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    How does the capital fund final rule affect PHAs? Part III

    Late last year, HUD published the much-anticipated capital fund final rule in the Federal Register. Effective November 25, 2013, the new regulation combined and streamlined former capital fund program (CFP) requirements for rehabilitation and development into one comprehensive regulation.

    It goes without saying that while much has remained the same, some significant changes have occurred, and understanding these changes is crucial for efficient and uniform program implementation and management. We hope that this blog series will provide you not only with an overview of the final rule, but also the answers to some questions you many have, and that it will ultimately help you navigate these changes.

    What can capital fund program (CFP) funds be used for?

    One of the major changes brought about by the final rule deals with directing funds towards modernization and maintaining the PHA's inventory. That is, several costs under the final rule have been revised. Eligible activities include modernization, development, or financing activities that are:

    • Specified in an approved CFP five-year action plan
    • Approved by HUD for emergency and natural disaster assistance

    It's worthwhile to note that with the greater emphasis on modernization, funds used for the purposes of management improvements decrease under the final rule. In fact, the rule reduces management improvements from 20 percent to 10 percent, although it does so by phasing down the cost limits over a five-year period. Eligible activities and costs under CFP management improvements include:

    • Training PHA personnel in operations and procedures
    • Improvement of resident and project security (e.g., security equipment)
    • Economic self-sufficiency for residents (e.g., resident job training, business development activities)
    • Resident management costs not covered by the operating fund (e.g., costs that promote more effective resident participation in capital fund activities, cost of formation of resident management corporations (RMCs), etc.

    The capital fund final rule makes revisions regarding other costs as well, foremost among which is the implementation of demolition or disposition transitional funding (DDTF). DDTF funds replace replacement housing factor (RHF) grants and can be used more flexibly, allowing PHAs to use the funding for any eligible capital fund activities, including modernization. It also eliminates separate RHF grants with separate use and reporting requirements, and reduces eligibility from ten to five years, which generally increases funding levels for PHAs. The transition period is smooth, and PHAs will be allowed to continue to receive their RHF incremental funding for units removed prior to the effective date of the rule, November 25, 2013.

    In addition to the other cost revisions, the rule also allows PHAs to request a total development cost (TDC) exception for integrated utility management, capital planning, and other capital and management activities that promote energy conservation and efficiency. In Part IV, we'll talk about how the final rule affects mixed-finance and energy-efficiency requirements.

    Kaylene Holvenstot has been a technical writer at NMA since 2008. She contributes to and edits NMA Master Books, seminars, and model policies while researching and analyzing the latest HUD guidance to ensure that all course material is always up to date and fully accurate.

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