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September 3, 1982

BINGHAMTON HOUSING AUTHORITY; JOHN D. LAKE, Individually and in his capacity as Executive Director of the Binghamton Housing Authority; SAMUEL R. PIERCE, Secretary of the U.S. Department of Housing and Urban Development, and the UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, an agency of the United States government, Defendants

The opinion of the court was delivered by: MCCURN



 Plaintiffs, three public housing tenants in Binghamton, New York, commenced this action against their landlord, the Binghamton Housing Authority ("BHA"), the Executive Director of BHA, the Secretary of the United States Department of Housing and Urban Development and the Department itself ("HUD"). Plaintiffs seek declaratory relief and an injunction to restrain the defendants from expending any money toward, or commencing work on the installation of individual utility meters at the Saratoga Apartments, and to further restrain the defendants from converting any of the existing gas heating systems to electric heat systems. The challenged utility conversions are part of a comprehensive rehabilitation of the Saratoga Apartments which is being undertaken in conjunction with its conversion from a State-financed public housing project to a federally-financed project under the auspices of the United States Housing Act of 1937, as amended, 42 U.S.C. § 1437 et seq. ("the Act"). The entire rehabilitation program is being financed with a nine million dollar loan of Development funds from HUD to BHA pursuant to 24 C.F.R. § 841.101 et seq. ("the Development regulations").

 Plaintiffs' federal law challenges to the rehabilitation program may be summarized as follows: (1) defendants' failure to accord Saratoga tenants the same "due process" rights to participate in the planning of rehabilitation work that are extended to tenants whose apartments are rehabilitated with so-called Modernization Funds under the Comprehensive Improvement Program, 42 U.S.C. § 1437L(d), violates plaintiffs' rights under the Act and deprives them of due process and equal protection of the laws; (2) defendants' failure to complete a cost/benefit analysis and an energy audit before authorizing the meter and utility conversions at Saratoga Apartments violates applicable HUD regulations, 24 C.F.R. § 865, and (3) the cost/benefit regulations just cited are themselves invalid because they contain energy savings assumptions that lack a rational basis in the administrative record. Plaintiffs also allege that the foregoing actions and omissions state claims for relief under 42 U.S.C. §§ 1983, 1988, 28 U.S.C. § 2412, 5 U.S.C. § 701, and under New York law. Jurisdiction is asserted under 28 U.S.C. §§ 1331 and 1343 *fn1" with respect to the federal claims, and under the doctrines of pendent and ancillary jurisdiction with respect to the state law claims.

 On January 29, 1982, this Court denied plaintiffs' application for a temporary restraining order. An evidentiary hearing on plaintiffs' motion for a preliminary injunction was held on February 3 and 4, 1982. Upon careful consideration of the testimony and evidence presented during the hearing, together with the pleadings, affidavits, exhibits and briefs on file in this matter, the Court issued an oral decision which concluded that plaintiffs had failed to satisfy the requirements for securing a preliminary injunction. The following shall constitute this Court's findings of fact and conclusions of law in accordance with Rule 52 of the Federal Rules of Civil Procedure. *fn2"


 Defendant Binghamton Housing Authority (BHA) is a public housing authority established by the New York State Legislature in 1948 pursuant to the New York Public Housing Law. BHA owns and operates three public housing projects in the City of Binghamton, New York. *fn3" This case concerns one of those projects, Saratoga Apartments. Built in the early 1950's, the Saratoga Apartments project contains 258 apartment units which are divided between what were formerly known as Saratoga Terrace Apartments and Saratoga Heights Apartments.

 Since their construction, the Saratoga Apartments have been subsidized by the State of New York. According to defendant Lake, who became Executive Director of the BHA in 1978, the State operating subsidy during his tenure was inadequate to cover all operating expenses or to undertake needed renovation of these thirty-year old buildings. (Motion for TRO, Appendix C). As a result of these financial constraints, Lake received complaints from tenants concerning faulty equipment, inadequate space for storage, parking and play areas, as well as complaints that some apartments received excessive heat while others did not receive enough, and that there were cold air leaks around doors and windows during the winter months. Id. It was against this background that the BHA considered applying to HUD for "federalization" of the Saratoga Apartments in 1980. See Affidavit of John Lake, February 2, 1982; Ex. D. Before turning to the details of the proposed development of the Saratoga Apartments as a federally-assisted project, it may be helpful to identify the statutes and regulations on which the parties rely.

 A. Statutory Overview

 The United States Housing Act of 1937, as amended by the Housing and Community Development Act of 1974, 42 U.S.C. § 1437 et seq., established a comprehensive system of federal assistance to aid State and local governments in dealing with a vast array of urban problems. Under Title I of the Act, localities may apply for community development grants which, while not available for housing construction purposes, are designed in part to foster "the undertaking of housing and community development activities in a coordinated and mutually supportive manner." 42 U.S.C. § 5301(d)(4). In order to qualify for Title I funds, a locality's grant application must include a "housing assistance plan" (HAP) that "accurately surveys the condition of the housing stock in the community and assesses the housing assistance needs of lower-income persons . . . residing in or expected to reside in the community . . .," Id., § 5304(a)(4)(A), and a "realistic annual goal" specified for such housing assistance. Id., § 5304(a)(4)(B).

 Title II, on the other hand, provides federal funds necessary to meet the locality's need for lower-income rental housing. As Judge Oakes explained in his decision for the panel in City of Hartford v. Towns of Glastonbury, 561 F.2d 1032, 1035-36 (2d Cir. 1976), rev. on rehearing en banc, 561 F.2d 1048 (1977):

The Housing needs detailed in the HAP can then be met with funds available under Title II of the Act. Thus . . . the HAP serves as the vehicle tying together the community development and housing assistance portions of the Act, in furtherance of the Act's overall goal of coordination of federal urban efforts, see id, § 5301(d).

 Title II of the Act, then, is a federal-state, cooperative grant program, which is designed,

to promote the general welfare of the Nation by employing its funds and credit, as provided in this Act, to assist the several States and their political subdivisions to remedy the unsafe and unsanitary housing conditions and the acute shortage of decent, safe, and sanitary dwellings for families of lower income and, consistent with the objectives of this Act, to vest in local public housing agencies the maximum amount of responsibility in the administration of their housing programs.

 42 U.S.C. § 1437. Under Title II of the Act, the Secretary is authorized to make loans to local public housing agencies to help finance the acquisition, development or operation of lower-income rental housing. Id. § 1437(b). The Secretary is also authorized to enter into "annual contributions" contracts with public housing agencies to "assist in achieving and maintaining the lower-income character of their projects." Id. §§ 1437(c) and 1437(g).

 1. The Development Phase Regulations.

 Pursuant to the statutory loan authority contained in § 1437(b), the Secretary has promulgated regulations governing the initial or development phase of a housing project for which federal financing is being sought by the local public housing agency. See generally, 24 C.F.R. § 841.101 et seq. (Development regulations). Under these regulations, there are two basic methods by which "federalization" of a housing project may be achieved: (1) by building the housing project from the ground up (i.e., "new construction" using either the "turnkey" or "conventional" method, see id. §§ 841.201, 841.301) or, (2) by acquiring existing buildings which may or may not require substantial rehabilitation (i.e., "acquisition" method, see id. § 841.401). Properties which are eligible for federalization under the acquisition method include properties such as the Saratoga Apartments, which the public housing agency already owns, id. § 841.402(a)(3). In deciding whether to develop a particular property by the acquisition method, the public housing agency is directed to consider: (1) site and construction standards (including the "need for maximizing the conservation of energy for heating, lighting and other purposes," id. § 841.107(c)(v); (2) "The design and quality of original construction as well as the degree, complexity and cost of rehabilitation necessary to place the property in acceptable physical condition," id. § 841.402(b)(1); and (3) "The feasibility of relocating site occupants during and after rehabilitation and availability of funds for this purpose, if applicable," id. § 841.402(b)(2). Finally, the regulations provide that necessary rehabilitation work may be accomplished using either the conventional or the turnkey method. Id. § 841.405.

 As will be discussed below, the BHA developed the Saratoga Apartments with Development funds, using the acquisition method, and proposed to perform the necessary rehabilitation work through the conventional method (i.e., by contracting with independent architects and contractors to plan and execute the renovations). However, because plaintiffs' challenges to the utility and meter conversions rest primarily on defendants' failure to comply with requirements continued in two separate regulatory programs, we turn briefly to those provisions.

 2. The Modernization Regulations.

 In addition to providing loans for the rehabilitation of existing buildings which are in the process of being "federalized" under the acquisition method, Congress also recognized the need to provide financial assistance to those public housing projects that began receiving federal contributions in earlier years but which are now in need of modernization. Under what is now known as the "Comprehensive Improvement Assistance Program," 42 U.S.C. § 1437L, Congress specified that modernization funds would be made available only to lower-income, rental housing projects which are owned by a public housing agency and which are already receiving federal assistance in the form of an annual contributions contract with HUD pursuant to §§ 1437(c) or 1437(g). See id. § 1437L(c). *fn4" The regulations governing the Modernization program are contained in 24 C.F.R. § 868.1 et seq. The regulations specify the types of major repairs and capital improvements which are deemed priority work items for a modernization proposal, including work items relating to energy conservation. Id. § 868.3. Where modernization funds are sought on behalf of a lower-income rental project, the public housing agency is required to provide tenants "a reasonable opportunity to present their views on the proposed program and alternatives to it, and give full and serious consideration to resident recommendations." Id. § 868.5. *fn5" The public housing agency must then provide HUD with an evaluation of the resident recommendations and the agency's reasons for accepting or rejecting them. Id. Finally, following HUD approval of the modernization program, the agency must inform its tenants of the approved work items. Id.

 3. The Utility Submetering and Energy Audit Regulations

 In 1976, HUD promulgated individual metering regulations, 24 C.F.R. § 865.401 et seq., applicable to PHA-owned housing projects which are receiving federal contributions under the Act. The regulations were designed to reduce energy consumption and operating costs by requiring that, "to the extent practicable, all Utilities consumed directly by tenants shall be individually metered." Id. § 865.401. This objective was to be accomplished either by direct billing for utility usage to the tenant by the utility supplier with the PHA providing the tenant with a reasonable utility allowance ("retail Service"), or by using a mastermeter system in conjunction with individual apartment checkmeters. *fn6" Under the checkmetering option, the PHA would continue to purchase bulk utilities from the supplier, but, by use of checkmeters, would surcharge tenants for utility consumption in excess of a reasonable requirement. Id. The regulation directed public housing agencies to undertake one or the other of these utility meter conversions unless (1) the conversion would be physically impracticable, (2) the conversion would not be cost effective based upon the result of a cost/benefit analysis, or (3) checkmetering is illegal under applicable state or local law or contrary to the policies of a particular utility supplier or public service commission (in which case, retail service is the only option that should be considered). Id. § 865.403.

 In determining the cost effectiveness of individual metering, the public housing agency is directed to undertake a standard cost/benefit analysis. See id. § 865.404. Plaintiffs, however, raise a secondary challenge to HUD's inclusion of percentage factors of assumed energy savings said to be associated with individual metering. These percentage factors, which range from fifteen to thirty-five percent for varying energy uses (e.g., lighting, space heating, hot water and cooking), are the subject of a pending lawsuit entitled, Mass. Union of Public Housing Tenants v. Harris, Civ. No. 78-1895 (D.D.C.) (on remand from the Court of Appeals with directions to remand to HUD for a reasoned explanation of the assumption that individual metering will result in a 25-35% reduction in fuel used for space heating).

 The regulations also direct the public housing agency to consult with tenants concerning proposed meter conversions, "explaining the national policy objectives of energy conservation, the changes in charges and rent structure which will result, and the goals of achieving an equitable structure which will be advantageous to tenants who conserve energy." Id. § 865.407(c). Before implementing any new or different utility charges as a result of meter conversions, the local agency must provide both a six month transition period in which tenants are advised of, but not charged for utility consumption in excess of a reasonable allowance, and a thirty day written notice to tenants "setting forth the proposed changes in the lease and providing the tenants an opportunity to present written comments which . . . shall be taken into consideration by the PHA prior to the formal adoption of any new lease by the PHA." 24 C.F.R. § 866.3.

 Finally, in May 1980, HUD added a new subpart C to § 865 of the regulations. 45 F.R. 30346 (May 7, 1980). This new subpart requires all public housing agencies which receive federal contributions to conduct an energy audit by May 1983 and, based on the results of the audit, to undertake certain cost-effective energy conservation measures to the extent that funding is available. In adopting these new energy conservation regulations, HUD retained the individual metering regulations discussed above, but provided that this and other specified energy conservation measures, "be combined into one list to be accomplished generally in order of payback period." 45 F.R. 30346 (May 7, 1980). *fn7"

 B. The Redevelopment of Saratoga Apartments.

 On October 14, 1980, the BHA sent a notice to the Saratoga tenants informing them of a meeting scheduled for the following week concerning the proposed federalization of the project. Lake Affidavit, supra, Ex. A. The notice specifically invited the tenants "to say what improvements you would like to see made at the Saratoga housing complex," and specified that the issue of individual metering of utilities would be discussed. Id. It further appears that the engineer in charge of the rehabilitation, Donald Adams, as well as the architect, M. Gamble, attended the meeting at which these issues were discussed with the tenants. Following this meeting, the BHA submitted its final application to HUD for the redevelopment of 258 units pursuant to 42 U.S.C. § 1437(b). In accordance with the Development regulations, the application included consideration of the physical aspects of the project, financial feasibility, the administrative capability of the BHA, site analysis, dwelling unit characteristics, project and tenant utility costs, and a certification from the City of Binghamton that the proposed development of the Saratoga Apartments as a federal project conformed to and would advance the objectives of the City's Housing Assistance Plan. See Ex. D (attached to Lake Affidavit). With respect to the need for tenant relocation during the rehabilitation, the application stated that off-site relocation was not anticipated because vacancies caused by attrition would provide sufficient empty units to permit construction to proceed with only temporary, on-site relocation of existing tenants. Id.

 In addition to the October 20, 1980 meeting mentioned above, there were other meetings between BHA and Saratoga tenants during the Fall of 1980 in which proposed federalization of the project was discussed. "Federalization" of the Saratoga Apartments was also the topic of a "Management/Tenant Forum" that was held on March 30, 1981. Further information concerning the scope of the rehabilitation plans was provided to tenants through the "BHA-News," a newspaper that is circulated in all three of the public housing projects managed by the BHA.

 HUD approved the Saratoga development application on March 27, 1981. Thereafter, in September the project was let for bidding for four separate contracts, viz., general construction, heating and ventilating, plumbing and electrical. Bids were received and contracts awarded on November 20, 1981. The total HUD Development loan is $9,066,937.00; the present budget for the entire rehabilitation project is $9,054,735.00, leaving a contingency fund of only $12,202.00. The BHA issued the orders to proceed to the successful bidders on December 23, 1981. By the end of January 1982, when the motion for a temporary restraining order was before this Court, most if not all of the four contracting firms were on-site. The project is designed to proceed according to a critical path method, and tenants are being rotated into buildings in which there are vacancies from attrition, while their own buildings are undergoing rehabilitation. At the time of the hearing, there were an estimated fifty vacant apartments; for each month of delay in the project, BHA stands to lose $5,000 in lost rental income alone. It is expected that the rehabilitation will take between eighteen and twenty-four months to complete.

 While the plaintiffs' substantive complaints focus on the installation of electric checkmeters and BTU flow-meters and the conversion of three buildings at the Saratoga Heights location from a gas-forced hot air heat system to an electric baseboard system, the record demonstrates that the current rehabilitation plans include numerous additional energy conservation measures. Donald Adams, the professional engineer in charge of the rehabilitation of the Saratoga Apartments, testified that when he developed the project specifications he reviewed the feasibility of a full range of conservation measures and, apart from those challenged here, incorporated the following measures: new attic and ceiling insulation, new wall insulation, insulation of heat and hot water pipes, new caulking, glazing and weatherstripping, installation of storm doors and windows, floor insulation, thermostatic radiator valves and flow restrictors. This catalogue of energy ...

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