The final rule for the Public Housing Capital Fund Program (Capital Fund) recently released by the U.S. Department of Housing and Urban Development (HUD) makes significant changes to the Capital Fund.

Noteworthy changes include the following:

• The final rule clarifies what kinds of activities are eligible and ineligible for public housing Capital Funds, including detailed definitions of financing costs, vacancy reduction, nonroutine maintenance, planned code compliance, management improvements, and energy efficiency, among others.
• The final rule incorporates energy efficiency standards.
• The Public Housing Modernization requirements are incorporated into the final rule, and the existing Public Housing Modernization requirements at 24 C.F.R. Part 968 are removed.
• The Mixed-Finance Development and Public Housing Development requirements are incorporated into the final rule, and the existing Mixed-Finance Development and Public Housing Development requirements at 24 C.F.R. Part 941 are removed.
• The existing requirement for a Physical Needs Assessment (PNA) is expanded to include both small and large public housing authorities (PHAs). The final rule delays the applicability of this provision for small PHAs.
• The 2009 International Energy Conservation Code (IECC) and American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) standard 90.1–2010, ‘‘Energy Standard for Buildings Except Low-Rise Residential Buildings,’’ are incorporated into the final rule.
• The final rule clarifies the calculation of total development cost (TDC) limits and enables PHAs to request a TDC exception for integrated utility management, capital planning, and other capital and management activities that promote energy conservation and efficiency.
• The final rule removes the Replacement Housing Factor Fund grant (RHF) from the Capital Fund and creates the Demolition or Disposition Transitional Funding (DDTF) grant. DDTF grants will have a five-year term. The DDTF will be a part of the Capital Fund formula grant and is subject to the same requirements as the Capital Fund, not the requirements or limitations of RHF. There is a transition period from RHF to DDTF.
• The final rule clarifies that emergencies that are not identified in the PHA's five-year action plan are eligible costs.
• Under the old rule, a PHA may expend up to 20 percent of its Capital Fund allocation on management improvements. The final rule changes this maximum to 10 percent and phases in this new requirement over five years.
• Under the old rule, PHAs had to obtain a waiver from HUD to use an instrumentality as a general contractor. The final rule allows PHAs to do so in mixed-finance projects, as long as the PHA meets cost requirements.
• The final rule establishes contracting requirements related to the use of force account labor and other contracting requirements related to the form of contract and assurances of completion.
• It provides regulations to implement section 35(h) of the U.S. Housing Act, commonly referred to as the transformation plan requirements, to ensure the long-term feasibility of mixed-finance projects.
• The final rule creates a general prohibition on a PHA pledging its assets without prior written HUD approval.
• The final rule also establishes sanctions for noncompliance with HUD contracts and regulations. These sanctions include corrective action; reimbursement from non-HUD sources; the limitation, withholding, or reduction of Capital Fund or Operating Fund assistance; issuance of a Limited Denial of Participation; or debarment of responsible PHA officials. The final rule grants a right to appeal these sanctions to the PHA.

Ballard Spahr will continue to monitor the implementation of the final rule for the Capital Fund Program.