[Federal Register Volume 61, Number 170 (Friday, August 30, 1996)]
[Rules and Regulations]
[Pages 46344-46347]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22214]



[[Page 46343]]


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Part VIII





Department of Housing and Urban Development





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24 CFR Parts 913 and 950



Office of the Assistant Secretary for Public and Indian Housing: 
Optional Earned Income Exclusions; Interim Final Rule

  Federal Register / Vol. 61, No. 170 / Friday, August 30, 1996 / Rules 
and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 913 and 950

[Docket No. FR-4080-I-01]
RIN 2577-AB66


Office of the Assistant Secretary for Public and Indian Housing; 
Optional Earned Income Exclusions

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Interim rule.

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SUMMARY: This rule amends HUD's regulations for the definition of 
``annual income'' applicable to Public Housing Agencies and Indian 
Housing Authorities (collectively called Housing Agencies or HAs) in 
the operation of public housing and Indian housing programs. The change 
is not applicable to the Section 8 Housing Assistance Payments program. 
The rule is necessary to encourage HAs to take action to further the 
efforts of applicants and tenants to seek employment and to increase 
their earned income. The intended effect is to permit HAs to adopt an 
exclusion for earned income, tailored to their own circumstances, to 
support the efforts of working families.

DATES: Effective date: September 30, 1996.
    Comment due date: October 29, 1996.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Office of the General Counsel, Rules Docket Clerk, 
Room 10276, Department of Housing and Urban Development, 451 Seventh 
Street, SW., Washington, DC 20410-0500. Comments should refer to the 
above docket number and title. A copy of each communication submitted 
will be available for public inspection and copying during regular 
business hours (weekdays 7:30 a.m. to 5:30 p.m. Eastern time) at the 
above address. Facsimile (FAX) comments are not acceptable.

FOR FURTHER INFORMATION CONTACT: For the public housing program, 
contact Linda Campbell, Director, Marketing and Leasing Management 
Division, Office of Public and Assisted Housing Operations, Department 
of Housing and Urban Development, 451 Seventh Street, SW., Washington, 
DC 20410, telephone (voice): (202) 708-0744, extension 4020. (This is 
not a toll-free number.) For hearing- and speech-impaired persons, this 
number may be accessed via text telephone by dialing the Federal 
Information Relay Service at 1-800-877-8339.
    For the Indian housing programs, contact Deborah Lalancette, 
Director, Housing Management Division, Office of Native American 
Programs, Department of Housing and Urban Development, Room B-133, 451 
Seventh Street, SW., Washington, DC 20410, telephone (voice): (202) 
755-0088, extension 122. (This is not a toll-free number.) For hearing- 
and speech-impaired persons, this number may be accessed via text 
telephone by dialing the Federal Information Relay Service at 1-800-
877-8339.

SUPPLEMENTARY INFORMATION:

I. General

    This rule amends HUD's regulations for the public housing and 
Indian housing programs that govern the definition of annual income, 
which the Secretary is authorized to define. Since income eligibility 
for the public and Indian housing programs is determined based on this 
term, and rents are based on annual income, as modified by statutorily 
prescribed adjustments, changes in this definition influence who lives 
in these types of housing and how much they are required to pay. (The 
change is not applicable to the Section 8 Housing Assistance Payments 
program.)
    The rule is necessary to encourage public housing agencies and 
Indian Housing Authorities (collectively called housing authorities or 
HAs) to take action to further the efforts of applicants and tenants to 
seek employment and to increase their earned income. The intended 
effect is to permit HAs to adopt an exclusion for earned income, 
tailored to their own circumstances, to support the efforts of working 
families.
    The Department believes that, in light of the shortfall in funding 
full HA eligibility for the Performance Funding System (PFS) expected 
over the next two years and the possibility that an HA can develop a 
higher income base by use of this type of exclusion, it is in the best 
interests of the program to encourage occupancy in these programs by 
working families.

II. The Nature of Special Treatment for Earned Income

    The Balanced Budget Downpayment Act I, enacted on January 26, 1996 
(Pub. L. No. 104-99), also known as the Continuing Resolution or 
``CR'', specifically authorized housing agencies to allow earned income 
adjustments, as long as HUD's operating subsidy obligation was not 
affected. That provision and others were implemented by HUD by issuance 
of a Notice to HAs (PIH 96-6) on February 13, 1996, which expires on 
September 30, 1996, based on the expiration of the CR on that date.
    The CR enacted by Congress, effective for Federal Fiscal Year 1996, 
permitted housing agencies to take actions to attract and retain 
working families in occupancy such as the adoption of ceiling rents and 
the adoption of earned income adjustments that would ease the impact on 
working tenants. The Act also repealed Federal admissions preferences, 
permitting HAs to use working preferences to greater advantage. This 
rule codifies for Federal Fiscal Years 1997 and 1998 a provision 
permitting housing agencies to provide for special treatment of earned 
income.
    The rationale for making this provision effective via a rule is to 
ensure some degree of consistency in Departmental policy, on which HAs 
can rely. The Department believes that this measure can contribute to 
improving the stability of HAs by permitting them to improve the income 
mix in their developments, thus increasing dwelling rental income.
    There is a difference between the special treatment of earned 
income specifically authorized by the CR and that authorized by this 
rule. There are two defined terms related to income under the United 
States Housing Act of 1937: ``annual income'' and ``adjusted income.'' 
The former is a gross income amount, which is used to determine the 
eligibility of a family for participation in the program based on 
whether that amount is less that 50% or 80% of median income for the 
area (adjusted by family size). The latter is a net amount after 
adjustments are made to the gross income, which is used to determine 
the amount of rent a family pays under the affected programs because 
rent is generally based on a percentage of ``adjusted income.'' The CR 
authorized an ``adjustment'' to income affecting the amount of 
``adjusted income'', while this rule authorizes an ``exclusion'' from 
income, which affects income at an earlier stage--the definition of 
``annual income.''
    The reason that this rule authorizes an exclusion rather than an 
adjustment is that the scope of the Department's authority does not 
clearly include authorizing ``adjustments'' without specific 
Congressional action. The statute prescribes the definition of 
``adjusted income'' but leaves to the Secretary of HUD the authority 
(under section 3 of the United States Housing Act of 1937, 42 U.S.C. 
1437a) to define the term ``income,'' as it is used for purposes of 
determining eligibility and rental payment in the public and Indian 
housing programs. The term HUD uses

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that corresponds to this statutory term is ``annual income.''
    Although the CR provision expires at the end of the current fiscal 
year (September 30, 1996), a change made by the Secretary in the 
definition of income permitting an exclusion for earned income can have 
longer lasting effect. The Secretary is exercising this authority in 
this rule.
    Under this rule, HAs have the authority to establish their own 
earned income exclusion, as a means of attracting and retaining more 
tenants with earned income. The ``exclusion'' an HA adopts may be 
similar or identical to the ``adjustment'' it had adopted under the CR.
    The adoption of an earned income exclusion under this rule will 
have the same effect on an HA's operating subsidy as the adoption of an 
earned income adjustment under the previously issued HUD Notice. (See 
discussion below.) In general, HAs that opt to adopt earned income 
exclusions will increase their total income if they are successful in 
obtaining more and/or higher income working tenants but will lose 
income if their policies do not produce a net increase in rent 
revenues.

III. Specific Changes in Existing Rules

    For the public housing program, this change to permit a new 
exclusion is accomplished by adding a new paragraph (d) to 
Sec. 913.106, which states the definition of ``annual income.'' The 
change to the Indian housing program occurs in Sec. 950.102, in the 
definition of ``annual income,'' where a new paragraph (3) is added. 
The new paragraphs authorize an HA to adopt a written earned income 
exclusion, after considering certain enumerated possibilities. No HUD 
approval is required for adoption of such an exclusion. However, if the 
HA experiences a decrease in dwelling rental income as a result, it 
will have to absorb the cost.

IV. Effect on Operating Subsidy

    In addition to the HUD Notice to housing agencies described above, 
HUD issued a second Notice (PIH 96-24) in the spring of 1996, 
implementing the CR with respect to its impact on the Performance 
Funding System of determining operating subsidy eligibility. 
Specifically, that Notice permitted HAs to offset PFS funding 
shortfalls by retaining increases in dwelling rental income that result 
from increases in residents' earned incomes and non-dwelling rental 
income earned by the HAs through entrepreneurial activities. That 
Notice made the changes effective for the shorter period through 
Federal Fiscal Year 1998 or the time by which HUD no longer has a 
shortfall in the availability of funds to pay full operating subsidy 
eligibility to all HAs.
    Under this rule, as under that Notice, the special treatment given 
earned income by an HA will not affect its PFS subsidy eligibility. 
That eligibility will be calculated without respect to either decreases 
in rental income resulting from the exclusion, or increases resulting 
from higher rents received from households with earned income. Another 
pending rulemaking (FR-4072) codifies those changes.

V. Scope of rule

    The CR authorized the earned income adjustment only for the public 
and Indian housing programs and only based on the premise that 
operating subsidy obligations of the Department would not be affected. 
This rule follows those limits on the scope of the optional special 
treatment of earned income. Therefore, the change is not applied to 
other programs usually governed by the same definition of ``annual 
income,'' such as the Section 8, Section 236, and Rent Supplement 
programs.

Findings and Certifications

Justification for Interim Rule

    The Department generally publishes a rule for public comment before 
issuing a rule for effect, in accordance with its regulations on 
rulemaking in 24 CFR part 10. However, part 10 provides that prior 
public procedure will be omitted if HUD determines that it is 
``impracticable, unnecessary, or contrary to the public interest'' (24 
CFR 10.1).
    The change made by this interim rule merely adds an optional 
exclusion to the definition of income used by Housing Agencies, which 
supports the policy of obtaining a broad range of income levels in 
public housing and Indian housing developments and the Secretary's 
policy of encouraging HAs to increase the number of working families 
residing in these developments. As noted earlier, the Department has 
already authorized the use of such income exclusions for a limited 
period of time, based on the Balanced Budget Downpayment Act I, in a 
Notice. Authorization of such an optional exclusion in this rule is 
expected to increase the number of HAs using it, helping to encourage 
the participation of working families in these programs.
    Implementation of the rule's provisions is needed as soon as 
possible to facilitate the adoption of this type of exclusion to 
realize the benefits of increasing the incentives for working families 
to participate and to prevent HAs that are now deducting earned income 
from having to change their policy starting on October 1, 1996, only to 
institute earned income exclusions later. Therefore, the Department has 
determined that good cause exists to omit prior public procedure for 
this interim rule because such delay would be contrary to the public 
interest and unnecessary.
    In the interest of obtaining the fullest participation possible in 
determining the factors that should be considered in an HA's 
determination to adopt an earned income exclusion, the Department does 
invite public comment on the rule. The comments received within the 60-
day comment period will be considered during development of a final 
rule that will supersede this interim rule.

Impact on the Environment

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50 that 
implement section 102(2)(C) of the National Environmental Policy Act of 
1969, 42 U.S.C. 4332. The Finding of No Significant Impact is available 
for public inspection and copying during regular business hours (7:30 
a.m. to 5:30 p.m.) in the Office of the Rules Docket Clerk, Room 10276, 
451 Seventh Street, SW., Washington, DC 20410-0500.

Federalism Impact

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this rule do not have significant impact on States or 
their political subdivisions since the provisions of this interim rule 
simply add an option for housing agencies to adopt. To the extent there 
is an impact, it is advantageous to the HAs, which are creatures of 
State or local government.

Impact on the Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this rule does not have 
potential for significant impact on family formation, maintenance, and 
general well-being. Therefore, the rule is not subject to review under 
the Order. The rule merely broadens the options for housing agencies in 
managing their public housing or Indian housing programs to encourage 
families to obtain employment and to increase their earnings.

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Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this rule before publication and by 
approving it certifies that this rule will not have a significant 
impact on a substantial number of small entities, because it makes 
available additional options for housing agencies but does not impose 
mandatory obligations.

Catalog

    The Catalog of Federal Domestic Assistance number for the 
programs affected by this rule is 14.850.

List of Subjects

24 CFR Part 913

    Grant programs--housing and community development, Public housing, 
Reporting and recordkeeping requirements.

24 CFR Part 950

    Aged, Grant programs--housing and community development, Grant 
programs--Indians, Indians, Individuals with disabilities, Low and 
moderate income housing, Public housing, Reporting and recordkeeping 
requirements.

    Accordingly, parts 913 and 950 of title 24 of the Code of Federal 
Regulations are amended as follows:

PART 913--DEFINITION OF INCOME, INCOME LIMITS, RENT AND 
REEXAMINATION OF FAMILY INCOME FOR THE PUBLIC HOUSING PROGRAM

    1. The authority citation for part 913 continues to read as 
follows:

    Authority: 42 U.S.C. 1437a, 1437d, 1437n and 3535(d).

    2. In Sec. 913.106, paragraphs (d) and (e) are redesignated as 
paragraphs (e) and (f), and a new paragraph (d) is added, to read as 
follows:


Sec. 913.106   Annual income.

* * * * *
    (d) In addition to the exclusions from annual income covered in 
paragraph (c) of this section, a housing agency may adopt additional 
exclusions for earned income pursuant to an established written policy.
    (1) In establishing such a policy, a housing agency must adopt one 
or more of the following types of earned income exclusions, including 
variations thereof:
    (i) Exclude all or part of the family's earned income;
    (ii) Apply the exclusion only to new sources of earned income or 
only to increases in earned income;
    (iii) Apply the exclusion to the earned income of the head, the 
spouse, or any other family member age 18 or older;
    (iv) Apply the exclusion only to the earned income of persons other 
than the primary earner;
    (v) Apply the exclusion to applicants, newly admitted families, 
existing tenants, or persons joining the family;
    (vi) Make the exclusion temporary or permanent, for the HA, the 
family, or the affected family member;
    (vii) Make the exclusion graduated, so that more earned income is 
excluded at first and less earned income is excluded after a period of 
time;
    (viii) Exclude any or all of the costs that are incurred in order 
to go to work but are not compensated, such as the cost of special 
tools, equipment, or clothing;
    (ix) Exclude any or all of the costs that result from earning 
income, such as social security taxes or other items that are withheld 
in payroll deductions;
    (x) Exclude any portion of the earned income that is not available 
to meet the family's own needs, such as amounts that are paid to 
someone outside the family for alimony or child support; and
    (xi) Exclude any portion of the earned income that is necessary to 
replace benefits lost because a family member becomes employed, such as 
amounts that the family pays for medical costs or to obtain medical 
insurance.
    (2) Any amounts that are excluded from annual income under this 
paragraph (d) may not also be deducted in determining adjusted income, 
as defined in Sec. 913.102.
    (3) Housing agencies do not need HUD approval to adopt optional 
earned income exclusions.
    (4) In the calculation of Performance Funding System operating 
subsidy eligibility, housing agencies will have to absorb any loss in 
rental income that results from the adoption of any of the optional 
earned income exclusions discussed in paragraph (d)(1) of this section, 
including any variations of the listed options.

PART 950--INDIAN HOUSING PROGRAMS

    3. The authority citation for part 950 continues to read as 
follows:

    Authority: 25 U.S.C. 450e(b); 42 U.S.C. 1437aa-1437ee and 
3535(d).

    4. In the definition of ``Annual income'' in Sec. 950.102, 
paragraphs (3) and (4) are redesignated as paragraphs (4) and (5), and 
a new paragraph (3) is added, to read as follows:


Sec. 950.102   Definitions.

* * * * *
    Annual income. * * *
    (3) In addition to the exclusions from annual income covered in 
paragraph (2) of this definition, an IHA may adopt additional 
exclusions for earned income pursuant to an established written policy.
    (i) In establishing such a policy, an IHA must adopt one or more of 
the following types of earned income exclusions, including variations 
thereof:
    (A) Exclude all or part of the family's earned income;
    (B) Apply the exclusion only to new sources of earned income or 
only to increases in earned income;
    (C) Apply the exclusion to the earned income of the head, the 
spouse, or any other family member age 18 or older;
    (D) Apply the exclusion only to the earned income of persons other 
than the primary earner;
    (E) Apply the exclusion to applicants, newly admitted families, 
existing residents, or persons joining the family;
    (F) Make the exclusion temporary or permanent, for the IHA, the 
family, or the affected family member;
    (G) Make the exclusion graduated, so that more earned income is 
excluded at first and less earned income is excluded after a period of 
time;
    (H) Exclude any or all of the costs that are incurred in order to 
go to work but are not compensated, such as the cost of special tools, 
equipment, or clothing;
    (I) Exclude any or all of the costs that result from earning 
income, such as social security taxes or other items that are withheld 
in payroll deductions;
    (J) Exclude any portion of the earned income that is not available 
to meet the family's own needs, such as amounts that are paid to 
someone outside the family for alimony or child support; and
    (K) Exclude any portion of the earned income that is necessary to 
replace benefits lost because a family member becomes employed, such as 
amounts that the family pays for medical costs or to obtain medical 
insurance.
    (ii) Any amounts that are excluded from annual income under 
paragraph (3) of this definition may not also be deducted in 
determining adjusted income, as defined in this section.
    (iii) IHAs do not need HUD approval to adopt optional earned income 
exclusions.
    (iv) In the calculation of Performance Funding System operating 
subsidy eligibility, IHAs will have to absorb any loss in rental income 
that results from the adoption of any of the optional earned income 
exclusions discussed in paragraph (3)(i) of this definition, including 
any variations of the listed options.
* * * * *

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    Dated: August 6, 1996.
Kevin Emanuel Marchman,
Acting Assistant Secretary for Public and Indian Housing.
[FR Doc. 96-22214 Filed 8-29-96; 8:45 am]
BILLING CODE 4210-33-P