[Federal Register Volume 62, Number 86 (Monday, May 5, 1997)]
[Rules and Regulations]
[Pages 24334-24337]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11534]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 5 and 950

[Docket No. FR-4080-F-02]
RIN 2577-AB66


Optional Earned Income Exclusions

AGENCY: Office of the Secretary, HUD.

ACTION: Final rule.

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SUMMARY: This rule adopts as final the amendments to HUD's regulations 
for

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the definition of ``annual income'' applicable to Public Housing 
Agencies and Indian Housing Authorities in the operation of public 
housing and Indian housing programs that were issued as an interim rule 
in August 1996. 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.

EFFECTIVE DATE: June 4, 1997.

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, 1999 Broadway, 
Suite 3390, Box 90, Denver, CO 80202, telephone (voice): (303) 675-
1600, extension 3300. (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. The August 30, 1996 Interim Rule

    An interim rule was published on August 30, 1996 (61 FR 46344), 
amending regulations for the public housing and Indian housing programs 
to permit Public Housing Agencies and Indian Housing Authorities 
(collectively Housing Agencies, or ``HAs'') to adopt an exclusion for 
earned income. The rule was based on the authority of the Secretary to 
define ``income'' (section 3(b)(4) of the United States Housing Act of 
1937, 42 U.S.C. 1437a(b)(4)), and it was related to a 1996 statutory 
enactment that specifically authorized housing agencies to allow earned 
income adjustments, as long as HUD's operating subsidy obligation was 
not affected.
    That rule added to the definitions of ``annual income'' in the 
regulations governing the public housing and Indian housing programs an 
option for HAs to adopt additional exclusions for earned income 
pursuant to an established written policy. Eleven types of exclusions 
were stated, and HAs were to choose from among those types and 
variations of those types if they adopted an earned income exclusion. 
The rule stated that if an HA experienced a loss in rental income as a 
result of adopting such an exclusion, it would have to absorb the loss 
since there is no provision for an adjustment to its operating subsidy 
from HUD under the Performance Funding System. Similarly, an HA that 
receives greater rental income as a result of adoption of such an 
exclusion does not suffer any reduction in income as a result of the 
rule.

II. Changes to the Interim Rule

    The Department is making no substantive changes to the rule. The 
public comments received are discussed in greater detail in section IV 
of this preamble. The primary concerns expressed dealt with a desire 
for increases in operating subsidy to offset HA losses in rental income 
from adopting earned income exclusions and with administrative burden 
associated with calculating rental income both with and without the 
earned income exclusion. HUD is not in a position to provide additional 
operating subsidy, because of Congressional funding constraints, and 
the administrative burden is not actually as great as feared by the HAs 
who submitted comments.

III. Background

A. Statutory

    The 1996 statutory enactment that dealt with earned income 
adjustments was the Balanced Budget Downpayment Act I, enacted on 
January 26, 1996 (Pub. L. No. 104-99), which was also known as the 
Continuing Resolution or ``CR''. The CR 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 
deductions that would ease the impact on working tenants. The Act also 
repealed Federal admissions preferences, permitting HAs to use 
preferences for working families to greater advantage.
    The CR was enacted by Congress for effect during Federal Fiscal 
Year 1996. Now its provisions have been extended to be effective for 
Federal Fiscal Year 1997, as well, by the Departments of Veterans 
Affairs and Housing and Urban Development, and Independent Agencies 
Appropriations Act, 1997 (Pub. L. 104-204, September 26, 1996, 110 
Stat. 2882). Unlike the CR provisions that allow a deduction from a 
family's income for earned income, this rule provides for an exclusion 
from a family's initial determination of income. (See the preamble to 
the interim rule for a more detailed discussion of this subject.) This 
rule is intended to promote the same objectives, however, as the CR.

B. Regulatory

    When the interim rule was published, on August 30, 1996, the 
amendments were made to 24 CFR parts 913 and 950, which were the 
regulatory provisions then in effect with respect to income definitions 
for the public housing and Indian housing programs. Since that time, 
the definition of ``annual income'' governing the public housing 
program was moved from 24 CFR part 913 to 24 CFR 5.609 by a final rule 
published on October 18, 1996 (61 FR 54492). That rule incorporated in 
Sec. 5.609(d) (at 61 FR 54502), the provisions stated in 
Sec. 913.106(d) of the August 1996 interim rule, making a minor 
modification to add a title limiting its applicability to the public 
housing program. (Unlike part 913, part 5 applies to programs other 
than public housing, so the title was needed to limit the effect of the 
provision to public housing.) That rule noted in the preamble, 61 FR 
54497, that the provision included at Sec. 5.609(d) was still an 
interim provision on which public comments were welcome through October 
29, 1996. Part 950 was left unchanged by that rule.

IV. Response to Public Comments

A. General

    The Department received public comments from three public housing 
agencies. Generally, the comments expressed support for the concept of 
a flexible, optional exclusion for earned income. The comments did 
express concern, however, about the fiscal impact of the proposed rule 
and about administrative burdens associated with providing HUD with 
comparative figures for actual rental income and rental income that 
would have been received without the adoption of an earned income 
exclusion.

B. Loss in Subsidy

    Comment: The HAs expressed concern that losses in HA income as a 
result of implementing an earned income exclusion would not be offset 
by increases in PFS subsidy eligibility. They indicated an expectation 
that families first moving to work would not produce incomes sufficient 
to raise rental payments if an earned income exclusion were 
implemented. With a

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nationwide move of welfare families to employment, as a result of 
welfare reform legislation, they indicated that the decrease in rental 
income from families who are employed under an earned income exclusion 
would cause extreme hardship on housing agencies if HUD does not offer 
any compensating subsidy.
    Response: 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. Congress has shown no interest in 
increasing HA subsidy under the PFS to offset any loss to HAs resulting 
from implementation of this type of adjustment, so HUD does not have 
funding to furnish HAs to make up any such shortfall.
    Comment: One HA recommended that HUD allow HAs a two-year 
evaluation period during which they would not absorb any loss in rental 
income that results from adoption of earned income exclusions.
    Response: A two-year period during which an HA would not be 
penalized is unacceptable because it provides no restraints on the 
amount of the exclusions that an HA would provide. Since the amount of 
PFS funding is fixed by Congress, giving more operating subsidy to the 
HAs that provided large earned income exclusions for its tenants would 
result in a loss of operating subsidy by other HAs that chose not to 
have an earned income exclusion.
    Comment: One HA indicated that the limit of the rule's 
applicability through Federal Fiscal Year 1998 limits a HA's ability to 
anticipate reaping benefits from residents' eventual higher incomes and 
increased rental income.
    Response: Although the HUD Notice implementing the CR was limited 
in the length of its applicability, this rule is not so limited since 
it is based not on the CR but on the authority of the Secretary to 
define ``income.''

C. Administrative Burden

    Comment: Two of the HAs indicated that they were concerned that the 
rule would require them to maintain two rent rolls--one for the rental 
income that would be received without the adoption of an earned income 
exclusion and one for the rental income actually realized implementing 
the exclusion.
    Response: The Department agrees that there is somewhat more work 
for HAs, since an HA must know how much of the rent they are collecting 
comes from earnings--something they have not done--and they must 
calculate the rental payments both with and without an earned income 
exclusion. The comparison of what is received in rental income and what 
would have been received in the absence of an earned income exclusion 
only would need to be done once a year. It would not require the HA to 
maintain two sets of books throughout the year. (The procedure is 
specified in HUD Notice PIH 96-87 (HA), which was issued November 20, 
1996, to implement the deductions permitted under the CR as well as the 
exclusions permitted under the interim rule.)
    The HA uses the rent from a base month, such as April 1996 (or a 
later month) and then, once a year compares the rent roll from the base 
month with the rent roll of the month being used for the annual 
analysis, such as April 1997. The HA then does two things. It adds back 
to the base month amount in the later year the amount ``given up'' in 
earned income exclusions. It uses that amount to calculate the PFS 
subsidy eligibility amount. Secondly, it compares, on a per unit basis, 
the amount of rent from earnings versus other income for the base month 
of the earlier year with the amount of earnings versus other income for 
the base month of the later year. That gives the HA an opportunity to 
offset some of the loss, or actually make a gain. The mechanism is not 
two rent rolls maintained throughout the year but a comparison done 
once a year.
    For example, an HA that has 100 units might receive a total of 
$50,000 in rent in April 1996, of which $20,000 represented earned 
income and $30,000 represented other income. Without adoption of an 
earned income exclusion, its rental income the following year might be 
$55,000, of which $35,000 represented earned income and $20,000 
represented other income. If it adopted an earned income exclusion that 
disregarded $10,000 of the earned income, its rental income in April 
1997 would be $45,000. The $15,000 difference between the rental income 
from earned income in April 1997 ($35,000) and in April 1996 ($20,000) 
would be used to offset the $10,000 in earned income exclusions. This 
HA would have an additional $5,000 to keep, up to 100% of its PFS 
funding.

Findings and Certifications

Impact on the Environment

    A Finding of No Significant Impact with respect to the environment 
was 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, S.W., Washington, D.C. 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.

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 5

    Administrative practice and procedure, Aged, Claims, Drug abuse, 
Drug traffic control, Grant programs--housing and community 
development, Grant programs--Indians, Grant programs--low and moderate 
income housing, Indians, Individuals with disabilities, 
Intergovernmental relations, Loan programs--housing and

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community development, Low and moderate income housing, Mortgage 
insurance, Penalties, Pets, Public housing, Rent subsidies, Reporting 
and recordkeeping requirements, Social Security, Unemployment 
compensation, Wages.

24 CFR Part 950

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

    Accordingly, the amendments to the definitions of ``Annual income'' 
codified at 24 CFR 950.102, as published on August 30, 1996 (61 FR 
46346), is adopted as final, without change, and 24 CFR 5.609(d), 
published on October 18, 1996 (61 FR 54502), is reaffirmed as final.

    Dated: April 23, 1997.
Andrew Cuomo,
Secretary.
[FR Doc. 97-11534 Filed 5-2-97; 8:45 am]
BILLING CODE 4210-32-P