PART 990—THE PUBLIC HOUSING OPERATING FUND PROGRAM Authority: 42 U.S.C. 1437g; 42 U.S.C. 3535(d). Source: 70 FR 54997, Sept. 19, 2005, unless otherwise noted. Subpart A—Purpose, Applicability, Formula, and Definitions § 990.100 Purpose. This part implements section 9(f) of the United States Housing Act of 1937 (1937 Act), (42 U.S.C. 1437g). Section 9(f) establishes an Operating Fund for the purposes of making assistance available to public housing agencies (PHAs) for the operation and management of public housing. In the case of unsubsidized housing, the total expenses of operating rental housing should be covered by the operating income, which primarily consists of rental income and, to some degree, investment and non-rental income. In the case of public housing, the Operating Fund provides operating subsidy to assist PHAs to serve low, very low, and extremely low-income families. This part describes the policies and procedures for Operating Fund formula calculations and management under the Operating Fund Program. § 990.105 Applicability. (a) Applicability of this part. (2) This part is applicable to all rental units managed by a resident management corporation (RMC), including a direct-funded RMC. (b) Inapplicability of this part. (2) With the exception of subpart J of this part, this part is not applicable to the Mutual Help Program or the Turnkey III Homeownership Opportunity Program. § 990.110 Operating fund formula. (a) General formula. (2) In general, operating subsidy shall be the difference between formula expense and formula income. If a PHA's formula expense is greater than its formula income, then the PHA is eligible for an operating subsidy. (3) Formula expense is an estimate of a PHA's operating expense and is determined by the following three components: Project Expense Level (PEL), Utility Expense Level (UEL), and other formula expenses (add-ons). Formula expense and its three components are further described in subpart C of this part. Formula income is an estimate for a PHA's non-operating subsidy revenue and is further described in subpart D of this part. (4) Certain portions of the operating fund formula ( e.g. (b) Specific formula. (2) A PHA whose formula amount is equal to or less than zero is still eligible to receive operating subsidy equal to its most recent actual audit cost for its Operating Fund Program. (3) Operating subsidy payments will be limited to the availability of funds as described in § 990.210(c). (c) Non-codified formula elements. Federal Register § 990.115 Definitions. The following definitions apply to the Operating Fund program: 1937 Act et seq. Annual contributions contract (ACC) Asset management Current consumption level Eligible unit months (EUM) Formula amount Formula expense Formula income Funding period Operating Fund Operating Fund Formula (or Formula) Operating subsidy Other operating costs (add-ons) Payable consumption level Per unit per month (PUM) describes a dollar amount on a monthly basis per unit, such as Project Expense Level, Utility Expense Level, and formula income. Project Project-based management Project expense level (PEL) Project units Rolling base consumption level (RBCL) Transition funding Unit months Utilities Utilities Utility rate (rate) Yearly consumption level § 990.116 Environmental review requirements. The environmental review procedures of the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)) and the implementing regulations at 24 CFR parts 50 and 58 are applicable to the Operating Fund Program. Subpart B—Eligibility for Operating Subsidy; Computation of Eligible Unit Months § 990.120 Unit months. (a) Some of the components of HUD's Operating Fund Formula are based on a measure known as unit months. Unit months represent a PHA's public housing inventory during a specified period of time. The unit months eligible for operating subsidy in a 12-month period are equal to the number of months that the units are in an operating subsidy-eligible category, adjusted for changes in inventory ( e.g. (b) A PHA is eligible to receive operating subsidy for a unit on the date it is both placed under the ACC and occupied. The date a unit is eligible for operating subsidy does not change the Date of Full Availability (DOFA) or the date of the End of Initial Operating Period (EIOP), nor does this provision place a project into management status. § 990.125 Eligible units. A PHA is eligible to receive operating subsidy for public housing units under an ACC for: (a) Occupied dwelling units as defined in § 990.140; (b) A dwelling unit with an approved vacancy (as defined in § 990.145); and (c) A limited number of vacancies (as defined in § 990.150). § 990.130 Ineligible units. (a) Vacant units that do not fall within the definition of § 990.145 or § 990.150 are not eligible for operating subsidy under this part. (b) Units that are eligible to receive an asset-repositioning fee, as described in § 990.190(h), are not eligible to receive operating subsidy under this subpart. § 990.135 Eligible unit months (EUMs). (a) A PHA's total number of EUMs will be calculated for the 12-month period from July 1st to June 30th that is prior to the first day of the applicable funding period, and will consist of eligible units as defined in § 990.140, § 990.145, or § 990.150. (b)(1) The determination of whether a public housing unit satisfies the requirements of § 990.140, § 990.145, or § 990.150 for any unit month shall be based on the unit's status as of either the first or last day of the month, as determined by the PHA. (2) HUD reserves the right to determine the status of any and all public housing units based on information in its information systems. (c) The PHA shall maintain and, at HUD's request, shall make available to HUD, specific documentation of the status of all units, including, but not limited to, a listing of the units, street addresses or physical address, and project/management control numbers. (d) Any unit months that do not meet the requirements of this subpart are not eligible for operating subsidy, and will not be subsidized by the Operating Fund. § 990.140 Occupied dwelling units. A PHA is eligible to receive operating subsidy for public housing units for each unit month that those units are under an ACC and occupied by a public housing-eligible family under lease. § 990.145 Dwelling units with approved vacancies. (a) A PHA is eligible to receive operating subsidy for vacant public housing units for each unit month the units are under an ACC and meet one of the following HUD-approved vacancies: (1) Units undergoing modernization. (i) The unit is undergoing modernization ( i.e. (ii) The unit must be vacant to perform the work and the treatment of the vacant unit is included in a HUD-approved PHA Annual Plan, but the time period for placing the vacant unit under construction has not yet expired. The PHA shall place the vacant unit under construction within two federal fiscal years (FFYs) after the FFY in which the capital funds are approved. (2) Special use units. (b) On a project-by-project basis, subject to prior HUD approval and for the time period agreed to by HUD, a PHA shall receive operating subsidy for the units affected by the following events that are outside the control of the PHA: (1) Litigation. e.g. (2) Disasters. (3) Casualty losses. (c) A PHA may appeal to HUD to receive operating subsidy for units that are vacant due to changing market conditions (see subpart G of this part—Appeals). § 990.150 Limited vacancies. (a) Operating subsidy for a limited number of vacancies. (b) Exception for PHAs with 100 or fewer units. [70 FR 54997, Sept. 19, 2005, as amended at 81 FR 12377, Mar. 8, 2016] § 990.155 Addition and deletion of units. (a) Changes in public housing unit inventory. e.g. (1) New units that were added to the ACC, and occupied by a public housing-eligible family during the prior reporting period for the one-year funding period, but have not been included in the previous EUMs' data; and (2) Projects, or entire buildings in a project, that are eligible to receive an asset repositioning fee in accordance with the provisions in § 990.190(h). (b) Revised EUM calculation. (2) Projects, or entire buildings in a project, that are eligible to receive an asset repositioning fee in accordance with § 990.190(h) are not to be included in the calculation of EUMs. Funding for these units is provided under the conditions described in § 990.190(h). Subpart C—Calculating Formula Expenses § 990.160 Overview of calculating formula expenses. (a) General. (1)The project expense level (PEL) (calculated in accordance with § 990.165); (2) The utilities expense level (UEL) (calculated in accordance with §§ 990.170, 990.175, 990.180, and 990.185); and (3)Other formula expenses (add-ons) (calculated in accordance with § 990.190). (b) PEL, UEL, and Add-ons. (c) Calculating project formula expense. § 990.165 Computation of project expense level (PEL). (a) Computation of PEL. i.e. (b) Variables. (1) Size of project (number of units); (2) Age of property (Date of Full Availability (DOFA)); (3) Bedroom mix; (4) Building type; (5) Occupancy type (family or senior); (6) Location (an indicator of the type of community in which a property is located; location types include rural, city central metropolitan, and non-city central metropolitan (suburban) areas); (7) Neighborhood poverty rate; (8) Percent of households assisted; (9) Ownership type (profit, non-profit, or limited dividend); and (10) Geographic. (c) Cost adjustments. (1) Application of a $200 PUM floor for any senior property and a $215 PUM floor for any family property; (2) Application of a $420 PUM ceiling for any property except for New York City Housing Authority projects, which have a $480 PUM ceiling; (3) Application of a four percent reduction for any PEL calculated over $325 PUM, with the reduction limited so that a PEL will not be reduced to less than $325; and (4) The reduction of audit costs as reported for FFY 2003 in a PUM amount. (d) Annual inflation factor. (e) Calculating a PEL. (f) Calculation of the PEL for Moving to Work PHAs. (g) Calculation of the PELs for mixed-finance developments. (h) Calculation of PELs when data are inadequate or unavailable. (i) Review of PEL methodology by advisory committee. § 990.170 Computation of utilities expense level (UEL): Overview. (a) General. (b) Utility rate. e.g. (c) Payable consumption level. (d) Inflation factor for utilities. (e) Increases in tenant utility allowances. (f) Records and reporting. (2) All records shall be kept by utility and by project for each 12-month period ending June 30th. (3) HUD will notify each PHA when HUD has the automated systems capacity to receive such information. Each PHA then will be obligated to provide consumption and cost data to HUD for all utilities for each project. (4) If a PHA has not maintained or cannot recapture utility data from its records for a particular utility, the PHA shall compute the UEL by: (i) Using actual consumption data for the last complete year(s) of available data or data of comparable project(s) that have comparable utility delivery systems and occupancy, in accordance with a method prescribed by HUD; or (ii) Requesting field office approval to use actual PUM utility expenses for its UEL in accordance with a method prescribed by HUD when the PHA cannot obtain necessary data to calculate the UEL in accordance with paragraph (f)(4)(i) of this section. § 990.175 Utilities expense level: Computation of the current consumption level. The current consumption level shall be the actual amount of each utility consumed during the 12-month period ending June 30th that is 6 months prior to the first day of the applicable funding period. § 990.180 Utilities expense level: Computation of the rolling base consumption level. (a) General. (2) The yearly consumption level is the actual amount of each utility consumed during a 12-month period ending June 30th. For example, for the funding period January 1, 2006, through December 31, 2006, the RBCL will be the average of the following yearly consumption levels: (i) Year 1 = July 1, 2001, through June 30, 2002. (ii) Year 2 = July 1, 2002, through June 30, 2003. (iii) Year 3 = July 1, 2003, through June 30, 2004. Note to paragraph ( a In this example, the current year's consumption level will be July 1, 2004, through June 30, 2005. (b) Distortions to rolling base consumption level. (1) A project has not been in operation during at least 12 months of the rolling base period; (2) A project enters or exits management after the rolling base period and prior to the end of the applicable funding period; or (3) A project has experienced a conversion from one energy source to another, switched from PHA-supplied to resident-purchased utilities during or after the rolling base period, or for any other reason that would cause the RBCL not to be comparable to the current year's consumption level. (c) Financial incentives. § 990.185 Utilities expense level: Incentives for energy conservation/rate reduction. (a) General/consumption reduction. (1) Frozen rolling base. (ii) The PHA operating subsidy eligibility shall reflect the retention of 100 percent of the savings from decreased consumption until the term of the financing agreement is complete. The PHA must use at least 75 percent of the cost savings to pay off the debt, e.g. (iii) The annual three-year rolling base procedures for computing the RBCL shall be reactivated after the PHA satisfies the conditions of the contract. The three years of consumption data to be used in calculating the RBCL after the end of the contract period shall be the yearly consumption levels for the final three years of the contract. (2) PHAs undertaking energy conservation measures that are financed by an entity other than HUD may include resident-paid utilities under the consumption reduction incentive, using the following methodology: (i) The PHA reviews and updates all utility allowances to ascertain that residents are receiving the proper allowances before energy savings measures are begun; (ii) The PHA makes future calculations of rental income for purposes of the calculation of operating subsidy eligibility based on these baseline allowances. In effect, HUD will freeze the baseline allowances for the duration of the contract; (iii) After implementation of the energy conservation measures, the PHA updates the utility allowances in accordance with provisions in 24 CFR part 965, subpart E. The new allowance should be lower than baseline allowances; (iv) The PHA uses at least 75 percent of the savings for paying the cost of the improvement (the PHA will be permitted to retain 100 percent of the difference between the baseline allowances and revised allowances); (v) After the completion of the contract period, the PHA begins using the revised allowances in calculating its operating subsidy eligibility; and (vi) The PHA may exclude from its calculation of rental income the increased rental income due to the difference between the baseline allowances and the revised allowances of the projects involved, for the duration of the contract period. (3) Subsidy add-on. i.e. (ii) The actual cost of energy (of the type affected by the energy conservation measure) after implementation of the energy conservation measure will be subtracted from the expected energy cost, to produce the energy cost savings for the year. (iii) If the cost savings for any year during the contract period are less than the amount of operating subsidy to be made available under this paragraph to pay for the energy conservation measure in that year, the deficiency will be offset against the PHA's operating subsidy eligibility for the PHA's next fiscal year. (iv) If energy cost savings are less than the amount necessary to meet amortization payments specified in a contract, the contract term may be extended (up to the 20-year limit) if HUD determines that the shortfall is the result of changed circumstances, rather than a miscalculation or misrepresentation of projected energy savings by the contractor or PHA. The contract term may be extended only to accommodate payment to the contractor and associated direct costs. (b) Rate reduction. (c) Utility benchmarking. [70 FR 54997, Sept. 19, 2005, as amended at 73 FR 61352, Oct. 16, 2008] § 990.190 Other formula expenses (add-ons). In addition to calculating operating subsidy based on the PEL and UEL, a PHA's eligible formula expenses shall be increased by add-ons. The allowed add-ons are: (a) Self-sufficiency. (b) Energy loan amortization. (c) Payments in lieu of taxes (PILOT). (d) Cost of independent audits. (e) Funding for resident participation activities. (f) Asset management fee. (g) Information technology fee. (h) Asset repositioning fee. (2) Projects covered by applications approved for demolition or disposition shall be eligible for an asset repositioning fee on the first day of the next quarter six months after the date the first unit becomes vacant after the relocation date included in the approved relocation plan. When this condition is met, the project and all associated units are no longer considered an EUM as described in § 990.155. Each PHA is responsible for accurately applying and maintaining supporting documentation on the start date of this transition period or is subject to forfeiture of this add-on. (3) Units categorized for demolition and which are eligible for an asset repositioning fee are eligible for operating subsidy at the rate of 75 percent PEL per unit for the first twelve months, 50 percent PEL per unit for the next twelve months, and 25 percent PEL per unit for the next twelve months. (4) Units categorized for disposition and which are eligible for an asset repositioning fee are eligible for operating subsidy at the rate of 75 percent PEL per unit for the first twelve months and 50 percent PEL per unit for the next twelve months. (5) The following is an example of how eligibility for an asset-repositioning fee is determined: (i) A PHA has HUD's approval to demolish (or dispose of) a 100-unit project from its 1,000 unit inventory. On January 12th, in conjunction with the PHA's approved Relocation Plan, a unit in that project becomes vacant. Accordingly, the demolition/disposition-approved project is eligible for an asset-repositioning fee on October 1st. (This date is calculated as follows: January 12th + six months = July 12th. The first day of the next quarter is October 1st.) (ii) Although payment of the asset-repositioning fee will not begin until October 1st, the PHA will receive its full operating subsidy based on the 1,000 units through September 30th. On October 1st the PHA will begin to receive the 36-month asset-repositioning fee in accordance with paragraph (h)(3) of this section for the 100 units approved for demolition. (Asset repositioning fee requirements for projects approved for disposition are found in paragraph (h)(4) of this section.) On October 1st, the PHA's units will be 900. (i) Costs attributable to changes in Federal law, regulation, or economy. [70 FR 54997, Sept. 19, 2005, as amended at 80 FR 75943, Dec. 7, 2015] Subpart D—Calculating Formula Income § 990.195 Calculation of formula income. (a) General. (1) April 1, 2003, through March 31, 2004; (2) July 1, 2003, through June 30, 2004; (3) October 1, 2003, through September 30, 2004; and (4) January 1, 2004, through December 31, 2004. (b) Calculation of formula income. (c) Frozen at 2004 level. (d) Calculation of formula income when data are inadequate or unavailable. (e) Inapplicability of 24 CFR 85.25 (as revised April 1, 2013). [70 FR 54997, Sept. 19, 2005; 70 FR 61367, Oct. 24, 2005; 80 FR 75943, Dec. 7, 2015] Subpart E—Determination and Payment of Operating Subsidy § 990.200 Determination of formula amount. (a) General. (b) Use of HUD databases to calculate formula amount. (c) PHA responsibility to submit timely data. § 990.205 Fungibility of operating subsidy between projects. (a) General. (b) Notwithstanding the provisions of paragraph (a) of this section and subject to all of the other provisions of this part, the New York City Housing Authority's Development Grant Project Amendment Number 180, dated July 13, 1995, to Consolidated Annual Contributions Contract NY-333, remains in effect. § 990.210 Payment of operating subsidy. (a) Payments of operating subsidy under the formula. 1/12 (b) Payments procedure. (c) Availability of funds. § 990.215 Payments of operating subsidy conditioned upon reexamination of income of families in occupancy. (a) General. (b) A PHA in compliance. (c) A PHA not in compliance. Subpart F—Transition Policy and Transition Funding § 990.220 Purpose. This policy is aimed at assisting all PHAs in transitioning to the new funding levels as determined by the formula set forth in this rule. PHAs will be subject to a transition funding policy that will either increase or reduce their total operating subsidy for a given year. § 990.225 Transition determination. The determination of the amount and period of the transition funding shall be based on the difference in subsidy levels between the formula set forth in this part and the formula in effect prior to implementation of the formula set forth in this part. The difference in subsidy levels will be calculated using FY 2004 data. When actual data are not available for one of the formula components needed to calculate the formula of this part for FY 2004, HUD will use alternate data as a substitute ( e.g. [70 FR 54997, Sept. 19, 2005; 70 FR 61367, Oct. 24, 2005] § 990.230 PHAs that will experience a subsidy reduction. (a) For PHAs that will experience a reduction in their operating subsidy, as determined in § 990.225, such reductions will have a limit of: (1) 5 percent of the difference between the two funding levels in the first year of implementation of the formula contained in this part; (2) 24 percent of the difference between the two funding levels in the second year of implementation of the formula contained in this part; (3) 43 percent of the difference between the two levels in the third year of implementation of the formula contained in this part; (4) 62 percent of the difference between the two levels in the fourth year of implementation of the formula contained in this part; and (5) 81 percent of the difference between the two levels in the fifth year of implementation of the formula contained in this part. (b) The full amount of the reduction in the operating subsidy level shall be realized in the sixth year of implementation of the formula contained in this part. (c) For example, a PHA has a subsidy reduction from $1 million, under the formula in effect prior to implementation of the formula contained in this part, to $900,000, under the formula contained in this part using FY 2004 data. The difference would be calculated at $100,000 ($1 million − $900,000 = $100,000). In the first year, the subsidy reduction would be limited to $5,000 (5 percent of the difference). Thus, the PHA would receive an operating subsidy amount pursuant to this rule plus a transition-funding amount of $95,000 (the $100,000 difference between the two subsidy amounts minus the $5,000 reduction limit). (d) If a PHA can demonstrate a successful conversion to the asset management requirements of subpart H of this part, as determined under paragraph (f) of this section, HUD will discontinue the reduction at the PHA's next subsidy calculation following such demonstration, as reflected in the schedule in paragraph (e) of this section, notwithstanding § 990.290(c). (e) The schedule for successful demonstration of conversion to asset management for discontinuation of PHA subsidy reduction is reflected in the table below: Stop-Loss Demonstration Time Line and Effective Dates Demonstration date by Applications due Reduction stopped at Reduction effective for September 30, 2007 October 15, 2007 5 percent of the PUM difference Calendar Year 2007 and thereafter. April 1, 2008 April 15, 2008 24 percent of the PUM difference Calendar Year 2008 and thereafter. October 1, 2008 October 15, 2008 43 percent of the PUM difference Calendar Year 2009 and thereafter. October 1, 2009 October 15, 2009 62 percent of the PUM difference Calendar Year 2010 and thereafter. October 1, 2010 October 15, 2010 81 percent of the PUM difference Calendar Year 2011 and thereafter. (f)(1) For purposes of this section, compliance with the asset management requirements of subpart H of this part will be based on an independent assessment conducted by a HUD-approved professional familiar with property management practices in the region or state in which the PHA is located. (2) A PHA must select from a list of HUD-approved professionals to conduct the independent assessment. The professional review and recommendation will then be forwarded to the Assistant Secretary for Public and Indian Housing (or designee) for final determination of compliance with the asset management requirements of subpart H of this part. (3) Upon completion of the independent assessment, the assessor shall conduct an exit conference with the PHA. In response to the exit conference, the PHA may submit a management response and other pertinent information (including, but not limited to, an additional assessment procured at the PHAs' own expense) within ten working days of the exit conference to be included in the report submitted to HUD. (4) In the event that HUD is unable to produce a list of independent assessors on a timely basis, the PHA may submit its own demonstration of a successful conversion to asset management directly to HUD for determination of compliance. (5) The Assistant Secretary for Public and Indian Housing (or designee) shall consider all information submitted and respond with a final determination of compliance within 60 days of the independent assessor's report being submitted to HUD. [70 FR 54997, Sept. 19, 2005; 70 FR 61367, Oct. 24, 2005, as amended at 72 FR 45874, Aug. 15, 2007] § 990.235 PHAs that will experience a subsidy increase. (a) For PHAs that will experience a gain in their operating subsidy, as determined in § 990.225, such increases will have a limit of 50 percent of the difference between the two funding levels in the first year following implementation of the formula contained in this part. (b) The full amount of the increase in the operating subsidy level shall be realized in the second year following implementation of the formula contained in this part. (c) For example, a PHA's subsidy increased from $900,000 under the formula in effect prior to implementation of the formula contained in this part to $1 million under the formula contained in this part using FY 2004 data. The difference would be calculated at $100,000 ($1 million−$900,000 = $100,000). In the first year, the subsidy increase would be limited to $50,000 (50 percent of the difference). Thus, in this example the PHA will receive the operating subsidy amount of this rule minus a transition-funding amount of $50,000 (the $100,000 difference between the two subsidy amounts minus the $50,000 transition amount). (d) The schedule for a PHA whose subsidy would be increased is reflected in the table below. Funding Increase limited to Year 1 50 percent of the difference. Year 2 Full increase reached. [70 FR 54997, Sept. 19, 2005; 70 FR 61367, Oct. 24, 2005] Subpart G—Appeals § 990.240 General. (a) PHAs will be provided opportunities for appeals. HUD will provide up to a two percent hold-back of the Operating Fund appropriation for FY 2006 and FY 2007. HUD will use the hold-back amount to fund appeals that are filed during each of these fiscal years. Hold-back funds not utilized will be added back to the formula within each of the affected fiscal years. (b) Appeals are voluntary and must cover an entire portfolio, not single projects. However, the Assistant Secretary for Public and Indian Housing (or designee) has the discretion to accept appeals of less than an entire portfolio for PHAs with greater than 5,000 public housing units. § 990.245 Types of appeals. (a) Streamlined appeal. (b) Appeal of formula income for economic hardship. (c) Appeal for specific local conditions. (d) Appeal for changing market conditions. (e) Appeal to substitute actual project cost data. § 990.250 Requirements for certain appeals. (a) Appeals under § 990.245 (a) and (c) must be submitted once annually. Appeals under § 990.245 (a) and (c) must be submitted for new projects entering a PHA's inventory within one year of the applicable Date of Full Availability (DOFA). (b) Appeals under § 990.245 (c) and (e) are subject to the following requirements: (1) The PHA is required to acquire an independent cost assessment of its projects; (2) The cost of services for the independent cost assessment is to be paid by the appellant PHA; (3) The assessment is to be reviewed by a professional familiar with property management practices and costs in the region or state in which the appealing PHA is located. This professional is to be procured by HUD. The professional review and recommendation will then be forwarded to the Assistant Secretary for Public and Indian Housing (or designee) for final determination; and (4) If the appeal is granted, the PHA agrees to be bound to the independent cost assessment regardless of new funding levels. Subpart H—Asset Management § 990.255 Overview. (a) PHAs shall manage their properties according to an asset management model, consistent with the management norms in the broader multi-family management industry. PHAs shall also implement project-based management, project-based budgeting, and project-based accounting, which are essential components of asset management. The goals of asset management are to: (1) Improve the operational efficiency and effectiveness of managing public housing assets; (2) Better preserve and protect each asset; (3) Provide appropriate mechanisms for monitoring performance at the property level; and (4) Facilitate future investment and reinvestment in public housing by public and private sector entities. (b) HUD recognizes that appropriate changes in its regulatory and monitoring programs may be needed to support PHAs to undertake the goals identified in paragraph (a) of this section. § 990.260 Applicability. (a) PHAs that own and operate 250 or more dwelling rental units under title I of the 1937 Act, including units managed by a third-party entity (for example, a resident management corporation) but excluding section 8 units, are required to operate using an asset management model consistent with this subpart. (b) PHAs that own and operate fewer than 250 dwelling rental units may treat their entire portfolio as a single project. However, if a PHA selects this option, it will not receive the add-on for the asset management fee described in § 990.190(f). § 990.265 Identification of projects. For purposes of this subpart, project means a public housing building or set of buildings grouped for the purpose of management. A project may be as identified under the ACC or may be a reasonable grouping of projects or portions of a project under the ACC. HUD shall retain the right to disapprove of a PHA's designation of a project. PHAs may group up to 250 scattered-site dwelling rental units into a single project. § 990.270 Asset management. As owners, PHAs have asset management responsibilities that are above and beyond property management activities. These responsibilities include decision-making on topics such as long-term capital planning and allocation, the setting of ceiling or flat rents, review of financial information and physical stock, property management performance, long-term viability of properties, property repositioning and replacement strategies, risk management responsibilities pertaining to regulatory compliance, and those decisions otherwise consistent with the PHA's ACC responsibilities, as appropriate. § 990.275 Project-based management (PBM). PBM is the provision of property-based management services that is tailored to the unique needs of each property, given the resources available to that property. These property management services include, but are not limited to, marketing, leasing, resident services, routine and preventive maintenance, lease enforcement, protective services, and other tasks associated with the day-to-day operation of rental housing at the project level. Under PBM, these property management services are arranged, coordinated, or overseen by management personnel who have been assigned responsibility for the day-to-day operation of that property and who are charged with direct oversight of operations of that property. Property management services may be arranged or provided centrally; however, in those cases in which property management services are arranged or provided centrally, the arrangement or provision of these services must be done in the best interests of the property, considering such factors as cost and responsiveness. § 990.280 Project-based budgeting and accounting. (a) All PHAs covered by this subpart shall develop and maintain a system of budgeting and accounting for each project in a manner that allows for analysis of the actual revenues and expenses associated with each property. Project-based budgeting and accounting will be applied to all programs and revenue sources that support projects under an ACC ( e.g. (b)(1) Financial information to be budgeted and accounted for at a project level shall include all data needed to complete project-based financial statements in accordance with Accounting Principles Generally Accepted in the United States of America (GAAP), including revenues, expenses, assets, liabilities, and equity data. The PHA shall also maintain all records to support those financial transactions. At the time of conversion to project-based accounting, a PHA shall apportion its assets, liabilities, and equity to its respective projects and HUD-accepted central office cost centers. (2) Provided that the PHA complies with GAAP and other associated laws and regulations pertaining to financial management ( e.g., (3) Project-specific operating income shall include, but is not limited to, such items as project-specific operating subsidy, dwelling and non-dwelling rental income, excess utilities income, and other PHA or HUD-identified income that is project-specific for management purposes. (4) Project-specific operating expenses shall include, but are not limited to, direct administrative costs, utilities costs, maintenance costs, tenant services, protective services, general expenses, non-routine or capital expenses, and other PHA or HUD-identified costs which are project-specific for management purposes. Project-specific operating costs also shall include a property management fee charged to each project that is used to fund operations of the central office. Amounts that can be charged to each project for the property management fee must be reasonable. If the PHA contracts with a private management company to manage a project, the PHA may use the difference between the property management fee paid to the private management company and the fee that is reasonable to fund operations of the central office and other eligible purposes. (5) If the project has excess cash flow available after meeting all reasonable operating needs of the property, the PHA may use this excess cash flow for the following purposes: (i) Fungibility between projects as provided for in § 990.205. (ii) Charging each project a reasonable asset management fee that may also be used to fund operations of the central office. However, this asset management fee may be charged only if the PHA performs all asset management activities described in this subpart (including project-based management, budgeting, and accounting). Asset management fees are considered a direct expense. (iii) Other eligible purposes. (c) In addition to project-specific records, PHAs may establish central office cost centers to account for non-project specific costs ( e.g. (d) In the case where a PHA chooses to centralize functions that directly support a project ( e.g. [70 FR 54997, Sept. 19, 2005, as amended at 80 FR 75943, Dec. 7, 2015] § 990.285 Records and reports. (a) Each PHA shall maintain project-based budgets and fiscal year-end financial statements prepared in accordance with GAAP and shall make these budgets and financial statements available for review upon request by interested members of the public. (b) Each PHA shall distribute the project-based budgets and year-end financial statements to the Chairman and to each member of the PHA Board of Commissioners, and to such other state and local public officials as HUD may specify. (c) Some or all of the project-based budgets and financial statements and information shall be required to be submitted to HUD in a manner and time prescribed by HUD. § 990.290 Compliance with asset management requirements. (a) A PHA is considered in compliance with asset management requirements if it can demonstrate substantially, as described in paragraph (b) of this section, that it is managing according to this subpart. (b) Demonstration of compliance with asset management will be based on an independent assessment. (1) The assessment is to be conducted by a professional familiar with property management practices and costs in the region or state in which the PHA is located. This professional is to be procured by HUD. (2) The professional review and recommendation will then be forwarded to the Assistant Secretary for Public and Indian Housing (or designee) for final determination of compliance to asset management. (c) Upon HUD's determination of successful compliance with asset management, PHAs will then be funded based on this information pursuant to § 990.165(i). (d) PHAs must be in compliance with the project-based accounting and budgeting requirements in this subpart by FY 2007. PHAs must be in compliance with the remainder of the components of asset management by FY 2011. Subpart I—Operating Subsidy for Properties Managed by Resident Management Corporations (RMCs) § 990.295 Resident Management Corporation operating subsidy. (a) General. (b) Operating subsidy. (c) Change factors. (d) Exclusion of increased income. (e) Exclusion of technical assistance. (f) The following conditions may not affect the amounts to be provided under this part to a project managed by an RMC: (1) Income reduction. (2) Change in total income. (g) Other project income. § 990.300 Preparation of operating budget. (a) The RMC and the PHA must submit operating budgets and calculations of operating subsidy to HUD for approval in accordance with § 990.200. The budget will reflect all project expenditures and will identify the expenditures related to the responsibilities of the RMC and the expenditures that are related to the functions that the PHA will continue to perform. (b) For each project or part of a project that is operating in accordance with the ACC amendment relating to this subpart and in accordance with a contract vesting maintenance responsibilities in the RMC, the PHA will transfer into a sub-account of the operating reserve of the PHA an operating reserve for the RMC project. When all maintenance responsibilities for a resident-managed project are the responsibility of the RMC, the amount of the reserve made available to a project under this subpart will be the per-unit cost amount available to the PHA operating reserve, excluding all inventories, prepaids, and receivables at the end of the PHA fiscal year preceding implementation, multiplied by the number of units in the project operated. When some, but not all, maintenance responsibilities are vested in the RMC, the management contract between the PHA and RMC may provide for an appropriately reduced portion of the operating reserve to be transferred into the RMC's sub-account. (c) The RMC's use of the operating reserve is subject to all administrative procedures applicable to the conventionally owned public housing program. Any expenditure of funds from the reserve must be for eligible expenditures that are incorporated into an operating budget subject to approval by HUD. (d) Investment of funds held in the reserve will be in accordance with HUD regulations and guidance. § 990.305 Retention of excess revenues. (a) Any income generated by an RMC that exceeds the income estimated for the income categories specified in the RMC's management contract must be excluded in subsequent years in calculating: (1) The operating subsidy provided to a PHA under this part; and (2) The funds the PHA provides to the RMC. (b) The RMC's management contract must specify the amount of income that is expected to be derived from the project (from sources such as rents and charges) and the amount of income to be provided to the project from the other sources of income of the PHA (such as operating subsidy under this part, interest income, administrative fees, and rents). These income estimates must be calculated consistent with HUD's administrative instructions. Income estimates may provide for adjustment of anticipated project income between the RMC and the PHA, based upon the management and other project-associated responsibilities (if any) that are to be retained by the PHA under the management contract. (c) Any revenues retained by an RMC under this section may be used only for purposes of improving the maintenance and operation of the project, establishing business enterprises that employ residents of public housing, or acquiring additional dwelling units for lower income families. Units acquired by the RMC will not be eligible for payment of operating subsidy. Subpart J—Financial Management Systems, Monitoring, and Reporting § 990.310 Purpose—General policy on financial management, monitoring and reporting. All PHA financial management systems, reporting, and monitoring of program performance and financial reporting shall be in compliance with the requirements of 2 CFR part 200. Certain HUD requirements provide exceptions for additional specialized procedures that are determined by HUD to be necessary for the proper management of the program in accordance with the requirements of the 1937 Act and the ACC between each PHA and HUD. [70 FR 54997, Sept. 19, 2005, as amended at 80 FR 75943, Dec. 7, 2015] § 990.315 Submission and approval of operating budgets. (a) Required documentation: (1) Prior to the beginning of its fiscal year, a PHA shall prepare an operating budget in a manner prescribed by HUD. The PHA's Board of Commissioners shall review and approve the budget by resolution. Each fiscal year, the PHA shall submit to HUD, in a time and manner prescribed by HUD, the approved Board resolution. (2) HUD may direct the PHA to submit its complete operating budget with detailed supporting information and the Board resolution if the PHA has breached the ACC contract, or for other reasons, which, in HUD's determination, threaten the PHA's future serviceability, efficiency, economy, or stability. When the PHA no longer is operating in a manner that threatens the future serviceability, efficiency, economy, or stability of the housing it operates, HUD will notify the PHA that it no longer is required to submit a complete operating budget with detailed supporting information to HUD for review and approval. (b) If HUD finds that an operating budget is incomplete, inaccurate, includes illegal or ineligible expenditures, contains mathematical errors or errors in the application of accounting procedures, or is otherwise unacceptable, HUD may, at any time, require the PHA to submit additional or revised information regarding the budget or revised budget. § 990.320 Audits. All PHAs that receive financial assistance under this part shall submit an acceptable audit and comply with the audit requirements in 2 CFR part 200, subpart F. [70 FR 54997, Sept. 19, 2005, as amended at 80 FR 75943, Dec. 7, 2015] § 990.325 Record retention requirements. The PHA shall retain all documents related to all financial management and activities funded under the Operating Fund for a period of five fiscal years after the fiscal year in which the funds were received.