VIA HAND DELIVERY

U.S. Department of Housing and
Urban Development
Office of General Counsel, Regulations Division
Room 10276
451 Seventh Street, SW
Washington, DC 20410-0500

RE:       Docket No. FR-4874-N-02, Operating Fund Program; Notice of Intent to Establish a Negotiated Rulemaking Committee and Notice of First Meeting        

Dear Sir/Madam:

The Council of Large Public Housing Authorities (CLPHA) is pleased to submit the following comments in response to FR-4874-N-02, Operating Fund Program; Notice of Intent to Establish a Negotiated Rulemaking Committee and Notice of First Meeting  published in the Federal Register on January 28, 2004 (the Notice).  CLPHA is an association representing approximately 60 of the nation's largest public housing authorities (PHAs) that collectively own and manage over 40% of the nation's public housing stock and administer approximately one third of the tenant-based Section 8 program.

HUD Must Reconvene the Original Rulemaking Committee

CLPHA is pleased that the Department is preparing for negotiated rulemaking to finalize the Operating Fund allocation rule.  However, we believe that HUD's attempt to terminate the current committee and establish a new one violates the Negotiated Rulemaking Act, and is contrary to the expressed intent of Congress.

HUD convened a negotiated rulemaking committee in 1999 for the purpose of developing an allocation formula for the Public Housing Operating Fund in accordance with Section 9 of the U.S. Housing Act of 1937, as amended by the Quality Housing and Work Responsibility Act of 1998 (QHWRA). This legislation included a provision enacting U.S. Housing Act subsection 9(f), which directed that the formulas for both the Public Housing Operating Fund and Capital Fund be developed "according to procedures for issuance of regulations under the negotiated rulemaking procedure under subchapter II of chapter 5 of title 5, United States Code," (the Negotiated Rulemaking Act).  The Negotiated Rulemaking Act requires that procedures for establishing the committee comply with the Federal Advisory Committee Act.   

Section 587 of the Act states that:

A negotiated rulemaking committee shall terminate upon promulgation of the final rule under consideration, unless the committee's charter contains an earlier termination date or the agency, after consulting with the committee or the committee itself specifies an earlier termination date.

It is clear that the legal requirements for terminating a negotiated rulemaking have not been met in this case. There is no termination date in the original committee charter that was agreed to by the committee.   The original committee also produced an interim rule - not a final rule. It was unable to complete its work because the Department could not provide cost data adequate to inform the development of a final Operating Fund formula.  The committee recommended that a cost study be performed to develop the necessary information.  In response, Congress directed HUD to contract with the Harvard University Graduate School of Design to conduct a study of the cost of operating public housing and provide the results to Congress and the negotiated rulemaking committee, which would be used by the committee to develop the final rule.

The March 2000 committee report, signed by all the committee members, clearly indicates that the participants (including the Department's representative) adjourned the rulemaking with the clear understanding that they would reconvene to complete work on the final formula when the cost study was complete. Eventually, the commitment to reconvene was explicitly reflected in the preamble of the interim rule recommended by the committee and enacted by HUD.

Given that the original committee which has the responsibility for developing the allocation formula (1) has not developed a final rule, and (2) does not contain a termination date in its charter agreed to by the committee, the committee has not been lawfully terminated.  As a result, HUD's proposal to establish a new committee as described in the Notice is not in compliance with the Negotiated Rulemaking Act, thus original committee must be reconvened to complete its work. 

In addition to the legal requirement, Congress has made clear in subsequent direction to the Department that it intended for the original committee to reconvene. As Congress noted in the conference report for the VA, HUD and Independent Agencies Appropriations Act, 2000, the negotiated rulemaking over the Operating Fund formula has "stalled, in part because of lack of adequate data about actual costs of operating public housing."  The conference report further directed HUD "to contract with the Harvard University Graduate School of Design to conduct a study of the costs incurred in operating well-run public housing and to provide the results to the negotiated rule-making committee and the appropriate congressional committees."  See H.R. Conf. Rep. No. 379, 106th Cong., 1st Sess. 91 (1999).  Again, the clear intent of this instruction was to permit the then existing negotiated rulemaking committee to consider the results of the cost study.

Congress's most recent actions related to the Operating Fund negotiated rulemaking further indicate the same intent.  Section 222 of The Omnibus Appropriations Act of 2004, P.L. 108-199, directs HUD to complete the negotiated rulemaking for the operating fund no later than July 1, 2004. Congress included a short time table in recognition of the fact that the original committee was already familiar with the issues.  In addition to their work on the interim rule in 1999 and 2000, many of the committee members also served on the advisory committee for the cost study for the last 3 years, thus are intimately familiar with this document.  Aware of the complexity of the issues raised in the cost study, Congress would not have set forth such a compressed deadline for completing the final rule had it anticipated that more than half of the members of the committee would be new to the process.  It would be virtually impossible for a newly composed committee to complete its work by July 2004.                       

CLPHA, like Congress and HUD, is anxious to see the negotiated rulemaking completed and a final rule developed as soon as possible.   It is for that reason that we strongly urge the Department to comply with the Negotiated Rulemaking Act and subsequent Congressional direction by reconvening the original negotiated rulemaking panel for the allocation of the Operating Fund. 

As the original committee members have already satisfied the statutory requirements for being named, CLPHA contends that the additional information sought in the notice and required by the Negotiated Rulemaking Act to nominate a committee member need not be provided.  (ie. evidence that the party is authorized to represent the interest and a written commitment that the nominee will participate in good faith in the development of the rule).

The Committee Proposed By HUD Is Not Balanced As Required By Law

Even if HUD were not required to reconvene the original committee, the committee proposed in the Notice is not sufficiently balanced, as the law requires.  Under the Federal Advisory Committee Act, 5 U.S.C. 5(b)(2), the membership of the committee must be "fairly balanced in terms of the points of view represented and the functions to be performed by the advisory committee." 

a.         Insufficient Number of Housing Authority and Resident Representatives

The final operating fund allocation rule will have primary impact on PHAs and the residents they serve.  For PHAs, the results of the allocation formula could result in significant changes to the quality of the housing stock they own and operate, as well as resident services.  For example, operating subsidy changes will impact virtually every aspect of public housing operations, including maintenance of buildings, employment, job training programs, asset management functions, and the ability to leverage private funds.  Of the 25 committee members proposed by HUD, only about two-thirds represent PHAs of various sizes.  Given the importance of their input and the function they serve on the committee, more PHA representation should be included.

Only one resident representative is included on the committee proposed by HUD.  Residents are the direct and ultimate beneficiaries of the public housing program, thus their input in how to allocate operating funds appropriated by Congress is critical. Consequently, more resident representatives should be included in the negotiated rulemaking process.       

Excessive Representation of Other Parties Not Directly Affected By the Rule 
         

The Notice proposes a committee where approximately one-third of the members are "other parties" - not PHA or resident representatives.  Some of these members, for example, developers and banks, are affected by the rule secondarily, only after funds are allocated to agencies as they seek to use their allocation to develop mixed finance housing or leverage their funds.  As such we recommend that they be replaced with representatives that have a real stake in the outcome of the negotiations.  

Two of the "other parties" named by HUD are not appropriate to serve as members of the negotiated rulemaking committee.  Greg Byrne is the project director and one of the principal authors of the cost study.  Mr. Byrne has considerable experience in public housing, both as an Executive Director and a consultant. He also has a clearly stated position that the study findings should be implemented as he has proposed.  HUD's Notice states clearly that the negotiated rulemaking committee "provide advice and recommendations on developing a rule for effectuating changes to the Public Housing Operating Fund Program in response to the Harvard Cost Study."  We think it inappropriate that the principal author of the study be a member of the committee negotiating how the cost study will be used to implement an allocation system. Instead, CLPHA believes that Mr. Byrne should participate in the negotiated rulemaking as a technical consultant and resource to the committee.

We would anticipate that Mr. Byrne supervise any research and data manipulation that might be requested by the committee as they go about their task of developing an allocation formula. In this role we would expect that Mr. Byrne to provide additional or supporting materials requested by the members of the committee.  (Most recently, for example, CLPHA has requested that GSD researchers provide the prediction intervals for each property in the public housing inventory, intervals that are critical to assessing the accuracy of the study's predictions of each property.)  This role is entirely consistent with precedent of the Public Housing Capital Fund negotiated rulemaking. As authors of the study designed to inform the capital fund rulemaking, Abt Associates attended meetings, answered questions regarding the data they provided, and re-ran and analyzed additional data, but did not negotiate the development of the rule.

The naming of Howard Husock as a member of the committee is particularly troubling. In several recent articles and testimony before Congress, Mr. Husock has expressed his strongly held view that federally-funded affordable housing programs are unnecessary and should not be supported by the federal government.  In numerous articles, Mr. Husock has stated that the public housing program as well as the Department of Housing and Urban Development should be abolished and that public housing developments "spawn neighborhood social problems."  In light of the fact that he is opposed to the basic premise of the public housing program, he brings no expertise or point of view that would inform a negotiated rulemaking designed to allocate federal housing funds.  As a result, he should not be included in the process.           .

HUD Should Choose a Qualified Facilitator With Background in Housing Issues

The Negotiated Rulemaking Act requires that the committee approve by consensus the Department's nominee of a facilitator. 5 U.S.C. 586( c).  CLPHA maintains that it is essential that HUD contract with an experienced and knowledgeable facilitator who can help the committee reach consensus. Given the short timeline and the complexity of the issues to be decided, it is imperative that HUD chose a facilitator who is familiar with public housing issues.  We strongly recommend that HUD contract with David Fairman and his colleagues at the Consensus Building Institute who provided effective and intelligent facilitation of the complicated Section 8 negotiated rulemaking sessions a few years back.

The Scope of the Negotiated Rulemaking Should Not Be Limited to the Ideas Included in the Cost Study

While the Department has stated in this Notice that the committee will provide advice and recommendations on developing a rule for the Operating Fund Program in response to the Harvard Cost Study, we would like to the opportunity to make an important observation.  The Public Housing Operating Cost Study is not the starting the point, or the ending point in determining an allocation formula for the Operating Fund.  Rather, the PHOCS provides new information on housing costs that may be used to inform negotiations on a final cost allocation formula, building upon two years of discussion and deliberation and bringing this process to conclusion.  The cost study itself is not a formula for distribution of operating subsidies. Instead the research was to provide data to the committee in order to inform future discussions that would culminate in a final funding formula to replace the interim formula recommended by the Committee in 2001.

It is also important to note that many remaining issues set by the original rulemaking committee and intended to serve as the framework of any new funding formula are not addressed by the cost study, including but not limited to: regulatory flexibility provisions; estimating subsidy needs, transition and phase-in of new subsidy levels; treatment of rental and other income; proration system; appeals process; and link to capital funding. 

In addition, there are aspects of the cost study that bear serious and spirited discussion and areas where CLPHA, as well as other proposed committee members do not agree with the recommendations of the cost study.  These include treatment of some model variables as well the study's inability to cost out certain regulatory and operating costs associated with public housing.  Suffice it to say, the study has provided new information that can be used to inform a final rule, but it is not entirely complete, nor without flaws.

HUD's Capacity to Provide Data and Information To Inform the Development of the Final Rule

First, we think it is imperative that any analysis and model predictions presented to the committee be carefully scrutinized for accuracy and revised accordingly, before any discussions take place.  Our members have indicated that in some cases the cost study has used inaccurate unit counts or AELs that could have a significant impact on the model predictions for individual PHAs and the ability to evaluate the funding implications. Second, we urge HUD to update the information in the cost study to reflect FY03 data rather than the FY00 estimates used as the basis for the study.  Finally, additional statistical estimates will be needed to inform the committee's deliberations and we feel strongly that arrangements should be made to provide for additional data and statistical manipulations of the existing cost study data as well as other PFS data.  As we stated previously, this would be the appropriate role for Mr. Byrne.

Thank you for considering our comments on this very important rulemaking that lies ahead.  We look forward to working with the Department and our colleagues to fashion an allocation system that will serve the residents of public housing for decades to come.

Sincerely,

Sunia Zaterman
Executive Director