This rule revises the regulations that govern the formula allocation of modernization funding under the Comprehensive Grant Program (CGP) to add to the formula a replacement housing factor that would maintain, for five years, a portion of funding that otherwise would be lost by a CGP housing agency when the number of its public housing units are reduced as a result of demolition, disposition, or conversion. The preserved funding must be used for accelerated renovation and reoccupancy of vacant, viable units, or for construction or acquisition of replacement housing units--to the extent that the funds are authorized for such use. The rule takes effect in Federal Fiscal Year (FY) 1998, based on demolition, disposition and conversion of units between October 1, 1996 and September 30, 1997. This rule is needed to encourage public housing agencies (PHAs) to demolish, dispose of, or convert units that are not providing decent, safe, and sanitary housing and either develop replacement units or accelerate renovation of the existing units.