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 upon a finding by the Secretary that any such waivers or alternative requirements are necessary for the effective conversion of 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 (see 24 CFR 905.400(i)), and Demolition and Disposition Transitional Funding (DDTF) (see 24 CFR 905.400(j)), 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 and 1.7.A.5. In order to use such funds on a Covered Project, these funds must be identified in the Financing Plan and RCC. See also Section 1.4.B.2.
HUD may extend the PHA’s obligation end date for Capital Funds used in the conversion for up to thirty-six months from the previous obligation end date. 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, with HUD approval, also be used for preliminary development work, including critical repairs.35 Public housing program funds spent prior to Closing as contemplated in the RCC are subject to public housing procurement rules.
Execution of Closing documents consistent with the RCC (as it may be amended) constitutes approval to use public housing funds in the conversion as referenced in the final approved Sources and Uses.
In the case of a PHA that will no longer have ACC units as a result of the pending or simultaneous closing, or have less than 50 units remaining and have initiated procedures to dispose of their final 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) through the conversion. However, the PHA must estimate and plan for outstanding liabilities and costs and must follow Notice PIH 2016-23 or successor notice regarding the administrative activities required to terminate the ACC if it has no plans to develop additional public housing.
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.
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 those funds have been identified in the RCC and converted at Closing for Section 8 RAD purposes.
Where a PHA has used public housing funds to support the development budget and structured the conribution as a loan, any repayment of the loan must be used for Affordable Housing Purposes. However, any prepayment of principal on such a loan that occurs within the first 10 years shall be considered program income and may only be used for public housing or Section 8 purposes.
- 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 Notice PIH 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 certain public housing and voucher funds authorized under their funding flexibilities ("MTW funds") as an additional source of capital to support conversion. These funds, whether provided as a loan, a grant, or a capital contribution, must be identified in the Financing Plan. If funds are contributed as a loan, except in extraordinary circumstances, the loan must be structured as a "soft" second mortgage payable from project cash flow. Financing proceeds in excess of transaction costs will not be allowed when public housing Capital, Operating, or MTW funds are contributed to the project conversion.
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Under what circumstances can I use other public housing funds, such as operating reserves, unobligated Capital Funds, Replacement Housing Factor (RHF) funds, etc., to facilitate conversion under RAD?Under what circumstances can I use other public housing funds, such as operating reserves, unobligated Capital Funds, Replacement Housing Factor (RHF) funds, etc., to facilitate conversion under RAD?
PHAs can use available public housing funding, including Operating Reserves, Capital Funds, and RHF funds, as an additional source of capital to support conversion. Eligible conversion-related uses for these funds include pre-development, development or rehabilitation costs and establishment of a capital replacement reserve or operating reserve. As stated in the Notice, these funds must be identified in the Financing Plan submitted to HUD for review.[See RAD Final Notice Reference: Paragraph 1.5, A.] [Update 7.29.13]
Replacement Housing FundsWhen you convert a project under RAD, are the converted units eligible for RHF funds?
No, but if you have existing RHF funds, you can use those to help pay for the conversion.
Replacement Housing FundsOur PHA is considering applying to convert all of its public housing to RAD. What can future RHF funds be used for? Can future RHF units be converted to RAD?
PHAs can contribute any existing/accumulated RHF to the converted projects. The converted units are not eligible to generate RHF, so you would not receive any RHF for the converted units. If you have a future stream of RHF funds due to your agency in future years, they may be used for convention RHF purposes (i.e. constructing new public housing units) or, under RAD you may choose to forgo any ongoing RHF grants and re-purpose the foregone subsidy to augment the initial RAD rent for a converting project. The RAD rent may be augmented by the following amount: 2012 RHF grant × Years of RHF funding the PHA is eligible to receive, but has not yet received = Total Anticipated RHF grants Total Anticipated RHF Grants ÷ 20 ÷ Number of Units converting under RAD ÷12 = PUM RAD Rent Augmentation The PUM RAD Rent Augmentation would be reflected in the initial rents established in the HAP contracts. The contract rents will still be subject to applicable rent caps. [Updated 7.29.13]
Retaining Public Housing Reserves for Other Affordable Housing DevelopmentWe will be converting a large portion of our public housing units through RAD. Will we be able to retain the current reserves and use them for affordable housing development?
If a PHA converts all of its units under RAD, it may bring all of its capital funds and operating reserves without restriction. However, if the PHA will have have projects remaining in the public housing program, aside from a safe harbor of Operating Reserves (the average the project has maintained over the past three years), the PHA may only contribute to the project what is needed for the projects rehabilitation and ongoing viability. HUD will perform a subsidy layering review in such cases to ensure that the project is not being excessively subsidized. As a result, a PHA will not be able to contribute public housing funds that will not be used on the project.
RAD Conversion Development CostsThe Notice provides that a PHA may use up to $100,000 in pre-development funds without prior HUD approval. We anticipate spending about $300,000 in architectural work, due diligence, legal, etc. prior to financial closing. Can the PHA put in these additional funds? Would they need to seek approval from their Transaction Manager?
If the PHA needs to spend more than $100,000 in pre-development costs, it can do one of the following: (1) request approval from HUD to exceed this amount, which would need to follow the normal public housing (24 CFR part 85) procurement rules, unless the PHA submitted a good-cause waiver, or (2) use non-public housing funds for these purposes, which would then be reimbursed at closing, if necessary. [Updated 7.29.13]
Post RAD Funding Source for Tenant Council/Tenant Protection FundsCan you explain the consequences of switching to RAD on the tenant protection and Tenant Council funds that are currently built into our Operating Budget? I know RAD intends that those funds continue to be provided to the Tenant Councils etc, but what is the source of those funds (i.e. do they reduce the RAD contract rent payments) or are the PHA expected to provide those funds from other sources (ACC grant) etc?
The $25 per unit per year, of which at least $15 must be conveyed to resident organizations, is built into the RAD rent. It would be a project expense.
Subsidy Phase-Down PaymentsAre Housing Authorities eligible to receive subsidy phase-down payments for units converted under RAD?
No. Housing Authorities are not eligible to receive subsidy phase-down payments for units converted under RAD, or what, under the public housing program, is referred to as "Asset Repositioning Fee." Nor will PHAs, under RAD, be eligible for Replacement Housing Factor (RHF) funds for units that convert. Essentially, the act of conversion makes the PHA "whole" in terms of assisted units.
Replacement Housing FundingFor purposes of Replacement Housing Funding (funds are permitted to be used 'for development'), are construction costs considered 'development'?
Yes. Under RAD, RHF funds may be used for renovation (of the converting site) or new construction. [Updated 7.29.13]
ACC and Capital Fund Subsidy during RAD ConversionWill ACC and capital fund subsidy continue during the RAD conversion? If so, can those funds be used for temporary relocation costs and/or other development costs?
ACC subsidy will continue until the RAD closing. Following the RAD closing, the property will be under a Section 8 HAP contract. Under RAD, properties are eligible under their HAP contract for Rehab Assistance Payments, which provides subsidy payments during the period of rehab, approximately equal to the Operating and Capital subsidy amounts the project had received under public housing. Many PHAs plan to use this subsidy to support relocation costs.
Extending Obligation & Expenditure Dates of Capital FundsHow do I submit a request to extend the obligation and expenditure dates of my capital funds?
Section 1.5A of the revised Notice (page 27) contains the following new language: "If the PHA requests, in accordance with section 9(j)(2)(A)((ii) of the United States Housing Act of 1937 and the relevant HUD Appropriation Acts, HUD will extend the 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 correspondingly be also extended. Such extensions will prevent PHAs from otherwise losing its unobligated Capital Funds prior to conversion." The PHA should send a request to the Office of Capital Improvements, to the attention of Jeff Riddell, with copies to the RAD Transaction Manager and the local PIH field office.
Use of Capital Funds in a RAD ConversionHow do Capital Funds become part of a RAD conversion?
A PHA wishing to use Capital Funds in its conversion should include the Capital Funds in the Sources & Uses section of their RAD Financing Plan. Upon closing, a PHA including Capital Funds into a conversion will transfer the Capital Funds into a rehab escrow.
Expenditure/Obligation of Capital Funds Under RADWhen, under RAD, are Capital Funds considered obligated and/or expended?
If a PHA is contributing Capital Funds to the development budget (Sources & Uses), those Capital Funds are considered both obligated and expended as of the effective date of the RAD closing. If a PHA needs to extend the obligation end date for capital funds in order to use capital funds in the development budget, the PHA should send a request to the Office of Capital Improvements, to the attention of Jeff Riddell, with copies to the RAD Transaction Manager and the local PIH field office.
Capital Fund Obligation Deadline Extension RequestA PHA will be using their 2012 funds for RAD and want to make sure they meet the obligation deadline. What is the process for doing this?
The PHA should send an extension request (to extend the obligation deadline) to the Capital Fund Office, attention: Alan Kaufmann and Ivan Pour. [Updated 5.13.15]
Sale Proceeds as a Source of FinancingCan housing authorities use sale proceeds from public housing units as a source for financing in a RAD development?
Yes; indeed, such proceeds are a common source of funding in RAD applications.
Augmenting RAD Contract Rent with RHF or DDTFMy agency is scheduled to receive Replacement Housing Factor (RHF) or Demolition/Disposition Transition Funds (DDTF) as a result of other public housing properties that were removed from our inventory through demolition or disposition. We would like to augment our RAD contract rent instead. How do we request the rent increase and how do we determine the amount that the RAD rents can be increased?
To request a RAD contract rent augmentation, PHAs should email their RAD Transaction Manager who will obtain the amount of future RHF/DDTF funds for which PHAs are eligible. Once PHAs have received confirmation of the available amount, the PHAs complete the RHF/DDTF Rent Boost/Cancellation Certification form found in the Document Library on the RAD Resource Desk and email it to the RAD Transaction Manager. The PHAs should note in their email whether they wish to apply the amount to a specific CHAP or across multiple CHAPs. The Office of Recap will then issue an amended RAD CHAP award reflecting the revised contract rents. Note that the augmented contract rents are still subject to existing PBV and PBRA rent caps.
Capital Fund ReportingWhen a PHA contributes Capital Fund grants to a RAD development budget, are those funds treated as both obligated and expended at closing?
Yes. A PHA should withdraw those funds from LOCCS and deposit into the escrow account at closing, which will then also serve to obligate and expend the funds under the Capital Fund program.
Converting Last Public Housing Project Early in Calendar Year (prior to Capital Fund grant award)If a conversion occurs early in the calendar year before HUD has made its Capital Fund grants, how can a PHA that is converting its last public housing project make sure to apply the entire Capital Fund grant to the converting project?
Capital Funds are used for funding HAP payments in the initial year of closing and can also be used for development costs (in the Sources & Uses). First, the PHA will want to ensure that enough of the Capital Fund grant is set aside for HAP payments. In such a case, a portion, based on the number of months remaining in the calendar year of the PHA’s Capital Fund grant, can be used for rental assistance to support the Covered Project for the remainder of the calendar year of the conversion. Within 2 weeks of the Capital Fund grant award, the PHA should complete the updated Initial Year Funding Tool to calculate the amount of Capital Funds needed and then complete HUD form 50075.1 with that amount shown in BLI 1503. The executed 50075.1 and the Initial Year Funding Tool should be emailed to firstname.lastname@example.org, with a copy to Ivan Pour. Upon receipt, HUD will review and move the funds to BLI 1503 in LOCCS. The remaining balance of the Capital Fund grant can be contributed to the Covered Project as part of the development budget if in the Financing Plan and memorialized in the RCC (Sources & Uses Exhibit), the PHA identifies that this source will come into the project after conversion by, for example, including in the Sources “TBD- 2017 Capital Fund balance.” This would authorize the use of those funds for the Covered Project when the funds become available, even though that would occur after conversion. Given that the precise amount that will be available will be unknown at the time of Financing Plan submission and at closing, in its review of the Financing Plan, HUD will make sure that the transaction does not rely on those funds in order to meet RAD’s minimum underwriting standards. In other words, the transaction must be able to stand on its own without the funds. The funds could then be used to enhance replacement reserves or operating reserves. Within 2 weeks of the Capital Fund grant award, the PHA should complete the 50075.1 with BLI 1504 populated with the corresponding Capital Fund amount and then email the 50075.1 to email@example.com, with a copy to Ivan Pour. Upon receipt, HUD will review and move the funds to BLI 1504 in LOCCS.
Status of Existing Financial Public Housing Reserves After ConversionI am the E.D. of a very small, rural PHA. If we convert our entire PIH inventory to RAD, what would happen to our existing financial public housing reserves? Would these funds be completely de-regulated (allowing us to leverage them for additional affordable units) or would they be somehow recaptured by HUD?
If you convert your entire Public Housing inventory to RAD then you are permitted to bring all of your current public housing funding with your RAD conversion. It would not be recaptured by HUD.
Remaining Capital and Operating FundsCan a PHA doing a straight RAD conversion without any rehab work take all the remaining Capital Funds or Operating Reserves at conversion? So, it would be listed as a source with $0 uses.
If a PHA converts all of its units under RAD, it may bring all of its capital funds and operating reserves without restriction. The PHA should still have a balanced Sources and Uses - many PHAs create a "PHA Reserve" as a use of funds.
Loan of Public Housing FundsPHAs may contribute public housing funds as a Development source in a RAD conversion in the form of a loan. If there are debt service payments made on the loan, are those receipts restricted?
Yes, any debt service payments on a loan made from public housing funds are considered program income and can only be used for Section 8 or public housing purposes.
Single Fund Flexibility for MTW AgenciesThe RAD Notice states that PHAs may not use Public Housing funds (i.e., Operating and Capital) after a RAD conversion has closed to support a post-conversion RAD PBV project, unless these planned expenditures were identified in their Financing Plans. Is there an exception to this rule for Moving to Work (MTW) PHAs?
Yes, an MTW PHA may use Public Housing funds (and Housing Choice Voucher funds) after closing to support a converted RAD PBV project, as this would be an allowable use of MTW funding flexibility (i.e., fungibility) under the MTW Agreement. The MTW Agreement allows MTW PHAs to use Public Housing Funds for an eligible Section 8 purpose. These planned expenditures must be included in the MTW PHA’s approved Annual MTW Plan in Section V – MTW Sources and Uses of Funds under “Planned Use of Single Fund Flexibility.”