HUD PIH Notice § 2012-07

[pic]            U.S. Department of Housing and Urban Development
                           Office of Public and Indian Housing


Special Attention of:                              NOTICE PIH 2012-7 (HA)
Regional Managers; Office of Public Housing        Issued:     February 2,
2012
Directors; Program Center Coordinators;                  This notice
remains in effect until
Public Housing Agencies; Resident                        amended,
superseded or rescinded
Management Corporations


Subject: Demolition/disposition of public housing and associated
requirements for PHA Plans, resident consultation, Section 3 and
application processing.

1) Purpose:  To explain application processing requirements in requesting
   HUD approval to demolish, dispose or both demolish-and-dispose of public
   housing under Section 18 of the United States Housing Act of 1937 (42
   U.S.C. 1437p) (1937 Act).  This notice is intended to be used in
   conjunction with HUD’s implementing regulations at 24 CFR part 970, as
   well as related rules at parts 50 and 58 (Environmental Assessment), 903
   (PHA Plan) and 941 (Public Housing Development).

2) Background:

   A. Section 5A: Public Housing Agencies (PHAs) prepare PHA Plans pursuant
      to Section 5A of the 1937 Act, as amended by other statutes, including
      the Housing and Economic Recovery Act of 2008 (HERA).


   B. Section 18: PHAs may submit an application to demolish, dispose or
      both demolish-and- dispose of public housing to HUD’s Special
      Application Center (SAC application) under Section 18 of the 1937 Act
      and 24 CFR part 970 for HUD approval.  Section 18 of the 1937 Act
      requires PHAs to include and authorize proposed demolitions or
      dispositions in their PHA Plan and to certify that the actions
      contemplated in the PHA Plan comply with Section 18 of the 1937 Act.
      Furthermore, pursuant to 24 CFR section 970.17, PHAs applying for
      disposition must certify that retention of the property is not in the
      best interests of the residents or the PHA.  This includes proposed
      dispositions that are justified for reasons that are in the best
      interests of the public housing residents and are consistent with the
      goals of the PHA and its PHA Plan and that it is otherwise consistent
      with the 1937 Act


3) PHA Plan Requirement:  For PHAs required to prepare and submit an annual
   PHA plan to HUD, proposed demolitions or dispositions must be identified
   in the PHA Plan or in a significant amendment to the PHA Plan.  Pursuant
   to 24 CFR section 903.7(h), PHAs must include a description of any public
   housing owned by the PHA for which the PHA has applied or will apply for
   demolition or disposition approval under Section 18 of the 1937 Act and
   the timetable for demolition or disposition.  HUD will not process or
   approve a SAC application without evidence that the PHA has complied with
   this requirement.


   MTW Agencies include proposed demolitions or disposition in the Annual
   MTW Plan or an amendment to that plan, in compliance with applicable MTW
   Plan requirements (e.g. that at least one public hearing was held, that
   the Annual MTW Plan was available for public comment for at least thirty
   (30) days, and that the Agency took no less than fifteen (15) days
   between the public hearing and the approval of the plan by the Board of
   Commissioners/ Directors in order to incorporate any public comments into
   the plan).  HUD will not process or approve a SAC application without
   evidence that the MTW Agency has complied with this requirement. 


   Qualified PHAs, as defined by HERA, no longer submit annual PHA Plans to
   HUD but are still required to hold an annual public hearing on their
   public housing activities, including any and all planned demolitions or
   dispositions.  HUD will not process or approve a SAC application without
   evidence that the PHA has complied with this requirement.


4) Resident Consultation:

   A. Consultation for PHA Plan:  For all proposed demolitions or
      dispositions, PHAs comply with the resident consultation requirements
      for the PHA Plan (24 CFR part 903), including sections 903.13,
      903.15, 903.17, and 903.21(a), for a public hearing, a comment period
      and consultation with the applicable resident advisory board (RAB).
      PHAs ensure reasonable outreach to encourage broad public
      participation in the hearing on the PHA Plan (or significant
      amendment) as required by 24 CFR section 903.17(c).

   B. Consultation for SAC application: For proposed SAC applications, PHAs
      comply with resident consultation requirements under 24 CFR section
      970.9, which include consultation with: (i) residents residing in the
      project proposed for a SAC application; (ii) resident organizations
      for the project, if any; (iii) PHA-wide resident organizations
      affected by the SAC application, if any; and (iv) the Resident
      Advisory Board (RAB) or equivalent body.  PHAs should provide a copy
      of the SAC application to these residents and resident groups, post
      the SAC application on its website, and/or make the SAC application
      available for review at its central office.

      PHAs should inform these resident and resident groups of the right to
      submit written comments about the SAC application, and inform them
      that the PHA will respond to their comments in writing and then
      submit their comments and its written responses to those comments to
      HUD as part of the SAC application.  PHAs should also consult these
      resident and resident groups on the relocation plan, if any.

      In addition, PHAs ensure that they communicate with residents in a
      manner that is effective for persons with hearing, visual, and other
      communications-related disabilities consistent with Section 504 of
      the Rehabilitation Act of 1973, and as applicable, the Americans with
      Disabilities Act.  This includes ensuring that notices, policies, and
      procedures are made available via accessible communications methods
      including the use of alternative formats, such as Braille, audio,
      large type, sign language interpreters, and assistive listening
      devices, etc. (24 CFR section 8.6).  In addition, PHAs ensure public
      hearing facilities and services are physically accessible to persons
      with disabilities in accordance with Section 504 and that persons
      with limited English proficiency (LEP) will have meaningful access to
      programs and activities.  Furthermore, HUD encourages all grant
      recipients and sub-recipients to adopt the goals and objectives of
      Section 508 of the Rehabilitation Act of 1973 by ensuring that
      electronic and information technology is made available to persons
      with disabilities on a comparable basis as it is made available to
      persons without disabilities.

   C. Consultation for Dispositions with Development:  The intent of
      consultation is to assure resident participation and awareness of
      future development plans.  For disposition actions where public
      housing is redeveloped as new public housing as either conventional
      or under a mixed-finance method  pursuant to 24 CFR part 941, subpart
      F,  resident consultation occurs within the context of the PHA Plan
      amendment and SAC application, as noted above.   Specifically,
      residents and resident groups are presented with information on the
      number and affordability of the public housing units and other
      affordable units to be developed, the number of bedrooms per unit,
      the screening and application requirements for new units, the
      ownership structure of the units, and any opportunity to return or
      other occupancy preferences for displaced residents.   If such
      information is not available prior to the SAC application or subject
      to change after final SAC action, residents are informed of the
      potential for development plan revisions and provided with a means,
      such as a newsletter or open meeting, for how such revisions will be
      presented to residents. 

5) HUD Civil Rights Review:  HUD’s Office of Fair Housing and Equal
   Opportunity (FHEO) conducts a civil rights review of SAC applications
   (FHEO review).  Pursuant to 24 CFR section 970.7(a)(17), HUD may request
   additional information from PHAs in support of their SAC applications,
   including compliance with the nondiscrimination requirements of the
   relocation plan under 24 CFR section 970.21(a), compliance of any housing
   redevelopment or replacement plans with applicable site and neighborhood
   standards under 24 CFR section 941.202,  and consistency of the SAC
   application with the PHA’s affirmatively furthering fair housing
   certification under section 903.7(o).  HUD will provide additional
   guidance to PHAs and its staff on how SAC applications must demonstrate
   that proposed demolition/disposition actions are in compliance with civil
   rights related requirements.  


6) Environmental Reviews:  Prior to submitting a SAC application, an
   Environmental Review for the proposed demolition or disposition must be
   completed pursuant to 24 CFR part 50 or 58, including compliance with
   environmental justice requirements.  HUD will not process or approve a
   SAC application without the applicable local HUD Field Office of Public
   Housing indicating that one of the following has occurred: (1) the
   Environmental Review was completed by HUD under 24 CFR part 50 for the
   proposed demolition and/or disposition action, and the action is
   environmentally acceptable; (2) the Environmental Review was completed by
   a Responsible Entity under 24 CFR part 58 and HUD has approved a Request
   for Release of Funds; or (3) a Responsible Entity under 24 CFR part 58
   has made a determination that the project or activity is exempt under 24
   CFR 58.34(a)(12) because the project or activity is categorically
   excluded under 24 CFR 58.35(a)(4) or (5) and none of the related
   environmental laws are triggered.


7) Existing Financial Transactions: PHAs with an approved Capital Fund
   Financing Program (CFFP) transaction, Section 30 PHA Mortgaged
   Transaction (PMT) or Operating Fund Financing Program (OFFP) certify as
   part of the SAC application the existing agreement is not at-risk as a
   result of the proposed demolition or disposition.  SAC reviews such
   certifications with the respective program office.

8) Security and Utility Deposits as Relocation Expenses: Pursuant to 24 CFR
   section 970.21(e)(2), the payment of a displaced resident’s security,
   utility or both security-and-utility deposits at a comparable housing
   unit may be an “actual and reasonable” relocation expense.  To determine
   whether such a payment is reasonable, the PHA considers the current
   public housing security deposit's applicability to the new comparable
   housing unit.  For example, if the current public housing security
   deposit is significantly less than the security deposit required for the
   new comparable unit, the PHA may decide to provide the resident with
   funds for the new security deposit.  PHAs do not unreasonably hold public
   housing security deposits so they can use other 1937 Act funds for
   payments of residents’ new security deposits.  Loans or grants directly
   to displaced residents for new deposits are not permitted if the PHA's
   source is either Capital or Operating Funds.  The PHA pays such deposits
   directly to the utility company or landlord with subsequent returns or
   refunds back to the PHA.  The resident holds no interest in a utility or
   security deposit paid by the PHA.


9) Processing SAC Applications:  Prior to submitting an application, PHAs
   ensure the application is complete with all information and documentation
   required by 24 CFR part 970 and the HUD-52860 form.  The SAC will not
   process an application found to be incomplete or deficient on a
   substantial item (e.g. supporting information required under 24 CFR
   sections 970.7(a)(1) - (17)).  If a PHA submits a SAC application that is
   substantially incomplete or deficient, SAC stops the review, rejects the
   application in a formal letter to the PHA, and registers the
   application's status as "inactive" in HUD’s Inventory Management System
   (IMS)/PIH Information Center (PIC) system (IMS/PIC).  If SAC determines
   deficiencies to be minor or insubstantial, application processing may
   continue with the SAC requesting additional information.  Information
   identified under 24 CFR sections 970.7(a)(1) - (17) is not deemed minor
   or insubstantial.


   A PHA may submit a new application for the same demolition or disposition
   that HUD has rejected under a new application number in IMS/PIC.  HUD
   reviews the new application pursuant to the requirements of 24 CFR part
   970.  After it is has rejected an application, HUD will not allow a PHA
   to submit the missing items or correct deficiencies in that rejected
   application.  HUD may disapprove a complete application based on the
   criteria of 24 CFR section 970.29.  Specifically, HUD disapproves
   applications if: (1) the PHA's certification is inconsistent with the PHA
   plan and/or any information or data available to or requested by HUD
   under the requirements of 24 CFR part 970; or (2) the application was not
   developed in consultation with the residents and resident groups as
   required in 24 CFR section 970.9.


10) Disposition Justification Criteria: A PHA may propose a disposition of
   units under 24 CFR section 970.17(c) if it certifies to HUD that the
   disposition is consistent with the goals of the PHA and the PHA Plan, and
   is otherwise consistent with the 1937 Act.  PHAs include a narrative
   statement (and other information, if applicable) in their SAC
   applications to support their certifications.  HUD reviews PHAs’
   certifications and narratives, along with other information that is
   available to or requested by HUD, on a case-by-case basis to determine if
   the certifications meet the criteria of Section 18 of the 1937 Act and 24
   CFR part 970.  However, generally the following apply:  


   A. Justifications supported by Insufficient Public Housing Funds:   HUD
      disapproves SAC applications when a PHA's supporting certification is
      based on insufficient public housing funds (either Capital and/or
      Operating) as such certifications are inconsistent with the 1937 Act
      in light of alternative resources.  Especially with the passage of the
      Rental Assistance Demonstration (RAD) program under the Consolidated
      and Further Continuing Appropriations Act of 2012 (for as long as the
      program remains authorized), there are options other than disposition.
       Specifically, the options available to PHAs to operate, maintain,
      and/or reposition low-income housing units (notwithstanding limited
      appropriations and deferred capital needs), include but are not
      limited to: (i) RAD; (ii) Choice Neighborhoods grants; (iii) public
      housing mixed-finance rehabilitation pursuant to 24 CFR part 941,
      subpart F; (iv) Capital Fund Financing Program (CFFP); (v) use of
      excess Operating Fund reserves; and (vi) voluntary conversion under
      Section 22 of the 1937 Act.

   B. Justifications supported by Obsolescence Criteria: HUD processes SAC
      applications for the disposition of units under this section when a
      PHA supports its certification based on evidence that the units are
      obsolete and meet the criteria for demolition in accordance with 24
      CFR section 970.15, as further explained in this notice.
      Alternatively, if units are obsolete and if a PHA submits a SAC
      application for both demolition and disposition, which, if approved by
      HUD, would allow the PHA to demolish the obsolete units using public
      housing funds and then dispose of the underlying land to allow for the
      new development of low-income housing units, including units developed
      pursuant to mixed-finance public housing rules at 24 CFR part 941,
      subpart F.


11) Section 3 Compliance:  For purposes of Section 3 of the Housing and
   Urban Development Act of 1968 (Section 3), HUD’s regulation to provide
   employment, training, and economic opportunities to the greatest extent
   feasible to Section 3 residents or business concerns is applicable, to
   any projects or activities funded by public housing funds, regardless of
   the amount of funds (24 CFR section 134.3(a)(3)).  PHAs must comply with
   Section 3 if public housing funds are used to demolish public housing in
   accordance with a HUD approval under 24 CFR part 970.  In addition, in
   the event that Section 3 does not apply to demolition and/or disposition
   actions, planning and carrying out Section 3 activities related to these
   proposed actions would satisfy, in part, the commensurate public benefit
   requirement for below fair market value (FMV) dispositions pursuant to 24
   CFR section 970.19.


12) Use Restrictions: When a PHA proposes to dispose of public housing
   below FMV based on a commensurate public benefit pursuant to 24 CFR
   section 970.19, HUD generally requires the PHA to execute a use
   restriction or a similar recorded document in a form acceptable to HUD
   that assures the use of the property for the HUD-approved commensurate
   public benefit for a period generally not less than thirty (30) years. 
   HUD generally requires that such use restriction is recorded in a first
   priority position against the property and survives the foreclosure of
   any mortgages or other liens on the property.

13) Use of Disposition Proceeds: Subject to HUD approval, a PHA uses
   disposition proceeds and any interest earned on proceeds (after payment
   of HUD-approved disposition and relocation costs) for the following: (1)
   unless waived by HUD, retirement of outstanding obligations, if any,
   issued to finance original development or modernization of the project;
   or (2) payment of CFFP debt or later issued modernization debt on the
   project.  If any proceeds remain after any required repayment of these
   debts, proceeds may be used for the provision of low-income housing or to
   benefit the residents of the PHA, which uses may include: (a)
   modernization or operation of existing public housing; (b) development of
   public housing as defined by 24 CFR part 941;  (c) funding of
   homeownership units in accordance with an approved homeownership plan
   under sections 9, 24, and 32 of the 1937Act; (d) construction,
   rehabilitation, and/or acquisition of dwelling units assisted by funds
   under Section 8 of the 1937 Act; (e) benefits to the residents of the PHA
   (e.g. job training, child care programs, service coordination); (f)
   leveraging other funds to secure commercial enterprises on-site to serve
   public housing residents; (g) funding shortfalls or other new allocations
   of vouchers under Section 8; and (h) other housing assisted under the
   1937 Act or benefits to the residents of the PHA, as approved by HUD.
   Proceeds may be leveraged with other funds so long as net proceeds are
   used on a pro-rata basis to fund only the HUD-approved uses (e.g. low-
   income housing units).  PHAs include a specific description of their
   proposed use of proceeds in their SAC applications.  HUD approval is
   required of all proposed uses of proceeds to ensure PHAs use proceeds in
   compliance with Section 18 of the 1937 Act and 24 CFR section 970.19.


14) Demolition Review Criteria for Cost Ineffectiveness: If a PHA proposes
   to demolish public housing or non-dwelling structures under 24 CFR
   section 970.15, HUD reviews the PHA’s certification and supporting
   documentation in accordance with the following to determine that
   rehabilitation of the public housing is cost prohibitive. The PHA’s
   application evidences that no reasonable program of modifications is cost-
   effective to return the project to its useful life.  HUD evaluates the
   PHA’s determination of the cost-effectiveness of rehabilitation in
   comparison to the project’s total development cost (TDC) in accordance
   with the following:

   A. Rehabilitation cost-estimate is supported by a list of specific and
      detailed work-items indentified on form HUD-52860-B;
   B. Rehabilitation cost-estimate includes only work-items necessary to
      address the project’s immediate needs (up to three years);
   C. Rehabilitation cost-estimate includes only work-items necessary to
      return the project to an average quality (e.g. not costs associated
      with non-assisted housing).
   D. Rehabilitation cost-estimate includes only necessary repair costs
      (e.g. with the exception of air conditioners, no new items such as on-
      site improvements other than those required by local ordinances,
      washer/dryer hook-ups, garbage disposals, porches);
   E. Rehabilitation cost-estimate includes only hard construction costs
      (HCC) as defined in 24 CFR part 905 (generally anything inside a
      dwelling and within five feet of the exterior walls, but not site
      improvements, parking lots, security cameras, playgrounds, community
      center);
   F. If a PHA uses HUD-accepted cost-standards such as the R.S. Means cost
      index and the Marshall & Swift cost index, then work-item cost-
      estimates may include labor costs (e.g. general conditions, profit and
      overhead) but then these labor costs are not be included as separate
      cost items;
   G. If costs of asbestos or lead-based paint abatement are in the
      rehabilitation cost-estimate, then PHAs submit verifying inspection
      reports.   If costs of repairing structural defects are in the
      rehabilitation cost-estimate, then PHAs submit a report by a licensed
      professional engineer;
   H. If costs of rehabilitating unit(s) to be accessible to families with
      disabilities are in the rehabilitation cost-estimate, then PHAs
      compare such unit counts with the requirement for 5% of total housing
      stock under Section 504 of the Rehabilitation Act of 1973; and
   I. The following fees are acceptable safe harbors for public housing
      rehabilitation: Construction contingency at 5% - 10%; Architect fees
      at 4% - 7% and PHA administration fees up to 2%.

15) Demolition Review Criteria for Obsolescence: If a PHA proposes to
   demolish public housing or non-dwelling structures under 24 CFR section
   970.15, the SAC application provides a detailed description of the
   project’s physical obsolescence, including a description of work items
   identified in the PHA’s rehabilitation cost-estimate, as well as any
   other details of the project’s obsolescence (e.g. other factors that have
   seriously affected the marketability, usefulness or management of the
   project).  A PHA may submit its most recent Physical Needs Assessment
   (PNA) as part of its SAC application in order to further support its
   certification of obsolescence.  HUD may conduct or contract a site
   inspection of a proposed demolition at its discretion and/or to review
   allegations of PHA certification inconsistencies. A high vacancy rate
   alone does not justify obsolescence as PHAs lease vacant units in
   accordance with the Annual Contributions Contact (ACC) with HUD.  If the
   PHA proposes demolition of only a portion of a project, then the
   description of the partial demolition ensures the viability of the
   remaining portion of the project.

16) No Demolition or Disposition Prior to HUD’s Approval:  PHAs may not
   begin any demolition or disposition, including the resident relocation
   process, prior to receiving written HUD approval of the SAC application.
   Pursuant to the ACC, PHAs continue to occupy public housing units until a
   SAC application is submitted and may continue to lease-up units during
   HUD’s review or after HUD’s approval of an SAC application depending on
   community needs and the unit conditions.

      Pursuant to 24 CFR section 970.25(b), PHAs may consolidate occupancy
   within or among buildings of a project or among projects, or with other
   housing for the purposes of improving living conditions of, or providing
   more efficient services to residents, without submitting a SAC
   application or during HUD’s review of an application.  If a PHA moves or
   relocates residents under this occupancy consolidation exception, then
   such actions are in accordance with public housing occupancy rules (which
   may include involuntary moves) or other applicable federal requirements
   and not in accordance with the relocation requirements of 24 CFR part
   970.  Relocation assistance, including replacement housing, must be
   provided on a nondiscriminatory basis, without regard to race, color,
   religion, creed, national origin, handicap, age, familial status, or
   gender, in compliance with Federal and state laws.  For persons with
   disabilities displaced from a unit subject to reasonable accommodations,
   comparable housing must include comparable accommodations.  HUD’s
   relocation Handbook 1378 includes guidance on planning for meeting the
   relocation needs of persons with disabilities.

      Pursuant to 24 CFR section 970.21(e), if a PHA determines there is an
   imminent threat to the health and safety of the residents in a project
   that has been approved by HUD for demolition and/or disposition, then the
   90-day notice of relocation is not required, but instead relocation can
   begin immediately after HUD approval of the SAC application.

17) Technical Assistance:  PHAs may consult with SAC on a proposed SAC
   application prior to an application submission in IMS/PIC.  To request
   technical assistance, call 312-353-6236 or send an email
   toSACTA@hud.gov. 

18) Submitting Comments and Other Information:  Residents and members of
   the public may submit comments about a proposed SAC application directly
   to HUD’s Special Applications Center (SAC) at 77 W. Jackson Blvd.
   Chicago, IL 60604 or via email at SACTA@hud.gov.  HUD reviews and
   considers all comments and other information prior to a determination to
   approve or disapprove an application. Pursuant to 24 CFR section 970.29,
   HUD disapproves a SAC application if a PHA certification is found
   inconsistent with any information and data available to HUD.

19) Effective Date:  All sections of this notice apply to demolition and/or
   disposition actions, new SAC application submitted to HUD, and SAC
   applications currently under review by HUD, except for Sections 9, 14,
   and 15 which apply to SAC applications submitted to HUD on or after
   October 17, 2011 and Section 10 which applies to SAC applications
   submitted to HUD on or after the date of this notice.

20) Paperwork Reduction Act:  The information collection requirements
   contained in this notice are approved by the Office of Management and
   Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
   3520). The OMB control numbers are 2577-0029 and 2577-0075.

                                              /s/
                            Sandra B. Henriquez, Assistant Secretary for
                                   Public and Indian Housing