Under the Demonstration, HUD has the authority to waive or specify alternative public housing requirements, or to establish requirements for converted assistance under the demonstration. Additionally, the RAD Statute imposes certain unique requirements. To facilitate the conversion of assistance, HUD is waiving or imposing the following alternative and other public housing program requirements for public housing projects converting assistance (Sections 1.6 and 1.7 list the waivers and alternative and other requirements of programs into which assistance is being converted):
- Use of Public Housing Program Funds to Support Conversion. PHAs are permitted under the Demonstration to use available public housing funding, including Operating Reserves, Capital Funds, and Replacement Housing Factor (RHF) funds, and Demolition and Disposition Transitional Funding (DDTF), as a source of capital in the development budget to support conversion, whether for rehabilitation or new construction, as well as to increase initial contract rents. Eligible conversion-related uses for these funds include pre- development, development, or rehabilitation costs of the Covered Project, establishment of a capital replacement reserve or operating reserve, payment of Capital Fund Financing Program (CFFP), Operating Fund Financing Program (OFFP), or Energy Performance Contract (EPC) debt, and increase of the initial contract rent pursuant to Sections 1.6.B.5.iii and 1.7.A.5.iv. In order to use such funds on a Covered Project, these funds must be identified in the Financing Plan and RCC. See also 1.4.B.2.
If the PHA requests, in accordance with section 9(j)(2)(A)(ii) of the Act and the relevant HUD Appropriation Acts, HUD will extend the PHA’s obligation end date for Capital Funds used in the conversion for up to five years from the point when Capital Funds became available to the PHA for obligation. By extending the obligation end dates, the expenditure end dates will be correspondingly extended. Any such extensions must remain within the boundaries of the account closing law, including preserving sufficient time for administrative close-outs. Such extensions will prevent PHAs from otherwise losing their unobligated Capital Funds prior to conversion.
Prior to the approval of a Financing Plan, a PHA may expend up to $100,000 in public housing program funds on pre-development conversion costs per CHAP without HUD approval. Predevelopment assistance may be used to pay for materials and services related to proposed rehabilitation or development and may also be used for preliminary development work. Public housing program funds spent prior to the RAD conversion or construction or rehabilitation closing relating to a Covered Project as contemplated in the RCC are subject to public housing procurement rules.
Issuance of the RCC constitutes approval to use public housing funds as referenced in the Sources and Uses upon the RAD conversion or construction or rehabilitation closing relating to a Covered Project.
In the case of a PHA that is converting all of its ACC units, there is no restriction on the amount of public housing funds that may be contributed to the Covered Project(s); the PHA may convey all program funds to the Covered Project(s). In order to cover the cost of administrative activities required to terminate the ACC, once it no longer has units under ACC and has no plans to develop additional public housing, the PHA may:
- designate that a reserve associated with the Covered Project be available to fund any public housing closeout costs (such as an operating deficit reserve or a specific PHA close-out reserve). Any funds not needed for public housing closeout costs would remain in such reserve or may be transferred to another reserve associated with the Covered Project (such as the replacement reserve). Thereafter, these funds may be used at the Covered Project pursuant to the authorized use of the applicable reserve, or
- retain funds under the public housing program for this purpose. However, HUD will recapture any public housing funds that a PHA does not expend for closeout costs.
In the case where the PHA will continue to maintain other units in its inventory under public housing ACC, a contribution of Operating Funds to the Covered Project that exceeds the average amount the project has held in Operating Reserves over the past three years will trigger a subsidy layering review under 24 CFR § 4.13. Similarly, any contribution of Capital Funds, including RHF or DDTF, will trigger a subsidy layering review. Notwithstanding the subsidy layering review, PHAs should be mindful of how the Capital Funds or Operating Reserves used in the financing of its RAD properties may impact the physical and financial health of properties that will remain in its public housing inventory.
In addition, following execution of the HAP Contract, PHAs are authorized to use Operating and Capital Funds to make HAP payments for the remainder of the first calendar year in which the HAP Contract is effective (See Section 1.13). Otherwise, a PHA may not contribute public housing program funds to the Covered Project unless such funding has been identified in the approved Financing Plan and included in the approved Sources and Uses attached to the RCC.
- Public Housing Capital and Operating Program Funds. PHAs are permitted under the Demonstration to use available public housing funding, including Operating Reserves (as defined in PIH Notice 2011-55) and unobligated Capital Funds, as a source of capital to support conversion (see Section 1.5 of this Notice for more details). With written HUD approval, PHAs may also use Section 18 disposition proceeds upon confirmation that the proposed use meets the Section 18 requirements. MTW agencies may use their block grant as an additional source of capital to support conversion. These funds, either as a source of debt or equity (grant), must be identified in the Financing Plan. Financing proceeds in excess of transaction costs will not be allowed when public housing Capital, Operating, or MTW block grant funds are contributed to the project conversion. However, in the case of a PHA that is converting all of its ACC units, there is no restriction on the amount of public housing funds that may be contributed to the Covered Project(s) at Closing; the PHA may convey all program funds to the Covered Project(s).
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