[Federal Register Volume 64, Number 83 (Friday, April 30, 1999)]
[Proposed Rules]
[Pages 23460-23478]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-10565]


      

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Part III





Department of Housing and Urban Development





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24 CFR Parts 5, 960, 966, and 984



Changes to Admission and Occupancy Requirements in the Public Housing 
and Section 8 Housing Assistance Programs; Proposed Rule

  Federal Register / Vol. 64, No. 83 / Friday, April 30, 1999 / 
Proposed Rules  

[[Page 23460]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 5, 960, 966, and 984

[Docket No. FR-4485-P-01]
RIN 2501-AC59


Changes to Admission and Occupancy Requirements in the Public 
Housing and Section 8 Housing Assistance Programs

AGENCY: Office of the Secretary, HUD.

ACTION: Proposed rule.

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SUMMARY: This proposed rule addresses several changes related to 
admission and occupancy requirements of public housing and section 8 
assisted housing that were made by the Quality Housing and Work 
Responsibility Act of 1998 (referred to as the ``1998 Act''). With 
respect to admission and occupancy, this rule includes important 
changes concerning choice of rent, community service and self-
sufficiency in public housing. This rule also includes important 
changes concerning admission preferences and determination of income 
and rent in public housing and Section 8 housing assistance programs. 
Some of the provisions included in this rule are already in effect, as 
more fully discussed in HUD's Notice of Initial Guidance on the 1998 
Act, published on February 18, 1999 (``Initial Guidance Notice''), and 
HUD's interim rule on the PHA Plan, also published on February 18, 1999 
(PHA Plan interim rule). The provisions that are already in effect are 
identified in this rulemaking.

DATES: Comment due date: June 29, 1999.

ADDRESSES: Submit comments regarding this proposed rule to the 
Regulations Division, Office of General Counsel, Room 10276, Department 
of Housing and Urban Development, 451 Seventh Street, SW, Washington, 
DC 20410-0500. Please refer to the above docket number and title. 
Facsimile (FAX) comments are not acceptable. A copy of each 
communication submitted will be available for public inspection and 
copying between 7:30 a.m. and 5:30 p.m. weekdays at the above address.

FOR FURTHER INFORMATION CONTACT: For the public housing and tenant-
based Section 8 housing assistance programs--Patricia Arnaudo, Senior 
Program Manager, Office of Public and Assisted Housing Delivery, 
Department of Housing and Urban Development, 451 Seventh Street, SW, 
Room 4112, Washington, DC 20410; telephone (202) 708-0744, or the 
Public and Indian Housing Resource Center at 1-800-955-2232.
    For the Section 8 project-based programs--Willie Spearmon, 
Director, Office of Multifamily Business Products, Office of Housing, 
Department of Housing and Urban Development, 451 Seventh Street, SW, 
Room 6138, Washington, DC 20410; telephone (202) 708-3000.
    (With the exception of the telephone number for the PIH Resource 
Center, these are not toll-free telephone numbers.) Persons with 
hearing or speech impairments may access these numbers via TTY by 
calling the Federal Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

Background--the 1998 Act

Comprehensive Reforms to Public Housing and Section 8 Programs

    The Quality Housing and Work Responsibility Act of 1998 (title V of 
the FY 1999 HUD appropriations Act, Pub.L. 105-276, 112 Stat. 2518, 
approved October 21, 1998) (referred to in this rule as ``the 1998 
Act'' or ``the Act'') amended the United States Housing Act of 1937 (42 
U.S.C. 1437, et seq., ``the 1937 Act'') to make comprehensive changes 
to HUD's public housing, tenant-based assistance, and Section 8 
project-based programs. Some of the reforms made by the 1998 Act affect 
public housing only, and some of the reforms affect Section 8 tenant-
based and project-based programs as well. Throughout this preamble and 
in the provisions of 24 CFR part 5 addressed in this rule, HUD 
indicates where the matter under discussion applies only to one program 
or to more than one program.

This Proposed Rule

What This Rule Addresses

    This rule addresses both provisions of the 1998 Act that are 
already in effect, and provisions that are being implemented by this 
rule. The chart provided in this preamble shows:
    (1) Which sections of the 1998 Act are being addressed by this 
rule,
    (2) Which of the 1998 Act changes being implemented in this rule 
apply to which HUD programs, and
    (3) Which sections of the 1998 Act are effective now.

Several Conforming Amendments Included in This Rule

    HUD will accept comments on any of the regulatory changes included 
in this rule. The provisions of the 1998 Act that are already in effect 
have been implemented directly from the statute, without exercise of 
discretion by HUD. In order to bring HUD's regulations up to date with 
the changes made by the 1998 Act, the final rule published after 
consideration of comments on this proposed rule will need to 
incorporate these changes. Therefore, the conforming regulatory changes 
that need to be made to the regulations in 24 CFR parts 5 and 960 have 
been included in this rule, so the reader can review the regulations in 
their amended and updated form. Since these changes do not reflect 
exercise of discretion, however, HUD is not likely to change these 
provisions in response to public comment.

Regulatory Location of Statutory Provisions

    In some cases, a statutory provision being implemented could be 
placed either in specific program regulations, such as part 982 
covering Section 8 tenant-based assistance, or in the regulations 
governing programs authorized by the 1937 Act, part 5. This proposed 
rule and other proposed rules being issued at approximately the same 
time may contain overlapping provisions. When the final rules are 
issued, we will make the final determination about the appropriate 
regulatory location of the provisions and place them in the appropriate 
part.

Program Changes That Require Appropriations Act Approval

    Some of the 1998 Act provisions make changes to HUD programs that 
would take effect only upon approval in appropriations acts. These 
changes are not included in this rule. If approved in appropriations 
acts, they will be implemented by notice. Examples of provisions that 
are dependent upon appropriations act approval are the addition of 
exclusions from income for medical expenses of nonelderly families and 
for child and spousal support, and the addition of earned income 
disallowances in the Section 8 program for earned income.

Previous Proposed Rule on Admission and Occupancy

    A proposed rule streamlining the admission and occupancy provisions 
applicable to public housing and making other changes was published in 
the Federal Register on May 9, 1997 (62 FR 25728). The May 9, 1997 
proposed rule is withdrawn. HUD intends to issue a second proposed rule 
to implement the 1998 Act safety and security provisions for public and 
assisted housing and expects to make other streamlining changes similar 
to those

[[Page 23461]]

proposed in the May 9, 1997 rule at that time.
    Again, the chart that follows presents a summary overview of what 
this rule addresses. In the chart, the term PBC refers to project-based 
certificates.

BILLING CODE 4210-32-P

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[GRAPHIC] [TIFF OMITTED] TP30AP99.003



BILLING CODE 4210-32-C

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Organization of Rule

    While the rule is published for public comment, HUD may reconsider 
the organization of this rule, and not only this rule but the existing 
codified regulations. HUD may determine that the regulations proposed 
by this rule or proposed to be revised by this rule can be better 
organized. HUD also may determine that regulatory text can be worded 
more plainly and clearly, and some regulatory provisions can be 
consolidated with others, or if they are provisions that are likely to 
change frequently, these provisions (if not imposing binding 
requirements) may be better left to non-regulatory sources (such as 
notices, guidance documents, etc.) Accordingly, HUD may make 
organizational changes (including streamlining and plain language 
changes) at the final rule stage. Any comments on the organization of 
this rule or the existing regulations is welcome.

II. Specific Changes to Admission and Occupancy Requirements

    This section of the preamble discusses the changes made to 
admission and occupancy requirements of the 1937 Act by the 1998 Act 
and the regulatory changes that will be made as a result of the 
statutory amendments. Some of these statutory sections were also 
discussed in the Initial Guidance Notice on the 1998 Act, published in 
the Federal Register on February 18, 1999 (64 FR 8192). For the 
convenience of any reader who would like a reference to the discussion 
of a certain section of the new statute provided in the Initial 
Guidance Notice, this section provides the applicable reference.

Using Computer Matching Results (24 CFR 5.211) (Section 508 of the 1998 
Act Amending Section 3 of the 1937 Act)

    For some time, HUD has conducted a computer matching initiative to 
provide one independent source for verifying resident income. HUD can 
disclose the matched information to the PHAs, in the case of 
information matched from Social Security records. Since HUD is 
precluded by law from disclosing Federal tax return data to PHAs, 
section 508 of the 1998 Act adds a requirement that when HUD notifies 
an assisted family of information regarding family income, earnings, 
wages, or unemployment compensation, the family must disclose the 
information to the public housing agency. This rule adds a new section, 
24 CFR 5.211 to implement these provisions.
    The rule provides that once the family discloses the information to 
the PHA, the PHA must review the information for accuracy and take 
appropriate action. Appropriate action may include review of the 
information with the tenant and changing the family's rent as needed. 
If the PHA verifies a case of documented fraud, it should take action 
to recover excess housing assistance received by the tenant due to 
unreported income, or evict the tenant or terminate assistance, and 
take other appropriate administrative or legal action. HUD will be 
providing additional information on its computer matching initiative.
    Section 508 of the Act was discussed in the Initial Guidance Notice 
at 64 FR 8198, beginning in the middle column.

Change From HA to PHA (Sec. 5.214)

    In the definitions provided in 24 CFR 5.214, HUD removes the 
definition of ``HA.'' This acronym HA refers to a housing agency, which 
was the collective term used by HUD to refer to both a public housing 
agency and an Indian housing authority. The Native American Housing 
Assistance and Self-Determination Act (NAHASDA) (Pub.L. 104-330, 
approved October 26, 1996) eliminated several separate programs of 
Indian housing assistance and replaced them with a single block grant 
program. NAHASDA also provided that affordable housing assistance be 
made directly to Federally-recognized tribes, which in turn may 
designate a housing entity to act on their behalf by becoming the 
NAHASDA block grant program recipient. The practical consequence is 
that Indian housing authorities (or ``tribally designated entities'') 
are now governed by separate regulations, implementing NAHASDA. 
Therefore, the only remaining category of housing agency recognized 
under the 1937 Act is a Public Housing Agency or ``PHA.'' HUD's rule 
amending part 982, published elsewhere in today's Federal Register, 
provides a broader definition for HA. At the final rule stage, the part 
5 regulations may incorporate this definition.

Repeal of Preference for Elderly, Disabled, and Displaced Over Other 
Singles (24 CFR 5.405, 960.407) (Section 506 of the 1998 Act Amending 
Section 3(b) of the 1937 Act)

    This rule removes the current regulatory giving preference to 
elderly, disabled, or displaced families over other single persons in 
all 1937 Act programs (Sec. 5.405(b)), in compliance with section 506 
of the Act. In addition, this rule includes a conforming change to 
remove the outdated public housing provisions (Sec. 960.407(b), (c), 
and (d)). A PHA may continue to have this type of preference as part of 
its local preference policies. If a PHA does not keep as its highest 
preference a preference for elderly, disabled, or displaced families 
over other singles as a local preference, the PHA will have to 
rearrange its current waiting list.

Repeal of Federal Preferences in Admission and Selection for Assistance 
(24 CFR 5.410-5.430, 960.204, 960.407) (Sections 514 and 545 of the 
1998 Act Amending Sections 6 and 8 of the 1937 Act)

    The Federal preferences, which have long applied to public housing 
and Section 8 housing assistance payments programs, are repealed by the 
1998 Act. The system of Federal preferences provided that some 
significant portion of applicants who are involuntarily displaced, 
living in substandard housing, or paying more than 50 percent of family 
income for rent, were to be given preference in admission and selection 
for assistance over other families. Congress had suspended this system 
of preferences on an annual basis in appropriations acts beginning on 
January 26, 1996, until this repeal.
    Although the 1998 Act eliminates the Federal preferences, the Act 
continues to allow PHAs to establish their own system for making 
dwelling units or Section 8 assistance available to families having 
certain characteristics, now requiring this system of preferences to be 
linked to their PHA Annual Plan. Each PHA's system of preferences 
established must be based upon local housing needs and priorities, as 
determined by the PHA using generally accepted data sources, including 
waiting list data and any information obtained during public comment on 
the PHA Annual Plan and under the requirements applicable to the 
Consolidated Plan (see 24 CFR part 91, subpart B). These requirements 
are reflected in the PHA Plan interim rule.
    The 1998 Act (in section 514) also includes a statement that a PHA 
should consider preferences for individuals who are victims of domestic 
violence, consistent with the PHA Annual Plan. Section 514(e) provides:

    It is the sense of the Congress that, each public housing agency 
involved in the selection of eligible families for assistance under 
the United States Housing Act of 1937 (including residency in public 
housing and tenant-based assistance under section 8 of such Act), 
should, consistent with the public housing agency plan of the 
agency, consider preferences for individuals who are victims of 
domestic violence.

    Under the rule, PHA policies may provide preferences for veterans, 
as a needy population.

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    To implement the elimination of the Federal preferences, this rule 
removes Secs. 5.415, 5.420, 5.425, and 5.430 and revises Secs. 960.204 
and 960.407 to remove references to the term ``Federal preference.'' 
This rule also makes several changes to Sec. 5.410:

--It reflects the new link of a PHA's local preferences with the PHA 
Annual Plan.
--For Section 8 programs other than the Certificate/Voucher, Project-
based Certificate, and Moderate Rehabilitation, it gives project owners 
more flexibility in determining their own tenant selection plan. The 
rule does the following:

    (1) Continues the prohibition on use of residency requirements;
    (2) Removes reference to use of the PHA's local preferences (which 
was located in Sec. 5.410(d)(2)(iii)); and
    (3) Specifically authorizes the owner to use a preference for 
working families, providing it does not give greater weight to an 
applicant based on the amount of the employment income.
    This last provision is included in the revised Sec. 5.410(c)(1), 
which preserves a responsible entity's authority to adopt a preference 
for working families (currently found in Sec. 4.415(b)(1)), retaining 
the reference to anti-skipping protections (currently found in 
Sec. 5.410(e)(2)) in the revised Sec. 5.410(g). This authority for 
working family preferences separate from any local preferences adopted 
by a PHA is derived from section 513(c)(4) of the Act, which describes 
the income targeting requirements for project-based Section 8 assisted 
housing.
    Sections 514 and 545 were discussed in the Initial Guidance Notice 
at 64 FR 8200, beginning in the right hand column, and 64 FR 8207, 
middle column, respectively.

Income Targeting (24 CFR 5.607) (Section 513 of the 1998 Act Amending 
Section 16 of the 1937 Act)

    The 1998 Act (section 513) completely revises the income targeting 
provisions formerly found in section 16 of the 1937 Act.
For Public Housing
    The 1998 Act imposes a general rule that not less than 40 percent 
of admissions in any fiscal year must be families whose income does not 
exceed 30 percent of median income for the area--``extremely low-income 
families.'' The Act, however, allows a PHA to decrease the percentage 
of extremely low-income families admitted to public housing if the PHA 
has given new Section 8 tenant-based assistance to more than the 
required number of extremely low-income families, subject to several 
restrictions. Even in that event, the PHA cannot reduce the percentage 
of extremely low-income families in public housing below 30 percent.
For Section 8 Project-Based Assistance
    For Section 8 project-based assistance, the percentages of units to 
which families with incomes higher than 50 percent of median income may 
be admitted and the anti-skipping restriction remain the same. This 
rule, however, adds a provision (Sec. 5.410(c)(1)) permitting owners to 
adopt a preference for working families, as discussed above. This rule 
also adds a new requirement for admission of at least 40 percent 
extremely low-income families to a particular project in a fiscal year. 
The income targeting requirements do not apply to project-based 
assistance made available to prevent or ameliorate the effects of 
displacement.
For Section 8 Tenant-Based Assistance
    For Section 8 tenant-based assistance, PHAs must target 75 percent 
of new admissions to extremely low income families. A PHA may use 
admission of extremely low-income families in its section 8 tenant-
based program that exceed 75 percent of it admissions in a fiscal year 
(``credit'') to reduce the number of admissions of extremely low income 
families in its public housing program. This credit, however, must be 
the lesser of: (1) 10 percent of the families initially given section 8 
tenant-based assistance during the year; or (2) the number of families 
who are not extremely low income and who have been admitted to public 
housing in projects located in census tracts having a poverty rate of 
30 percent or more.
    Section 8 tenant-based assistance targeting requirements do not 
apply to a low-income family that is ``continuously assisted'' under 
the 1937 Act or to a low-income or moderate income family that is 
displaced as a result of the prepayment of the mortgage or voluntary 
termination of an insurance contract on eligible low-income housing.
New Definition Added
    Because of the importance of the term ``extremely low-income 
family,'' this rule adds a definition for this term in Sec. 5.603.
Facilitating Administration of Income Targeting
    A PHA can facilitate administration of income targeting if it 
applies these requirements on the same annual basis as the fiscal year 
of its public housing or tenant-based program.
    Section 513 was discussed in the Initial Guidance Notice at 64 FR 
8199, right hand column.

Annual Income, Adjusted Income (24 CFR 5.603, 5.609, 5.611) (Section 
508 of the 1998 Act amending Section 3 of the 1937 Act)

Exclusions Versus Deductions
    HUD has long made a distinction between exclusions from income used 
to determine ``annual income'' for eligibility, and deductions for use 
in determining ``adjusted income,'' and therefore rent. Section 508 of 
the 1998 Act changed the calculation of adjusted income by adding a 
number of mandatory deductions to determine adjusted income, which in 
some cases reflected HUD's exclusions from annual income. For example, 
HUD's regulations already exclude from ``annual income'' the earned 
income of minors. The Act adopted a mandatory deduction from income 
used to calculate ``adjusted income'' for earned income of minors. 
Given the statutory enactment of this as a deduction, this rule removes 
the exclusion from annual income and places earned income of minors as 
a deduction in calculating ``adjusted income,'' to avoid providing a 
duplicate benefit on the same subject.
    The 1998 Act adopted the requirement alaready found in HUD's 
regulatory definition of ``child care expenses'' (in 24 CFR 5.603) that 
they must be ``reasonable.'' The Act revised the definition of 
dependents to include not only full-time students at traditional 
educational institutions, but also persons pursuing full-time 
vocational training. HUD's definition of ``full-time student'' (in 24 
CFR 5.603) already included vocational training, but only in the 
context of certificate granting vocational schools. In this rulemaking, 
HUD revises the definition of ``full-time student'' (in Sec. 5.603) to 
refer generally to ``vocational training.''
Permissive Deductions--Applicable to Public Housing Only
    For public housing, the 1998 Act created deductions for PHAs to 
use, if they so choose, to promote self-sufficiency and for other 
purposes. A PHA that decides to provide permissive deductions must 
describe its deductions in the agency's written policies. HUD cannot 
assure the provision of additional subsidy to the PHA to cover reduced 
income resulting from such permissive deductions, however.
    The 1998 Act lists a number of examples of permissive deductions: 
to

[[Page 23465]]

the extent these amounts have not already been deducted from annual 
income or reimbursed to the family from other sources:
    (1) Excessive travel expenses, in an amount not to exceed $25 per 
family per week for travel related to employment, education, or 
training.
    (2) An amount of a family's earned income, based on any of the 
following:
    (i) All the earned income of the family;
    (ii) The amount earned by particular members of the family;
    (iii) The amount earned by families having certain characteristics; 
or
    (iv) The amount earned by families or members during certain 
periods or from certain sources.
    Other deductions include but are not limited to payroll deductions, 
such as social security taxes, income taxes and medical insurance 
premiums. In setting policies on permissive deductions, PHAs are 
encouraged to coordinate with their local Temporary Assistance for 
Needy Families (TANF) agencies to assure that assisted housing and TANF 
support one another. The permissive deductions replace the current 
optional exclusions from annual income for public housing. (The 
proposed rule removes the optional exclusions from the definition of 
annual income, 24 CFR 5.609.)
    Section 508 was discussed in the Initial Guidance Notice at 64 FR 
8198, middle column.

Minimum Rents (24 CFR 5.616) (Section 507 of the 1998 Act Amending 
Section 3(a) of the 1937 Act)

    Section 507 follows the previous statutory authority of requiring 
minimum rents of up to $50 for public housing and the Section 8 
certificate, voucher, and moderate rehabilitation programs. For section 
8 project-based assistance, the minimum rent is $25. In the public 
housing and the Section 8 programs other than the vouchers, ``minimum 
rent'' refers to minimum total tenant payment (TTP) and not a minimum 
tenant rent (TR). As provided in Sec. 5.613, the total tenant payment 
is the highest of several calculations, one of which is the minimum 
rent. So, for example, if 30 percent of a family's ``monthly adjusted 
income'' were $42, and 10 percent of the family's unadjusted ``monthly 
income'' were $20, and a PHA had set the minimum rent at $50, the 
amount of the ``total tenant payment'' would be $50. What the family 
paid (``tenant rent'') might be less or more than that, depending on 
whether the family pays its own utilities. A family paying its own 
utilities would be entitled to a utility reimbursement, if the utility 
allowance were greater than the TTP.
Total Tenant Payment (TTP)
    To remove current confusion in the old definition of TTP and 
clarify that it applies to all programs, this rule changes the current 
definition to include current statutory definitions and adding a 
definition of minimum rent.
    Section 507 of the Act was discussed in the Initial Guidance Notice 
at 64 FR 8197, left hand column.

Self-Sufficiency Incentives--Public Housing Only (24 CFR 5.612) 
(Section 508 of the 1998 Act Amending Section 3 of the 1937 Act)

Disallowance of Earned Income
    For public housing only, the 1998 Act exempts earned income for 
families who start work or self-sufficiency programs. The Act phases in 
the impact on rent of an increase in earned income of certain families. 
A PHA cannot increase a public housing family's rent for a period of 12 
months if the increase in income results from (1) earnings of a 
previously unemployed family member; (2) earnings of a family member 
during participation in a self-sufficiency or job training program; or 
(3) earnings of a family member that had been receiving welfare in the 
previous six months. After the 12-month disallowance, a family's rent 
increase must be phased in. The phased-in rent cannot increase as a 
result of the earned income by more than 50 percent (50%) for an 
additional 12 months. HUD is implementing this statutory provision by 
directing PHAs not to increase the family's annual income, on which the 
income-based rent is based, to reflect such an increase in income. The 
actual change in family income will be recorded in the data system, 
however. (New Sec. 5.612 reflects this change.)
    As families move into the work force for the first time, they often 
experience periods of employment and unemployment. The rule as proposed 
does not place a limit on the number of times a family or an individual 
can benefit from the disallowance of earned income; the 1998 Act 
contains no specific limitations. HUD specifically asks for comments on 
this subject, including limits on the number of times a family or 
individual can take advantage of the disallowance.
Previous Earned Income Disregard
    The income disregards formerly applicable only to public housing 
(under 24 CFR 5.609) are being removed. These include PHA optional 
exclusions from annual income. These exclusions are replaced with 
similar permissive deductions reflected in the new definition of 
adjusted income (24 CFR 5.611). Families who have been given optional 
income exclusions under the old rules must be permitted to retain those 
exclusions until the family's next annual reexamination.
    The new 12-month disallowance (under 24 CFR 5.612) replaces the 
current 18-month earned income disregard for persons going from 
training programs to work (under 24 CFR 5.609(c)(13)). Families who 
currently have an 18-month disregard, or who qualify for such disregard 
on or before September 30, 1999, can continue that disregard for the 18 
months or as long as they would have qualified under the old rule.
Individual Savings Account
    Under the 1998 Act, PHAs may establish and maintain individual 
savings accounts for public housing residents who pay income-based 
rents. Where the PHA has a policy to offer individual savings accounts, 
a family may choose an individual savings account instead of being 
given the 12-month disallowance of earned income and phasing in of a 
rent increase. Families who choose individual savings accounts would 
pay the higher rent and the PHA would deposit the increased amount in 
the savings account. Once established, a family could access the 
account for purchasing a home, paying education costs, moving out of 
public housing, or other purposes promoting self-sufficiency. PHAs are 
not required to provide the savings account option. However, savings 
accounts are a good way to help families reach self-sufficiency. If a 
PHA offers savings accounts, the PHA needs to have written policies on 
management of the accounts. (See 24 CFR 5.612 and 5.614(a)(2).) These 
policies could be modeled after the Family Self-Sufficiency (FSS) 
escrow accounts found at 24 CFR part 984 or Turnkey III accounts at 24 
CFR part 904. At a minimum, a PHA savings account policy must: (1) 
provide for payment of interest and annual notification to the resident 
of account status; and (2) provide that any balance in such an account 
when the family moves out is the property of the family.
    Section 508 was discussed in the Initial Guidance Notice at 64 FR 
8198, middle column.

[[Page 23466]]

Income Changes Resulting From Welfare Program Requirements (24 CFR 
5.618) (Section 512 of the 1998 Act Amending Section 12 of the 1937 
Act)

    The 1998 Act addresses the interaction of welfare programs and 
HUD's treatment of income for purposes of determining rent in the 
public housing and Section 8 tenant-based assistance programs. The Act 
provides (in section 12(d) of the 1937 Act) that a family's rent must 
not be decreased as a result of a reduction in welfare benefits based 
on either (1) fraud by a member of the family; or (2) the family's 
failure to comply with the welfare program's requirement for work 
activities or participation in an economic self-sufficiency program. 
HUD is implementing this statutory provision by directing the 
responsible entities not to reduce the family's annual income, on which 
the income-based rent is based, to reflect such a reduction in welfare 
benefits. The actual change in family income will be recorded in the 
data system, however.
    If a reduction in income results from the expiration of a lifetime 
limit on benefits or a loss of benefits because of a durational time 
limit on welfare benefits despite compliance with work requirements, 
the rule directs the responsible entity to reflect the reduced income 
in determination of the family's annual income.
    In addition, when a family is adversely affected by reductions in 
welfare benefits as described in this section, the rule requires the 
responsible entity to notify families that they have the right to a 
review through a grievance hearing in accordance with Sec. 966.55(e) 
for public housing, or through the use of an informal hearing under 
Sec. 982.555(a)(i) for section 8 tenant-based certificate and voucher 
programs. (See the revision to Sec. 966.55(e) to reflect this for 
public housing.)
    The addition of a new Sec. 5.618, which applies to public housing 
and Section 8 tenant-based programs, reflects treatment of welfare 
benefit reductions.
    Section 512 was discussed in the Initial Guidance Notice at 64 FR 
8199, left hand column.

Rents in Public Housing (24 CFR 5.603, 5.614) (Section 523 of the 1998 
Act Amending Section 3(a) of the 1937 Act)

    Section 523 of the 1998 Act makes significant changes to the rents 
charged for public housing units. Legislative history notes that the 
current rent policies provides disincentives to work and upward 
mobility. The Act gives PHAs significant flexibility to develop rent 
policies to encourage self-sufficiency. In addition, public housing 
residents can choose annually between paying an income-based rent or a 
flat rent. Rent policies also can be used to help PHAs provide for 
deconcentration of poverty and income mixing. Both income-based and 
flat rents must be determined by the PHAs in accordance with their 
written policies. (Rents are the subject of the new 24 CFR 5.614. In 
this rule, HUD revises the definition of ``tenant rent'' in Sec. 5.603 
to reflect the differences among the programs now that PHAs have 
flexibility in determining rents in public housing.)
Income-Based Rents
    In general, the monthly rental amount, including any applicable 
utility allowance, calculated under this method must not exceed the 
highest of the following: 30 percent (30%) of the family's monthly 
adjusted income; 10 percent (10%) of the family's monthly income; or 
the welfare rent, if applicable. The monthly rental amount cannot be 
less than the minimum rent set by the PHA. The 1998 Act permits PHAs to 
set income-based rents at an amount less than the maximum of 30 percent 
of monthly adjusted income/10 percent of monthly income/welfare rent. 
This gives PHAs considerable flexibility in setting income-based rent 
structures. PHAs could set income-based rents at a fixed percentage 
below 30 percent, could have a rent schedule which sets the same rent 
amount for families whose income are within a certain income range, 
impose ceiling rents, etc. HUD cannot assure PHAs that it can provide 
additional subsidy to cover any reduced income resulting from such 
policies. Future operating subsidy distribution is the subject of 
negotiated rulemaking.
Flat Rents
    Flat rents are intended as an incentive for residents to remain in 
public housing after they have attained a level of self-sufficiency. 
Working families will provide positive role models for other residents. 
The Act requires flat rent be set at ``rental value,'' which HUD 
interprets to be reasonable market value. In establishing reasonable 
market value, PHAs should review rent of comparable units in the 
community. A PHA must document its means for establishing the 
reasonable market value. Methods that a PHA may consider in 
establishing reasonable market value include using the area's Section 8 
rent reasonableness survey for comparable developments. PHAs should 
review their flat rents as often as necessary to assure they comply 
with the regulatory requirements, but at least annually. HUD cannot 
assure PHAs that it can provide additional subsidy to cover any reduced 
income resulting from such policies. Future operating subsidy 
distribution is the subject of negotiated rulemaking.
Family Choice
    The 1998 Act requires PHAs to give families a choice among options 
for rents. The options provided must include at least a flat rent and 
an income-based rent. This choice must be given to each family 
annually. PHAs must provide residents with enough information to make 
an informed choice. For example, a PHA could provide the family both 
the income-based rent and the flat rent for the unit. If the PHA has 
not completed a current examination of the family's income (because the 
family has been on flat rent and the PHA's policy is not to conduct 
annual re-examinations on such families), the PHA should provide a 
worksheet or other information on how income-based rent is determined 
so the family could calculate its own income-based rent amount.
Switching Rent Methods to Lower Rent Because of Financial Hardship
    The 1998 Act requires a PHA to immediately switch a family from a 
flat rent to an income-based rent if the PHA determines that the family 
has a financial hardship circumstance. The PHA must develop written 
policies stating what the PHA will consider a financial hardship. The 
PHA's policy must include situations in which the income of the family 
has decreased because of loss or reduction of employment; death in the 
family or loss of assistance; or increase in the family's expenses for 
medical costs, child care, transportation, or education. PHAs can 
include additional circumstances. Because the 1998 Act requires that 
PHAs immediately switch rents, a PHA will need to conduct an 
examination of the family's income in order to switch the rent as 
quickly as possible, but the rent should be lowered no later than the 
first of the month following the month the family reported the 
hardship.
Retaining Ceiling Rents
    The 1998 Act permits PHAs that currently have ceiling rents to 
retain those rents instead of developing flat rents. HUD interprets 
this to mean that PHAs may retain ceiling rent instead of flat rents 
for three years, after which time those ceiling rents must be adjusted 
to the same levels as required for flat rents. Ceiling rents are 
subject to the limitations that a family cannot be required to pay more 
than its income-based rent. Therefore, families with ceiling rents must 
be given a reduced

[[Page 23467]]

rent if their income goes down. The PHA must continue to conduct annual 
reexaminations of income for families who choose ceiling rents, since 
the three year income review is not applicable to the ceiling rent 
provision.
    Section 523 was discussed in the Initial Guidance Notice at 64 FR 
8202, right hand column.

New Community Service and Self-Sufficiency Requirements for Public 
Housing (24 CFR 960.603-960.611) (Section 512 of the 1998 Act Amending 
Section 12 of the 1937 Act)

    Section 512 of the 1998 Act adds a new requirement for non-exempt 
residents of public housing. Each non-exempt adult public housing 
resident must contribute eight (8) hours for each month of community 
service or participate in a self-sufficiency program for 8 hours in 
each month. (The exemptions are discussed later in this section.) 
Community service is service for which the individual volunteers. A new 
subpart F is added to 24 CFR part 960, establishing the community 
service and self-sufficiency requirements.
    Each PHA Annual Plan must include a description of how the 
community service and self-sufficiency requirements will be 
implemented. The new subpart F of 24 CFR part 960 outlines basic 
parameters for implementing the community service and self-sufficiency 
requirement, while retaining flexibility for PHAs to develop 
initiatives responsive to local circumstances. PHAs are encouraged to 
partner with qualified resident councils or resident management 
corporations, community and volunteer groups, or other third party 
contractors to assist PHAs with program administration.
The Relationship of Community Service and Self-Sufficiency
    Since community service is considered a tool to assist residents in 
becoming responsible and self-sufficient, a number of community service 
activities are considered self-sufficiency activities. A PHA policy may 
provide for combining or substituting community service hours with 
approved self-sufficiency hours to reach the 8 hour monthly 
requirement.
Community Service
    Community service offers public housing residents an opportunity to 
contribute to the communities that support them. In establishing 
community service policies, PHAs should not limit community service to 
a single type of activity and/or a single location in which the 
activity is to be performed. A PHA could include as community service 
activities improving the physical environment of the resident's 
development, volunteer work in a local school, hospital or child care 
center, working with youth organizations, helping neighborhood groups 
on special projects, or participation in programs that develop and 
strengthen resident self-responsibility such as drug and alcohol abuse 
counseling and treatment, household budgeting and credit counseling, 
and English proficiency. The 1998 Act specifically prohibits political 
activity as community service.
    A PHA can administer its own community service program, form 
cooperative relationships with other entities in order to make 
opportunities available for residents or contract the entire community 
service program to a third party, including qualified resident 
councils. A PHA may use a combination of these options. A PHA must 
ensure that its own community service programs as well as programs 
developed through cooperative relationships or contracts with third 
parties are accessible for persons with disabilities.
    In administering its own program, a PHA or its authorized designee 
identifies the most appropriate community service opportunities for 
residents and directly supervises the performance of the community 
service. This approach might include developing a directory of eligible 
opportunities from which residents could select.
    Instead of managing the entire process, a PHA could link residents 
with agencies seeking volunteers. Under this approach, the PHA's 
administrative duties would be limited to monitoring the 
appropriateness of the service and confirming a resident's 
participation.
    Another alternative is for the PHA to contract with another entity 
to run the community service program. The contract entity would then 
perform all necessary administrative functions. The PHA would be 
responsible to assure contract compliance. PHAs must follow their 
procurement policies and 24 CFR 85.36 to contract out their community 
service programs.
    When for-profit third party contractors are used, the PHA should 
ensure that the administrators overseeing the program do not have a 
financial interest in the entity where community service participants 
are assigned. The PHA also should ensure that the conditions under 
which the work is to be performed are not otherwise hazardous, that the 
work is not labor that would be performed by the PHA's employees 
responsible for essential maintenance and property services, or that 
the work is otherwise unacceptable. The Senate Committee Report on this 
provision noted that community service is not to be perceived as 
punitive or demeaning activity, but rather community service should be 
considered as rewarding activity that will assist residents in 
improving their own and their neighbors' economic and social well-being 
and give residents a greater stake in their communities. (Senate Report 
at pg 21).
Self-Sufficiency
    Participation in self-sufficiency activities can satisfy part or 
all of a resident's requirement to perform community service. A non-
exempt adult public housing resident may participate in an economic 
self-sufficiency program for 8 hours in each month. The 1998 Act 
defines economic self-sufficiency program to include activities that 
are designed to encourage, assist, train or facilitate economic 
independence. In setting policies for this requirement, PHAs are 
encouraged to look at a broad range of self-sufficiency activities. In 
addition to apprenticeships and job readiness training, such activities 
as substance abuse and mental health counseling and treatment, English 
proficiency, and household budgeting and credit counseling may be 
considered activities which promote economic self-sufficiency. As with 
community service, a PHA could operate its own economic self-
sufficiency program, develop linkages with other agencies (e.g., TANF), 
or contract for services to be provided to its residents.
Geographic Location
    The 1998 Act discusses the geographic location where the resident 
must perform the community service or participate in the economic self-
sufficiency activity. The location includes PHA-owned property and the 
community at large. The Congressional intent is that residents provide 
service to their own communities. In rural areas, a resident's 
community may encompass a large geographic area, while in dense urban 
settings, the community may be a neighborhood. In its policy, a PHA 
should make clear the meaning of ``community.''
Exemptions
    The 1998 Act provides a list of exemptions to the requirement for 
community services and economic self-sufficiency. These include adults 
who are 62 years of age or older, persons with disabilities, persons 
engaged in work activities (as defined by section

[[Page 23468]]

407(d) of the Social Security Act), and persons participating in a 
welfare to work program, or receiving assistance from and in compliance 
with a State program funded under part A, title IV of the Social 
Security Act. (For purposes of the community service requirement, an 
adult is a person 18 years or older.) PHAs need to develop policies and 
procedures for determining and documenting residents' exemptions. 
Generally PHAs should re-verify an adult's exemption status annually. 
There are, of course, obvious exceptions. For example, an individual 
exempt by being over 62 years in age would not need re-verification.
    PHAs must establish policies that permit residents to change 
exemption status during the year if their situation changes. Unemployed 
residents, for example, must be able to request a determination of 
exemption if they find work or start a training program.
    Persons eligible for a disability deduction are not necessarily 
automatically exempt from the community service, economic self-
sufficiency requirement. The 1998 Act defines ``disability'' very 
narrowly for the purpose of the community service requirement. Further, 
the Act states that a person is exempt only to the extent the 
disability makes the person ``unable to comply'' with the community 
service requirement. The PHA must ensure that the community service and 
self-sufficiency programs are accessible to persons with disabilities.
    The PHA must document all exemptions for the resident's file. 
Policies must identify what kinds of documentation the PHA will accept. 
Generally, PHAs should follow the same standards of documentation for 
exemptions as they do for other verifications.
    While the 1998 Act exempts categories of persons based on their 
characteristics, such as age or employment, the Act does not exempt 
adult residents of particular developments or kind of units. Therefore, 
families who pay flat rent, live in public housing units within market 
rate developments, or families who are over income when they initially 
occupy a public housing unit are not automatically exempt.
Cooperative Relationships With Welfare Agencies
    The 1998 Act calls upon all PHAs to make their best efforts to 
enter into cooperative relationships with the agencies that provide 
assistance to their clients. PHAs should seek and advocate for 
agreements to target assistance to PHA clients. Agreements with such 
agencies will not only facilitate exchange of information, they will 
expand the choice of community service and self-sufficiency programs 
available to PHA clients and facilitate coordination of those services. 
As noted in the Initial Guidance Notice, the 1998 Act amends the Public 
Housing Management Assessment Program (PHMAP) (and the successor 
program--the Public Housing Assessment System (PHAS)) to include the 
extent of a PHA's coordination, promotion or provision of effective 
self-sufficiency programs.
Lease Requirements
    Under the 1998 Act, public housing leases must have 12 month terms. 
The lease must be automatically renewable except for noncompliance with 
the community service requirements. An annual signing process is not 
necessary. The public housing lease also must provide for termination 
and eviction for noncompliance with the community service requirements. 
Any lease changes (including addenda) must be made in accordance with 
the provisions of 24 CFR 966.3, including notice to tenants and 
opportunity for comment. The PHA must implement this provision for each 
family at the family's next regularly scheduled annual reexamination on 
or after October 1, 1999, and for families admitted after October 1, 
1999. The PHA may not renew or extend the lease if a household contains 
a nonexempt adult who has failed to comply with the community service 
requirement.
Documentation
    Reasonable documentation must be provided to verify the community 
service requirements. The documentation must be placed in the 
resident's file at the time of reexamination.
Noncompliance
    Each PHA must determine, on an annual basis, if non-exempt 
residents are in compliance. The PHA must have a policy which permits 
noncompliant families to cure the noncompliance. Such a policy must 
require the noncompliant adult and the head of household to sign an 
agreement to make up the hours needed within the next 12-month period. 
Continued noncompliance will result in eviction of the entire family, 
unless the noncompliant family member is no longer a part of the 
household.
    Section 512 was discussed in the Initial Guidance Notice at 64 FR 
8199, left hand column.

Occupancy by Police Officers and Over-Income Families (24 CFR Parts 5 
and 960) (Sections 524 and 548 of the 1998 Act Amending Sections 3 and 
8 of the 1937 Act)

    Section 524 of the 1998 Act amends section 3(a) of the 1937 Act to 
provide that PHAs and owners may allow police officers to reside in 
public housing or assisted housing under the requirements of the 
statute. Under this section, small PHAs may also rent units to over-
income families on a month-to-month basis, in accordance with statutory 
requirements, if there are no eligible families applying for assistance 
for that month, provided that the over-income family agrees to vacate 
(with at least 30 days notice) when the unit is needed for an income-
eligible family. Section 548 of the Act provides for law enforcement 
and security personnel in project-based section 8 housing assistance to 
increase security.
    Section 524 of the Act was discussed in the Initial Guidance Notice 
at 64 FR 8202, right-hand column. Section 548 of the Act was discussed 
in the Initial Guidance Notice at 64 FR 8204, middle column.

Changes to Existing Self-Sufficiency Programs--Public Housing and 
Section 8 Certificate/Voucher Programs (24 CFR Part 984) (Section 509 
of the 1998 Act Amending Section 23 of the 1937 Act)

    Section 509 of the 1998 Act amended section 23 of the 1937 Act to 
make several changes to the Family Self-Sufficiency Program, which were 
effective on October 21, 1998. Section 509 provides that the mandatory 
minimum FSS program size will not increase when a PHA receives 
incremental Section 8 funding or public housing units on or after 
October 21, 1998. Section 509 also allows PHAs to reduce their 
mandatory minimum FSS program size obligation as families successfully 
complete their FSS contracts.
    HUD's regulations (24 CFR part 984) are amended to clarify that for 
public housing, receipt of incremental housing units means reservation 
of funds to acquire or construct additional public housing units on or 
after October 21, 1998. Similarly, for Section 8 certificate and 
voucher funding, receipt of funds means reservation of funds for the 
Section 8 certificate and voucher programs. An expanded listing of 
excluded funding categories that did not increase a PHA's mandatory 
minimum program size is now included in 24 CFR 984.105. The regulations 
in part 984 are also amended to clarify that PHAs may continue to 
implement and administer

[[Page 23469]]

FSS programs larger than the required levels, and that HUD approval of 
the PHA's FSS action plan authorizes the PHA to implement a voluntary 
FSS program.
    In addition, Sec. 984.306(b)(1) has been revised so that PHAs can 
now approve a family's move outside the PHA's jurisdiction during the 
first 12 months of a family's FSS contract of participation. The 
regulatory definition of welfare assistance in Sec. 984.103 also has 
been revised so that it does not disadvantage working families and 
families with persons with disabilities.
    Section 509 was discussed in the Initial Guidance Notice at 64 FR 
8198, right hand column.

III. Findings and Certifications

Public Reporting Burden

    The information collection requirements contained in Secs. 5.410, 
5.612, 5.614, 5.616, 960.605, and 984.201 have been submitted to the 
Office of Management and Budget (OMB) under the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501-3520). In accordance with the Paperwork 
Reduction Act, HUD may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless the 
collection displays a currently valid OMB control number.
    Comments regarding the information collections contained in the 
rule must be submitted by June 29, 1999. Comments on these information 
collections should refer to the title of this rule and must be sent to: 
Reports Liaison Officer, Mildred Hamman, Department of Housing and 
Urban Development, 451 Seventh Street, SW, Room 4238, Washington, DC 
20410.
    Specifically, comments are solicited from members of the public and 
affected entities concerning the proposed collection of information to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (2) Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collection of information;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond, including through the use of appropriate automated 
collection techniques or other forms of information technology, e.g., 
permitting electronic submission of responses.
    The burden of the information collections is estimated as follows:

----------------------------------------------------------------------------------------------------------------
                                     Number of     Responses per    Total ann.       Hours per      Total ann.
        Section of 24 CFR           respondents        resp.         responses       response          hours
----------------------------------------------------------------------------------------------------------------
5.410 (Resid. Prefs.)...........           3,400               1           3,400              16          54,400
5.611 New Deductions............           3,400               1           3,400               8          27,000
5.612(c) Indiv Sav Accounts.....           8,000               1           8,000               2          16,000
5.614(c) Written Rent Options...           3,400               1           3,400              16          54,400
5.618(b) Welf. Rent Verif.......           3,400               1           3,400               3          10,200
5.618(c) Welf. Rent Notice......           3,400               1           3,400               1           3,400
960.605(c) Comm Serv............           3,400               1           3,400               1           3,400
984.201 FSS Action Plan 2577-     ..............  ..............  ..............  ..............  ..............
 0178 exp 7/31/99...............
960.505 Over Inc Fams in Small               500               1             500               1             500
 PHAs...........................
                                 -------------------------------------------------------------------------------
    Total Burden................  ..............  ..............  ..............  ..............         169,300
----------------------------------------------------------------------------------------------------------------

Regulatory Review

    The Office of Management and Budget (OMB) reviewed this proposed 
rule under Executive Order 12866, Regulatory Planning and Review. OMB 
determined that this proposed rule is a ``significant regulatory 
action,'' as defined in section 3(f) of the Order (although not 
economically significant, as provided in section 3(f)(1) of the Order). 
Any changes made to the proposed rule subsequent to its submission to 
OMB are identified in the docket file, which is available for public 
inspection in the office of the Department's Rules Docket Clerk, Room 
10276, 451 Seventh Street, SW, Washington, DC 20410-0500.

Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act, 5 
U.S.C. 605(b), has reviewed and approved this proposed rule and in so 
doing certifies that this rule would not have a significant economic 
impact on a substantial number of small entities. The proposed rule 
begins the rulemaking process to implement changes to admission and 
occupancy requirements in public housing made by the Quality Housing 
and Work Responsibility Act of 1998. Although HUD has determined that 
this proposed rule would not have a significant economic impact on a 
substantial number of small entities, HUD welcomes comments regarding 
any less burdensome alternatives to this rule that will meet HUD's 
objectives as described in this preamble.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
was made in accordance with HUD regulations in 24 CFR part 50 that 
implement section 102(2)(C) of the National Environmental Policy Act of 
1969 (42 U.S.C. 4223). The Finding is available for public inspection 
during regular business hours in the Office of the Rules Docket Clerk, 
Office of General Counsel, Department of Housing and Urban Development, 
Room 10276, 451 Seventh Street, SW, Washington, DC 20410.

Federalism Impact

    The General Counsel, as the Designated Official for HUD under 
Section 6(a) of Executive Order 12612, Federalism, has determined that 
this proposed rule would not have federalism implications concerning 
the division of local, State, and Federal responsibilities, and 
therefore review under the order is not required. The proposed rule is 
exclusively concerned with admission and occupancy requirements in 
public housing. No programmatic or policy changes will result from this 
rule that would affect the relationship between the Federal government 
and State and local governments.

Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532) 
establishes requirements for Federal agencies to assess the effects of 
their regulatory actions on State, local, and tribal governments and 
the private sector. This proposed rule does not impose a Federal 
mandate that will result in the expenditure by State, local, or tribal

[[Page 23470]]

governments, in the aggregate, or by the private secto, or $100 million 
or more in any one year.

Catalog

    The Catalog of Federal Domestic Assistance numbers for these 
programs are 14.850, 14.855, and 14.857.

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, Individuals with disabilities, 
Loan programs--housing and community development, Low and moderate 
income housing, Mortgage insurance, Pets, Public housing, Rent 
subsidies, Reporting and recordkeeping requirements.

24 CFR Part 960

    Aged, Grant programs--housing and community development, 
Individuals with disabilities, Public housing.

24 CFR Part 966

    Grant programs--housing and community development, Public housing.

24 CFR Part 984

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

    Accordingly, HUD proposes to amend parts 5, 960, and 966 of title 
24 of the Code of Federal Regulations as follows:

PART 5--GENERAL HUD PROGRAM REQUIREMENTS; WAIVERS

    1. The authority citation for part 5 continues to read as follows:

    Authority: 42 U.S.C. 3535(d), unless otherwise noted.

Subpart B--Disclosure and Verification of Social Security Numbers 
and Employer Identification Numbers; Procedures for Obtaining 
Income Information

    2. Add a new Sec. 5.211, to read as follows:


Sec. 5.211  Disclosure of income matching information to the public 
housing agency.

    (a) Public housing residents and section 8 tenant-based 
participants must disclose the letter and other information they 
received from HUD regarding their income (under HUD's income 
verification initiative) to the PHA.
    (b) The PHA must verify the accuracy of the income data, change 
rent amounts, or terminate assistance, as appropriate, when public 
housing residents or Section 8 tenant-based participants disclose 
income information, as described in paragraph (a) of this section.


Sec. 5.214  [Amended]

    3. Amend Sec. 5.214 by removing the definition of ``HA''.

Subpart D--Definitions and Other General Requirements for 
Assistance Under the United States Housing Act of 1937


Sec. 5.400  [Amended]

    4. Amend Sec. 5.400 by removing the parenthetical phrase.
    5. Amend Sec. 5.403 to add a definition of responsible entity, to 
read as follows:


Sec. 5.403  Definitions.

* * * * *
    Responsible entity means:
    (1) For the public housing program, the Section 8 tenant-based 
assistance program (part 982 of this title), the Section 8 project-
based certificate assistance program (part 983 of this title), and the 
Section 8 moderate rehabilitation program (part 882 of this title), the 
responsible entity means the PHA administering the program under an ACC 
with HUD;
    (2) For all other Section 8 programs, the responsible entity means 
the Section 8 owner.


Sec. 5.405  [Amended]

    6. Amend Sec. 5.405 as follows:
    a. By removing from the last sentence of paragraph (a) the phrase: 
``who are not elderly persons, or displaced persons, or persons with 
disabilities'';
    b. By removing paragraphs (b) and (d); and
    c. By redesignating paragraph (c) as paragraph (b).
    7. Revise Sec. 5.410, to read as follows:


Sec. 5.410  Selection preferences.

    (a) Applicability. The preferences for admission to the various 
programs differ. For each program, the preferences are administered by 
the responsible entity.
    (b) Local preferences in public housing. A PHA may establish a 
system for admitting or selecting families for assistance that provides 
preference to families having certain characteristics. A system of 
preferences must be based on local housing needs and priorities, as 
determined by the PHA using generally accepted data sources, including 
waiting list and any information obtained during public comment on the 
PHA Annual Plan and under the requirements applicable to the 
Consolidated Plan. Additionally, consistent with the PHA's Annual Plan, 
the PHA should consider preferences for individuals who are victims of 
domestic violence.
    (c) Preferences in project-based Section 8 assistance programs 
other than project-based certificates and moderate rehabilitation. (1) 
The responsible entity may give preference to working families. In 
implementing a preference for working families, the responsible entity 
is subject to the anti-skipping provision of paragraph (g) of this 
section regarding income levels. (If a responsible entity adopts a 
preference for working families, the entity must not give greater 
weight to an applicant based on the amount of employment income, and an 
applicant household must be given the benefit of the preference if the 
head of the household, spouse, or sole member of the household is age 
62 or older or is receiving social security disability benefits, 
supplemental security income disability benefits, or any other payments 
based on an individual's inability to work.) A responsible entity may 
give preference to graduates of, as well as active participants in, 
educational and training programs that are designed to prepare 
individuals for the job market.
    (2) Owners must develop a written tenant selection plan in 
accordance with program requirements. Owners are permitted to use PHA 
local preferences in their tenant selection plan. If an owner elects to 
make use of local preferences established by a PHA, the tenant 
selection plan must describe how any preferences will be used.
    (d) Preference in the Section 8 tenant-based, project-based 
certificate, and moderate rehabilitation programs. The PHA may 
establish a system of local preferences for selection of families 
admitted to the program that are consistent with the PHA Plan. (See 
Secs. 982.207, 983.203, and 882.514 of this title.)
    (e) Residency preferences. (1) Public housing. A preference for 
admission or selection for assistance of families who reside anywhere 
in a specified ``residency preference area'' is permitted to respond to 
local needs and priorities. Applicants who are working or who have been 
notified that they are hired to work in the residency preference area 
must be treated as residents of the residency preference area, and a 
residency preference may not be based on how long the applicant has 
resided in or worked in the residency preference area.
    (2) Section 8 programs other than tenant-based certificate/voucher, 
project-based certificate, and moderate

[[Page 23471]]

rehabilitation programs. In these programs, local residency 
requirements are prohibited.
    (3) Section 8 certificate/voucher, project-based certificate, and 
moderate rehabilitation programs. See Secs. 982.207(b), 983.203(a), and 
882.514(b) of this title.
    (f) Use of other factors in public housing and project-based 
Section 8 housing. The responsible entity may, in selecting a family 
for a particular unit, match other characteristics of the applicant 
family with the type of unit available, for example, number of 
bedrooms. In selection of a family for a unit that has special 
accessibility features, the responsible entity must give preference to 
families who include persons with disabilities and can benefit from 
those features of the unit (see Secs. 8.27 and 100.202 of this title). 
Also, in selection of a family for a unit in a public housing mixed 
population project, the responsible entity must give preference to 
elderly families and disabled families (see, for example, subpart D of 
part 960 of this title).
    (g) Section 8 income-based admission. In Section 8 programs, the 
responsible entity may not select an applicant for admission in an 
order different from the order on the waiting list for the purpose of 
selecting a relatively higher income family for admission.
    (h) Informing applicants about admission preferences. (1) The 
responsible entity must inform all applicants about available 
preferences and must give applicants an opportunity to show that they 
qualify for available preferences.
    (2) If the responsible entity determines that the notification to 
all applicants on a waiting list required by paragraph (h)(1) of this 
section is impracticable because of the length of the list, the 
responsible entity may provide this notification to fewer than all 
applicants at any given time.
* * * * *


Secs. 5.415, 5.420, 5.425, and 5.430  [Removed]

    8. Remove Secs. 5.415, 5.420, 5.425, and 5.430.

Subpart F--Income Limits, Annual Income, Rent and Examinations for 
the Public Housing and Section 8 Programs

    9. Amend Sec. 5.601 as follows:
    a. Revise the heading of Sec. 5.601;
    b. Remove existing paragraphs (a)(2)(iii) and (b);
    c. Redesignate the introductory text of paragraph (a) as new 
paragraphs (a) and (b), introductory text;
    d. Redesignate paragraphs (a)(1) through (a)(3) as paragraphs 
(b)(1) through (b)(3);
    e. Add new paragraphs (c) and (d).
    The revised heading of Sec. 5.601, revised paragraphs (a) and (b), 
introductory text, and new paragraphs (c) and (d) read as follows:


Sec. 5.601  Purpose, applicability and reporting.

    (a) Purpose. This subpart provides the definitions and requirements 
for income limits for admission, annual income, adjusted income, total 
tenant payments, utility allowances and reimbursements, and 
reexamination of income and family composition for the programs listed 
in paragraph (b) of this section.
    (b) Programs covered. This subpart covers the following HUD 
programs:
    (1) * * *
* * * * *
    (c) Income eligibility for assistance. No family other than a low-
income family shall be eligible for admission to a program covered by 
this subpart, unless otherwise determined by HUD.
    (d) Reporting. PHAs and owners must comply with HUD-prescribed 
reporting requirements that will permit HUD to maintain the data 
necessary to monitor compliance with the income eligibility 
restrictions of this subpart.

(Approved by the Office of Management and Budget under Control 
number 2502-0204)

    10. In Sec. 5.603, revise the definitions of full-time student, and 
tenant rent, and add definitions of extremely low-income family and 
responsible entity, to read as follows:


Sec. 5.603  Definitions.

* * * * *
    Extremely low-income family. A family whose annual income does not 
exceed 30 percent of the median income for the area, as determined by 
HUD, with adjustments for smaller and larger families.
* * * * *
    Full-time student. A person who is attending school or vocational 
training on a full-time basis.
* * * * *
    Responsible entity. For the public housing and the Section 8 
tenant-based assistance (part 982 of this title), project-based 
certificate assistance (part 983 of this title) and moderate 
rehabilitation program (part 882 of this title), the responsible entity 
means the PHA administering the program under an ACC with HUD. For all 
other Section 8 programs, the responsible entity means the Section 8 
owner.
* * * * *
    Tenant rent. The amount payable monthly by the family as rent to 
the unit owner (Section 8 owner or PHA in public housing).
* * * * *


Sec. 5.605  [Removed]

    11. Remove Sec. 5.605.
    12. Revise 5.607 to read as follows:


Sec. 5.607  Income Limits for Admission.

    (a) Public housing.--(1) Income mix. For admission to a PHA's 
public housing unit, the PHA may establish and use criteria for 
selection of residents for units in public housing developments that 
will produce a mix of incomes in the developments, subject to the 
provisions of this section. (The PHA's admissions policies that are 
designed to deconcentrate poverty and to bring a mix of incomes into 
developments are an element of its PHA Plan, part 903 of this title.)
    (2) Targeting.--(i) General. At least 40 percent of the admissions 
to the public housing program in each fiscal year must be extremely low 
income families, as defined in Sec. 5.603.
    (ii) Exceptions. ``Credit'' provisions of paragraph (d) of this 
section permit the level of extremely low income families admitted to 
other HUD programs in a given fiscal year to affect the general 
targeting requirement for admissions to public housing.
    (3) Prohibition. In complying with paragraph (a)(2) of this 
section, the PHA must not concentrate very low-income families in one 
public housing development or one building within a development. For 
this purpose, very low-income families includes other families with 
relatively low incomes.
    (4) Effect of Section 8 tenant-based assistance on public housing 
targeting. The PHA may reduce the required number of public housing 
units to which extremely low-income families must be admitted to the 
extent the PHA has credits, in the same fiscal year, for admissions of 
extremely low-income families to its Section 8 tenant-based assistance 
program beyond the number required for that program.
    (i) Maximum number of credits. The PHA may not have more credits 
than the lesser of:
    (A) Ten percent of the total number of families admitted to the 
Section 8 tenant-based assistance program during the fiscal year; or
    (B) The number of the PHA's public housing units in projects 
located in census tracts with a poverty rate of 30 percent or more that 
are made available and filled by eligible families who are not 
extremely low-income families.

[[Page 23472]]

    (ii) Limitation on use of credits. In any fiscal year, at least 30 
percent of a PHA's admissions to public housing units must be extremely 
low-income families, despite the availability of credits.
    (b) Section 8 tenant-based assistance. (1) Targeting. Not less than 
75 percent of the families admitted to a PHA's tenant-based Section 8 
program during the PHA fiscal year must be families whose annual income 
does not exceed the following amounts as determined by HUD:
    (i) 30 percent of the area median income, with adjustments for 
smaller and larger families; or (ii) A higher or lower percent of the 
area median income, if HUD determines a higher or lower percent is 
necessary because of unusually high or low family incomes.
    (2) Conversion of assistance. Conversion of assistance for a 
participant in the PHA certificate program to assistance in the PHA 
voucher program does not count as an ``admission,'' and is not subject 
to targeting under paragraph (b)(1) of this section.
    (3) Inapplicability of targeting. Admission of the following 
categories of families is not subject to targeting under paragraph 
(b)(1) of this section:
    (i) A low-income family that is continuously assisted under the 
1937 Act; or
    (ii) A low-income or moderate-income family that is displaced as a 
result of the prepayment of the mortgage or voluntary termination of an 
insurance contract on eligible low-income housing, as defined at 
Sec. 248.101 of this title.
    (4) Jurisdictions served by more than one PHA. If two or more PHAs 
that administer Section 8 tenant-based assistance have an identical 
jurisdiction, these PHAs shall be treated as a single PHA for purposes 
of meeting the targeting requirements of this section. In such a case, 
the PHAs shall cooperate to assure that aggregate admissions by such 
PHAs comply with the targeting requirement under paragraph (b)(1) of 
this section. If such PHAs do not have a single fiscal year, HUD will 
determine which PHA's fiscal year is used for this purpose.
    (5) Use of family's income. The annual income (gross income) of an 
applicant family is used both for determination of income-eligibility 
under Sec. 5.601(c) and for PHA income-targeting under paragraph (b)(1) 
of this section.
    (c) Section 8 project-based assistance. (1) Applicability. Income 
limits established by paragraph (c)(2) of this section apply to the 
following programs:
    (i) Section 8 New Construction or Substantial Rehabilitation (parts 
880 and 881 of this title);
    (ii) Section 8 Property Disposition and Loan Management Set-Aside 
(part 886 of this title);
    (iii) Section 8 Project-Based Certificate (part 983 of this title);
    (iv) Section 8 Moderate Rehabilitation (part 882 of this title);
    (v) Low-income housing preservation program (LIHPRA or ELIHPA, in 
effect before November 28, 1990); and
    (vi) Section 8 following conversion from the Rent Supplement or 
Section 236 Rental Assistance Payments programs.
    (2) Targeting. At least 40 percent of families admitted to a 
project in a fiscal year must be extremely low-income families.
    (3) Limitation on admission of non- very low-income families.--(i) 
Admission to units available before October 1, 1981. Not more than 25 
percent of the dwelling units that were available for occupancy under 
Annual Contributions Contracts (ACC) and Section 8 Housing Assistance 
Payments Contracts taking effect before October 1, 1981 and that are 
leased on or after that date shall be available for leasing by low-
income families other than very low-income families. HUD reserves the 
right to limit the admission of low-income families other than very 
low-income families to these units.
    (ii) Admission to units available on or after October 1, 1981. Not 
more than 15 percent of the dwelling units that initially become 
available for occupancy under Annual Contributions Contracts (ACC) and 
Section 8 Housing Assistance Payments (HAP) Contracts on or after 
October 1, 1981 shall be available for leasing by low-income families 
other than very low-income families. Except with the prior approval of 
HUD under paragraphs (d) and (e) of this section, no low-income family, 
other than a very low-income family shall be admitted to these units.
    (iii) Request for exception. A request by a PHA or owner for 
approval of admission of low-income families other than very low-income 
families to units described in paragraph (c)(3)(ii) of this section 
must state the basis for requesting the exception and provide 
supporting data. Bases for exceptions that may be considered include 
the following:
    (A) Need for admission of a broader range of tenants to preserve 
the financial or management viability of a project because there is an 
insufficient number of potential applicants who are very low-income 
families;
    (B) Commitment of an owner to attaining occupancy by families with 
a broad range of incomes; and
    (C) Project supervision by a State Housing Finance Agency having a 
policy of occupancy by families with a broad range of incomes supported 
by evidence that the Agency is pursuing this goal throughout its 
assisted projects in the community, or a project with financing through 
Section 11(b) of the 1937 Act (42 U.S.C. 1437i) or under Section 103 of 
the Internal Revenue Code (26 U.S.C. 103).
    (iv) Action on request for exception. Whether to grant any request 
for exception is a matter committed by law to HUD's sole discretion, 
and no implication is intended to be created that HUD will seek to 
grant approvals up to the maximum limits permitted by statute, nor is 
any presumption of an entitlement to an exception created by the 
specification of certain grounds for exception that HUD may consider. 
HUD will review exceptions granted to owners at regular intervals. HUD 
may withdraw permission to exercise those exceptions for program 
applicants at any time that exceptions are not being used or after a 
periodic review, based on the findings of the review.


Sec. 5.609  [Amended]

    13. Amend Sec. 5.609 as follows:
    a. Redesignate the introductory text of existing paragraph (b)(6) 
except heading as paragraph (b)(6)(ii) and redesignate existing 
paragraph (b)(6) (i) and (ii) as paragraphs (b)(6)(ii) (A) and (B).
    b. Add, after the heading of paragraph (b)(6), a new paragraph (i) 
to read as follows:
* * * * *
    (b) * * *
    (6) * * * (i) The amount of reduced welfare income that is 
disregarded specifically because the family engaged in fraud or failed 
to comply with an economic self-sufficiency or work activities 
requirement.
* * * * *
    c. Remove paragraphs (c)(1) and (c)(13) and renumber the remaining 
paragraphs as (c) (1) through (15).
    d. Remove paragraph (d) and redesignate paragraph (e) as paragraph 
(d).
    14. Revise Sec. 5.611 to read as follows:


Sec. 5.611  Adjusted income.

    Adjusted income means annual income (as determined by the PHA) of 
the members of the family residing or intending to reside in the 
dwelling unit, after making the following deductions:
    (a) Mandatory deductions. In determining adjusted income, a PHA

[[Page 23473]]

must deduct the following amounts from annual income:
    (1) $480 for each dependent;
    (2) $400 for any elderly family or disabled family;
    (3) The sum of the following, to the extent the sum exceeds three 
percent of annual income:
    (i) Unreimbursed medical expenses of any elderly family or disabled 
family; and
    (ii) Unreimbursed reasonable attendant care and auxiliary apparatus 
expenses for each member of the family who is a person with a 
disability, to the extent necessary to enable any member of the family 
(including the member with a disability) to be employed;
    (4) Any reasonable child care expenses necessary to enable a member 
of the family to be employed or to further his or her education; and
    (5) The amount of any earned income of a family member (other than 
the family head or spouse) who is not 18 years of age or older.
    (b) Permissive deductions--for public housing only. A PHA may 
establish other deductions from annual income. The PHA must identify 
these deductions in its written policies and must grant them to every 
family who qualifies.
    15. Add a new Sec. 5.612 to read as follows:


Sec. 5.612  Self-Sufficiency incentives--applicable to public housing 
only.

    (a) Limit on rent increases. The PHA must not increase the annual 
income of an eligible family as a result of increased income due to 
employment during the 12-month period beginning on the date on which 
the employment is commenced. Eligible families are those that reside in 
public housing:
    (1) Whose income increases as a result of employment of a family 
member who was previously unemployed for one or more years. For 
purposes of this section, ``previously unemployed'' includes a person 
who has earned, in the previous twelve months, no more than would be 
received for 10 hours of work per week for 50 weeks at the established 
minimum wage.
    (2) Whose employment income increases during the participation of a 
family member in any family self-sufficiency or other job training; or
    (3) Who is or was, within 6 months, assisted under any state 
program for temporary assistance for needy families funded under Part A 
of Title IV of the Social Security Act, as determined by the PHA in 
consultation with the local TANF agency, and whose earned income 
increases.
    (b) Phase-in of rent increases. Upon expiration of the 12-month 
period described in paragraph (a) of this section, the rent payable by 
a family may be increased due to continued employment of a family 
member except that for the 12-month period following expiration of the 
12 month disallowance, the increase may not be greater than 50 percent 
of the amount of the total rent increase.
    (c) Individual Savings Accounts. As an alternative to the 
disallowance of earned income described in paragraph (a) of this 
section or the phase-in of rent increase described in paragraph (b) of 
this section, a PHA may provide for individual savings accounts for 
public housing residents who pay an income-based rent, in accordance 
with a written policy, which must include the following provisions:
    (1) The PHA must advise the family that the savings account option 
is available;
    (2) At the option of the family, the PHA must deposit in the 
savings accounts an amount equal to the total amount that otherwise 
would have been applied to the family's rent payment as a result of 
employment;
    (3) Amounts deposited in a savings account may be withdrawn only 
for the purpose of:
    (i) Purchasing a home;
    (ii) Paying education costs of family members;
    (iii) Moving out of public or assisted housing; or
    (iv) Paying any other expense authorized by the PHA for the purpose 
of promoting the economic self-sufficiency of residents of public 
housing.
    (4) The PHA must maintain the account in an interest bearing 
investment and must credit the family with the interest income; and
    (5) At least annually the PHA must provide the family with a report 
on the status of the account.
    (6) The PHA must provide that any balance in such an account when 
the family moves out is the property of the family unless the family is 
not in compliance with the lease.
    16. Revise Sec. 5.613 to read as follows:


Sec. 5.613  Total tenant payment.

    (a) Total tenant payment is the highest of the following amounts, 
rounded to the nearest dollar:
    (1) 30 percent of the family's monthly adjusted income;
    (2) 10 percent of the family's monthly income;
    (3) If the family is receiving payments for welfare assistance from 
a public agency and a part of those payments, adjusted in accordance 
with the family's actual housing costs, is specifically designated by 
such agency to meet the family's housing costs, the portion of those 
payments which is designated for housing; or
    (4) Minimum rent, in accordance with applicable provisions of 
Sec. 5.616.
    (b) If the family's welfare assistance is ratably reduced from the 
standard of need by applying a percentage, the amount calculated under 
paragraph (a)(3) of this section is the amount resulting from one 
application of the percentage.
    17. Add a new Sec. 5.614 to read as follows:


Sec. 5.614  Choice of rent in public housing.

    (a) The amount payable monthly by the family as rent to the PHA is 
the rent selected annually by the family from the options offered under 
the PHA's rent policies. The options must include:
    (1) Flat rent. A flat rent is the amount of tenant rent based on 
the market value of the unit, as determined by the PHA. The flat rent 
is designed to encourage self-sufficiency and to avoid creating 
disincentives for continued residency by families who are attempting to 
become economically self-sufficient. A PHA must take reasonable steps 
to determine market value, and generally should use a comparability 
study. The comparability study would analyze relevant factors for the 
community in which the unit is located, including unassisted rents for 
housing of similar age, location, condition, amenities, design and 
size. The PHA must maintain records regarding the calculation and 
establishment of flat rents; and
    (2) Income-based rent. An income-based rent is the amount of tenant 
rent based on the family's income, as determined by the PHA, and the 
PHA's rent policies, which may specify a percentage of family income, a 
schedule of amounts, or some other feasible system. The income-based 
rent, including any applicable utility allowance, must not exceed the 
total tenant payment. A PHA may administer income-based rents in a way 
that involves depositing a portion of the tenant rent to an escrow or 
savings account, imposing a ceiling on tenant rents, adopting 
permissive income deductions (24 CFR 5.611(b)), or other reasonable 
amounts, as long as the tenant rent plus any utility allowance does not 
exceed total tenant payment. (See Sec. 5.611(b).)
    (b) Ceiling rent. A PHA may retain ceiling rents instead of flat 
rents for a period of three years from [insert effective date of final 
rule]. After this three year period, the PHA must adjust the ceiling 
rents to the same level as flat

[[Page 23474]]

rents under this section; however, ceiling rents are subject to 
paragraph (a) of this section, the annual reexamination requirements, 
and the limitation that the tenant rent plus any utility allowance may 
not exceed the total tenant payment.
    (c) Information for families. For the family to make an informed 
choice about its rent options, the PHA must provide sufficient 
information for an informed choice. Such information must include at 
least the following information:
    (1) The dollar amounts of tenant rent for the family under each 
option; and
    (2) The PHA's policies on switching type of rent in circumstances 
of financial hardship.
    (d) Changing type of rental payment. If the PHA determines that the 
family is unable to pay the flat rent because of financial hardship, 
the PHA must immediately switch the family's rental payment from flat 
rent to income-based rent.
    (e) Written policies on financial hardship. The PHA must establish 
written policies for determining financial hardship circumstances. 
Policies must include situations in which the family:
    (1) Has experienced a decrease in income because of changed 
circumstances, loss or reduction of employment, death in the family, 
and reduction in or loss of earnings or other assistance;
    (2) Has experienced an increase in expenses, because of changed 
circumstances, for medical costs, child care, transportation, 
education, or similar items; and
    (3) Such other situations determined by the PHA to be appropriate.
    18. Add a new Sec. 5.616, to read as follows:


Sec. 5.616  Minimum rent.

    (a) Minimum rent. A family must pay at least a minimum rent, 
established by the responsible entity. For public housing and the 
section 8 certificate, voucher and moderate rehabilitation programs, 
the PHA may establish a minimum rent of $0 to $50. For other section 8 
programs, the amount is $25. This minimum rent includes tenant rent 
plus any utility allowance. The responsible entity must grant an 
exemption from payment of this minimum rent if the family is unable to 
pay that rent as a result of financial hardship, as described in the 
responsible entity's written policies.
    (b) Financial hardship. The financial hardships that must be 
included are the following:
    (1) When the family has lost eligibility for or is awaiting an 
eligibility determination for a Federal, State, or local assistance 
program;
    (2) When the family would be evicted as a result of the imposition 
of the minimum rent requirement;
    (3) When the income of the family has decreased because of changed 
circumstances, including loss of employment;
    (4) When a death has occurred in the family; and
    (5) Other circumstances determined by the responsible entity or 
HUD.
    (c) Request for hardship exemption.--(1) For public housing. (i) If 
a family requests a hardship exemption, the PHA must suspend the 
minimum rent requirement immediately, until the PHA determines whether 
there is a qualifying financial hardship and whether the hardship is 
long-term.
    (ii) If the PHA determines that there is a qualifying hardship, but 
that it is temporary, the PHA reinstates the minimum rent from the time 
of suspension. The PHA cannot evict the family for nonpayment of the 
amount of minimum rent in excess of tenant rent otherwise payable 
during the 90-day period beginning on the date the family requested an 
exemption. The PHA must offer the family a reasonable repayment 
agreement for the amount of back rent owed.
    (2) For section 8 certificate, voucher and moderate rehabilitation 
programs and project-based section 8 assistance. (i) If a family 
requests a hardship exemption, the responsible entity must suspend the 
minimum rent requirement beginning the month following the family's 
hardship request until the responsible entity determines whether there 
is a qualifying financial hardship and whether it is temporary or long 
term.
    (ii) If the responsible entity determines that there is a 
qualifying financial hardship, but that it is temporary, the 
responsible entity may not impose a minimum rent for a period of 90 
days from the date of the family's request. At the end of the 90-day 
suspension period, a minimum rent is imposed retroactively to the time 
of suspension. The family must be offered a responsible repayment 
agreement for the amount of back rent owed.
    (3) For all programs. (i) If the responsible entity determines 
there is no qualifying hardship exemption, the responsible entity must 
reinstate the minimum rent including the back payment for minimum rent 
from the time of suspension on terms and conditions established by the 
responsible entity.
    (ii) If the responsible entity determines there is a qualifying 
long-term financial hardship, the responsible entity must exempt the 
family from the minimum rent requirements.
    (d) Appeal of financial hardship determination. A family who 
appeals a financial hardship determination through the public housing 
grievance procedure is exempt from any escrow deposit that may be 
required by the regulations governing these procedures.
    19. In Sec. 5.617, revise paragraph (a); redesignate existing 
paragraph (b) as paragraph (c); and add a new paragraph (b), to read as 
follows:


Sec. 5.617  Redetermination and verification of family income and 
composition.

    (a) Initial determination and regular redeterminations.--(1) 
Section 8. The responsible entity must conduct a redetermination of 
family income and composition at least annually.
    (2) Public housing. (i) For families who pay an income-based rent, 
the PHA must conduct a redetermination of family income and composition 
at least annually and must make appropriate adjustments in the rent 
after consultation with the family and upon verification of the 
information.
    (ii) For families who choose flat rents, the PHA must review the 
income of the family in accordance with the PHA's established policies, 
at least once every three years.
    (iii) For all families who include nonexempt individuals, as 
defined in 24 CFR 960.602, the PHA must determine compliance once each 
12 months with community service and self-sufficiency requirements in 
24 CFR 960, subpart F.
    (iv) The PHA may use the results of these evaluations to require 
the family to move to an appropriate size unit.
    (b) Interim redeterminations.--(1) When the redetermination is 
conducted. A family may request an interim redetermination of family 
income or composition because of any changes since the last 
determination. The responsible entity must make the interim 
redetermination within a reasonable time after the family request. The 
responsible entity may adopt policies prescribing when and under what 
conditions the family must report a change in family composition.
    (2) How the redetermination is conducted. In the case of a PHA, 
interim redeterminations must be conducted consistent with policies in 
its PHA Annual Plan. The change in income is annualized, even if the 
income is not expected to last for a full year. If the income changes 
again, the new amount

[[Page 23475]]

of monthly income will be annualized again.
* * * * *
    20. Add a new Sec. 5.618, to read as follows:


Sec. 5.618  Treatment of income changes resulting from welfare program 
requirements for public housing and section 8 tenant-based programs.

    (a) General. A responsible entity must not reduce the annual income 
of a family residing in public housing or reduce the contribution 
toward rent of a family receiving Section 8 tenant-based assistance 
because of a reduction in the family's welfare assistance specifically 
because of fraud or failure to participate in an economic self-
sufficiency program or comply with a work activities requirement. A 
reduction in welfare assistance is not to be treated as failure to 
participate in an economic self-sufficiency program or to satisfy a 
work activities requirement if the reduction results from:
    (1) The expiration of a lifetime limit on receiving benefits;
    (2) When a family has sought but cannot find employment; or
    (3) The family has complied with welfare program requirements but 
loses welfare because of a durational time limit such as a cap on 
welfare benefits for a period of no more than two years in a five-year 
period.
    (b) Verification. When a family requests a rent reduction based on 
a reduction in family income from welfare, the responsible entity must 
obtain written verification from the welfare agency of the basis for 
the reduction. If the reduction is specifically the result of the 
family's failure to participate in an economic self-sufficiency program 
or comply with work activities requirements or fraud by the family, the 
responsible entity must not reduce the family's rent.
    (c) Notification to families. Responsible entities must notify 
families who are adversely affected by the requirements of this section 
that they have the right to review through the PHA's grievance 
procedure (for public housing) without paying a deposit in escrow, or 
through use of the informal hearing procedure under 24 CFR 
982.555(a)(i) (for Section 8 tenant-based certificate and voucher 
programs).
    21. Add a new Sec. 5.619, to read as follows:


Sec. 5.619  Occupancy by police officers in public housing and section 
8 project-based housing.

    (a) Public housing--(1) Police officer. A person determined by the 
PHA to be, during the period of residence of that person in public 
housing, employed on a full-time basis as a duly licensed professional 
police officer by a Federal, State or local government or by any agency 
of these governments. An officer of an accredited police force of a 
housing agency may qualify.
    (2) Occupancy in public housing. For the purpose of increasing 
security for the residents of a public housing development, the PHA may 
allow police officers who would not otherwise be eligible for public 
housing, to reside in a public housing dwelling unit. The PHA must 
include in its PHA Annual Plan the number and location of the units to 
be occupied by police officers, and the terms and conditions of their 
tenancies.
    (b) Section 8 project-based housing--(1) Police officer (including 
security personnel). To be considered eligible for occupancy in section 
8 project-based housing, the police officer must be employed full time 
(not less than 35 hours per week) by a governmental unit or a private 
employer and compensated expressly for providing police or security 
services.
    (2) Occupancy in section 8 project-based housing. (i) Owners must 
submit a written plan to their local HUD Field Office for authorization 
to lease an available unit to over-income police officers. The owner's 
application must include:
    (A) A statement detailing existing social and physical conditions 
of the property and the owner's informed assessment of the need for 
crime deterrence for that property;
    (B) A statement of the anticipated benefits that the presence of 
police officers will create at the property and in the community;
    (C) A description of the proposed gross rent for the unit and any 
special conditions for occupancy, including the rent that would 
ordinarily be charged for the unit and the owner's annual maintenance 
cost for the unit (this rent may be a flat rent and not related to the 
income of the police officer);
    (D) The terms of the lease including a provision that states that 
the police officer's right of occupancy is dependent on the 
continuation of the employment that qualified the officer for residency 
in the property under the plan;
    (ii) An owner may not offer a unit to a police officer if the 
officer would displace an income eligible tenant from leasing the 
available unit, or would require an existing tenant to move to make the 
unit available to the officer.

PART 960--ADMISSION TO, AND OCCUPANCY OF, PUBLIC HOUSING

    22. The authority citation for part 960 continues to read as 
follows:

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

Subpart B--Admission, Rent and Reexamination


Sec. 960.204  [Amended]

    23. Amend Sec. 960.204 by removing from paragraph (a)(2)(iii) the 
phrase ``federal preference, ranking preference, or local'', in 
paragraph (a)(3)(ii) by adding a semicolon after the words ``waiting 
list'', and by removing the remainder of paragraph (a)(3)(ii).
    24. Revise Sec. 960.209 to read as follows:


Sec. 960.209  Regular and interim redeterminations and verification of 
family income and composition.

    The PHA must conduct regular and interim redeterminations of family 
income and composition in accordance with Sec. 5.617 of this title.

Subpart D--Preference for Elderly Families and Disabled Families in 
Mixed Population Projects

    25. Revise Sec. 960.407 to read as follows:


Sec. 960.407  Selection preference for mixed population projects.

    (a) The PHA must give preference to elderly families and disabled 
families equally in determining priority for admission to mixed 
population projects. The PHA may not establish a limit on the number of 
elderly families or disabled families who may be accepted for occupancy 
in a mixed population projects.
    (b) In offering available units to elderly families and disabled 
families in mixed population projects, the PHA should first offer units 
with accessible features to persons with disabilities who require the 
accessibility features of the unit, in accordance with the requirements 
of Secs. 8.27 and 100.202(c)(3) of this title.
    26. Revise subpart E to read as follows:

Subpart E--Occupancy by Over-Income Families

Sec.
960.503  Definitions.
960.505  Occupancy by over-income families in certain public 
housing.

[[Page 23476]]

Subpart E--Occupancy by Over-Income Families


Sec. 960.503  Definitions.

    Eligible families. Families who are eligible for residence in 
public housing assisted under the United States Housing Act of 1937 (42 
U.S.C. 1437).
    Over-income family. An individual or family who is not a low-income 
family at the time of initial occupancy.


Sec. 960.505  Occupancy by over-income families in certain public 
housing.

    A PHA that owns or operates fewer than two hundred fifty (250) 
units, may rent a unit in a public housing development to an over-
income family, in accordance with its PHA Annual Plan, under the 
following circumstances.
    (a) There are no eligible families on the waiting list; or
    (b) There are no eligible families applying for assistance in that 
month;
    (c) Before offering the unit to an over-income family, the PHA 
publicizes the availability of the unit for eligible families--
including publishing a thirty (30) day notice in one newspaper of 
general circulation;
    (d) The over-income family rents the unit on a month-to-month basis 
for a rent charge that is not less than the cost to operate the unit;
    (e) The over-income family signs an agreement to vacate the unit 
when needed by an eligible family; and
    (f) The PHA gives the over-income family notice to vacate the unit 
when the unit is needed for an eligible family, and this notice is 
given at least thirty (30) days before the over-income family is to 
vacate.
    27. Add a new subpart F to read as follows:

Subpart F--Community Service and Self-Sufficiency Requirements

Sec.
Sec. 960.603  Definitions.
Sec. 960.605  General requirements.
Sec. 960.607  Determining resident noncompliance.
Sec. 960.609  Prohibition against replacement of employees.
Sec. 960.611  Third-party coordinating.

Subpart F--Community Service and Self-Sufficiency Requirements


Sec. 960.603  Definitions.

    Exempt individual. An adult who is:
    (1) 62 years or older;
    (2) Is a person with vision impairment or other person with 
disabilities, as defined under 216(i)(l) or 1614 of the Social Security 
Act (42 U.S.C. 416(i)(1); 1382c), and who is unable to comply with this 
section, or is a primary caretaker of such individual;
    (3) Is engaged in a work activity as defined under section 407(d) 
of the Social Security Act (42 U.S.C.607(d), as in effect on and after 
July 1, 1997);
    (4) Meets the requirements for being exempted from having to engage 
in a work activity under the State program funded under part A of title 
IV of the Social Security Act (42 U.S.C. 601 et seq.) or under any 
other welfare program of the State in which the PHA is located, 
including a State-administered welfare-to-work program; or
    (5) Is in a family receiving assistance under a State program 
funded under part A of title IV of the Social Security Act (42 U.S.C. 
601 et seq.) or under any other welfare program of the State in which 
the public Housing Agency is located, including a State-administered 
welfare to work program, and has not been found by the State or other 
administering entity to be in noncompliance with such a program.
    Community Service. For purposes of this section, community service 
is the performance of voluntary work or duties in the public benefit 
that serve to improve the quality of life and/or enhance resident self-
sufficiency, or/and increase the self-responsibility of the resident 
within the community in which the resident resides. Political activity 
is excluded.
    Economic Self-Sufficiency program. Any program designed to 
encourage, assist, train, or facilitate the economic independence of 
participants and their families or to provide work for participants. 
These programs may include programs for job training, employment 
training, work placement, basic skills training, education, English 
proficiency, work fare, financial or household management, 
apprenticeship, and any program necessary to ready a participant to 
work (such as substance abuse or mental health treatment).


Sec. 960.605  General Requirements.

    (a) Participation. Except for residents exempted in Sec. 960.603 of 
this subpart, each adult resident of a public housing development 
shall:
    (1) Contribute 8 hours per month of community service (not 
including political activities); or
    (2) Participate in an economic self-sufficiency program for 8 hours 
per month.
    (b) Effective date of participation. The requirement is effective 
for all nonexempt residents following execution of a lease, containing 
these provisions, by the family head of household.
    (c) PHA obligation. PHAs must, at a minimum:
    (1) Develop a local policy for administration of a community 
service and economic self-sufficiency program.
    (2) Provide written notification of the provisions of the community 
service requirements to all residents. The notice should describe the 
requirement, identify who is exempt and how exemption will be verified. 
The PHA should state when the requirement is effective, as well as the 
obligations and responsibilities of adult family members, and the 
consequences of non-compliance.
    (3) Determine for each public housing family which family members 
are subject to or exempt from the community service and self-
sufficiency requirement and approves the resident's planned activities 
to fulfill the requirement.
    (4) No more or less frequently than annually, review and determine 
the compliance of residents with the requirements at least 30 days 
before lease term expires. Determine any changes to each adult family 
members exempt or nonexempt status.
    (5) Retain reasonable documentation of community service 
participation or exemption in participant files.
    (6) Comply with the civil rights requirements in 24 CFR part 5.


Sec. 960.607  Determining resident noncompliance.

    If the PHA determines that a resident who is not an ``exempt 
individual'' has not complied with the community service requirement, 
the PHA must notify the resident:
    (a) Of the noncompliance;
    (b) That the determination is subject to the PHA's administrative' 
grievance procedure;
    (c) That unless the resident enters into an agreement under 
paragraph (d) of this section, the lease of the family of which the 
noncompliant adult is a member may not be renewed. However, if the 
noncompliant adult moves from the unit, the lease may be renewed;
    (d) That before the expiration of the lease term, the PHA must 
offer the resident an opportunity to cure the noncompliance during the 
next twelve-month period; such a cure includes a written agreement by 
the noncompliant adult to complete as many additional hours of 
community service or economic self-sufficiency activity needed to make 
up the total number of hours required over the 12 month term of the 
lease.


Sec. 960.609  Prohibition against replacement of employees.

    In implementing the community service requirement, the PHA may not

[[Page 23477]]

substitute community service for work ordinarily performed by public 
housing employees or replace a job at any location where community work 
requirements are performed.


Sec. 960.611  Third-party coordinating.

    The PHA may administer the community service directly, or through 
partnerships with qualified organizations, including resident 
organizations, or agencies or institutions with a community mission. 
The PHA must ensure that community service programs that are based 
directly or through partnerships with qualified organizations or 
through contracts with such organizations are accessible to persons 
with disabilities.

PART 966--LEASE AND GRIEVANCE PROCEDURES

    28. The authority citation for part 966 continues to read as 
follows:

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

    29. In Sec. 966.4, revise the introductory text and add a new 
paragraph (f)(13), to read as follows:


Sec. 966.4  Lease requirements.

    Each public housing lease must have a 12-month term, which must be 
automatically renewed for all purposes except noncompliance by an adult 
member with the community service requirements of part 960, subpart F 
of this title.
* * * * *
    (f) * * *
    (13) To contribute 8 hours per month of community service (not 
including political activities), unless otherwise exempt. The 8 hour 
each month requirement can be a combination of PHA-approved community 
service or economic self-sufficiency activities. (See part 960, subpart 
F of this title.)
    30. Revise Sec. 966.55(e) to read as follows:


Sec. 966.55  Procedures to obtain a hearing.

* * * * *
    (e) Escrow deposit. (1) Before a hearing is scheduled in any 
grievance involving the amount of rent (as defined in Sec. 966.4(b) of 
subpart A of this part) that the PHA claims is due, the family must pay 
an escrow deposit to the PHA. When a family is required to make an 
escrow deposit, the amount is the amount of rent the PHA states is due 
and payable as of the first of the month preceding the month in which 
the family's act or failure to act took place. After the first deposit, 
the family must deposit the same amount monthly until the family's 
complaint is resolved by decision of the hearing officer or hearing 
panel.
    (2) A PHA must waive the requirement for an escrow deposit where 
required by Sec. 5.616 of this title (concerning financial hardship of 
minimum rent requirements) or Sec. 5.618 of this title (concerning 
reduction in welfare benefits related to work requirements). Unless the 
PHA waives the requirement, the family's failure to make the escrow 
deposit will terminate the grievance procedure. A family's failure to 
pay the escrow deposit does not waive the family's right to contest in 
any appropriate judicial proceeding the PHA's disposition of the 
grievance.
* * * * *

PART 984--SECTION 8 AND PUBLIC HOUSING FAMILY SELF-SUFFICIENCY 
PROGRAM

    31. The authority citation for part 984 continues to read as 
follows:

    Authority: 42 U.S.C. 1437f, 1437u, and 3535(d).

    32. Throughout part 984, remove the terms ``an HA'' and ``HA'' and 
add in their place the terms ``a PHA'' and ``PHA''.
    33. Amend Sec. 984.101 by removing paragraph (c) and revising 
paragraph (b)(3) to read as follows:


Sec. 984.101  Purpose, scope, and applicability.

* * * * *
    (b) * * *
    (3) Unless the PHA receives an exemption under Sec. 984.105:
    (i) Each PHA that receives funding for additional rental 
certificates or rental vouchers in FY 1993 through October 20, 1998, 
must operate a Section 8 FSS program. Receiving funding for additional 
certificates or vouchers means reservation of funds for the Section 8 
certificate or voucher program.
    (ii) Each PHA that receives funding for additional public housing 
units in FY 1993 through October 20, 1998, must operate a public 
housing FSS program. Receiving funding for additional public housing 
units means reservation of funds to acquire or construct additional 
public housing units.
    34. In Sec. 984.103, revise the definition of welfare assistance to 
read as follows:


Sec. 984.103  Definitions.

* * * * *
    Welfare assistance means income assistance from Federal or State 
welfare programs, and includes assistance provided under the Temporary 
Assistance to Needy Families (TANF) program, and general assistance. 
Welfare assistance does not include assistance solely directed to 
meeting housing expenses, and does not include programs that provide 
health care, child care or other services for working families.
* * * * *


Sec. 984.105  [Amended]

    35. Amend Sec. 984.105 as follows:
    a. Revise paragraph (a);
    b. Redesignate paragraphs (d)(1), (d)(2), (d)(3), and (d)(4) as 
paragraphs (d)(1)(i), (d)(1)(ii), (d)(1)(iii), and (d)(1)(iv);
    c. Redesignate the text of paragraph (d) as (d)(1) and add a new 
heading for redesignated paragraph (d)(1); and
    d. Add a new paragraph (d)(2). The revised and added paragraphs of 
Sec. 984.105 read as follows:


Sec. 984.105  Minimum program size.

    (a) General. A PHA must operate an FSS program of the minimum size 
determined in this section. Paragraph (c) of this section prescribes 
the conditions under which HUD may grant an exception to this 
requirement, and paragraph (d) of this section states the conditions 
under which the minimum size calculated under this paragraph (a) may be 
reduced. A PHA may always operate a program of a larger size than the 
minimum.
    (1) Determining minimum program size. The minimum size of an FSS 
program is equal to:
    (i) Public housing. (A) The total number of public housing units 
reserved in FY 1993 through October 20, 1998; plus
    (B) The number of public housing units reserved in FY 1991 and FY 
1992 under the FSS incentive award competitions; minus
    (C) The number of families that have graduated from the FSS program 
on or after October 21, 1998, by fulfilling their FSS contract of 
participation obligations.
    (ii) Section 8. (A) The total number of applicable rental 
certificates and rental vouchers reserved in FY 1993 through October 
20, 1998; plus
    (B) The number of rental certificates and rental vouchers reserved 
under the combined FY 1991/1992 FSS incentive award competition; minus
    (C) The number of families who have graduated from the FSS program 
on or after October 21, 1998, by fulfilling their contract of 
participation obligations.
    (2) Applicable public housing units. In determining minimum program 
size, all additional public housing rental units reserved in FY 1993 
through October 20, 1998 will be counted.
    (3) Inapplicable Section 8 certificates and vouchers. (i) Renewals. 
Except for

[[Page 23478]]

the renewal of funding that initially carried an FSS program 
obligation, renewal funding for rental certificates and vouchers 
reserved in fiscal year 1993 through October 20, 1998 is not counted 
when determining the FSS minimum program size.
    (ii) PHAs with existing FSS obligation. When determining the 
minimum FSS program size for a PHA that already had an FSS obligation, 
funding reserved in fiscal year 1993 through October 20, 1998 for the 
following categories is not counted:
    (A) Funding for families affected by the termination, expiration or 
owner opt-outs under Section 8 project-based programs;
    (B) Funding for families affected by demolition or disposition of a 
public housing project and replacement of public housing projects;
    (C) Funding for families affected by conversion of assistance from 
the Section 23 leased housing or housing assistance payments program to 
the Section 8 program;
    (D) Funding for families affected by the sale of a HUD-owned 
project; and (E) Funding for families affected by the prepayment of a 
mortgage or voluntary termination of mortgage insurance.
    (iii) PHAs with no existing FSS obligation. If a PHA with no 
existing FSS obligation received certificate and voucher funding under 
the categories described in paragraph (a)(3)(ii) of this section in 
fiscal year 1993 through October 20, 1998, the first such funding 
counts towards the PHA's minimum FSS program size.
* * * * *
    (d) * * *
    (1) Approval of exception. * * *
    (2) Expiration of exception. Full and partial exceptions to the 
minimum size of an FSS program will expire three years from the date of 
HUD's approval of the exceptions. If a PHA seeks to continue an 
exception after its expiration, the PHA must submit a new request and a 
new certification to HUD for consideration. Revised FSS Action Plan 
policies must be stated in the PHA's Annual Plan.
* * * * *
    36. Revise paragraphs (a) and (c) of Sec. 984.201 to read as 
follows:


Sec. 984.201  Action Plan.

    (a) Requirement for Action Plan. A PHA must have a HUD-approved 
Action Plan that complies with the requirements of this section before 
the PHA implements an FSS program, whether the FSS program is a 
mandatory or voluntary program.
* * * * *
    (c) Plan submission.--(1) Initial submission.
    (i) Mandatory program. Unless the dates stated in paragraph (c) of 
this section are extended by HUD for good cause, a PHA that is 
establishing its first FSS program must submit an Action Plan to HUD 
for approval within 90 days after the PHA receives notice from HUD of:
    (A) Approval of the PHA's application for incentive award units; or 
(B) Approval of other funding that establishes the obligation to 
operate an FSS program, if the PHA did not apply for FSS incentive 
award units.
    (ii) Voluntary program. The PHA must submit its Action Plan and 
obtain HUD approval of the plan before the PHA implements a voluntary 
FSS program, including a program that exceeds the minimum size for a 
mandatory program.
    (2) Revision. Following HUD's initial approval of the Action Plan, 
no further approval of the Action Plan is required unless the PHA 
proposes to make policy changes to the Action Plan or increase the size 
of a voluntary program; or HUD requires other changes. The PHA must 
submit any changes to the Action Plan to HUD for approval.
* * * * *


Sec. 984.301  [Amended]

    37. Amend Sec. 984.301 by redesignating paragraphs (a)(1), (a)(2), 
and (a)(3), as paragraphs (a)(2)(i), (a)(2)(ii), and (a)(2)(iii); 
adding a new paragraph (a)(1) and a new heading for redesignated 
paragraph (a)(2) to read as follows:


Sec. 984.301  Program implementation.

    (a) Program implementation deadline. (1) Voluntary program. There 
is no deadline for implementation of a voluntary program. A voluntary 
program, however, may not be implemented before the requirements of 
Sec. 984.201 have been satisfied.
    (2) Mandatory program. * * *
* * * * *
    38. Revise Sec. 984.306 (b) to read as follows:


Sec. 984.306  Section 8 residency and portability requirements.

* * * * *
    (b) Initial occupancy.--(1) First 12 months. A family participating 
in the Section 8 FSS program must lease an assisted unit, for a minimum 
period of 12 months after the effective date of the contract of 
participation, in the jurisdiction of the PHA that selected the family 
for the FSS program. However, the PHA may approve a family's request to 
move outside of the PHA's jurisdiction during this period.
    (2) After the first 12 months. After the first 12 months of the FSS 
contract of participation, the FSS family may move outside the 
jurisdiction of the initial PHA, consistent with applicable Section 8 
program regulations (part 982 of this title).
* * * * *
    Dated: April 8, 1999.
Andrew Cuomo,
Secretary.
[FR Doc. 99-10565 Filed 4-29-99; 8:45 am]
BILLING CODE 4210-32-P