PBV rent, than a PHA can lower the PBV 
rent to the rent reasonable level but not lower than the initial rent. 
Some HUD Field Office personnel have misinterpreted and/or misapplied 
the PBV regulations governing reasonable rents in the PBV program, 
which is why we believe that clarification of the proper implementation 
of this regulation is welcomed.''
    Another commenter requested that HUD revise Sec.  982.507(c)(2) to 
clarify that under HERA PHAs are not required to conduct a rent 
reasonableness determination (in accordance with the existing 
regulations for Section 8 tenant-based and project-based voucher 
programs) if the initial rent or rent requested at subsequent 
intervals, is equal to or less than the rent for other comparable units 
receiving tax credits or assistance in the project for units that are 
not occupied by Section 8 tenant-based or project-based assisted 
households. The commenter also requested that HUD clarify that ``there 
could be a scenario where the initial rent requested or the rent at 
intervals during subsequent lease terms would be `rent reasonable' if 
it is equal to the greater of (1) the rent for other comparable units 
receiving such tax credits or assistance in the project for units that 
are not occupied by Section 8 tenant-based or project-based assisted 
households; or (2) a PHA's payment standard for an applicable unit 
size.''
    HUD Response: The HERA change relates to rents for tenant-based 
voucher holders in projects with LIHTCs or

[[Page 36154]]

HOME units. It does not apply to the project-based voucher program. In 
addition, the existing regulatory text at Sec.  982.507 also does not 
apply to the project-based voucher program. The commenters' other 
concerns are addressed in response to other similar comments stated 
above.

Issue: Revised Definition of ``Existing Housing'' (Sec. Sec.  983.3, 
983.52(a))

    As already discussed in this preamble, HUD is not revising the 
definition of ``existing housing'', but nevertheless wants to share the 
public comments that HUD received on this issue. Commenters responded 
to HUD's proposal as follows:
    Comment: Several commenters submitted comments on these sections. A 
commenter recommended that HUD review the impact of the new limitations 
on existing housing. The commenter stated that while the previous text 
defined ``existing housing'' as any housing that met HQS upon the 
proposal selection date, the revised language limits existing housing 
to units that do not require more than $1,000 in repairs to meet HQS, 
and requires the owner to certify that planned rehabilitation does not 
exceed $1,000 in the first year of the HAP contract. Commenters stated 
that the proposed time limit and the monetary limit of $1,000 for 
performing compliance work are inappropriate.
    A commenter stated that this threshold is very low and ``does not 
accurately capture the differences between development and acquisition-
only transactions.'' Another commenter stated that this threshold may 
discourage owners from conducting voluntary repairs and replacements to 
achieve greater accessibility and/or energy efficiency. A commenter 
questioned what an owner should do if a tenant vacates a unit within 
one year after a HAP contract is executed?
    A commenter stated that ``an owner should have the ability to do 
more than $1,000 worth of work on the unit'' because to do a simple `` 
`unit turnover'--painting, cleaning and perhaps recarpeting--would cost 
more than $1,000.'' Other commenters expressed concern about the cap 
when scheduled rehabilitation is required.
    A commenter recommended changing the definition to allow PHAs to 
determine the threshold or in the alternative if HUD determines a 
threshold is appropriate, a reasonable level based on guidelines and 
thresholds of other federal funding programs should be considered. 
``For example, low-income housing tax credits and the FHA loan programs 
use higher rehabilitation thresholds of approximately $6,500 per 
unit.''
    Other commenters stated that the new definition is contrary to 
HUD's new Rental Assistance Demonstration (RAD) program which 
encourages owners of certain types of assisted multifamily housing with 
expiring subsidy contracts to convert to PBVs. Commenter stated that 
many of these projects currently meet HQS but will require additional 
rehabilitation with tenants in place. Without the flexibility for PHAs 
to treat these projects as existing housing, as appropriate, many of 
these proposed preservation transactions will not be feasible.
    A commenter stated that the same $1,000 per unit rehab number was 
used for Section 8 moderate rehabilitation over 8 years ago and HUD has 
failed to recognize inflation costs. Additionally, the commenter noted 
that a scheduled rehabilitation that costs more than $1,000 to meet HQS 
standards is not the same as a gut rehab which would require tenants to 
be displaced. Another commenter stated that the proposed limit will 
``hamper HUD's ability to implement the recent preservation policy to 
encourage the conversion of Rent Supplement or Rental Assistance 
Payments to project-based vouchers. If HUD is indeed focused on 
preservation of the assisted housing stock, its rules must reflect that 
commitment.''
    Commenters stated that this new definition will complicate 
transactions when eligible residents are already in place and 
renovations are undertaken or when renovations must be made to new or 
rehabilitated units that were not originally PBV units. Other 
commenters stated that the new definition will significantly narrow 
those units that will qualify as existing housing and negatively impact 
the preservation of existing housing. A commenter stated that the 
revised definition is contrary to HERA's goal to reduce regulatory 
requirements and make it easier to attach PBVs to existing housing.
    Commenters stated that ``the procedures for rehabilitated housing 
will delay the initiation of rental assistance, which will create 
significant cash shortfalls for many preservation transactions which 
rely on the PBV income stream from ``Day One'' to support new financing 
(for rehabilitation and often acquisition, where the property is being 
transferred). These projects meet HQS on Day One, but may require 
significant additional rehab (e.g. for energy retrofits and 
modernization) to satisfy the requirements of lenders and tax credit 
investors, or to improve long-term sustainability.''
    Commenters recommended that HUD maintain the current regulatory 
definition. A commenter also recommended eliminating the second half of 
the proposed definition. Other commenters recommended deleting the part 
of ``the proposed definition that would eliminate the possibility of 
rehabbing a property in the first year of the HAP contract and by 
increasing the per-unit rehabilitation dollar amount for units that 
need immediate repair to pass HQS.'' A commenter recommended the 
proposed definition be amended to allow PHAs discretion ``to qualify as 
existing housing any property that meets (or can readily meet) HQS, 
regardless of the anticipated level of additional future 
rehabilitation, where such rehabilitation will be carried out with 
tenants in place and is necessary and appropriate to extend the 
remaining useful life of the property as affordable housing.'' Another 
commenter recommended maintaining the current definition because the 
``flexibility has been critical to preserving existing units in 
communities where affordable rental housing is scarce or units are 
being lost due to gentrification.'' Other commenters recommend that HUD 
preserve and promote the discretion of local PHA's by keeping the 
current definition.

Issue: Revising the ``PHA Owned Unit'' Definition (Sec.  983.3)

    Comment: Commenters stated that the proposed rule failed to address 
the definition of ``PHA Owned Unit'' and stated that the current 
definition causes continued confusion to industry participants, HUD, 
and HUD's Office of Inspector General (OIG). A commenter stated that 
the purpose of distinguishing PHA-owned units in the regulation is to 
prevent self-dealing by PHAs where they both own and administer voucher 
assistance for a given unit, and that the existing definition is 
unnecessarily broad and in some cases has led HUD to consider units as 
PHA-owned where the PHA is merely a ground lessor or a mortgagee, but 
does not exercise control over the project itself. The commenter stated 
that when a unit is deemed PHA-owned, then the regulations at Sec.  
983.59 apply. Another commenter stated that these require the 
engagement and compensation of an independent entity, rather than the 
PHA, for certain functions, including inspections and rent 
reasonableness determinations. Another commenter recommends tightening 
the definition so that the Sec.  983.59 requirements apply only in 
those situations where the PHA controls the project and there could 
actually be

[[Page 36155]]

a conflict of interest in a PHA performing those functions itself.
    A commenter also recommended that the definition require an 
independent entity to be involved when a PHA is both the owner and the 
voucher administrator.
    Some commenters stated that HUD's definition is so broad that PHAs 
are determined to ``own'' a property regardless if they have no control 
over the property operations. The commenters recommended that HUD 
tighten the definition to ensure that ownership equates with having 
control over the property and an actual conflict of interest exists.
    Other commenters recommended using the following definition ``PHA-
owned unit means a unit in a project that is owned by the PHA, by a PHA 
instrumentality, or by a limited liability company or limited 
partnership in which the PHA (or PHA instrumentality) holds a 
controlling interest in the managing member or general partner.''
    HUD Response: HUD appreciates the commenters' recommendations 
concerning the definition of PHA-owned units. However, HUD has not 
proposed changes to the definition, and believes that the changes 
proposed by the commenter should undergo public comment before HUD 
adopts any such change.

Issue: New Definition of ``Release of Funds'' (Sec.  983.3)

    Comment: A commenter stated that the revised ``release of funds'' 
would allow HUD to issue a release of funds in lieu of use of form 
7015.16 (Authority to Use Grant Funds) but stated that form 7015.16 is 
just one manner in which a release funds can be effectuated. The 
commenter recommended that the definition be revised to reference 
solely a ``release of funds'' or ``a release of funds in accordance 
with [24 CFR] Part 58.'' Another commenter recommended removing the 
requirement that a specific type of ``Letter to Proceed'' be used, 
which ``would facilitate PHA and owner efforts to combine project based 
voucher (PBV) assistance with other forms of HUD funding in one Part 58 
clearance.''
    HUD Response: The reason for the proposed change was to translate 
the function of form 7015.16 to actual program operations. The form 
grants authority to use grant funds. Issuance of a Letter to Proceed 
more accurately reflects the transaction since Section 8 funding under 
the voucher program is not provided in grant form.

Issue: Revised Definition of ``Special Housing Type'' (Sec.  983.3)

    Comment: A commenter recommended that, as a conforming change to 
the rule, HUD remove reference to ``cooperative housing.''
    HUD Response: HUD agrees with this comment, and the final rule 
removes the reference to cooperative housing from the list of housing 
types inapplicable to the PBV program.

Issue: Adding a Definition of ``Financial Closing'' (Sec.  983.3)

    Comment: A commenter recommended that HUD add a definition of 
``financial closing'' in order to bring clarity to when an AHAP should 
be executed. The commenter stated that typically, an AHAP is executed 
at the financial closing of the construction financing as a condition 
of the lenders and investors of the project, who are depending on the 
commitment of the PBV assistance.'' The commenter recommended the 
following language: ``A financial closing occurs once all of the 
construction financing for a project is in place and the legal 
documentation committing the financing to the project has been 
executed.''
    HUD Response: HUD appreciates the commenter's recommendation to add 
a definition of financial closing to the PBV definitions. However, HUD 
believes that such a definition is not one that should be adopted at a 
final rule stage but should first undergo some measure of public 
comment prior to adoption.

Issue: Description of the PBV Program & Maximum Amount of PBV 
Assistance (Sec. Sec.  983.5, 983.6)

    Comment: A commenter stated that the information being sought have 
long been required in a PHA Annual Plans by way of HUD guidance, and 
the commenter referenced PIH notice, PIH 2011-54, September 20, 2011. 
The commenter requested that HUD explain why such information is now 
being requested as part of this rule. The commenter recommended that 
Sec.  983.5 be revised to require that a PHA ``include in its PHA plan 
the projected number of PBV units, their general locations and how 
project basing would be consistent with the plan.''
    Another commenter recommended deleting the language added at Sec.  
983.6(d) because the language adds administrative burden and HUD 
already has appropriate reporting mechanisms in place for PHAs. 
Additionally, the commenter stated that the collection of information 
only at the beginning of the PBV program is ineffective and the PHA 
plan already requires information on PBVs. The commenter recommended 
that HUD ``amend Part 903 or the Agency Plan template.''
    Other commenters recommended that HUD include in the section that 
the PHA include the required information in the PHA Plan.
    HUD Response: HUD agrees that the language as proposed is unclear. 
HUD is seeking to obtain the information required under Sec.  983.6 
prior to the selection of individual PBV proposals. Such information is 
not collected through any other HUD system, and the collection is 
necessary to ensure that PHA's are not exceeding the 20 percent 
statutory limitation on the amount of annual budget authority a PHA may 
project-base. As such, Sec.  983.6 is revised, at this final rule 
stage, to require that a PHA submit the requested information to HUD 
before issuance of a Request for Proposals or a selection made pursuant 
to Sec.  983.51(b)(2), including information on the impact the 
selection will have on a PHA's annual budget authority.

Issue: Applicability of Owner Proposal Selection Procedures to Public 
Housing Revitalization and Replacement Efforts (Sec.  983.51(b))

    Comment: A commenter stated that it supported the change to allow 
owner selection without a competition in connection with ``public 
housing improvement, development or replacement efforts.'' The 
commenter stated it would constitute an ``important administrative 
streamlining in complex public housing revitalization processes, 
without appreciatively affecting competitive opportunities for receipt 
of PBV.''
    HUD Response: HUD believes that the commenter misunderstood HUD's 
intent. Neither the proposed nor this final rule makes the change 
stated by the commenter. Neither does the rule make changes to the 
section that prohibits the attachment of PBV assistance to public 
housing units. The proposed rule simply reiterates the basis for the 
requirement.
    Comment: Commenters recommended dropping ``the requirement that a 
prior competitive selection process not involve any consideration that 
the project would receive PBV assistance.'' The commenters stated the 
language is unclear and creates obstacles for owners. A commenter 
recommended the language be revised by deleting ``, and the earlier 
competitive selection did not involve any consideration that the 
project would receive project-based assistance.'' Another commenter 
stated that this requirement is overly burdensome because it puts 
``PHAs and

[[Page 36156]]

owners in an untenable position since they cannot compete for vouchers 
without tax credits and cannot compete for tax credits without PBV 
assistance.'' The commenter stated if deleting the requirement is not 
accepted than the language should be limited to instances ``in which 
points were awarded for the inclusion of such vouchers.''
    HUD Response: Deleting the restriction would allow for the 
inclusion in a competitive selection process that a project will 
receive PBV assistance prior to an actual PBV selection. HUD believes 
that accepting the commenters' suggestion would lead to the distortion 
of both the competitive nature of the PBV program and the legitimacy of 
the rationale allowing for the selection of units that have undergone 
other recent legitimate competitive selections. Eliminating the 
requirement, as suggested, would give an advantage to prospective PBV 
project owners in the competitive selection upon which a PHA is relying 
to select units under the PBV program which would result in a HUD 
program requirement that could possibly taint the outcome of another 
Federal, State or local housing program. HUD therefore declines the 
commenters' recommendation to remove the current regulatory language.
    Comment: Commenters recommended that HUD ``change the current 
requirement for a local competitive process in instances where a PHA 
will attach project-based vouchers to units in which it has an 
ownership interest as part of an initiative to improve, develop or 
replace a public housing property or site, provided that the PHA 
includes the initiative in its PHA Plan.''
    The commenters stated that: ``In this narrow circumstance where a 
PHA desires to control the revitalization or replacement of its public 
housing through the use of PBVs for its own units, the requirement to 
conduct a competitive process is unlikely to be cost-effective and will 
add delay and uncertainty to critical public housing revitalization 
efforts.'' The commenters specifically recommended providing three 
options, and suggested the following language for the third option: 
``(3) Selection of a proposal without a competitive process for PHA-
owned housing as part of an initiative to improve, develop, or replace 
a public housing property or site.''
    HUD Response: HUD appreciates the commenters' recommendation. 
However, these changes were not offered at the proposed rule stage and 
HUD believes that they should first undergo public comment before 
adopting the commenters' suggestions in a rule for effect. HUD, 
however, will consider the commenter's recommendation if HUD decides to 
propose a substantive change to the competitive selection requirements 
in future rulemaking.

Issue: Restrictions on Using PBVs in Public Housing (Sec. Sec.  
983.51(d), 983.54(a))

    Comment: Commenters expressed concern and recommend that HUD 
clarify the current language restricting the use of PBVs in public 
housing because it could be interpreted to prevent the combining of 
public housing capital funds (including HOPE VI) with project-based 
vouchers. The commenters stated that the current language is contrary 
to the goal of preservation and believes that this was not HUD's 
intended outcome.
    A commenter recommended that the existing regulation be revised to 
prohibit the use of PBV assistance with units that receiving public 
housing operating funds only, revise the final sentence of Sec.  
983.51(e) to read as follows: ``Under no circumstances may PBV 
assistance be used with a unit receiving public housing operating 
funds.;'' and revise Sec.  983.54(a) to read as follows: ``Units 
receiving public housing operating funds.''
    HUD Response: HUD appreciates the commenters' concern, however, the 
concern has been previously addressed by the Department in the 2005 PBV 
Final Rule, 70 FR 59892, 59900. The Proposed Rule and this Final Rule 
simply restate HUD's longstanding legal interpretation on using 
project-based voucher assistance in public housing units. Therefore, as 
stated in the 2005 PBV Final Rule, HUD reiterates that Congress' 
adoption of disparate or parallel statutory provisions for the public 
housing and voucher programs affirms that public housing and voucher 
programs are intended to operate as separate, and mutually exclusive, 
subsidy systems under the 1937 Act. It is not permissible by law to 
combine voucher funds with public housing funds. For HOPE VI funds that 
predate fiscal year (FY) 2000, it is generally permissible to combine 
these funds in accordance with the terms of the relevant HOPE VI 
appropriations act if the HOPE VI funds were not used to develop or 
operate public housing units. It is not permissible in any case to 
combine HOPE VI funds appropriated on and after FY 2000 (Section 24 
funds), because Section 24 funds are public housing funds. If Capital 
Funds or Section 24 funds are used in the development of affordable 
housing, pro-ration must occur. For example, if a project receives 
$2,000 in non-public housing HOPE VI funds and $1,000 in Capital Funds 
and there are 60 units in the development, 20 of the units (one-third) 
are being funded with capital funds and, therefore, cannot be combined 
with project-based vouchers. Provided that the remaining 40 units (two-
thirds) are not receiving any Public Housing funds, the units may be 
assisted under the PBV program.

Issue: New Language Allowing PHAs Greater Flexibility (Sec.  983.51)

    Comment: A commenter recommended that HUD add a paragraph (g) to 
this section that would allow the number of ``units under a HAP 
contract to be increased up to the number awarded on the proposal 
selection date without an additional competitive selection'' at any 
time. The commenter stated that this change will help stabilize 
projects and provide long-term affordable housing when owners lose 
units for no fault of their own, including over-income tenants and 
wrong-sized families, and that the change is crucial because the 
regulations at Sec.  983.211 and Sec.  983.258 clarify that a unit must 
be removed from the HAP Contract if a unit is over-income or otherwise 
not eligible, but Sec.  983.207 only allows the addition of a unit 
within three years of the execution of the HAP Contract.
    Another commenter stated that to the extent that a unit loses 
subsidy for no fault of the owner, the regulations should clarify that 
the unit can be included in the HAP Contract upon lease-up of a 
subsequent eligible resident. The feasibility of projects is based upon 
the commitment of a certain level of PBV assistance during the full 
term of the HAP Contract. In order to preserve the affordability of the 
projects, the PHA must be able to provide the originally committed 
level of assistance when the amount of subsidy is decreased through no 
fault of the owner. The commenter recommended the following language 
``Once a PBV proposal has been selected pursuant to this section, the 
PHA may increase the units under the HAP contract up to the number of 
units originally awarded upon the proposal selection.''
    HUD Response: HUD appreciates the commenters' recommendation. 
However, similar to HUD's response to recommendations to change the 
procedures governing an owner' proposal selection for public housing 
revitalization and replacement efforts, HUD believes that these changes 
should first undergo public comment before adopting the commenters 
suggestions in a rule for effect. If in a future rulemaking HUD 
proposes a substantive change to the competitive selection

[[Page 36157]]

requirements, the recommendations of the commenters will be considered.

Issue: Subsidy Layering Review Not Required for Existing Housing (Sec.  
983.55)

    Comment: A commenter recommended that HUD clarify the change to 
Sec.  983.55(a) by inserting a period after ``existing housing'' and 
making the ``nor'' clause into a separate sentence.
    HUD Response: HUD agrees with the commenter and the final rule 
clarifies the sentence as suggested by the commenter.

Issue: Cap on Number of PBV Units in Each Project (Sec.  983.56)

    Comment: Commenters stated that Sec.  983.56 is unclear in regard 
to the types of units excluded, such as single family project units, 
and requests clarification in how to apply the 25 percent cap to PBV 
units in a project. A commenter stated it is unclear ``in the context 
of a project that may combine multifamily structures with structures 
containing one or two units. The rule was previously understood to 
exclude from the general calculation any building of less than four 
units, and we would suggest clarifying the rule to continue this 
practice.''
    HUD Response: HUD agrees with the commenter and in this final rule 
does not contain the proposed change to replace the word building with 
project in Sec.  983.56(b)(1)(i).
    Comment: A commenter recommended the following language, 
``Combining exception categories. Exception categories in a multifamily 
housing project may be combined, such that excepted units in a single 
project may include elderly families, disabled families, and families 
receiving supportive services, or any combination thereof. Additionally 
a project may include excepted and non-excepted units (i.e., only those 
units over the 25 percent per-project cap must be excepted units).''
    HUD Response: HUD believes the intent of the regulation is 
adequately discussed in the preamble and does not believe further 
revision to the proposed regulatory text is necessary.

Issue: Termination of Rental Assistance for Families in ``Excepted'' 
Properties That No Longer Qualify for Benefits (Sec. Sec.  
983.56(b)(2)(ii)(B)&(C), 983.257(c), 983.261(d))

    Comment: Commenters stated that the rule leaves ``unchanged, 
provisions in three current sections pertaining to project-based units 
that are ``excepted'' from the 25 percent per-property cap on voucher 
project basing . . . that requires remaining members of a family that 
no longer qualifies for elderly or disabled family status to vacate 
their home.'' Commenters stated that these provisions are contrary to 
other provisions, such as allowing families to remain in homes at the 
end of a FSS contract, contrary to VAWA, and contrary to HUD policy, 
and the commenter, as an example, referenced HUD's policy for 
allocating VASH vouchers in the event of domestic violence. HUD-VASH Qs 
and As, No. D.4.''
    HUD Response: HUD agrees with the commenters that family members 
residing in a unit that no longer qualifies for elderly or disabled 
family status should not be required to vacate the unit under 
conditions that are beyond the control of the family, and Section II of 
this preamble advises of the change that HUD is making at this final 
rule stage to address this concern.
    Comment: Commenters stated that the rule requires that to maintain 
occupancy the occupants must work, a requirement that is counter to the 
principle that housing should be voluntary, and the commenter 
references Notice PIH 2011-33, dated as recently as June 24, 2011, 
which provides that ``Under no circumstance may a PHA terminate 
assistance from the public housing program as a consequence of 
unemployment, underemployment, or otherwise failing to meet the work 
activity requirement for a particular public housing development.''
    Commenters recommended that the PBV termination rule be removed or 
HUD should ``[p]redicate such terminations on the availability of 
tenant-based vouchers so that a family can move with continued 
assistance (similar to the policy that applies to over-or under-housed 
families at Sec.  983.259 and that applies to public housing families 
at Notice PIH 2011-33); or if the property is partially assisted, allow 
the family to remain, substituting the housing assistance contract of 
their unit with another unit, if available, as is currently allowed at 
Sec.  983.261(d).'' Another commenter stated: ``If the property is 
fully assisted, allow the family to remain but when the family vacates 
the new tenant would be subject to the requirements that apply to 
``excepted'' units.''
    HUD Response: The statutory exception to the 25 percent limitation 
on dwelling units receiving assistance under a PBV contract 
specifically requires that families receive supportive services. If a 
family continues to reside in an excepted unit after failing, without 
good cause, to complete the service requirement, the unit must be 
removed from the HAP contract since it only qualifies as an excepted 
unit if the family is receiving supportive services.
    The service requirement is a condition of occupancy of the PBV unit 
and is a family obligation contained within the Statement of Family 
Responsibility that must be signed prior to leasing the unit. A 
family's failure to complete the service requirement, without good 
cause, is considered a violation of family obligations and grounds for 
termination from the program.
    HUD disagrees that the service requirement is a work requirement. 
Occupancy in a unit excepted from the 25 percent limitation on PBV 
units in a family project is not based on employment, but rather the 
statute provides that the exception is allowed for units leased by 
families receiving supportive services.

Issue: Environmental Review for Existing Structures (Sec.  983.58)

    Comment: Commenters expressed disagreement with HUD's 
interpretation of the statutory language (Section 2835(a)(1)(f) of 
HERA). Commenters stated that the current interpretation renders the 
HERA provision meaningless. Another commenter stated that ``HERA 
specifically provided that PHAs would not be required to undertake 
environmental reviews of an existing structure `except to the extent 
that such a review is otherwise required by law or regulation.' '' 
Other commenters stated that ``HUD should have interpreted the phrase 
`otherwise required' as required by a law or regulation related to 
other funding for the units.''
    A commenter stated that HUD's interpretation violates principles of 
statutory construction by rendering the language superfluous, and HUD's 
failure to implement the statute accurately has caused PHAs additional 
administrative burdens, ``particularly for PHAs using Project-Based 
Vouchers for substantial numbers of existing units on different 
sites.''
    A commenter recommended that HUD replace Sec.  983.58(c), with the 
following: ``(c) Existing housing. Existing housing under this part 983 
is exempt from environmental review, unless required by law or 
regulation related to funding for the units other than PBV assistance. 
If an environmental review is required, the RE [responsible entity] 
that is responsible for the environmental review under 24 CFR part 58 
must determine whether or not PBV assistance is categorically excluded 
from review under the National Environmental Policy Act and whether or 
not the assistance is subject to review

[[Page 36158]]

under the laws and authorities listed in 24 CFR 58.5.''
    HUD Response: Section 2835(a)(1)(F) of HERA adds section 
8(o)(13)(M)(ii) to the 1937 Act and specifically relieves PHAs from 
undertaking any environmental review before entering into a HAP 
contract for an existing structure, except to the extent such a review 
is otherwise required by law or regulation. A number of broadly 
applicable Federal statutes, executive orders, and regulations require 
environmental reviews of various types to be performed by Federal 
agencies prior to agency actions, including approving Federal 
assistance for a project. In the case of Section 8, Section 26 of the 
1937 Act provides for the assumption by a state or unit of general 
local government of these environmental review responsibilities. 
Contrary to the commenters' insistence that HUD's interpretation of the 
statute renders it meaningless, Section 8(o)(13)(M)(ii) simply does not 
relieve a state, unit of general local government, or HUD of these 
responsibilities to undertake an environmental review of existing 
projects prior to execution of a HAP, and does not authorize HUD to 
declare such projects exempt from environmental review.
    Comment: A commenter stated that the environmental review should be 
limited for existing PBV to situations where such review is required by 
funding sources for the units other than PBV. The commenter stated that 
this step will eliminate the need for PHA efforts that do not 
contribute significantly to environmental protection or the well-being 
of residents, as Congress intended.
    HUD Response: Environmental reviews on existing projects are 
appropriately less extensive than for new construction, and include 
evaluation of factors such as flood hazards and site contamination that 
do affect the well-being of residents.

Issue: New Language for PHA Owned Units (Sec.  983.59)

    Comment: A commenter recommends that HUD add language ``to allow 
PHAs to pass the costs of the PBV program to the owners and remove the 
requirement that an independent entity must approve a renewal.'' The 
commenter states that PHAs have actual expenses in providing PBV 
assistance which are not covered by administrative fees, and that 
therefore, the ``regulations should make clear that the PHA may pass 
those costs on to the owner to be paid as operating costs of the 
project, provided that the payment of the tenant shall not be 
increased. Additionally, since an independent entity is already 
approving the amount of assistance and the inspection of units, we do 
not believe that the independent entity is necessarily best suited to 
determine the appropriateness of renewals.''
    Another commenter suggested that Sec.  983.59(b) be deleted and the 
following language replace paragraph (d)(1). ``The PHA may compensate 
the independent entity from PHA ongoing administrative fee income 
(including amounts credited to the administrative fee reserve). The PHA 
may not use other program receipts to compensate the independent entity 
for its services; provided, however, that the PHA may pass such costs 
on to the owner to be paid as an operating cost of the project.''
    HUD Response: The suggested changes involve statutory requirements 
and therefore cannot be accepted. Section 8(o)(13)(F) of the 1937 Act 
requires that for PHA-owned housing, the term of the contract shall be 
agreed upon by the agency and the unit of general local government or 
other entity approved by HUD in the manner provided under section 
8(o)(11) of the 1937 Act. Section 8(o)(11) provides that the agency is 
responsible for payments for determinations made by the unit of general 
local government or other approved HUD entity.

Issue: Elimination of an Independent Real Estate Appraisal (Sec.  
983.59)

    Comment: A commenter stated that the proposal ``to eliminate the 
current requirement for a real estate appraisal to determine initial 
contract rents to a Section 8 building owner'' is misguided and HUD 
provides unsubstantiated evidence for the proposed change. The 
commenter recommended that the provision be deleted from the final rule 
and HUD should maintain the appraisal requirement.
    Another commenter stated that there are certified appraiser readily 
available, citing that ``as of December 31, 2011, the number of active 
real estate appraisers in the U.S. stood at 86,800. Of this figure, 
approximately 30 percent, or 26,000, are classified as Certified 
General Real Property Appraisers.'' Another commenter stated that 
appraisers provide timely services, with research indicating appraisal 
times have stayed relatively constant, and cost competitive services, 
reports indicating costs have declined over the years. A commenter 
recommended that HUD clarify what data or research supports the 
conclusion that certified appraisers are not readily available, do not 
provide timely service, and do not provide cost competitive services.
    Another commenter stated that ``it is in the best interests of the 
Department and taxpayers that the contract rents [paid] to building 
owners be based on independent and objective market information. This 
information is best provided by qualified real estate appraisers. Real 
estate appraisers are trained to provide the information sought by HUD 
in an objective and independent manner. We believe doing otherwise 
actually puts the limited funds set aside for Section 8 vouchers at 
risk.''
    HUD Response: Based on the commenter's concerns that rents for PHA-
owned units will not continue to be determined through a state-
certified appraiser and, therefore, determinations will lose 
objectivity, HUD believes that the same objective can be achieved 
through rent reasonableness determinations by an independent entity. 
This requirement was only administratively imposed and because the same 
results can be achieved otherwise, HUD is eliminating the requirement 
as proposed.

Issue: Eliminate Requirement That an Independent Entity Inspecting PHA 
Units Furnish a Copy of Each Inspection Report to the HUD Field Office 
(Sec.  983.103)

    Comment: A commenter stated that ``there is no evidence that this 
paperwork-generating requirement has resulted in better unit 
conditions.'' The commenter recommends deleting in Sec.  983.103(f)(2) 
the language: ``and to the HUD field office where the project is 
located''.
    HUD Response: HUD has not proposed a change to Sec.  983.103(f)(2). 
Nonetheless, to address the commenter's concern, HUD believes there is 
value in the requirement in that it furthers the statutory intent to 
provide independent oversight of PHA owned housing in certain areas of 
program administration.

Issue: Commencement of Construction (Sec. Sec.  983.152, 983.153)

    Comment: Commenters responded to HUD's request for comments on the 
applicability of the commencement of new construction requirement for 
projects receiving other federal funds on which construction has 
already started. Commenters stated that this change would have an 
impact on all possible new owners that are interested in a PBV property 
after construction has begun rather than just those receiving other 
federal funds. A commenter stated ``that it is not uncommon for site 
preparation to have begun before a developer submits a proposal for 
funding. The

[[Page 36159]]

proposed `commencement of construction' standard eliminates a funding 
agency's opportunity to influence a developer to incorporate PBV units 
into the development after its selection. Beyond foreclosing 
opportunities to incorporate PBV units into a development, it is not 
apparent that this definition of commencement of construction serves a 
useful purpose.'' A commenter recommended that HUD provide ``the 
greatest flexibility allowed by law for owners and PHAs to enter into 
AHAPs, even after the proposed definition of `commencement of 
construction.' ''
    Another commenter stated that it recognized the necessity of 
complying with NEPA and not commencing work prior to completion of 
environmental reviews, but stated that it sees ``no other HUD objective 
served by this rule that could not be accomplished by far less 
restrictive means.'' Other commenters stated that the complexity of 
financings and regulatory requirements requires flexibility for 
developers and finances during the process, especially when a project 
doesn't initially rely on PBV. A commenter stated that the layering of 
financing is subject to HUD workload constraints and consequent delays 
that have severely impacted the ability of projects to meet placed-in-
service (PIS) deadlines. Another commenter stated that HUD could 
require that the environmental review be completed prior to ``early 
start activities'' and that they are in accordance with other 
applicable federal requirements, such as Davis-Bacon wage standards and 
Section 3 hiring requirements, without requiring an executed AHAP 
contract. The commenter recommended a simple ``certification from the 
owner (with HUD's standard text regarding potential penalties for false 
statements) that all work performed prior to AHAP execution has been so 
performed. If a PHA requests the early release of funding for early 
start work, HUD may require such a certification at that time.''
    Several commenters stated that there seems to be no apparent policy 
rationale offered for HUD's position and recommended revising Sec.  
983.152(a) to allow an exception for extenuating circumstances. 
Commenters stated that they recognized the need that all part 983 
requirements be met, but stated that the PHA can certify to those 
requirements without HUD concerning itself with the timing of executing 
the AHAP contract.
    A commenter stated that the recommended definition will severely 
limit the use of the PBV program and ``does not reflect the realities 
of how the development process works, and is not necessitated by any 
regulatory requirements.'' Another commenter recommended that HUD tie 
the execution of the AHAP to the financial closing for the construction 
or rehabilitation work, provided the PHA has certified the owner has 
met the other HUD requirements. Specifically, the commenter suggested 
Sec.  983.152(a) be revised as follows: ``Requirement. The PHA must 
enter into an Agreement with the owner upon financial closing. The 
Agreement must be in the form required by HUD'' and that Sec.  
983.153(c) be revised to read as follows: ``Prompt execution of 
Agreement. The Agreement must be executed after the subsidy layering 
and environmental approvals are received from HUD at financial 
closing.''
    HUD Response: The determination of start of construction is 
necessary to ensure that units are constructed or rehabilitated in 
compliance with section 12(a) of the 1937 Act, and Davis-Bacon wage 
rates, where applicable. The Section 8 program, including the PBV 
program, is subject to statutory labor standards provisions in Section 
12(a) of the 1937 Act. Section 12(a) of the U.S. Housing Act requires 
the applicability of Davis-Bacon prevailing wages to the development of 
low-income housing projects containing nine or more Section 8-assisted 
units, where there is an agreement for Section 8 use before 
construction or rehabilitation is commenced. HUD's position has long 
been that once a Section 8 housing project has been initially developed 
and placed under a HAP contract, a later decision by an owner to repair 
or rehabilitate the project as it ages does not constitute 
``development'' of the Section 8 project and is not subject to Davis-
Bacon wage rates. However, construction, including rehabilitation work, 
performed in connection with the initial placement of a project under a 
PBV HAP contract constitutes development of the project and is subject 
to Davis-Bacon wage rates where the project contains nine or more 
assisted units.
    The final rule provides a clear definition of start of construction 
and rehabilitation, and requires that no construction or rehabilitation 
can proceed after proposal submission and prior to an AHAP being 
executed. After AHAP execution all construction and rehabilitation must 
be carried out in accordance with the AHAP and program requirements 
which may include Davis Bacon wage requirements.

Issue: Extension of Initial Term (Sec.  983.205)

    Comment: Several commenters expressed disagreement with HUD's 
interpretation that the PBV contract must end after a 15-year renewal. 
A commenter stated that HUD's interpretation is contrary to the statute 
and proposed the limit be for a maximum of 30 years. The commenter 
stated that the extension contracts need to continue to give homeless 
people more protection.
    Other commenters stated that HUD should comply with the spirit of 
the original PBV statute which refers to long-term affordability and 
unlimited number of extensions of the initial HAP contract for up to 15 
years. Other commenters stated that continued renewals are extremely 
important to ensure long-term affordability and is essential to 
preserving the stock of housing affordability to extremely low income 
people.
    A few commenters stated that the language as written is confusing. 
The commenters asked ``Is HUD attempting to limit the entire term of 
the contract to 30 years? In other words, if a PHA provides a 15 year 
initial HAP contract with an agreement to extend for another 15 years, 
HUD will disallow any further extensions?''
    A commenter stated that it seeks clear language that allows for 
multiple renewals of 15 year terms so not to lose the already limited 
inventory of affordable housing to the market.
    Other commenters stated that the proposed rule violates the 
explicit HERA amendment, which permits an advance agreement for a 
potentially unlimited number of 15[hyphen]year extensions so long as 
the property meets HQS and the rents do not exceed applicable 
limitations. A commenter recommended removing sentences two and three, 
and replacing sentence one as follows: ``A PHA may agree to enter into 
one or more extensions at the time of the initial HAP contract or any 
time before expiration of the contract, for an additional term or terms 
of up to 15 years each if the PHA determines an extension is 
appropriate to continue providing affordable housing for low-income 
families.''
    A commenter recommended that HUD remove sentences two and three, 
and replace the first sentence as follows, ``A PHA at the time of the 
initial HAP contract or any time before expiration of the contract, for 
an additional term or terms of up to 15 years each if the PHA 
determines an extension is appropriate to continue providing affordable 
housing for low[hyphen]income families.''

[[Page 36160]]

    Another commenter stated that Sec.  983.205(b) should be revised to 
``clarify that HAP contracts may be extended for up to 15-year terms, 
with no stated limit on the number of extensions.''
    A commenter stated that the statute gives the PHA the authority to 
extend the contract ``upon a PHA's informed judgment about what is 
reasonably appropriate in order to achieve long-term affordability of 
the housing or to expand housing opportunities.'' The commenter also 
stated that ``Congress' use of the word ``terms,'' and use of the word 
``each'' to modify 15 years, demonstrates that Congress' statutory 
language in HERA was not intended to limit a PHA to extend PBV HAP 
contracts to a ``term'' of up to 15 years exclusively.
    Another commenter recommended removing the language at the end of 
Sec.  983.205 and using the following language: ``Extension of term. A 
PHA may agree to enter into an extension at the time of the initial HAP 
contract term or any time before expiration of the contract, for 
additional terms of up to 15 years each if the PHA determines an 
extension is appropriate to continue providing affordable housing for 
low-income families. In the case of PHA-owned units, any extension of 
the initial term of the HAP contract shall be determined in accordance 
with Sec.  983.59.''
    HUD Response: The proposed rule allows for an extension at the 
beginning of the initial HAP contract term. Essentially, an initial 30-
year commitment is permissible at the commencement of the HAP contract 
provided the PHA is able to make the requisite determination that an 
extension is appropriate to continue providing affordable housing for 
low-income families or to expand housing opportunities. A 15 year 
initial term and a 15 year extension is consistent with requirements 
under LIHTC program under which the project owner must agree to 
maintain an agreed upon percentage of low income units for an initial 
15 year compliance period and subsequent 15-year extended use period. 
The required LIHTC extended use period ensures that a 15-year PBV 
extension is appropriate to continue providing affordable housing for 
low-income families. The HERA amendment, and HUD's reasonable 
implementation of it, facilitates preservation of affordable housing 
for the LIHTC compliance period and extended use period. In addition, 
provided that the PBV program is not repealed, owners and PHAs will 
have the opportunity at the end of the 30 year period to go beyond 30 
years of assistance (HUD uses LIHTCs as an example since LIHTCs are the 
main source of financing used with PBVs. The Department is not 
asserting that because the LIHTC period is 30 years, this is 
dispositive on how long extensions may be). HUD's initial limitation on 
contract extensions is not intended to bar the possibility for future 
extensions.
    The final rule therefore allows for future extensions at the end of 
any extension term provided that not more than 24 months prior to the 
expiration of any extension contract, the PHA agrees to an extension of 
the term at the end of the previous term, and that such extension is 
appropriate to continue providing affordable housing for low-income 
families or to expand housing opportunities. HUD is, exercising its 
discretion to establish a reasonable limit on the cumulative term of 
any contract extension in this manner because HUD believes allowing a 
PHA and owner to extend a HAP contract for an endless number of terms 
during the initial HAP contract, as suggested by some commenters, may 
conflict with the PHA's statutorily required determination that must be 
made prior to extending the underlying contract both initially and for 
subsequent extensions.

Issue: Terminating a HAP Contract When a Rent Reduction Falls Below 
Initial Rent Level (Sec.  983.205)

    Comment: A commenter requested that HUD clarify why it is 
requiring, given there is no statutory requirement, for ``an owner 
seeking to terminate a HAP contract when the rent for any contract unit 
is adjusted below the initial rent level would be required to provide a 
notice to the PHA and HUD and seek HUD approval.'' Another commenter 
stated that the continued allowance that an owner can terminate a 
contract if a rent reduction is below the initial rent level creates a 
conflict with Sec.  983.302. The commenter recommended changing Sec.  
983.302(c)(2) to include an ``a requirement that the owner accept the 
regular, tenant-based voucher of a prior PBV tenant. The use of a 
voucher in the unit would be subject to regular HCV rules of rent 
reasonableness and HQS compliance. But if an owner opts out of a PBV 
contract rather than accept a rent reduction, the PHA finds the rent to 
be reasonable, and the tenant wants to remain and pay the likely 
additional rent above the PHA payment standard, HUD's rules should 
encourage such stability.''
    HUD Response: The regulation reflects an existing requirement. 
Under the May 15, 2012, rule, HUD proposed that the owner provide 
notice to HUD, as well as the PHA, and receive approval from HUD when 
terminating the HAP contract due to a rent reduction causing rents to 
fall below the initial rent level. Upon further consideration, HUD 
withdraws its proposed change and maintains the current regulatory 
language. A commenter stated that there is a conflict between the 
existing regulation of allowing the owner to terminate the contract if 
a rent reduction causes the rent to fall below the initial rent level, 
and Sec.  983.302. HUD disagrees since in limited circumstances, as 
enumerated in Sec.  983.302(c)(2) the rent to owner may be required to 
be reduced below the initial rent (e.g., if additional housing 
assistance has been combined with PBV assistance after execution of the 
initial HAP contract and a rent decrease is required pursuant to the 
prohibition of excess public assistance (see Sec.  983.55)). The 
commenter also suggests that HUD require an owner to accept a regular 
voucher when the owner exercises the right to terminate assistance in 
accordance with (Sec.  983.205). HUD declines to make the change since 
HUD does not have the authority to require that an owner accept a 
voucher.

Issue: Statutory Notice Requirements (Sec.  983.206)

    Comment: Several commenters expressed their support for this 
provision. Several commenters expressed support for the requirement in 
Sec.  983.206(b) and (d) that would require owners to provide tenants 
one-year notice of the owner's intent to terminate a PBV housing 
assistance payment contract. Certain commenters suggested that the 
notice be in writing and that the notice require ``owners, after a 
contract is terminated, to accept any replacement tenant-based 
assistance provided to residents who had been assisted with PBV.'' 
Other commenters stated that providing notice to tenants will allow 
them ``to search for and secure affordable replacement housing.'' The 
commenters also noted support for (d) that ``ensures that tenants must 
be able to remain in their units without a rent increase if the owner 
fails to provide timely notice.''
    A commenter recommended replacing the word ``notify'' with 
``provide written notice'' in Sec.  983.206(b) and revising Sec.  
983.206(d)(1). The commenter suggested that when the owner does not 
give timely written notice than the owner must permit the tenants in 
assisted units to remain in their units for the required notice period 
until one year following the legally required

[[Page 36161]]

notice, with no increase in the tenant portion of their rent and with 
no eviction. This same commenter recommended adding a paragraph (e) 
stating: ``Following termination of the contract, an owner shall accept 
any replacement tenant-based assistance provided to assisted tenants in 
residence at the time of the termination, provided that this 
requirement shall not limit the reasonable market rent charged by the 
owner.''
    Another commenter requested that HUD reconsider requiring owners to 
provide notice one year prior to termination because it is not required 
by the statue and may have disadvantages to residents. The commenter 
stated that the statute does not require notice for the PBV program 
when it is tenant-based assistance. Specifically, the commenter noted 
that ``unlike other project based programs, if the PBV HAP Contract is 
terminated, each resident would receive a tenant-based voucher to 
either stay at the project or move to another place of their choice. A 
year of notice is counter-productive since it causes great concern for 
the residents, even though their housing assistance is not in 
jeopardy.'' The commenter recommended that HUD require 60 days' notice 
and HUD could consider requiring that ``if the Owner will continue to 
operate the project as rental housing, the tenants may not be evicted 
except under the terms of their lease.''
    HUD Response: HUD appreciates the comments in support of Sec.  
983.206, but disagrees with the commenter's that stated that the 
statutory requirement to provide a one-year notice of termination or 
expiration does not apply to the PBV program. Section 8(c)(8) applies 
to project based assistance and Section 8(f) of the statute defines 
project-based assistance to include assistance provided under Section 
8(o)(13) (PBV assistance).

Issue: Recommending a Change to the 3-Year Limit on Adding Units to an 
Existing HAP Contract (Sec.  983.207)

    Comment: Certain commenters objected to the existing three year 
limit for a PHA to add units to a HAP contract. The commenters stated 
that the need to add usually because ``families living in those units 
were not eligible for the vouchers'' upon execution of the HAP 
contract. The commenters recommended HUD provide no limit on adding 
units.
    Another commenter requested that HUD clarify Sec.  983.207(d) so 
``that the PHA may amend the HAP Contract at any time to add additional 
units, provided that the total number of units does not exceed the 
original award/HAP Contract. To the extent those units were part of the 
initial award, the fact that the contract was terminated with respect 
to specific units in accordance with 24 CFR 983.211 should not make 
those units ineligible for assistance provided that future families are 
eligible for assistance.'' Another commenter recommended amending Sec.  
983.207(b) by adding that ``or at any time when a unit that has been 
occupied by an ineligible family since that execution date becomes 
occupied by an eligible family'' after the language ``during the three-
year period immediately following the execution date of the HAP 
contract.'' A commenter stated that allowing units to be added after 
the three years from the initial HAP contract where turnover provides 
``would facilitate contract administration, as well as financing when 
renovations are involved.''
    Another commenter stated that being able to add units is important 
for the feasibility of the project and the PHA should be able to 
increase the number of units under the HAP contract to the number 
originally awarded. This same commenter recommended the following 
language for Sec.  983.207(b): ``Amendment to add contract units. At 
the discretion of the PHA, a HAP contract may be amended to add 
additional PBV contract units in the same project up to the number of 
units originally awarded upon the proposal selection. An amendment to 
the HAP contract is subject to all PBV requirements (e.g. rents are 
reasonable), except that a new PBV request for proposals is not 
required. The anniversary and expiration dates of the HAP contract for 
the additional units must be the same as the anniversary and expiration 
dates of the HAP contract term for the PBV units originally placed 
under HAP contract.''
    HUD Response: HUD appreciates the commenters' recommendation and is 
providing for the reinstatement of some units to the HAP contract under 
Sec.  983.211.

Issue: Amendment To Add Contract Units--Clarifying the 25% Per-Project 
Cap When Adding Units to an Existing HAP Contract (Sec.  983.207)

    Comment: Commenters requested that HUD amend Sec.  983.207(b) to 
clarify that the HAP can ``assist more than the 25% per-project cap if 
the assisted units are excepted units in accordance with 983.56.'' A 
commenter recommended that HUD strike the language and simply require 
additional units to comply with the regulations in 24 CFR part 983.
    HUD Response: HUD agrees with the commenter and the final rule 
makes this clarification. The rule clarifies that the 25 percent 
limitation applies unless the units are excepted units pursuant to 
Sec.  983.56.

Issue: Removal of Units From HAP Contract (Sec. Sec.  983.211, 983.258)

    Comment: A commenter stated that the change proposed to Sec.  
983.211 is important, but recommended that HUD ``improve on the 
proposed rule by allowing a PHA, where there is not another unit that 
can be substituted to maintain the number of PBV units in the property, 
to allow the unit to remain under the PBV contract despite the absence 
of housing assistance payments for the unit. The commenter stated that 
alternatively, HUD should allow the reduction in units under the PBV 
contract to be temporary, to enable the original number of PBV units to 
be restored if a unit becomes vacant and is rented to an eligible 
family. (A change in Sec.  983.258 also would be required to implement 
this recommended policy.)''
    Another commenter stated that volume for PBVs are governed by 
budget authority rather than number of units, so ``allowing units with 
unsubsidized families to remain under HAP contract would facilitate 
program administration with no negative effects on the program.'' Other 
commenters stated that HUD's proposal does not provide a return of PBV 
units to the HAP Contract. The commenters recommended that if units are 
removed from the HAP contract without fault of the owner, the units 
should be added back to the HAP contract with no delay when the units 
are re-released to eligible families.
    HUD Response: HUD appreciates the commenters' recommendation and is 
adopting language that allows for a project that is not partially 
assisted to re-instate units when an ineligible family vacates and 
clarifying when a partially assisted unit may substitute a unit in 
Sec.  983.211. However, the other changes recommended by the commenters 
should first undergo public comment before being adopted in a rule for 
effect. HUD will consider such changes in future rulemaking for the PBV 
program.

Issue: Participant Selection--Preference for People With Disabilities 
(Sec.  983.251)

    Comment: Commenters stated that the interpretation of Sec.  
983.251(d) has been challenging for PHAs and HUD, and that the use of 
the word ``qualify'' in place of ``need'' in the rule is an improvement 
in tenant selection preference policies. A commenter stated that PBV 
can be used to create supportive housing properties or sub-set of units 
at a property, and the housing could have outside service providers or 
on-site services provided. Other commenters

[[Page 36162]]

recommended that the language be changed to ``(d) Preference for 
services offered. In selecting families, PHAs may give preference to 
disabled families who qualify for services offered in conjunction with 
the assisted units, in accordance with the limits under this paragraph. 
. . .''
    HUD Response: HUD appreciates the commenters' feedback and 
recommendations. As noted earlier in this preamble, the final rule uses 
the existing codified term ``need'' and does not substitute ``qualify'' 
for ``need'' based on concern that ``qualify'' may be interpreted in 
such a way as to exclude tenants eligible for the preference. Further, 
HUD does not adopt the commenters' phrase of ``services offered in 
conjunction with the assisted units'' because HUD returns to the 
existing language ``services offered at a particular project.'' HUD 
believes the language distinguishing between ``services offered at a 
particular project and services offered in conjunction with specific 
units'' may be misinterpreted as more limiting than the existing 
language.

Issue: Participant Selection--Rescreening (Sec.  983.251(b))

    Comment: Commenters stated that tenants residing at the time of 
conversion from one form of assistance to PBVs should be exempt from 
rescreening in fulfillment of ``HUD's duty to minimize displacement in 
administration of its programs, 42 U.S.C. 5313 note.'' Other commenters 
recommended adding as the second to last sentence of Sec.  983.251(b) 
the following language, ``In addition, such families who were 
recipients of another form of HUD rental assistance at the time of 
project selection will not be subject to additional elective screening 
requirements and may be evicted from the property only for good cause 
in accordance with the lease.''
    HUD Response: HUD does not have the statutory authority to 
eliminate mandatory PHA screening requirements. The issue of permissive 
screening activities a PHA may engage in is beyond the scope of this 
rule. Any changes HUD might seek to make in the future would require 
that such changes be proposed to give interested parties the 
opportunity to comment.

Issue: Termination of Leases (Sec.  983.256)

    Comment: Commenters stated that the preamble to the proposed rule 
states the intent is to provide ``a reliable long-term lease for a 
tenant unless the owner provides good cause for termination of the 
lease or nonrenewal of the lease.'' However, Sec.  983.256(f)(3)(i) of 
the proposed regulatory text continues to allow an owner to terminate a 
lease without good cause. Other commenters recommended that HUD revise 
the language to state ``(i) The owner terminates the lease for good 
cause.'' A commenter recommended that that language be changed to 
protect those who may be targeted because of bias. Another commenter 
recommended that Sec.  983.256 include explicit language stating that a 
tenancy may only be terminated for good cause.
    HUD Response: The PBV regulations at Sec. Sec.  983.256 and 983.257 
must be read in conjunction with the cross-referenced tenant-based 
regulation (Sec.  982.310) which only allows termination for good 
cause. The PBV provision that allowed an owner to renew without good 
cause, former Sec.  983.257(b)(3), has been removed. Nonetheless, to 
eliminate the possibility of confusion, the final rule revises Sec.  
983.256 to clearly state that an owner may only terminate a lease for 
good cause during the lease term.

Issue: Overcrowded, Under-Occupied, and Accessible Units (Sec.  
983.260)

    Comment: A commenter stated the rule ``states that a PHA must 
terminate PBV for a family in a wrong-sized unit or in a unit with 
unneeded accessibility features, while also requiring a PHA to provide 
continued housing assistance.'' Other commenters requested that HUD 
clarify by providing guidance regarding the type of assistance that 
should be offered and suggested adding language stating that ``an 
appropriate unit must be offered if one is available in the same 
building or development. If an appropriate unit is not available, a PHA 
may offer another form of project-based assistance. However, a PHA must 
always offer tenant-based voucher assistance in addition to project-
based assistance, allowing a family to choose the form of assistance.''
    A commenter recommended that for families that resided in a unit 
for at least a year the PHA should be required to offer tenant-based 
voucher assistance ``and allow the family to choose the form of 
assistance it will receive. In addition, when a family has received a 
tenant-based voucher because its PBV assistance is terminated due to 
unit size or accessibility features, the rule should explicitly require 
the PHA to help the family find an appropriate unit, consistent with 
the requirement in 24 CFR Sec.  982.403.'' This same commenter stated 
that the proposed change is confusing and fails to provide protections 
for family similar to other HUD project-based rental assistance 
programs. The commenter requested that HUD use the existing language 
concerning termination of the ``housing assistance payment'' to prevent 
confusion that the ``HAP contract'' is being terminated and ``ensure 
that units are not made unavailable for other families who would be 
eligible for project-based assistance when a vacating family receives a 
tenant-based voucher. In addition, the final rule should clarify that 
such termination should occur only when an available unit has been 
identified for a family receiving a tenant-based voucher. This change 
is consistent with the parallel rule in the regular tenant-based 
program, and is necessary to avoid causing the displaced family to 
become homeless.
    HUD Response: The PBV regulations at Sec. Sec.  983.260(c)(1) and 
983.260(c)(2) are clarified in this final rule to express HUD's intent 
that if a family does not move out of the wrong-sized or accessible PBV 
unit by the expiration of the term of the family's voucher (including 
any extension) or within a reasonable time of the PHA's offer of 
assistance in accordance with Sec.  983.260(c)(2), the PHA must remove 
the unit from the HAP contract.

Issue: Suggested Change to Utility Allowance (Sec.  983.301(f))

    Comment: A commenter recommended that HUD revise the RAD program 
and other preservation conversions that have a PHA utility allowance, 
but permit the use of property based utility allowances when available. 
The commenter stated that the rule directs PHAs ``to use their current 
PHA wide utility allowances for purposes of calculating rents'' which 
works when PBVs ``are added to a previously unassisted project where 
the property utility data is not available. However, for properties 
that have had HUD assistance, it is very likely that the property will 
have its own utility allowance which is probably more up to date than 
the PHA allowance and certainly will be reflective of the property.'' 
Allowing the use of the PHA utility allowance creates a disincentive 
``for the property owner to undertake energy efficiency retrofits.''
    HUD Response: This rule is limited to revising and updating 
regulations for the PBV program. Regulations applicable to RAD, which 
is a demonstration program, are covered by the RAD notices.

Issue: Implementation of the Rent Floor Permissible Rather Than 
Mandatory (Sec. Sec.  983.301, 983.302, 983.303)

    Comment: Commenters stated that the current language in Sec. Sec.  
983.301 and 983.302 goes beyond the statutory

[[Page 36163]]

language of HERA. A commenter stated that HERA explicitly delegated the 
authority to make the decision about rent floors for a PBV contract to 
the PHA, and doing so makes good policy sense. For example, the 
commenter stated that ``It may be important to have such rent security 
in locations where it could reasonably be expected that rents are 
volatile and the PBV contract will enable the owner to leverage 
additional funds for development or rehabilitation. But in other 
situations, such as where the PBV contract is for existing housing, 
such rent security could potentially come at the expense of a PHA's 
ability to assist additional families.'' Other commenters recommended 
that these two regulatory sections be revised to allow the PHA in its 
discretion to not reduce the rents below the initial rents, if the 
contract rents are not reasonable. PHAs need to retain this discretion 
to weigh the needs of the particular project against other projects.
    A commenter requested that HUD make it clear that PHAs could reduce 
the rent based on the reasons specific in the rule and clarify ``that 
whether or not the PHA has agreed contractually to not reduce rents 
below the initial rent, a PHA is not required to reduce PBV rents below 
the initial rent if the FMR declines by more than 5% or the rent would 
otherwise exceed 110% of FMR. PHAs should be able to make the decisions 
of whether to reduce PBV rents when the FMR declines on a case-by-case 
basis.''
    Another commenter suggested that HUD change Sec.  983.301(e) to 
require that the ``rent to the owner for each contract unit may at no 
time exceed the reasonable rent, except in cases where, upon 
redetermination of the rent to owner, the reasonable rent would result 
in a rent below the initial rent.'' The commenter stated that the 
statutory language does not require the stipulation in the PBV HAP 
contract and ``if a PHA chooses to include this stipulation in the PBV 
HAP contract with the consent of the owner, the language in HERA 
requires that the provision stipulate the maximum rent permitted for a 
dwelling unit shall not be less than the initial rent for the dwelling 
unit under the initial housing assistance payments contract covering 
the PBV assisted unit.''
    HUD Response: HUD appreciates the comments received on the 
implementation of the HERA provision allowing initial PBV rents to be 
considered the rent floor for purposes of rent adjustments, but HUD 
disagrees with the commenters' opinion that the statutory provision 
explicitly delegates the authority to make the decision about rent 
floors for a PBV contract to the PHA. Congress explicitly delegated 
certain decisions to PHAs in HERA (e.g., the statute specifically 
states that the PHA may, in its discretion continue to provide 
assistance under the contract . . . for a dwelling unit that becomes 
vacant . . .). In regard to rent adjustments, the statute states, in 
relevant part, that the contract may provide that the maximum rent 
permitted for a dwelling unit shall not be less than the initial rent 
for the dwelling unit under the initial housing assistance payments 
contract. Since the HAP contract is a HUD-prescribed form, HUD proposed 
a reasonable policy to implement the statutory provision. However, 
while HUD does not agree that the statute explicitly delegates the 
authority to PHAs, HUD agrees that PHAs are in the best position to 
make such determinations based on their individual markets, and other 
local considerations. Therefore, the final rule provides that the PHA 
may elect, in the HAP contract, to establish that the initial contract 
rent shall serve as the rent floor. The PBV HAP contract will also be 
revised.

Issue: Removing Families With Below-Market Rents Who Are Not Receiving 
PBV Assistance From the Rent Reasonableness Calculation (Sec.  983.303)

    Comment: Commenters stated that HUD has recognized when a housing 
conversion action takes place, an owner will often not raise rents on 
existing tenants who are not receiving rental subsidies in connection 
with the conversion. The commenters suggested adding a new Sec.  
983.303(c)(4) stating ``Units in the premises or project for which the 
owner is continuing below-market rents to families who were in 
occupancy but did not receive project-based voucher assistance at the 
beginning of the HAP contract are not to be taken into consideration 
for rent reasonableness determinations.''
    HUD Response: The commenters are requesting that HUD expand the 
definition of assisted units for purposes of rent comparability to 
include units in the project for which the owner is continuing below-
market rents to families who were in occupancy but did not receive 
project-based voucher assistance at the beginning of the HAP contract. 
In the very limited cases where a property has undergone a housing 
conversion action, HUD allows units occupied by tenants on the date of 
the eligibility event who do not receive vouchers to be considered 
assisted units if the owner chooses to continue charging below market 
rents to those families by offering lower rents, rent concessions, or 
other assistance to those families. These non-voucher families in a 
housing conversion action are often long-time tenants, many of whom are 
elderly and who had been paying below market rents prior to the housing 
conversion action. Considering such units assisted for purposes of rent 
reasonableness is an exception to the long-standing policy that an 
assisted unit is a unit that is assisted under a Federal, State, or 
local government program. However, for rent reasonableness 
determinations in the Housing Choice Voucher program, including the 
project-based voucher program, in the case of a family moving into a 
multifamily property, the PHA may choose to only consider the most 
recent rentals in determining the rents that the owner is charging for 
comparable unassisted units. In some markets, new tenants routinely pay 
higher rents than the rents that longer time tenants in comparable 
units may be paying. PHAs should refer to PIH Notice 2011-46 for 
guidance on rent reasonableness determinations.

IV. Findings and Certifications

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either: (1) Imposes substantial direct compliance costs on state and 
local governments and the rule is not required by statute, or (2) the 
rule preempts state law, unless the agency meets the consultation and 
funding requirements of section 6 of the Order. This rule does not have 
federalism implications and would not impose substantial direct 
compliance costs on state and local governments nor preempt state law 
within the meaning of the Order.

 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 largely makes conforming amendments to HUD regulations that 
govern the public and assisted housing programs, for which changes were 
recently made by the Housing and Economic Recovery Act of 2008. As 
advised in the November 24, 2008, notice that preceded this rule, the 
statutory changes made to these programs were largely self-executing, 
and required only

[[Page 36164]]

conforming regulatory amendments. This rule makes those conforming 
amendments. The statutory changes to the programs, as reflected in the 
conforming amendments, impose no significant economic impact on a 
substantial number of small entities. This rule makes other changes for 
the purposes of updating certain regulations to reflect current 
practices, and clarifying other regulations which, based on experience, 
HUD determined would benefit from clarification. Therefore, the 
undersigned certifies that this rule will not have a significant impact 
on a substantial number of small entities.

Environmental Impact

    A Finding of No Significant Impact (FONSI) with respect to the 
environment was made at the proposed rule stage in accordance with HUD 
regulations in 24 CFR part 50 that implement section 102(2)(C) of the 
National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). That 
FONSI remains applicable to this final rule and is available for public 
inspection during regular business hours 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, please schedule an 
appointment to review the FONSI by calling the Regulations Division at 
202-402-3055 (this is not a toll-free number).

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 mandates on any state, local, or tribal government or the 
private sector within the meaning of UMRA.

Paperwork Reduction Act

    The information collection requirements contained in this interim 
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 
assigned OMB Control Number 2577-0169. 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.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers applicable to 
the programs that would be affected by this rule are: 14.195, 14.850, 
14.856, and 14.871.

List of Subjects

24 CFR Part 5

    Administrative practice and procedure, Aged, Claims, Drug abuse, 
Drug traffic control, Grant programs--housing and community 
development, Grant programs--Indians, Individuals with disabilities, 
Loan programs--housing and community development, Low and moderate 
income housing, Mortgage insurance, Pets, Public housing, Rent 
subsidies, Reporting and recordkeeping requirements.

24 CFR Part 982

    Grant programs--housing and community development, Housing, Low- 
and moderate-income housing, Rent subsidies, Reporting and 
recordkeeping requirements.

24 CFR Part 983

    Grant programs--housing and community development, Housing, Low- 
and moderate-income housing, Rent subsidies, Reporting and 
recordkeeping requirements.

    Accordingly, for the reasons stated in the preamble, HUD amends 24 
CFR parts 5, 982, and 983, as follows.

PART 5--GENERAL HUD PROGRAM REQUIREMENTS; WAIVERS

0
1. The authority citation for part 5 continues to read as follows:

    Authority: 42 U.S.C. 1437a, 1437c, 1437d, 1437f, 1437n, 3535(d), 
Sec. 327, Pub. L. 109-115, 119 Stat. 2936, and Sec. 607, Pub. L. 
109-162, 119 Stat. 3051.


0
2. In Sec.  5.609, paragraph (c)(14) is revised to read as follows:


Sec.  5.609  Annual income.

* * * * *
    (c) * * *
    (14) Deferred periodic amounts from supplemental security income 
and Social Security benefits that are received in a lump sum amount or 
in prospective monthly amounts, or any deferred Department of Veterans 
Affairs disability benefits that are received in a lump sum amount or 
in prospective monthly amounts.
* * * * *

PART 982--SECTION 8 TENANT BASED ASSISTANCE: HOUSING CHOICE VOUCHER 
PROGRAM

0
3. The authority citation for part 982 continues to read as follows:


    Authority: 42 U.S.C. 1437f and 3535(d).

0
4. In Sec.  982.507, paragraph (a)(1) and the introductory text to 
paragraph (b) are revised, paragraph (c) is redesignated as paragraph 
(d), and a new paragraph (c) is added to read as follows:


Sec.  982.507  Rent to owner: Reasonable rent.

    (a) PHA determination. (1) Except as provided in paragraph (c) of 
this section, the PHA may not approve a lease until the PHA determines 
that the initial rent to owner is a reasonable rent.
* * * * *
    (b) Comparability. The PHA must determine whether the rent to owner 
is a reasonable rent in comparison to rent for other comparable 
unassisted units. To make this determination, the PHA must consider:
* * * * *
    (c) Units assisted by low-income housing tax credits or assistance 
under HUD's HOME Investment Partnerships (HOME) program. (1) General. 
For a unit receiving low-income housing tax credits (LIHTCs) pursuant 
to section 42 of the Internal Revenue Code of 1986 or receiving 
assistance under HUD's HOME Program (for which the regulations are 
found in 24 CFR part 92), a rent comparison with unassisted units is 
not required if the voucher rent does not exceed the rent for other 
LIHTC- or HOME-assisted units in the project that are not occupied by 
families with tenant-based assistance.
    (2) LIHTC. If the rent requested by the owner exceeds the LIHTC 
rents for non-voucher families, the PHA must perform a rent 
comparability study in accordance with program regulations and the rent 
shall not exceed the lesser of the:
    (i) Reasonable rent as determined pursuant to a rent comparability 
study; and
    (ii) The payment standard established by the PHA for the unit size 
involved.
    (3) HOME Program. [Reserved]
* * * * *

PART 983--PROJECT-BASED VOUCHER (PBV) PROGRAM

0
5. The authority citation for part 983 continues to read as follows:

    Authority: 42 U.S.C. 1437f and 3535(d).


[[Page 36165]]



0
6. In Sec.  983.2, paragraphs (b)(3), (c)(2)(i), and (c)(7) are revised 
to read as follows:


Sec.  983.2  When the tenant-based voucher rule (24 CFR part 982) 
applies.

* * * * *
    (b) * * *
    (3) Provisions on the following special housing types: Shared 
housing, manufactured home space rental, and the homeownership option.
    (c) * * *
    (2) * * *
    (i) Section 982.310 (owner termination of tenancy) applies to the 
PBV program, but to the extent that those provisions differ from Sec.  
983.257, the provisions of Sec.  983.257 govern; and
* * * * *
    (7) In subpart M of part 982:
    (i) Sections 982.603, 982.607, 982.611, 982.613(c)(2), 982.619(a), 
(b)(1), (b)(4), (c); and
    (ii) Provisions concerning shared housing (Sec.  982.615 through 
Sec.  982.618), manufactured home space rental (Sec.  982.622 through 
Sec.  982.624), and the homeownership option (Sec.  982.625 through 
Sec.  982.641).


0
7. In Sec.  983.3(b):
0
a. Definitions for ``housing credit agency'', ``partially assisted 
project,'' ``project'', ``project-based certificate (PBC) program'', 
and ``release of funds'' are added in alphabetical order;
0
b. The following definitions are revised: ``Excepted units'' 
``premises,'' ``qualifying families,'' ``special housing type,'' and 
``wrong-size unit''; and
0
c. The definitions for ``partially assisted building'' and ``state 
certified appraiser'' are removed.


Sec.  983.3  PBV definitions.

* * * * *
    (b) * * *
    Excepted units (units in a multifamily project not counted against 
the 25 percent per- project cap). See Sec.  983.56(b)(2)(i).
* * * * *
    Housing credit agency. For purposes of performing subsidy layering 
reviews for proposed PBV projects, a housing credit agency includes a 
State housing finance agency, a State participating jurisdiction under 
HUD's HOME program (see 24 CFR part 92), or other State housing 
agencies that meet the definition of ``housing credit agency'' as 
defined by section 42 of the Internal Revenue Code of 1986.
* * * * *
    Partially assisted project. A project in which there are fewer 
contract units than residential units.
* * * * *
    Premises. The project in which the contract unit is located, 
including common areas and grounds.
    Project. A project is a single building, multiple contiguous 
buildings, or multiple buildings on contiguous parcels of land. 
Contiguous in this definition includes ``adjacent to'', as well as 
touching along a boundary or a point.
    Project-based certificate (PBC) program. The program in which 
project-based assistance is attached to units pursuant to an Agreement 
executed by a PHA and owner before January 16, 2001 (see Sec.  983.10).
* * * * *
    Qualifying families (for purpose of exception to 25 percent per-
project cap). See Sec.  983.56(b)(2)(ii).
    Release of funds (for purposes of environmental review). Release of 
funds in the case of the project-based voucher program, under 24 CFR 
58.1(b)(6)(iii) and Sec.  983.58, means that HUD approves the local 
PHA's Request for Release of Funds and Certification by issuing a 
Letter to Proceed (in lieu of using form HUD-7015.16) that authorizes 
the PHA to execute an ``agreement to enter into housing assistance 
payment contract'' (AHAP) or, for existing housing, to directly enter 
into a HAP with an owner of units selected under the PBV program.
* * * * *
    Special housing type. Subpart M of 24 CFR part 982 states the 
special regulatory requirements for single-room occupancy (SRO) 
housing, congregate housing, group homes, and manufactured homes. 
Subpart M provisions on shared housing, manufactured home space rental, 
and the homeownership option do not apply to PBV assistance under this 
part.
* * * * *
    Wrong-size unit. A unit occupied by a family that does not conform 
to the PHA's subsidy guideline for family size, by being either too 
large or too small compared to the guideline.

0
8. In Sec.  983.4, the ``Labor standards'' paragraph is revised to read 
as follows:


Sec.  983.4  Cross-reference to other Federal requirements.

* * * * *
    Labor standards. Regulations implementing the Davis-Bacon Act, 
Contract Work Hours and Safety Standards Act (40 U.S.C. 3701-3708), 29 
CFR part 5, and other federal laws and regulations pertaining to labor 
standards applicable to development (including rehabilitation) of a 
project comprising nine or more assisted units.
* * * * *

0
9. In Sec.  983.5, paragraph (c) is revised to read as follows:


Sec.  983.5  Description of the PBV program.

* * * * *
    (c) PHA discretion to operate PBV program. A PHA has discretion 
whether to operate a PBV program. HUD approval is not required, except 
that the PHA must notify HUD of its intent to project-base its 
vouchers, in accordance with Sec.  983.6(d).

0
10. In Sec.  983.6, paragraph (d) is added to read as follows:


Sec.  983.6  Maximum amount of PBV assistance.

* * * * *
    (d) Before a PHA issues a Request for Proposals in accordance with 
Sec.  983.51(b)(1) or makes a selection in accordance with Sec.  
983.51(b)(2), the PHA must submit the following information to a HUD 
field office for review:
    (1) The total amount of annual budget authority;
    (2) The percentage of annual budget authority available to be 
project-based; and
    (3) The total amount of annual budget authority the PHA is planning 
to project-base pursuant to the selection and the number of units that 
such budget authority will support.

0
11. In Sec.  983.9, paragraph (a)(2) is revised and a new paragraph (c) 
is added to read as follows:


Sec.  983.9  Special housing types.

    (a) * * *
    (2) In the PBV program, the PHA may not provide assistance for 
shared housing, manufactured home space rental, or the homeownership 
option.
* * * * *
    (c) Cooperative housing. (1) Applicability of part 983. Except as 
provided in paragraph (c)(3) of this section, assistance under this 
housing type is subject to the regulations of part 983, except the 
following sections of part 983, subpart F: Sec. Sec.  983.256(b) and 
(c), 983.258 and 983.259 do not apply.
    (2) Applicability of part 982. (i) Cooperative housing under the 
PBV program is also subject to the requirements of 24 CFR 
982.619(b)(2), (b)(3), (b)(5), (d), and (e).
    (ii) Cooperative housing under the PBV program is not subject to 
the requirements of 24 CFR 982.619(a), (b)(1), (b)(4), and (c).
    (3) Assistance in cooperative housing. Rental assistance for PBV 
cooperative housing where families lease cooperative housing units from 
cooperative members is not a special housing type and all requirements 
of 24 CFR 983 apply.

[[Page 36166]]

    (4) Rent to owner. The regulations of 24 CFR part 983, subpart G, 
apply to PBV housing under paragraph (c) of this section. The 
reasonable rent for a cooperative unit is determined in accordance with 
Sec.  983.303. For cooperative housing, the rent to owner is the 
monthly carrying charge under the occupancy agreement/lease between the 
member and the cooperative.
    (5) Other fees and charges. Fees such as application fees, credit 
report fees, and transfer fees shall not be included in the rent to 
owner.

0
12. In Sec.  983.10, paragraph (b) is revised and a new paragraph (c) 
is added to read as follows:


Sec.  983.10  Project-based certificate (PBC) program.

* * * * *
    (b) What rules apply? Units under the PBC program are subject to 
the provisions of 24 CFR part 983, codified as of May 1, 2001, with the 
following exceptions:
    (1) PBC renewals. (i) General. Consistent with the PBC HAP 
contract, at the sole option of the PHA, HAP contracts may be renewed 
for terms for an aggregate total (including the initial and any renewal 
terms) of 15 years, subject to the availability of appropriated funds.
    (ii) Renewal of PBC as PBV. At the sole discretion of the PHA, upon 
the request of an owner, PHAs may renew a PBC HAP contract as a PBV HAP 
contract. All PBV regulations (including 24 CFR part 983, subpart G--
Rent to Owner) apply to a PBC HAP contract renewed as a PBV HAP 
contract with the exception of Sec. Sec.  983.51, 983.56, and 
983.57(b)(1). In addition, the following conditions apply:
    (A) The term of the HAP contract for PBC contracts renewed as PBV 
contracts shall be consistent with Sec.  983.205.
    (B) A PHA must make the determination, within one year before 
expiration of a PBC HAP contract, that renewal of the contract under 
the PBV program is appropriate to continue providing affordable housing 
for low-income families.
    (C) The renewal of PBC assistance as PBV assistance is effectuated 
by the execution of a PBV HAP contract addendum as prescribed by HUD 
and a PBV HAP contract for existing housing.
    (2) Housing quality standards. The regulations in 24 CFR 982.401 
(housing quality standards) (HQS) apply to units assisted under the PBC 
program.
    (i) Special housing types. HQS requirements for eligible special 
housing types, under this program, apply (See 24 CFR 982.605. 982.609 
and 982.614).
    (ii) Lead-based paint requirements. (A) The lead-based paint 
requirements at 24 CFR 982.401(j) do not apply to the PBC program.
    (B) The Lead-based Paint Poisoning Prevention Act (42 U.S.C. 4821-
4846), the Residential Lead-based Paint Hazard Reduction Act of 1992 
(42 U.S.C. 4851-4856), and implementing regulations at 24 CFR part 35, 
subparts A, B, H, and R, apply to the PBV program.
    (iii) HQS enforcement. The regulations in 24 CFR parts 982 and 983 
do not create any right of the family or any party, other than HUD or 
the PHA, to require enforcement of the HQS requirements or to assert 
any claim against HUD or the PHA for damages, injunction, or other 
relief for alleged failure to enforce the HQS.
    (c) Statutory notice requirements. In addition to provisions of 24 
CFR part 983 codified as of May 1, 2001, Sec.  983.206 applies to the 
PBC program.

0
13. In Sec.  983.51:
0
a. Paragraph (a) is amended by removing the term ``building'' and 
adding in its place ``project'' in the last sentence;
0
b. Paragraph (b)(2) is revised; and
0
c. Paragraph (g) is added to read as follows:


Sec.  983.51  Owner proposal selection procedures.

* * * * *
    (b) * * *
    (2) Selection based on previous competition. The PHA may select, 
without competition, a proposal for housing assisted under a federal, 
State, or local government housing assistance, community development, 
or supportive services program that required competitive selection of 
proposals (e.g., HOME, and units for which competitively awarded low-
income housing tax credits (LIHTCs) have been provided), where the 
proposal has been selected in accordance with such program's 
competitive selection requirements within 3 years of the PBV proposal 
selection date, and the earlier competitively selected housing 
assistance proposal did not involve any consideration that the project 
would receive PBV assistance.
* * * * *
    (g) Owner proposal selection does not require submission of form 
HUD-2530 or other HUD previous participation clearance.

0
14. In Sec.  983.52, paragraph (a) is revised to read as follows.


Sec.  983.52  Housing type.

* * * * *
    (a) Existing housing--A housing unit is considered an existing unit 
for purposes of the PBV program, if at the time of notice of PHA 
selection the units substantially comply with HQS.
    (1) Units for which rehabilitation or new construction began after 
owner's proposal submission but prior to execution of the AHAP do not 
subsequently qualify as existing housing.
    (2) Units that were newly constructed or rehabilitated in violation 
of program requirements also do not qualify as existing housing.
* * * * *

0
15. In Sec.  983.53 is revised by:
0
a. Adding the word ``and'' after the semicolon in paragraph (a)(5);
0
b. Removing paragraph (a)(6);
0
c. Redesignating paragraph (a)(7) as paragraph (a)(6);
0
d. Removing paragraph (b);
0
e. Redesginating paragraphs (c) and (d) as paragraphs (b) and (c) 
respectively;
0
f. Revising newly redesignated paragraph (b); and
0
g. Adding a new paragraph (d).


Sec.  983.53  Prohibition of assistance for ineligible units.

* * * * *
    (b) Prohibition against assistance for owner-occupied unit. The PHA 
may not attach or pay PBV assistance for a unit occupied by an owner of 
the housing. A member of a cooperative who owns shares in the project 
assisted under the PBV program shall not be considered an owner for 
purposes of participation in the PBV program.
* * * * *
    (d) Prohibition against assistance for units for which commencement 
of construction or rehabilitation occurred prior to AHAP. The PHA may 
not attach or pay PBV assistance for units for which construction or 
rehabilitation has commenced as defined in Sec.  983.152 after proposal 
submission and prior to execution of an AHAP.

0
16. In Sec.  983.55, paragraphs (a) and (b) are revised to read as 
follows:


Sec.  983.55  Prohibition of excess public assistance.

    (a) Subsidy layering requirements. The PHA may provide PBV 
assistance only in accordance with HUD subsidy layering regulations (24 
CFR 4.13) and other requirements. The subsidy layering review is 
intended to prevent excessive public assistance for the housing by 
combining (layering) housing assistance payment subsidy under the PBV 
program with other governmental housing assistance from federal, state, 
or local agencies, including assistance such as tax

[[Page 36167]]

concessions or tax credits. The subsidy layering requirements are not 
applicable to existing housing. A further subsidy layering review is 
not required for housing selected as new construction or rehabilitation 
of housing, if HUD's designee has conducted a review, which included a 
review of PBV assistance, in accordance with HUD's PBV subsidy layering 
review guidelines.
    (b) When subsidy layering review is conducted. The PHA may not 
enter into an Agreement or HAP contract until HUD or a housing credit 
agency approved by HUD has conducted any required subsidy layering 
review and determined that the PBV assistance is in accordance with HUD 
subsidy layering requirements.
* * * * *

0
17. In Sec.  983.56:
0
a. The section heading is revised;
0
b. The word ``building'' is removed and ``project'' is added in its 
place everywhere it appears in paragraph (a), including the heading of 
paragraph (a), and in paragraph (b)(1) introductory text, (b)(1)(ii), 
(b)(2)(i), and (b)(3)(i);
0
c. Paragraph (b)(2)(ii)(A) is revised;
0
d. The reference ``Sec.  983.261(d)'' in paragraph (b)(2)(ii)(B) is 
removed and ``Sec.  983.262(d)'' is added in its place;
0
e. Paragraph (b)(3) is redesignated as paragraph (b)(4), and a new 
paragraph (b)(3) is added; and
0
f. Paragraph (c) is revised to read as follows.


Sec.  983.56  Cap on number of PBV units in each project.

* * * * *
    (b) * * *
    (2) * * *
    (ii) * * *
    (A) Elderly and/or disabled families; and/or
* * * * *
    (3) Combining exception categories. Exception categories in a 
multifamily housing project may be combined.
* * * * *
    (c) Additional, local requirements promoting partially assisted 
projects. A PHA may establish local requirements designed to promote 
PBV assistance in partially assisted projects. For example, a PHA may:
    (1) Establish a per-project cap on the number of units that will 
receive PBV assistance or other project-based assistance in a 
multifamily project containing excepted units or in a single-family 
building,
    (2) Determine not to provide PBV assistance for excepted units, or
    (3) Establish a per-project cap of less than 25 percent.

0
18. In Sec.  983.58, paragraph (d)(1)(i) is revised to read as follows:


Sec.  983.58  Environmental review.

* * * * *
    (d) * * *
    (1) * * *
    (i) The responsible entity has completed the environmental review 
procedures required by 24 CFR part 58, and HUD has approved the 
environmental certification and HUD has given a release of funds, as 
defined in Sec.  983.3(b);
* * * * *

0
19. In Sec.  983.59:
0
a. Paragraph (b)(1) is revised;
0
b. Paragraph (b)(2) is redesignated as paragraph (b)(3), and a new 
paragraph (b)(2) is added; and
0
c. Paragraph (d) is revised to read as follows:


Sec.  983.59  PHA-owned units.

* * * * *
    (b) * * *
    (1) Determination of rent to owner for the PHA-owned units. Rent to 
owner for PHA-owned units is determined pursuant to Sec. Sec.  983.301 
through 983.305 in accordance with the same requirements as for other 
units, except that the independent entity approved by HUD must 
establish the initial contract rents based on PBV program requirements;
    (2) Initial and renewal HAP contract term. The term of the HAP 
contract and any HAP contract renewal for PHA-owned units must be 
agreed upon by the PHA and the independent entity approved by HUD. Any 
costs associated with implementing this requirement must be paid for by 
the PHA; and
* * * * *
    (d) Payment to independent entity. (1) The PHA may compensate the 
independent entity from PHA ongoing administrative fee income 
(including amounts credited to the administrative fee reserve). The PHA 
may not use other program receipts to compensate the independent entity 
for its services.
    (2) The PHA, and the independent entity, may not charge the family 
any fee for the services provided by the independent entity.

0
20. In Sec.  983.101, paragraph (b) is revised to read as follows:


Sec.  983.101  Housing quality standards.

* * * * *
    (b) HQS for special housing types. For special housing types 
assisted under the PBV program, HQS in 24 CFR part 982 apply to the PBV 
program. (Shared housing, manufactured home space rental, and the 
homeownership option are not assisted under the PBV program.) HQS 
contained within 24 CFR part 982 that are inapplicable to the PBV 
program pursuant to Sec.  983.2 are also inapplicable to special 
housing types under the PBV program.
* * * * *

0
21. In Sec.  983.152:
0
a. Paragraphs (a), (b), and (c) are redesignated as paragraphs (b), (a) 
and (d), respectively;
0
b. Newly redesignated paragraph (b) is revised; and
0
c. A new paragraph (c) is added to read as follows:


Sec.  983.152  Purpose and content of the Agreement to enter into HAP 
contract.

* * * * *
    (b) Requirement. The PHA must enter into an Agreement with the 
owner at such time as provided in Sec.  983.153. The Agreement must be 
in the form required by HUD headquarters (see 24 CFR 982.162).
    (c) Commencement of construction or rehabilitation. The PHA may not 
enter into an agreement if commencement of construction or 
rehabilitation has commenced after proposal submission.
    (1) Construction begins when excavation or site preparation 
(including clearing of the land) begins for the housing;
    (2) Rehabilitation begins with the physical commencement of 
rehabilitation activity on the housing.
* * * * *

0
22. In Sec.  983.153, add introductory text and revise paragraph (c) to 
read as follows:


Sec.  983.153  When Agreement is executed.

    The agreement must be promptly executed, in accordance with the 
following conditions:
* * * * *
    (c) Prohibition on construction or rehabilitation. The PHA shall 
not enter into the Agreement with the owner if construction or 
rehabilitation has commenced after proposal submission

0
23. In Sec.  983.202, paragraph (a) is revised to read as follows:


Sec.  983.202  Purpose of HAP contract.

    (a) Requirement. The PHA must enter into a HAP contract with the 
owner. With the exception of single family scattered site projects, a 
HAP contract shall cover a single project. If multiple projects exist, 
each project shall be covered by a separate HAP contract. The HAP 
contract must be in such form as may be prescribed by HUD.
* * * * *

0
24. In Sec.  983.203, paragraph (h) is revised to read as follows:


Sec.  983.203  HAP contract information.

* * * * *

[[Page 36168]]

    (h) The number of units in any project that will exceed the 25 
percent per-project cap (as described in Sec.  983.56), which will be 
set-aside for occupancy by qualifying families (elderly and/or disabled 
families and families receiving supportive services); and
* * * * *

0
25. In Sec.  983.205, paragraphs (a) and (b) are revised to read as 
follows:


Sec.  983.205  Term of HAP contract.

    (a) 15-year initial term. The PHA may enter into a HAP contract 
with an owner for an initial term of up to 15 years for each contract 
unit. The length of the term of the HAP contract for any contract unit 
may not be less than one year, nor more than 15 years. In the case of 
PHA-owned units, the term of the initial HAP contract shall be 
determined in accordance with Sec.  983.59.
    (b) Extension of term. A PHA may agree to enter into an extension 
at the time of the initial HAP contract term or any time before 
expiration of the contract, for an additional term of up to 15 years if 
the PHA determines an extension is appropriate to continue providing 
affordable housing for low-income families. A HAP contract extension 
may not exceed 15 years. A PHA may provide for multiple extensions; 
however, in no circumstance may such extensions exceed 15 years, 
cumulatively. Extensions after the initial extension are allowed at the 
end of any extension term provided that not more than 24 months prior 
to the expiration of the previous extension contract, the PHA agrees to 
extend the term, and that such extension is appropriate to continue 
providing affordable housing for low-income families or to expand 
housing opportunities. Extensions after the initial extension term 
shall not begin prior to the expiration date of the previous extension 
term. Subsequent extensions are subject to the same limitations 
described in this paragraph. Any extension of the term must be on the 
form and subject to the conditions prescribed by HUD at the time of the 
extension. In the case of PHA-owned units, any extension of the initial 
term of the HAP contract shall be determined in accordance with Sec.  
983.59.
* * * * *

0
26A. Sections 983.206, 983.207, 983.208, and 983.209 are redesignated, 
respectively, as Sec. Sec.  983.207, 983.208, 983.209, and 983.210.

0
26B. A new Sec.  983.206 is added to read as follows.


Sec.  983.206  Statutory notice requirements: Contract termination or 
expiration.

    (a) Notices required in accordance with this section must be 
provided in the form prescribed by HUD.
    (b) Not less than one year before termination of a PBV or PBC HAP 
contract, the owner must notify the PHA and assisted tenants of the 
termination.
    (c) For purposes of this section, the term ``termination'' means 
the expiration of the HAP contract or an owner's refusal to renew the 
HAP contract.
    (d)(1) If an owner does not give timely notice of termination, the 
owner must permit the tenants in assisted units to remain in their 
units for the required notice period with no increase in the tenant 
portion of their rent, and with no eviction as a result of an owner's 
inability to collect an increased tenant portion of rent.
    (2) An owner may renew the terminating contract for a period of 
time sufficient to give tenants one-year advance notice under such 
terms as HUD may require.

0
27. In redesignated Sec.  983.207, paragraph (b) is revised to read as 
follows:


Sec.  983.207  HAP contract amendments (to add or substitute contract 
units).

* * * * *
    (b) Amendment to add contract units. At the discretion of the PHA, 
and provided that the total number of units in a project that will 
receive PBV assistance will not exceed 25 percent of the total number 
of dwelling units in the project (assisted and unassisted), (unless 
units were initially identified in the HAP contract as excepted from 
the 25 percent limitation in accordance with Sec.  983.56(b)), or the 
20 percent of authorized budget authority as provided in Sec.  983.6, a 
HAP contract may be amended during the three-year period immediately 
following the execution date of the HAP contract to add additional PBV 
contract units in the same project. An amendment to the HAP contract is 
subject to all PBV requirements (e.g., rents are reasonable), except 
that a new PBV request for proposals is not required. The anniversary 
and expiration dates of the HAP contract for the additional units must 
be the same as the anniversary and expiration dates of the HAP contract 
term for the PBV units originally placed under HAP contract.
* * * * *

0
28. In redesignated Sec.  983.210, paragraph (i) is revised and a new 
paragraph (j) is added to read as follows:


Sec.  983.210  Owner certification.

* * * * *
    (i) The family does not own or have any interest in the contract 
unit. The certification required by this section does not apply in the 
case of an assisted family's membership in a cooperative.
    (j) Repair work on a project selected as an existing project that 
is performed after HAP execution within such post-execution period as 
specified by HUD may constitute development activity, and if determined 
to be development activity, the repair work undertaken shall be in 
compliance with Davis-Bacon wage requirements.

0
29. A new Sec.  983.211 is added to subpart E to read as follows:


Sec.  983.211  Removal of unit from HAP contract.

    (a) Units occupied by families whose income has increased during 
their tenancy resulting in the tenant rent equaling the rent to the 
owner, shall be removed from the HAP Contract 180 days following the 
last housing assistance payment on behalf of the family.
    (b) If the project is fully assisted, a PHA may reinstate the unit 
removed under paragraph (a) of this section to the HAP contract after 
the ineligible family vacates the property. If the project is partially 
assisted, a PHA may substitute a different unit for the unit removed 
under paragraph (a) of this section to the HAP contract when the first 
eligible substitute becomes available.
    (c) A reinstatement or substitution of units under the HAP 
contract, in accordance with paragraph (b) of this section, must be 
permissible under Sec.  983.207. The anniversary and expirations dates 
of the HAP contract for the unit must be the same as it was when it was 
originally placed under the HAP contract. The PHA must refer eligible 
families to the owner in accordance with the PHA's selection policies.

0
30. In Sec.  983.251, a new paragraph (a)(4) is added to read as 
follows:


Sec.  983.251  How participants are selected.

    (a) * * *
    (4) A PHA may not approve a tenancy if the owner (including a 
principal or other interested party) of a unit is the parent, child, 
grandparent, grandchild, sister, or brother of any member of the 
family, unless the PHA determines that approving the unit would provide 
reasonable accommodation for a family member who is a person with 
disabilities.
* * * * *

0
31. In Sec.  983.256, paragraphs (f) and (g) are revised to read as 
follows:

[[Page 36169]]

Sec.  983.256  Lease.

* * * * *
    (f) Term of lease. (1) The initial lease term must be for at least 
one year.
    (2) The lease must provide for automatic renewal after the initial 
term of the lease. The lease may provide either:
    (i) For automatic renewal for successive definite terms (e.g., 
month-to-month or year-to-year); or
    (ii) For automatic indefinite extension of the lease term.
    (3) The term of the lease terminates if any of the following 
occurs:
    (i) The owner terminates the lease for good cause;
    (ii) The tenant terminates the lease;
    (iii) The owner and the tenant agree to terminate the lease;
    (iv) The PHA terminates the HAP contract; or
    (v) The PHA terminates assistance for the family.
    (g) Lease provisions governing absence from the unit. The lease may 
specify a maximum period of family absence from the unit that may be 
shorter than the maximum period permitted by PHA policy. (PHA 
termination-of-assistance actions due to family absence from the unit 
are subject to 24 CFR 982.312, except that the unit is not terminated 
from the HAP contract if the family is absent for longer than the 
maximum period permitted.)


Sec.  983.257  [Amended]

0
32. In Sec.  983.257, paragraph (b) is removed and paragraph (c) is 
redesignated as paragraph (b) and amended by removing the word ``per-
building'' and adding in its place ``per-project''..

0
33A. Sections 983.258, 983.259, 983.260, and 983.261 are redesignated 
as Sec. Sec.  983.259, 983.260, 983.261, and 983.262, respectively.

0
33B. A new Sec.  983.258 is added to read as follows:


Sec.  983.258  Continuation of housing assistance payments.

    Housing assistance payments shall continue until the tenant rent 
equals the rent to owner. The cessation of housing assistance payments 
at such point will not affect the family's other rights under its 
lease, nor will such cessation preclude the resumption of payments as a 
result of later changes in income, rents, or other relevant 
circumstances if such changes occur within 180 days following the date 
of the last housing assistance payment by the PHA. After the 180-day 
period, the unit shall be removed from the HAP contract pursuant to 
Sec.  983.211.

0
34. In redesignated Sec.  983.260, the word ``building'' is removed and 
``project'' is added in its place everywhere it appears in paragraph 
(b)(2)(i), and paragraph (c) is revised to read as follows:


Sec.  983.260  Overcrowded, under-occupied, and accessible units.

* * * * *
    (c) PHA termination of housing assistance payments. (1) If the PHA 
offers the family the opportunity to receive tenant-based rental 
assistance under the voucher program, the PHA must terminate the 
housing assistance payments for a wrong-sized or accessible unit at the 
earlier of the expiration of the term of the family's voucher 
(including any extension granted by the PHA) or the date upon which the 
family vacates the unit. If the family does not move out of the wrong-
sized unit or accessible unit by the expiration date of the term of the 
family's voucher, the PHA must remove the unit from the HAP contract.
    (2) If the PHA offers the family the opportunity for another form 
of continued housing assistance in accordance with paragraph (b)(2) of 
this section (not in the tenant-based voucher program), and the family 
does not accept the offer, does not move out of the PBV unit within a 
reasonable time as determined by the PHA, or both, the PHA must 
terminate the housing assistance payments for the wrong-sized or 
accessible unit, at the expiration of a reasonable period as determined 
by the PHA, and remove the unit from the HAP contract.

0
35. In redesignated Sec.  983.262, the section heading and paragraphs 
(b) and (d) are revised and a new paragraph (e) is added to read as 
follows.


Sec.  983.262  When occupancy may exceed 25 percent cap on the number 
of PBV units in each project.

* * * * *
    (b) In referring families to the owner for admission to excepted 
units, the PHA must give preference to elderly and/or disabled 
families, or to families receiving supportive services.
* * * * *
    (d) A family (or the remaining members of the family) residing in 
an excepted unit that no longer meets the criteria for a ``qualifying 
family'' in connection with the 25 percent per project cap exception 
(i.e., a family that does not successfully complete its FSS contract of 
participation or the supportive services requirement as defined in the 
PHA administrative plan or the remaining members of a family that no 
longer qualifies for elderly or disabled family status where the PHA 
does not exercise its discretion under paragraph (e) of this section) 
must vacate the unit within a reasonable period of time established by 
the PHA, and the PHA shall cease paying housing assistance payments on 
behalf of the non-qualifying family. If the family fails to vacate the 
unit within the established time, the unit must be removed from the HAP 
contract unless the project is partially assisted, and it is possible 
for the HAP contract to be amended to substitute a different unit in 
the project in accordance with Sec.  983.207(a); or the owner 
terminates the lease and evicts the family. The housing assistance 
payments for a family residing in an excepted unit that is not in 
compliance with its family obligations (e.g., a family fails, without 
good cause, to successfully complete its FSS contract of participation 
or supportive services requirement) shall be terminated by the PHA.
    (e) The PHA may allow a family that initially qualified for 
occupancy of an excepted unit based on elderly or disabled family 
status to continue to reside in a unit, where through circumstances 
beyond the control of the family (e.g., death of the elderly or 
disabled family member or long term or permanent hospitalization or 
nursing care), the elderly or disabled family member no longer resides 
in the unit. In this case, the unit may continue to count as an 
excepted unit for as long as the family resides in that unit. Once the 
family vacates the unit, in order to continue as an excepted unit under 
the HAP contact, the unit must be made available to and occupied by a 
qualifying family.

0
36. In Sec.  983.301, paragraphs (d) and (e) are revised to read as 
follows:


Sec.  983.301  Determining the rent to owner.

* * * * *
    (d) Rent to owner for other tax credit units. Except in the case of 
a tax-credit unit described in paragraph (c)(1) of this section, the 
rent to owner for all other tax credit units may be determined by the 
PHA pursuant to paragraph (b) of this section.
    (e) Reasonable rent. The PHA shall determine the reasonable rent in 
accordance with Sec.  983.303. The rent to the owner for each contract 
unit may at no time exceed the reasonable rent, except in cases where, 
the PHA has elected within the HAP contract not to reduce rents below 
the initial rent to owner and, upon redetermination of the rent to 
owner, the reasonable rent would result in a rent below the initial 
rent. If the PHA has not elected within the HAP contract to establish 
the initial rent to

[[Page 36170]]

owner as the rent floor, the rent to owner shall not at any time exceed 
the reasonable rent.
* * * * *

0
37. In Sec.  983.302:
0
a. Paragraph (c) is revised to read as set forth below; and
0
b. The reference in paragraph (e)(3) to ``Sec.  983.206(c)'' is removed 
and ``Sec.  983.207(c)'' is added in its place.


Sec.  983.302  Redetermination of rent to owner.

* * * * *
    (c) Rent decrease. (1) If there is a decrease in the rent to owner, 
as established in accordance with Sec.  983.301, the rent to owner must 
be decreased, regardless of whether the owner requested a rent 
adjustment.
    (2) If the PHA has elected within the HAP contract to not reduce 
rents below the initial rent to owner, the rent to owner shall not be 
reduced below the initial rent to owner for dwelling units under the 
initial HAP contract, except:
    (i) To correct errors in calculations in accordance with HUD 
requirements;
    (ii) If additional housing assistance has been combined with PBV 
assistance after the execution of the initial HAP contract and a rent 
decrease is required pursuant to Sec.  983.55; or
    (iii) If a decrease in rent to owner is required based on changes 
in the allocation of responsibility for utilities between the owner and 
the tenant.
* * * * *

0
38. In Sec.  983.303, paragraphs (a), (b)(3), and (f)(1) are revised to 
read as follows:


Sec.  983.303  Reasonable rent.

    (a) Comparability requirement. At all times during the term of the 
HAP contract, the rent to the owner for a contract unit may not exceed 
the reasonable rent as determined by the PHA, except that where the PHA 
has elected in the HAP contract to not reduce rents below the initial 
rent under the initial HAP contract, the rent to owner shall not be 
reduced below the initial rent in accordance with Sec.  983.302(e)(2).
    (b) * * *
    (3) Whenever the HAP contract is amended to substitute a different 
contract unit in the same building or project; and
* * * * *
    (f) Determining reasonable rent for PHA-owned units. (1) For PHA-
owned units, the amount of the reasonable rent must be determined by an 
independent agency approved by HUD in accordance with Sec.  983.59, 
rather than by the PHA. The reasonable rent must be determined in 
accordance with this section.
* * * * *

0
39. In Sec.  983.304, paragraph (e) is revised to read as follows:


Sec.  983.304  Other subsidy: effect on rent to owner.

* * * * *
    (e) Other subsidy: rent reduction. To comply with HUD subsidy 
layering requirements, at the direction of HUD or its designee, a PHA 
shall reduce the rent to owner because of other governmental subsidies, 
including tax credits or tax exemptions, grants, or other subsidized 
financing.
* * * * *

    Dated: June 16, 2014.
Sandra B. Henriquez,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 2014-14632 Filed 6-24-14; 8:45 am]
BILLING CODE 4210-67-P