Allowable uses.
Allowable uses. Allowable uses of reserve funds include the following:
(1) Major capital improvements and replacements.
(2) Housing project operating expenses provided the requirement of paragraph (g)(4) of this section has been met, including:
(1) Major capital improvements and replacements.
(2) Housing project operating expenses provided the requirement of paragraph (g)(4) of this section has been met, including:
(i) Payments due on the loan, or
(ii) Payment of a return on investment at the end of the borrower's fiscal year if such payment comes from surplus operating funds in the reserve account.
(3) With Agency approval, borrowers operating on a for-profit or a limited profit basis may make an annual withdrawal from the reserve account, equal to no more than 25 percent of the interest earned on a reserve account during the prior year.
(4) For other purposes, which in the judgment of the Agency will promote the loan purposes, strengthen the security or facilitate, improve, or maintain the housing and the orderly collection of the loan without jeopardizing the loan or impairing the adequacy of the security.
(i) Records. Borrowers must maintain records documenting all expenses that were paid by withdrawals from the reserve account.
(j) Changes to reserve requirements.
(1) As projects age, the required reserve account level may be adjusted to meet anticipated “life-cycle” needs, including equipment and facility replacement costs, by amending the loan agreement/resolution.
(2) The Agency will allow for an annual adjustment to increase reserve account funding levels by Operating Cost Adjustment Factor (OCAF) as published by HUD annually. This will require a modification to the Loan agreement and the increase documented with budget submission as outlined in § 3560.303.
(3) The Agency may approve a change in the reserve account funding level based on the findings of an approved capital needs assessment. The approval to increase reserve account funding levels will take into consideration the housing project's approved budget and the housing project's ability to support increased reserve account deposits without causing basic rents to exceed conventional rents for comparable units in the area.
(k) Excess reserves. Amounts in the reserve account which exceed the total required by the loan or grant agreement must be used, at the direction of the Agency, for any of the following:
(1) Pay for expenses specified in a long-term capital plan;
(2) Make payments and reamortize the Agency loan;
(3) Reduce rents by a transfer to the general operating account;
(4) Fund preservation incentives authorized in subpart N of this part; or
(5) Cover other expenditures determined to be related to the purpose of the housing project and in the best interest of the Federal Government.
(l) Procurement. The requirements of § 3560.102(g), (j), and (k), and all other Agency requirements relating to procurement, bidding, identity-of-interest, cost-reasonableness, and construction management apply to any work or services paid out of reserve funds. Structural repairs and other significant work on major building systems such as heating or air conditioning must be done in accordance with the requirements of 7 CFR part 1924, subpart A.