[Federal Register Volume 65, Number 61 (Wednesday, March 29, 2000)]
[Rules and Regulations]
[Pages 16692-16733]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-6898]



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Part II





Department of Housing and Urban Development





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24 CFR Parts 5, 880, et al.



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

  Federal Register / Vol. 65, No. 61 / Wednesday, March, 29, 2000 / 
Rules and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 5, 880, 881, 884, 886, 891, 960, 966, 984 and 985

[Docket No. FR-4485-F-03]
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: Final rule.

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SUMMARY: This final rule implements changes to the admission and 
occupancy requirements for the public housing and Section 8 assisted 
housing programs made by the Quality Housing and Work Responsibility 
Act of 1998. These changes concern choice of rent, community service 
and self-sufficiency in public housing, and admission preferences and 
determination of income and rent in public housing and Section 8 
housing assistance programs. This final rule follows a proposed rule 
published on April 30, 1999, and takes into consideration the public 
comments received on the proposed rule.

DATES: Effective Date: The provisions of this rule are effective on 
April 28, 2000, except for the provisions of Sec. 5.661, which will 
become effective when the information collections it contains receive 
approval from the Office of Management and Budget. The announcement of 
approval and the effective date will be published in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: For the public housing and Section 8 
tenant-based 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 4224, 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. You 
also may contact the individuals listed above by e-mail: 
[email protected] and [email protected].

SUPPLEMENTARY INFORMATION:

Organization of this Preamble

I. Background

II. Changes Made at the Final Rule Stage

    A. Reorganization of program regulations
    B. Common occupancy requirements
    C. Section 8 project-based programs
    D. Public housing program
    E. Removal of outdated references to federal preferences
    F. Summary of regulatory changes
    1. Family disclosure of HUD notice concerning family income--
Sec. 5.240 (proposed rule Sec. 5.211)
    2. Selection preferences--Secs. 5.655 and 960.206 (proposed rule 
Sec. 5.410)
    3. Definition of economic self-sufficiency program--
Sec. 5.603(b)
    4. Income eligibility and income targeting for admission--(For 
most Section 8 project-based programs, Sec. 5.653; for public 
housing, Sec. 960.202) (proposed rule Sec. 5.607)
    5. Annual income--Sec. 5.609
    6. Adjusted income--Sec. 5.611
    7. Public housing self-sufficiency incentives--Sec. 960.255 
(proposed rule Sec. 5.612)
    8. Choice of rent in public housing--Sec. 960.253 (proposed rule 
Sec. 5.614)
    9. Minimum rent--5.630(b) (proposed rule Sec. 5.616)
    10. Public housing and Section 8 tenant-based assistance 
programs: How welfare benefit reduction affects family income--
Secs. 5.603 and 5.615 (proposed rule Sec. 5.618)
    11. Occupancy by police officers in public housing and Section 8 
project-based housing--Secs. 5.661 and 960.503-505
    12. How PHA administers service requirement--Sec. 960.605
    13. Assuring resident compliance--Sec. 960.607
    14. Definitions--Sec. 984.103
    15. Administrative fees--Sec. 984.302
    16. Utility reimbursements--Sec. 5.632
    17. Family income and verification--Sec. 960.259
III. Discussion of the Public Comments
    A. General
    B. Using Computer Matching--Results--Family disclosure of income 
(proposed rule Sec. 5.211; final rule Sec. 5.240)
    C. Repeal of Preference for Elderly, Disabled, and Displaced over 
Other Single Persons (proposed and final rule Sec. 5.405)
    D. Repeal of Federal Preferences (proposed rule: removed 
Secs. 5.415, 5.420, 5.425 and 5.430 and revised Sec. 5.410; final rule 
removes in addition to above Secs. 5.405 and 5.410, adds a new 
Sec. 5.655, and revises Secs. 960.204-960.206)
    E. Income Targeting (proposed rule Sec. 5.607; final rule 
Secs. 5.653 and 960.202)
    F. Annual Income, Adjusted Income (proposed and final rule 
Secs. 5.603, 5.609, and 5.611)
    1. Exclusions vs. Deductions
    2. Permissive Deductions--Applicable to Public Housing Only
    G. Minimum Rents (proposed rule Sec. 5.616; final rule Sec. 5.630)
    H. Self-Sufficiency Incentives--Public Housing Only (proposed rule 
Sec. 5.612; final rule Sec. 960.255)
    1. Disallowance of Increases in Income as a Result of Employment
    2. Individual Savings Account
    I. Income Changes Resulting From Noncompliance with Welfare Program 
Requirements (proposed rule Sec. 5.618; final rule Secs. 5.603, 5.613, 
and 5.615)
    J. Rents in Public Housing (proposed rule Secs. 5.603 and 5.614; 
final rule Secs. 5.603 and 960.253)
    1. Income-Based Rents
    2. Flat Rents
    3. Family Choice
    4. Switching Rent Methods to Lower Rent Because of Financial 
Hardship
    5. Retaining Ceiling Rents
    K. New Community Service and Self-Sufficiency Requirements for 
Public Housing (proposed rule Secs. 960.603-960.611; final rule 
Secs. 960.601-960.609)
    1. General
    2. Exemptions
    3. Noncompliance
    L. Reexamination and Verification of Family Income and Composition 
(proposed rule Secs. 5.617 and 960.209; final rule Secs. 5.657, 
960.257, and 960.259)
    M. Occupancy by Police Officers and Over-Income Families (proposed 
and final rule Secs. 5.619 and 960.503-960.505)
    N. Changes to Existing Self-Sufficiency Programs--Public Housing 
and Section 8 Certificate/Voucher Programs (proposed and final rule 
Part 984)
    O. Lease Requirements (proposed and final rule Sec. 966.4)
    P. Escrow Deposits (proposed and final rule Sec. 966.55)
IV. Findings and Certifications

I. Background

    On April 30, 1999 (64 FR 23460), HUD published a proposed rule that 
addressed several changes related to admission and occupancy 
requirements in HUD's public housing and Section 8 assisted housing 
programs. These were made by the Quality Housing and Work 
Responsibility Act of 1998 (title V of the FY 1999 HUD appropriations 
Act, Public Law 105-276, 112 Stat. 2518, approved October 21, 1998) 
(referred to in this rule as ``the 1998 Act'') which amended the United 
States Housing Act of 1937 (42 U.S.C. 1437, et seq., ``the

[[Page 16693]]

1937 Act''). The 1998 Act made comprehensive changes to HUD's public 
housing, Section 8 tenant-based and project-based programs. Some of the 
reforms made by the 1998 Act affect public housing only, and others 
affect Section 8 tenant-based and project-based programs in addition to 
public housing.
    The preamble to the April 30, 1999 proposed rule provided a 
detailed overview of the changes made to admission and occupancy 
requirements for the public housing and Section 8 housing assistance 
programs by the 1998 Act. The preamble to the proposed rule also 
addressed admission and occupancy provisions of the 1998 Act that are 
already in effect, and those admission and occupancy provisions 
proposed to be implemented through the April 30, 1999 rule. The 
preamble to the April 30, 1999 proposed rule also listed which sections 
of the 1998 Act were addressed by the proposed rule, and which HUD 
programs were affected by the changes. This information was described 
in the preamble to the April 30, 1999 proposed rule, and also presented 
in chart form (see 64 FR 23462). The preamble to this final rule does 
not repeat that information.
    In addition to the rulemaking, HUD published a notice in the 
Federal Register on August 6, 1999 (64 FR 42956), which provided 
guidance pending publication of this final rule. That notice instructed 
PHAs to implement certain rent provisions effective October 1, 1999, 
based on the proposed rule. The notice stated that PHAs following the 
guidance would not be penalized for any changes made by HUD to the 
proposed rule provisions at the final rule stage and would be provided 
adequate time to adjust their policies.
    The public comment period on the proposed rule closed on June 29, 
1999. At the close of the public comment period, HUD had received 113 
public comments. The commenters included housing authorities, national 
organizations representing housing authorities or residents, property 
managers, organizations representing victims of domestic violence, 
legal services organizations, policy organizations, and city and county 
organizations that provide housing or human services. All the comments 
were carefully considered and significant issues raised by the comments 
are addressed in Section III of this preamble. Section II of this 
preamble, which immediately follows, highlights the changes made at 
this final rule stage.

II. Changes Made at the Final Rule Stage

A. Reorganization of Program Regulations

    At this final rule stage, HUD has reorganized the program 
regulations in a number of ways to make it easier to find and view 
specific requirements that apply to a particular program. Therefore, 
the provisions on preferences for admission and income targeting for 
the public housing and Section 8 tenant-based assistance programs, as 
well as public housing choice of rents, were moved from Part 5 to the 
applicable program regulations (24 CFR part 960 for public housing, and 
24 CFR part 982 for the Section 8 tenant-based assistance programs). 
Provisions that only apply to Section 8 tenant-based assistance 
programs were covered in the Housing Choice Voucher Program final rule 
(amendments to 24 CFR part 982), published October 21, 1999 (64 FR 
56894-56915). Most of the tenant-based program public comments were 
addressed in that rule.

B. Common occupancy requirements

    Part 5 is reorganized by grouping common requirements for 
determination of ``family income'' and ``family payments'' that apply 
to both Section 8 and public housing.
    The rule adds a heading for provisions on ``family income'' 
(Sec. 5.609 to Sec. 5.632). The provisions under this heading cover 
determination of annual income (Sec. 5.609), adjusted income 
(Sec. 5.611), cooperation with welfare agency (Sec. 5.613), and effect 
of welfare benefits reduction on family income (Sec. 5.615).
    The rule also adds a heading for provisions on ``family payment'' 
(Sec. 5.628 to Sec. 5.632). The provisions under this heading cover 
determination of total tenant payment (Sec. 5.628), minimum rent 
(Sec. 5.630), and utility reimbursements (for the public housing and 
Section 8 programs, except for the Section 8 voucher program) 
(Sec. 5.632).

C. Section 8 Project-Based Programs

    Before this rule, there was no place to group regulatory 
``occupancy requirements'' that only apply to the Section 8 project-
based assistance programs. This rule therefore adds a new heading in 24 
CFR part 5 to consolidate occupancy requirements for the various 
Section 8 project-based assistance programs (Secs. 5.653 to 5.661). The 
provisions for Section 8 project-based assistance under this heading 
cover determination of income eligibility and income targeting 
(Sec. 5.653), owner selection preferences (Sec. 5.655), family 
information and verification (Sec. 5.659), and approval for security 
personnel to live in a project (Sec. 5.661).

D. Public Housing Program

    For a clearer presentation, the final rule reorganizes and 
consolidates public housing admission and occupancy requirements in the 
existing part 960.
    Subpart A of part 960 specifies that part 960 applies to public 
housing and lists defined terms. Subpart A also states the requirement 
to administer public housing in accordance with applicable civil rights 
laws and regulations, the PHA duty to affirmatively further fair 
housing, and the requirement for the PHA to submit applicable equal 
opportunity certifications.
    Subpart B of part 960 reorganizes, revises, and consolidates public 
housing admission requirements. This subpart covers:

--requirements for eligibility and for targeting assistance to 
extremely low income families (Sec. 960.202);
--policies and criteria for selecting families (Secs. 960.204 and 
960.205);
--waiting list and local preferences in admission (Sec. 960.206).

    Subpart C of part 960 reorganizes and consolidates public housing 
requirements concerning reexamination of income and determination of 
rent for public housing residents. This subpart covers:

--the new choice of rent requirements under the 1998 Public Housing 
Reform Act, that allow the family to choose annually whether to pay a 
flat market-based rent or an income-based rent (Sec. 960.253);
--the requirement for the PHA to disregard increases in income as a 
result of employment in calculating income-based rent (Sec. 960.255);
--policies on regular and interim reexamination of family income and 
composition (Sec. 960.257);
--requirements for obtaining and verifying family information 
(Sec. 960.259); and
--restrictions on eviction when family income increases (Sec. 960.261).

    A new subpart E of part 960 contains provisions describing the 
circumstances in which a PHA may permit occupancy of public housing 
units by persons who are not eligible for assistance in the public 
housing program:

--A PHA with a small public housing program (fewer than 250 units) may 
lease a public housing unit to ``over-income'' families--who are not 
income eligible for admission to the public housing program 
(Sec. 960.503).
--A PHA may allow professional police officers to reside in public 
housing to

[[Page 16694]]

increase security for public housing residents (Sec. 960.505).

    Subpart F of part 960 states the requirements for PHA 
administration of the new community service and economic self-
sufficiency requirements for public housing residents under the 1998 
Public Housing Reform Act. The rule also incorporates related changes 
in the public housing lease and grievance requirements at 24 CFR part 
966. These include amendments concerning the term and renewal of a 
public housing lease in accordance with the 1998 law (Sec. 966.4).
    One change made to Sec. 966.4(l) is to clarify the relationship 
between a revision to the lease and the right of a PHA to terminate 
tenancy. Section 966.3 provides that the PHA can modify the lease at 
any time during the lease term, so long as it follows the requirements 
of notice to tenants and resident organizations and consideration of 
their comments before adopting any new lease form. That remains 
unchanged. This rule does modify the provisions for a written rider 
executed by both parties (Sec. 966.4(o) and (p)) and moves it to a new 
location, Sec. 966.4(a)(3). The revised Sec. 966.4(a)(3) provides that 
the lease may be modified at any time by written agreement of the 
tenant and the PHA. The rule also adds a provision concerning 
termination of tenancy to Sec. 966.4(l), to permit a PHA to terminate a 
tenancy if the tenant refuses to accept a revision to the lease after 
being given at least 60 days notice of its proposed effect and being 
allowed a reasonable time to respond to the offer.

E. Removal of Outdated References to Federal Preferences

    A number of the regulations for Section 8 project-based programs 
continued to include a paragraph concerning the federal preferences, 
which have been eliminated by statute, and outdated references to parts 
812 and 813, which no longer exist. Therefore, these superfluous 
references to Federal preferences are removed and the outdated 
references to parts 812 and 813 are corrected in this rule. (See the 
revisions to parts 880, 884, 886, and 891.) HUD will make any necessary 
conforming changes to parts 882 and 982, to reflect changes in income 
targeting, owner selection, and family information and verification in 
a separate rule.

F. Summary of Regulatory Changes

    HUD also made the following changes to the April 30, 1999 proposed 
rule.
    1. Family disclosure of HUD notice concerning family income--
Sec. 5.240 (proposed rule Sec. 5.211).
    The final rule provides that a family must promptly furnish to the 
responsible entity (the PHA or owner responsible for determining family 
income) any letter from HUD concerning the amount or verification of 
family income. This requirement applies to a family that resides in a 
dwelling unit with assistance in the public housing program or the 
Section 8 tenant-based assistance program, or for which project-based 
assistance is provided under Section 8, Section 202, or Section 811. 
(The rule implements section 3(f) of the 1937 Act (42 U.S.C. 1437a(f)), 
as amended by the 1998 Public Housing Reform Act, and as further 
amended by the HUD FY 2000 appropriation act (Public Law 106-74, 
section 214(a), approved October 20, 1999. The FY 2000 appropriation 
extends applicability of this provision from just public housing and 
Section 8 tenant-based assistance, as provided under the 1998 act, to 
project-based assistance under Section 8, Section 202, and Section 
811.)
    The PHA or other responsible entity must verify the information 
received from the family and make appropriate adjustments in the amount 
of income, rent, or housing assistance payment. With respect to 
families no longer in occupancy, the PHA or other responsible entity 
should pursue abuses regarding excess rental assistance, such as 
reporting the deficiency of payments to credit bureaus, if it is 
practical to do so, and recovery of such amounts, if they have the 
resources to do so.
    2. Selection Preferences--Secs. 5.655 and 960.206 (proposed rule 
Sec. 5.410).
Residency Preference
    HUD has clarified at Sec. 5.655 (for Section 8 projects) and 
Sec. 960.206(b)(1)(i) (for public housing) that residency requirements 
are still prohibited, and that any residency preferences must be 
implemented in accordance with applicable nondiscrimination and equal 
opportunity requirements listed at Sec. 5.105(a). The final rule 
provides that use of a residency preference may not have the ``purpose 
or effect'' of delaying or otherwise denying admission to a project or 
unit based on the race, color, ethnic origin, gender, religion, 
disability or age of any member of an applicant family.
    ``Residency preference'' is defined as a preference for admission 
of persons who reside in a specified geographic area. For public 
housing, the rule provides that the PHA may adopt a preference for 
admission of a resident of a county or municipality. However, the PHA 
may not adopt a residency preference for an area smaller than a county 
or municipality.
    A PHA that administers a public housing program or a Section 8 
tenant-based program must include any PHA residency preference in its 
statement of PHA policies that govern eligibility, selection and 
admission to the program. (For public housing, see Sec. 960.206(b)(1).) 
Such policies are included in the PHA Plan submitted to HUD, in 
accordance with 24 CFR part 903. HUD may disapprove the plan if any 
part of the plan is not consistent with applicable laws and 
regulations--including the applicable civil rights authorities and 
regulations. In the case of the Section 8 project-based assistance 
programs, the owner of a project must adopt a written tenant selection 
plan in accordance with HUD requirements, including civil rights 
authorities and regulations (see Sec. 5.655(b)(2)).
    If an owner adopts a residency preference, it must use one approved 
by HUD. There are several ways that a residency preference could be 
approved by HUD: (1) Prior approval in the owner's affirmative fair 
housing marketing plan; (2) prior approval in the jurisdiction's PHA 
Plan; or (3) modification of the owner's affirmative fair housing 
marketing plan. In applying any residency preference, the rule requires 
the owner to treat an applicant who is working or has been hired in the 
residency preference area as a resident of the residency preference 
area. The project owner may treat as residents applicants who are 
graduates of, or active participants in, education and training 
programs in the residency preference area if the education or training 
program is designed to prepare individuals for the job market.
Preference for Working Families
    HUD also has clarified, in Sec. 960.206(b)(2) (public housing) and 
in Sec. 5.655 (Section 8 projects), that a PHA or Section 8 project 
owner may adopt a preference for working families (families where the 
head, spouse, or sole member, is employed). If the responsible entity 
chooses to adopt a working family preference, an applicant must be 
given the benefit of the working family preference if the head and 
spouse, or sole member, is age 62 or older, or is a person with 
disabilities, as defined for eligibility purposes (see Sec. 5.403(a)). 
A working family preference cannot be based on the amount of earned 
income. (See Sec. 5.655(c)(2)(ii).) By statute and this rule, the owner 
is prohibited from preferring higher income families over families of 
lower income to occupy a project or unit (Sec. 5.655(b)(3); 42 U.S.C. 
1437n(c)(4)).

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Preference for Person With Disabilities
    A Section 8 owner or PHA administering public housing may adopt a 
preference for admission of families that include a person with 
disabilities, but not for persons with a specific disability 
(Secs. 5.655(c)(3) and 960.206(b)(3)).
Preference for Victims of Domestic Violence
    The PHA or owner should consider whether to adopt a preference for 
victims of domestic violence, as provided in Secs. 5.655(c)(4) and 
960.206(b)(4).
Preference for Single Persons
    The law no longer mandates a federally directed priority for 
elderly or disabled over other single persons. The final rule specifies 
that the responsible entity may adopt a preference for admission of 
single persons who are elderly, displaced, homeless, or persons with 
disabilities over other single persons (Secs. 5.655(c)(5) and 
960.206(b)(5)).
    3. Definition of economic self-sufficiency program--Sec. 5.603(b).
    HUD has added a new definition of the term ``economic self-
sufficiency program''. It is defined as any program designed to 
encourage, assist, train, or facilitate the economic independence of 
assisted families or to provide work for such families. Economic self-
sufficiency programs can include job training, employment counseling, 
work placement, basic skills training, education, English proficiency, 
workfare, financial or household management, apprenticeship, and any 
other program necessary to ready a participant to work (such as 
substance abuse or mental health treatment). As defined in this rule, 
``economic self-sufficiency program'' includes any work activities as 
defined in the Social Security Act (42 U.S.C. 607(d)). (See the 
definition of work activities at Sec. 5.603(c).)
    The new definition of the term ``economic self-sufficiency 
program'' is used in the following regulatory provisions, pursuant to 
the Public Housing Reform Act:
     Provision that family income (for the public housing and 
Section 8 tenant-based assistance programs) includes welfare benefits 
reduced because of family failure to comply with welfare agency 
requirements to participate in an economic self-sufficiency program 
(Sec. 5.615); and
     The requirement for public housing residents to 
participate in an economic self-sufficiency program or other eligible 
activities (24 CFR part 960, subpart F).
    4. Income eligibility and income targeting for admission--(For most 
Section 8 project-based programs, Sec. 5.653; for public housing, 
Sec. 960.202) (proposed rule Sec. 5.607).
    In the final rule, provisions concerning Section 8 project-based 
admission and income targeting are found in Sec. 5.653, and for public 
housing in Sec. 960.202.
Eligibility
    The rule provides that no family other than a low income family is 
eligible for admission to the public housing program or the Section 8 
project-based assistance program (other than the project-based voucher 
program) (Sec. 5.653(b); Sec. 960.202(a)). The final rule adds a 
definition of the term ``low income family'' (in Secs. 5.603), 
replacing a previous statutory reference. Generally, ``low income'' 
designates a family whose income does not exceed 80 percent of area 
median income, with certain adjustments.
Targeting
    The Public Housing Reform Act targets available Section 8 and 
public housing units to families with incomes below thirty percent of 
the area median income (Section 513 of the Act). In the rule, such 
families are called ``extremely low income families''.
    The law sets the minimum percent of Section 8 or public housing 
units that must be rented to extremely low income families each year. 
In the Section 8 tenant-based program, the PHA must generally target at 
least 75 percent of annual admissions to such families. In public 
housing, the PHA must generally target at least 40 percent of annual 
admissions to such families (with credit if the PHA exceeds the target 
number of admissions in its Section 8 tenant-based program). In the 
Section 8 project-based programs, the owner must target 40 percent of 
annual project admissions to units assisted under the program to 
extremely low income families.
    As originally enacted, the Public Housing Reform Act provided that 
HUD was authorized to adjust the extremely low income (30 percent of 
median income) limit only ``for smaller and larger families'' (42 
U.S.C. 1437n). However, the law was subsequently amended to also permit 
adjustments necessary ``because of unusually high or low family 
incomes'' (at section 205 of the fiscal year 2000 HUD appropriation 
act, Public Law 106-74, 10/20/99). In the final rule, the definition of 
the term ``extremely low income family'' is revised to incorporate this 
statutory change (Sec. 5.603). This definition applies to the three 
categories of 1937 Act housing subject to income targeting.
    The final rule restates the provisions that specify public housing 
targeting requirements, including the calculation of public housing 
targeting credits for admission to the PHA's tenant-based voucher 
program (Sec. 960.202(b)).
    The final rule provides that the responsible entity (PHA or owner) 
must comply with HUD prescribed reporting requirements, including 
income reporting requirements that will permit HUD to maintain the data 
necessary to monitor compliance with income-eligibility and income-
targeting requirements (Sec. 5.653(f); Sec. 960.202(d)).
    5. Annual Income--Sec. 5.609.
    a. Income of minors--Sec. 5.609(c)(1)). The proposed rule would 
have removed the existing provision that specifies that annual income 
does not include earned income of minors and made it a deduction 
instead. That proposal is not adopted in this final rule.
    b. Resident stipend for member of PHA governing board 
(Sec. 5.609(c)(iv)). The Public Housing Reform Act provides that the 
governing board of a PHA must generally contain at least one member who 
is directly assisted by the PHA (42 U.S.C. 1437(b)). To support and 
facilitate implementation of this new statutory requirement, HUD is 
clarifying that the resident service stipend exclusion covers amounts 
received by residents who serve on the PHA governing board. HUD is 
concerned that without this clarification, residents may be discouraged 
from participating. This provision was not included in the April 30, 
1999 proposed rule. However, the added language does not reflect any 
change in HUD's position, but instead clarifies what is permissible 
under current regulations.
    6. Adjusted Income--Sec. 5.611.
    The rule is revised (at Sec. 5.611(a)(3)(ii)) to clarify that the 
allowance for unreimbursed reasonable attendant care and auxiliary 
apparatus expenses may not exceed the employment income received by 
family members (including the person with disabilities) who are 18 
years of age or older and who are able to work as a result of the 
assistance to the person with disabilities.
    7. Public housing self-sufficiency incentives--Sec. 960.255 
(proposed rule Sec. 5.612).
    The final rule comprehensively restates and revises the provisions 
for disallowance of increases in income as a result of employment in 
calculation of annual income of a public housing family after a family 
member is first employed (Sec. 960.255). The new provisions include:


[[Page 16696]]


--Definitions of disallowance, previously unemployed, and qualified 
family (Sec. 960.255(a)).
--A revised technical description of the calculation of the 
disallowance during the initial twelve months, the second twelve month 
exclusion and phase in, and the maximum four year period of 
disallowance for increases in income as a result of employment of 
individual family members (Sec. 960.255(b)).
--Specification that the disallowance of increases in income as a 
result of employment only applies for calculation of rent after 
admission to the program, but does not apply in determination of income 
eligibility or income targeting for admission (Sec. 960.255(c)).
--Specification that the disallowance of increases in income as a 
result of employment applies to persons who are or were assisted, 
within 6 months, under any State program of temporary assistance for 
needy families funded under part A of title IV of the Social Security 
Act only if the amount of TANF-funded assistance, benefits or services 
is at least five hundred dollars.

    During the first 12 months after commencement of employment of a 
family member, the PHA disallows the incremental increase in a family 
member's income as a result of employment. In the second 12-month 
period, the PHA disallows 50 percent of the incremental increase. The 
final rule clarifies that the amount of the incremental increase in 
income is calculated by comparing the amount of the family member's 
income before the beginning of qualifying employment to the amount of 
such income after beginning the employment. It is this amount that is 
subject to being disregarded.
    The rule is revised to specify the maximum disallowance for income 
as a result of employment of an individual family member 
(Sec. 960.255(b)(3)). The family may receive the disallowance only as 
follows:

--Disallowance is limited to one forty-eight month period from the 
beginning of the first month after commencement of qualifying 
employment of an individual family member; and
--During this forty-eight month period, for a maximum of twelve months, 
the incremental increase is disregarded, and for a maximum of twelve 
months, 50 percent of the incremental increase is disregarded. (If the 
period of increased income does not last for 12 consecutive months, the 
disallowance period may be resumed at any time within the 48 month 
period. However, each qualifying family member is only entitled to a 
total of 12 months of each disallowance.)

    The final rule also specifies that the disallowance of an 
incremental increase of income as a result of employment is only 
applied to determine the annual income of families residing in public 
housing units, not to determine annual income of applicants for 
purposes of income eligibility or targeting (Sec. 960.255(c)).
    8. Choice of Rent in Public Housing--Sec. 960.253 (proposed rule 
Sec. 5.614).
    Once a year, the PHA must give a public housing tenant the 
opportunity to choose between paying a ``flat rent,'' based on the 
unit's rental value, or an ``income-based rent,'' based on family 
income. The final rule substantially revises and clarifies the 
regulatory requirements for choice of rent that are provided in the 
1998 Public Housing Reform Act.
Flat rent (Sec. 960.253(b))
    The final rule provides that the flat rent is based on the market 
rent. The market rent is the rent charged for comparable units in the 
private, unassisted rental market at which the PHA could lease the 
public housing unit after preparation for occupancy. In determining the 
flat rent, a PHA must consider:

--The location, quality, and the size, type and age of the unit; and
--Any amenities, housing services, maintenance, and utilities provided 
by the PHA.

    The PHA must use a reasonable method to determine flat rent and 
must keep records that document this method. The PHA records must show 
how the PHA determines flat rents in accordance with its method and 
document flat rents offered to families.
    For families who pay an income-based rent, the PHA reimburses the 
family if the allowance for tenant paid utilities is greater than the 
family's total tenant payment. This is called a ``utility 
reimbursement.'' The final rule provides that the PHA will not pay a 
utility reimbursement for a family that has chosen to pay a flat rent 
for its home.
Income-based rent (Sec. 960.253(c))
    If a family chooses to pay an ``income-based rent,'' the tenant 
rent paid to the PHA is based on family income and the PHA rental 
policies. The PHA will use a percentage of family income or some other 
reasonable system to set income-based rents.
    The PHA has broad flexibility in deciding how to set income-based 
rent for its tenants. However, the income-based tenant rent plus the 
PHA's allowance for tenant paid utilities may not exceed the ``total 
tenant payment'' as determined by a statutory formula.
    The rule provides that if the utility allowance for tenant paid 
utilities exceeds the total tenant payment, the PHA must pay the excess 
as a ``utility reimbursement'' on behalf of the family. The rule 
provides that the PHA may choose to pay the utility reimbursement 
either to the family, or directly to the utility supplier for the 
utility bills on behalf of the family. If the PHA elects to pay the 
utility supplier, the PHA must notify the family of the amount of 
utility reimbursement paid to the utility supplier (Sec. 960.253(c)(3).
    9. Minimum Rent--Sec. 5.630(b) (proposed rule Sec. 5.616).
    Section 8 and public housing families are required to pay a minimum 
rent (42 U.S.C. 1437a(a)(3); Sec. 5.630(a)). However, the family is 
exempt from minimum rent if the family shows that it is unable to pay 
the minimum rent because of a ``financial hardship'' situation 
(Sec. 5.630(b)).
    In the public housing program, the Section 8 certificate and 
voucher programs (including both tenant-based and project-based 
assistance under these programs), and the Section 8 moderate 
rehabilitation program, the PHA may establish a monthly minimum rent 
from $0 to $50 for a family (Sec. 5.630(a)). In the public housing and 
the Section 8 tenant-based assistance programs, the PHA policies for 
determining the amount of minimum rent up to this maximum are described 
in submissions with the PHA's annual plan, and in the PHA's Section 8 
administrative plan (Sec. 903.7). In the other Section 8 programs, the 
owner is required to charge a fixed minimum rent of $25 set by HUD.
    The final rule modifies the provision that allows a hardship 
exemption for a family that has lost eligibility or is awaiting an 
eligibility determination for a Federal, State, or local assistance 
program. The rule provides that the exemption applies to a family with 
a member who is a noncitizen lawfully admitted for permanent residence 
under the Immigration and Nationality Act who would be entitled to 
public benefits but for title IV of the Personal Responsibility and 
Work Opportunity Act of 1996 (Sec. 5.630(b)(1)).
    The final rule provides that hardship includes a situation where 
the family would be evicted ``because it is unable to pay the minimum 
rent'' (Sec. 5.630(b)(1)(ii)). The rule also provides that the 
financial hardship exemption only applies to payment of minimum rent--
not to rent based on the other

[[Page 16697]]

branches of the formula for determining the total tenant payment 
(Sec. 5.630(b)(2)(iii)(C)).
    10. Public housing and Section 8 tenant-based assistance programs: 
How welfare benefit reduction affects family income--Secs. 5.603 and 
5.615 (proposed rule Sec. 5.618).
    A welfare agency may reduce welfare benefit payments to sanction a 
family for noncompliance with welfare self-sufficiency or work 
activities requirements. The 1998 Public Housing Reform Act provides 
that the rental contribution of a family assisted in the public housing 
or tenant-based assistance programs ``may not be decreased'' if welfare 
benefits are reduced for this reason (Public Law 105-276, section 
512(d); 42 U.S.C. 1437j(d)). This requirement is triggered when a 
family's rental contribution is calculated on the basis of family 
income. The law requires that family income include the amount of the 
welfare benefits that would have been paid if not for the welfare 
agency sanction. Therefore, the family rental contribution is not 
decreased because of the welfare sanction. The final rule substantially 
revises the proposed regulation to implement the statutory requirement.
    For this purpose, the final rule (Sec. 5.615(b)) adds three defined 
terms to designate and describe key statutory and regulatory concepts.

Covered Families

    The statutory term ``covered families'' designates the universe of 
families who are required to participate in a welfare agency economic 
self-sufficiency program and may, therefore, be the subject of a 
welfare benefit sanction for noncompliance with this obligation. As 
defined in the rule, ``covered families'' means families who receive 
welfare assistance or other public assistance benefits from a State or 
other public agency under a program for which Federal, State, or local 
law requires that a member of the family must participate in an 
economic self-sufficiency program as a condition for the assistance.

Specified Welfare Benefit Reduction

    The term ``specified welfare benefit reduction'' designates those 
reductions of welfare agency benefits (for a covered family) that may 
not result in a reduction of the family rental contribution. As defined 
in the rule, ``specified welfare benefit reduction'' means a reduction 
of welfare benefits by the welfare agency, in whole or in part, for a 
family member, as determined by the welfare agency, because of fraud by 
a family member in connection with the welfare program; or because of 
welfare agency sanction against a family member for noncompliance with 
a welfare agency requirement to participate in an economic self-
sufficiency program.

Imputed Welfare Income

    The term ``imputed welfare income'' is defined in this rule, 
``imputed welfare income'' means the amount of annual income not 
actually received by a family, as a result of a specified welfare 
benefit reduction, that is nonetheless included in the family's annual 
income. This amount is included in family annual income and, therefore, 
reflected in the family rental contribution based on this income. The 
final rule provides that a family's annual income includes the amount 
of imputed welfare income plus the total amount of other annual income 
(Sec. 5.615(c)(1)). However, the rule provides that the amount of 
imputed annual income is offset by income from other sources received 
by the family that starts after the sanction is imposed.
    The rule is revised to clarify the relationship between the welfare 
agency, which is responsible for determining the amount of any 
specified reduction in welfare benefits, and the PHA, which is 
responsible for determining family income (including any imputed 
welfare income because of the welfare agency's reduction of welfare 
benefits.
    The 1998 Public Housing Reform Act provides that the PHA must count 
imputed welfare income of a covered family only after the PHA has 
received notice of the welfare reduction from the welfare agency (42 
U.S.C. 1437j(d)(4)). Accordingly, the rule provides that the PHA bases 
its imputed welfare income on information provided to it by the welfare 
agency (Sec. 5.615(c)(1)). The rule provides that, at the request of 
the PHA, the welfare agency will inform the PHA in writing of the 
amount and term of any specified welfare benefit reduction for a family 
member and the reason for such reduction (Sec. 5.615(c)(2)). The 
welfare agency will also inform the PHA of any subsequent change in the 
term or amount of a specified benefit reduction.
    The implementation of the statutory imputed rent requirement (i.e., 
the prohibition of a decrease in rent paid by the family because of the 
welfare sanction), as well as other efforts to promote economic 
independence of assisted families, requires close cooperation between 
the PHA and local welfare agencies. The final rule, therefore provides 
that PHAs must make their best efforts to enter into cooperation 
agreements with welfare agencies (Sec. 5.613). These cooperation 
agreements will be designed:

--To target public assistance, benefits and services for families 
assisted in the PHA's Section 8 and public housing programs to achieve 
self-sufficiency; and
--To verify information on welfare benefits for applicants and 
participants in these programs.
Function of PHA
    The PHA is responsible for determining the amount of imputed 
welfare income that is included in the family's annual income--which is 
used to determine maximum income-based rent for a public housing 
family--and the amount of the housing assistance payment for a voucher 
family (Sec. 5.615(c) and (e)(1)). During the term of the welfare 
agency's welfare benefit reduction, the PHA includes imputed welfare 
benefits in family income, as determined by the PHA at an interim or 
regular reexamination (Sec. 5.615(c)(3)). For this purpose, as provided 
in the law, the PHA uses the information provided to the PHA by the 
welfare agency. The welfare agency informs the PHA of the fact, amount, 
and reason for a welfare benefit reduction (Sec. 5.615).
    Under the rule, the PHA is required to ask welfare agencies to 
inform the PHA of any welfare benefit reduction that may result in 
imputed welfare income, the term of the reduction, and the amount of a 
specified welfare benefit reduction. In computing a family's annual 
income, the PHA must include the imputed welfare income because of the 
welfare agency determination to reduce the family's welfare benefit. 
However, the final rule specifies that the PHA is not responsible for 
determining that a reduction of welfare benefits was correctly 
determined by the welfare agency in accordance with welfare agency 
requirements and procedures (Sec. 5.615(e)(2). The rule states that:

    Such welfare agency determinations are the responsibility of the 
welfare agency, and the family may seek appeal of such 
determinations through the welfare agency's normal due process 
procedures. The PHA shall be entitled to rely on the welfare agency 
notice to the PHA of the welfare agency's determination of a 
specified welfare benefit reduction. (Sec. 5.615(e)(3)
Review of PHA decision
    In the public housing program and the Section 8 tenant-based 
assistance programs, the family may seek an administrative hearing for 
review of the PHA determination of family income, or the calculation of 
the family rent or housing assistance payment, in

[[Page 16698]]

accordance with HUD requirements. The final rule specifies that the 
family may invoke the PHA's regular program hearing processes for 
review of a PHA determination of the amount of imputed welfare income 
in accordance with HUD requirements (Sec. 5.615(d)).
    The final rule provides that if a family (public housing tenant or 
Section 8 participant) claims that the PHA has not correctly calculated 
the amount of imputed welfare income, and if the PHA denies the 
family's request to modify such amount, the PHA must give the family 
written notice of such denial, with a brief explanation of the basis 
for the PHA determination. The PHA notice must state that if the family 
does not agree with the PHA determination, the family may request a 
hearing in accordance with the applicable program hearing procedures 
(the public housing grievance procedures under part 966 or the Section 
8 hearing procedures under Sec. 982.555). In the case of public 
housing, the rule specifies that the tenant is not required to deposit 
the disputed amount in escrow in order to obtain a grievance hearing. 
(There is no parallel escrow requirement for Section 8. The participant 
may obtain a hearing without deposit of an escrow.)
    11. Occupancy by police officers in public housing and Section 8 
project-based housing--Secs. 5.661 and 960.503-505.
Section 8 Projects
    The final rule provides (Sec. 5.661) that a Section 8 project owner 
may ask the contract administrator (PHA or HUD) for approval to lease a 
Section 8 assisted unit to a police officer or other security 
personnel, for the purpose of increasing security for Section 8 
families residing in the development. The rule defines the terms 
``security'', ``security personnel'' and ``police officer.'' Security 
includes the protection of project residents, including resident 
project management, from criminal or other activity that is a threat to 
person or property, or that arouses fear of such threat. Security 
personnel means a police officer or other qualified security officer. A 
police officer is a full-time duly licensed police officer. Other 
security personnel must have adequate training and experience to 
provide security for project residents.
    The owner's application must include:

--A description of criminal activity in the project and community;
--The effect of criminal activity on resident security;
--Qualifications of proposed security personnel who will live in the 
housing;
--How the owner proposes to check their backgrounds and qualifications;
--Disclosure of a family relationship between the owner and any 
security personnel;
--How residence by security personnel will increase security of Section 
8 residents;
--Rent to be paid and terms of occupancy by resident security 
personnel.

    The contract administrator has discretion whether to approve or 
disapprove occupancy by security personnel in a Section 8 project, and 
such approval may be withdrawn at the discretion of the contract 
administrator. The amount of contract rent for a unit does not change 
when the unit is occupied by security personnel. However, the monthly 
housing assistance payment to owner equals the contract rent (as 
determined in accordance with the Housing Assistance Payments Contract 
and HUD requirements) minus the amount of monthly rent payable by 
security personnel residing in the housing.
Public housing
    For public housing, before a PHA permits occupancy by police 
officers, the PHA must include in the PHA Plan or supporting documents 
a description of the terms and conditions for them to occupy units and 
a statement that this action was taken to increase security for public 
housing residents.
    12. How PHA administers service requirement--Sec. 960.605. HUD has 
revised the rule to clarify that the PHA's notice to the resident on 
the community service and economic self-sufficiency requirements must 
also describe the process to change exemption status of family members.
    13. Assuring Resident Compliance--Sec. 960.607. HUD has revised 
Sec. 960.607(c) to clarify how a PHA should respond to a report that an 
individual covered by community service has moved from the household.
    14. Definitions--Sec. 984.103. HUD has revised the definition of 
``welfare assistance'' for the FSS program to refer only to cash 
maintenance payments for ongoing basic needs, funded under Federal or 
State welfare programs such as the TANF program. The definition borrows 
from the Department of Health and Human Services' TANF definition of 
``assistance'' and excludes nonrecurring short term benefits designed 
to address individual crisis situations. For FSS purposes, the 
following do not constitute welfare assistance: food stamps; emergency 
rental and utilities assistance; and SSI, SSDI, and Social Security.
    15. Administrative fees--Sec. 984.302. HUD has revised 
Sec. 984.302(a) to delete the reference to the minimum program size of 
the public housing FSS programs. The performance funding system 
provides for the inclusion of reasonable eligible administrative costs 
for both mandatory and voluntary public housing FSS programs.
    16. Utility Reimbursements--Sec. 5.632. HUD has revised the 
provision previously found at Sec. 5.615, which required PHAs to get 
the consent of a public housing family before sending a utility 
reimbursement directly to the utility supplier. Section 5.632 now 
allows PHAs to send the utility reimbursement directly to the utility 
supplier without the consent of the public housing family that is 
paying an income-based rent. This change was first mentioned in the 
preamble to the proposed rule, Streamlining the Public Housing 
Admission and Occupancy Requirements, published in the Federal Register 
on May 9, 1997 (62 FR 25731). A similar provision has been in effect 
since July 3, 1995, for the tenant-based Section 8 program. In response 
to a comment received on that rule, Sec. 5.632 also requires that the 
PHA notify the public housing family of the amount paid to the utility 
supplier.
    17. Family Income and Verification--Sec. 960.259.
    HUD has made a conforming change, at Sec. 960.259, to mirror the 
Section 8 requirement for third party verification of information. If 
third party documentation is not available, the reason must be 
documented in the file.
    In addition to these substantive changes, HUD has made editorial 
changes in some of the regulations, such as adding subheadings to 
certain paragraphs to make the subject matter of the paragraph easily 
identifiable, and dividing a lengthy paragraph into subparagraphs. As 
HUD proceeds with the rulemaking required under the 1998 Act to make 
the changes required to various components of the public housing and 
Section 8 program regulations, HUD may, at a later date reorganize 
Chapter IX of the HUD regulations, as well as certain subparts of part 
5, to better reflect where requirements applicable to public housing 
and the Section 8 programs are identical and where they differ, and to 
better highlight the new additions to the regulations such as the PHA 
Plans, the Capital Fund and the Operating Fund.

III. Discussion of the Public Comments

A. General

    This section presents HUD responses to the significant issues 
raised by the

[[Page 16699]]

individuals and entities who submitted comments on the April 30, 1999 
proposed rule. The organization of the discussion of public comments 
generally follows the organization of changes made to admission and 
occupancy requirements as set out in Section II of the preamble of the 
April 30, 1999 proposed rule. The heading ``Comment'' states the 
comment made by a commenter or commenters and the heading ``Response'' 
presents HUD's response to the issue or issues raised by the commenter 
or commenters.
    There were certain concerns raised by the commenters that were 
directed to more than one change in admission and occupancy 
requirements. The majority of the commenters expressed concern about 
the administrative burden imposed by the changes, particularly the 
community service requirements. Some commenters also were concerned 
that the income targeting requirements will substantially reduce 
affordable housing for some persons, such as elderly families in need 
whose income may be above the targeting requirements. As the commenters 
recognized, these are statutory requirements and the flexibility that 
HUD has to implement these statutory requirements is very limited.
    Other commenters recognized that there are limits to the amount of 
information that HUD can provide in regulatory text, and requested that 
HUD provide additional guidance and information on many of the new 
admission and occupancy requirements. HUD recognizes that the changes 
made by the 1998 Act to public housing and Section 8 programs are 
significant and there is much information to absorb. As HUD stated in 
its guidance published on February 18, 1999 (64 FR 8192), HUD staff, 
and especially staff of HUD's Office of Public and Indian Housing at 
Headquarters and in the Field Offices are ready to assist PHAs and 
owners in understanding the provisions of the 1998 Act, and with 
carrying out their responsibilities under the new statute. As noted in 
the February 18, 1999 guidance, HUD's Office of Public and Indian 
Housing has established a website that is devoted to providing 
additional information about the various provisions of the statute, as 
well as additional information and guidance on 1998 Act rules issued by 
HUD. (See http://www.hud.gov/pih/legistitlev.html; Public Housing 
Reform link; the Multifamily Tenant Characteristics System (MTCS) 
website can be found at http://www.hud.gov/pih/systems/mtcs/pihmtcs.html.) HUD intends to provide additional training and guidance 
during the coming year.
    The following provides a discussion of specific issues raised by 
the commenters.

B. Using Computer Matching Results--Family Disclosure of Income 
(Proposed Rule Sec. 5.211; Final Rule Sec. 5.240)

    Comment. The final rule should (1) provide for HUD to notify the 
PHA that the income discrepancy letter was sent to the family, and (2) 
specify the time limit for the family to contact the PHA. The rule 
should provide that PHAs be notified by HUD of the date that the family 
was sent an income discrepancy letter or mailed a copy of the letter, 
and that a time limit of less than 10 working days be established for 
the family to contact the PHA.
    Response. PHAs or owners, as the responsible entity, have the 
primary responsibility for income verification, reexamination, and debt 
collection. The responsible entity can enforce Sec. 5.240(b) and 
implement Sec. 5.240(c) through their contractual relationships with 
assisted families. HUD's authority to use Federal tax return data from 
the Internal Revenue Service (IRS) is limited by statute to disclosure 
to tenants. HUD will provide responsible entities with a list of 
tenants to whom it has sent income discrepancy letters. The rule does 
require tenants who receive such letters, containing information about 
Federal tax return data, to disclose the letter to the responsible 
entity promptly. Usually, the responsible entity should interpret this 
prompt submission requirement to mean that the family must disclose the 
letter within 30 days of receipt.
    Comment. The final rule should require PHAs to take appropriate 
action (for example, to recover excessive housing assistance received 
by tenants) only with respect to current residents and tenant-based 
participants and not former residents and participants.
    Response. The final rule has been modified to reflect the language 
of section 508(d) of the 1998 Act by limiting application of the income 
matching provisions to families that (1) reside in a public housing 
dwelling unit; (2) receive Section 8 assistance; or reside in a project 
assisted under the Section 202 or Section 811 program. Responsible 
entities who have the resources to pursue abuses regarding recovery of 
excess rental assistance of former tenants may do so.

C. Repeal of Preference for Elderly, Disabled, and Displaced Over Other 
Single Persons (Proposed and Final Rule Sec. 5.405) (Section 506 of the 
1998 Act Amending Section 3(b) of the 1937 Act)

    Comment. The repeal of the preference for elderly, persons with 
disabilities, and displaced persons over other single persons will 
cause a shortage of affordable housing for these persons. Without the 
preference, these groups will face a more difficult time in finding 
affordable housing.
    Response. The 1998 Act eliminated the statutory preference for 
single persons who are elderly, have disabilities, or are displaced 
over other single persons. However, the repeal of federal preferences 
does not prevent a PHA from choosing to establish a local preference 
for single persons who are elderly, have disabilities, are displaced, 
or are homeless over other single persons.
    Comment. While it was appropriate for HUD to implement the 
statutory elimination of Federal preferences, the result is the 
elimination of the rule in Sec. 5.415(b) that PHAs must give households 
of elderly persons and persons with disabilities the benefits of any 
employment preference and not discriminate among applicants based on 
the amount of employment income.
    Response. HUD revised Sec. 960.206(b)(2) to include some of the 
language from former Sec. 5.415, which states that if a working family 
preference is adopted as a local preference, the preference must be 
extended to households whose head and spouse, or sole member, is age 62 
or older or meets the definition of a person with disabilities.
    Comment. The final rule should: (1) Expand the implicit meaning of 
``disabled'' in the old rule, as well as in the new Sec. 5.410(c), to 
give the benefit of employment preferences to those who can provide 
evidence of a disability, but who may not be receiving benefit payments 
based on the inability to work; (2) broaden the employment preference 
exception to include individuals who satisfy the definition of 
``disabled'' under section 3(b)(3)(E) of the U.S. Housing Act of 1937 
or otherwise cannot comply with the terms of the preference due to a 
disability; and (3) exempt those individuals with serious disabilities 
lasting less than twelve months. These changes are needed to prevent 
discrimination based on disability status.
    Response. As noted in the preceding response, HUD has retained some 
of the language previously found at Sec. 5.415(b) and expanded the 
benefit to apply to

[[Page 16700]]

persons who meet the definition of ``persons with a disability'', 
regardless of whether they are receiving disability income. Sections 
5.655 and 960.206 remind PHAs and owners that their admission 
preferences must comply with certain governing statutes, regulations 
and executive orders pertaining to nondiscrimination, including HUD's 
affirmative fair housing objectives. In addition, the PHA system of 
local preferences is included in the PHA Plan, which requires civil 
rights certifications. (Although Sec. 5.410, which described 
nondiscrimination provisions has been removed in this final rule, 
Sec. 5.105(a) lists the applicable requirements.)

D. Repeal of Federal Preferences (Proposed Rule Removed Secs. 5.415, 
5.420, 5.425 and 5.430 and Revised Sec. 5.410; Final Rule Removes in 
Addition to Above Secs. 5.405 and 5.410, Adds a new Sec. 5.655, and 
Revises Secs. 960.204-960.206)

    Comment. With permanent repeal of Federal preferences, can owners 
still apply them voluntarily? When federal preferences were suspended, 
owners were advised that they could still use them if they so chose, 
and asked whether the permanent repeal of these preferences precludes 
owners from continuing to exercise this option.
    Response. By law, the selection of tenants from among eligible 
applicants is left to the discretion of the owner. Now the owner may 
choose to use any or all of the federal preferences and may determine 
the hierarchy of any preferences it adopts.
    Comment. Many PHAs will continue to use the formerly required 
federal admission preferences as part of their local preferences, and 
therefore the final rule should eliminate the duplicate tenant 
notification requirements when PHAs alter their federal admission 
preferences. It should be sufficient for PHAs to notify the public and 
tenants through resident advisory board consultation and the public 
inspection and hearing requirements associated with the PHA Plan.
    Response. The public comment process for the PHA Plan provides the 
method of public consultation concerning the establishment of local 
preferences. The rule does eliminate a separate process just for 
approval of preferences, now that the statutory foundation for that 
provision has been eliminated.
    Comment. The proposed rule was right to encourage consideration of 
preferences for individuals who are victims of domestic violence. The 
final rule should give battered women priority consideration for 
housing.
    Response. The final rule keeps the language of the proposed rule 
concerning consideration of preferences for individuals who are victims 
of domestic violence. The final rule, consistent with the statute, 
eliminates Federal preferences and permits PHAs to establish local 
preferences, including preferences for victims of domestic violence.
    Comment. The final rule should require that all preferences be 
based solely on the need for housing.
    Response. Consistent with the statute, the rule requires that any 
local preferences be based on housing needs and priorities, not solely 
housing need.
    Comment. The discretion of Section 8 owners to develop their own 
preferences must be limited to ensure that they do not exclude 
extremely low-income tenants, minority applicants, or victims of 
domestic violence.
    Response. The statute urges PHAs to consider granting a preference 
for victims of domestic violence in public housing and Section 8 
tenant-based programs. Section 8 owners may choose to adopt a 
preference for victims of domestic violence. Of course, under the new 
Sec. 5.655, owner preferences are still subject to anti-skipping, 
residency preference, and fair housing requirements.
    Comment. The final rule should require resident input on selection 
preferences for private owners.
    Response. The law does not require the owner to solicit resident 
input regarding an owner's selection preferences. The law gives the 
owner the discretion to develop its own selection preferences. The 
owner, however, may provide opportunity for resident comment.
    Comment. Section 5.410(b) needs to clarify that PHAs are not 
required to add preferences based on public comment regardless of 
merit.
    Response. The language in Sec. 960.206(a)(1), ``as determined by 
the PHA,'' is clear that a PHA has the discretion to determine whether 
public comments should be adopted.
    Comment. The admission preference information required to be 
provided to applicants by Sec. 5.410(h) of the proposed rule should be 
required to include brief descriptions of the preferences.
    Response. PHAs generally are aware that the preference information 
provided to applicants should clearly convey through description who is 
eligible for the preference. Section 5.410 has been removed in the 
final rule. The requirement for informing applicants has been moved to 
Secs. 5.655 and 960.206.
    Comment. The final rule should include the requirement that PHAs' 
local preferences must be consistent with the needs identified in the 
applicable Consolidated Plan(s) and the requirements of civil rights 
statutes and the obligation to affirmatively further fair housing. It 
is not sufficient, as the proposed rule states, that a PHA must 
consider public comments on the Consolidated Plan and the PHA Plan in 
setting local preferences. The preferences must be consistent with the 
needs identified in the applicable Consolidated Plans.
    Response. The system of local preferences is included in the PHA 
Plan, which requires civil rights certifications. The PHA Plan is the 
vehicle in which PHAs describe any local preferences and the PHA Plan 
must be consistent with the Consolidated Plan for the jurisdiction in 
which the PHA is located.
    Comment. The final rule should ensure that any local preferences do 
not result in discrimination against persons protected by civil rights 
laws by requiring: (1) The PHA or owner to consider the applicable 
Analysis of Impediments to Fair Housing Choice; (2) the PHA or owner to 
analyze the potential discriminatory effects of any proposed preference 
on the protected classes; and (3) the PHA or owner to refrain from 
setting a preference that will have a discriminatory effect, undermine 
the ability of the PHA or local jurisdiction to affirmatively further 
fair housing or remove impediments to fair housing choice, or impede 
implementation of an affirmative marketing plan.
    Response. As noted earlier in this preamble, the final rule does 
require preferences to comply with nondiscrimination requirements. In 
addition, the final rule reinstates the language of former 
Sec. 5.415(b) requiring that elderly families and persons with 
disabilities be given the same preference as working families 
(Secs. 5.655(e)(2) and 960.206(b)(2)). ``Working family'' means a 
family whose head, spouse, or sole member is employed. If a Section 8 
owner chooses to adopt a working family preference, the preference may 
not be based on the amount of earned income. This restriction does not 
apply to selection by a PHA for admission to public housing.
    Comment. The final rule should provide for HUD approval of 
residency preferences for compliance with civil rights laws. Although 
the rule retains the prohibition against residency requirements, the 
rule fails to include

[[Page 16701]]

the former requirement for the Section 8 tenant-based programs that HUD 
approve residency preferences after review for compliance with civil 
rights laws, and this omission may be inconsistent with section 511 of 
the 1998 Act.
    Response. For both the public housing and Section 8 tenant-based 
programs, a PHA's residency preferences are part of the PHA's Annual 
Plan (see new Sec. 903.7(c)). There is no separate HUD approval of a 
PHA's residency preferences, and the entire plan is subject to input by 
the Resident Advisory Board (Sec. 903.13), a public hearing, and public 
comments (Sec. 903.17). PHA plan approval requires certification by the 
PHA of its compliance with civil rights requirements (Sec. 903.7(o)). 
Part 960 states that public housing admission policies must contain a 
statement that any residency preferences will not have the purpose or 
effect of delaying or otherwise denying admission to the program based 
on the race, color, ethnic origin, gender, religion, disability, or age 
of any member of an applicant family. The final rule provides that if 
an owner adopts a residency preference, it must comport with its 
Affirmative Fair Housing Marketing plan or be identical to the one in 
the PHA Plan for the jurisdiction. (See discussion above.)

E. Income Targeting (Proposed Rule Sec. 5.607; Final Rule Sec. 5.653 
and 960.202) (Section 513 of the 1998 Act Amending Section 16 of the 
1937 Act)

    Comment. The targeting requirement will reduce affordable housing 
for elderly persons who are not extremely low-income. A significant 
number of elderly persons are not at or below 30% of median income, and 
they will lose access to affordable housing as a result of the 
targeting requirements. Voluntary income targeting should be adopted, 
not mandatory targeting.
    Response. The targeting requirement is a statutory requirement, 
directed to providing housing to those most in need of housing. There 
are many elderly persons who will be assisted by the targeting 
requirements. In addition, other HUD programs, for example, HUD's 
Section 202 Program for Elderly Persons, and programs administered by 
other public and private entities, will work to maintain affordable 
housing for those elderly persons who are not at or below 30% of median 
income.
    Comment. The Welfare Reform Act employment requirements will make 
it difficult to meet the public housing admission requirement for 40% 
extremely low income families, since many families are required to seek 
and maintain employment. Additionally, the 40% targeting requirement 
will cause major lease problems for PHAs who have high rent 
jurisdictions.
    Response. The Welfare Reform Act has moved millions of families 
from welfare to work, but there are many families--including those 
remaining on welfare and those who have moved into entry level jobs--
who remain in need of housing assistance. HUD believes that the reality 
for most jurisdictions is that it will not be difficult for a 
jurisdiction to meet the 40% targeting requirement.
    Comment. The 40% targeting requirement will greatly reduce the 
number of public housing families who pay a reasonable portion of total 
tenant payment (TTP).
    Response. The purpose of targeting is to ensure that some of the 
neediest families will continue to have access to housing assistance. 
The number of families served by funding for these programs is an issue 
not addressed in this rule.
    Comment. The proposed rule provided, in Sec. 5.607(b)(i), for a 
limitation of 30 percent of the area median income with ``adjustments'' 
for smaller and larger families. The final rule should clarify the type 
of adjustment that will be used. Additionally, the final rule omits any 
standard to govern HUD's discretion to determine a higher or lower 
percent of area median income as may be necessary because of unusually 
high or low family incomes.
    Response. The adjustments for smaller and larger families are 
incorporated into the income limits for the public housing and Section 
8 programs, which are issued by HUD each fiscal year.
    Comment. The targeting requirement simply steers PHAs to focus on 
percentages rather than families. This will result in families on the 
waiting list being ``skipped'' in order to admit another family based 
solely on income.
    Response. PHA admission policies to achieve both the goals of 
reducing poverty and income mixing in public housing may generally 
include skipping over certain applicants on the waiting list based on 
incomes. Skipping may be necessary to serve the required percentage of 
the neediest families (extremely low income). Such skipping is not new, 
however, with respect to assisted housing admissions; both federal and 
local preferences always have involved skipping of families on the 
waiting list in the public housing program, provided it is uniformly 
applied.
    Comment. The final rule should exempt small PHAs and PHAs with high 
vacancy rates from income targeting requirements. The final rule must 
specify a standard for good cause requests made by PHAs to establish 
different targeting requirements, and what documentation the PHA must 
provide to HUD.
    Response. HUD understands that some PHAs may have challenges 
regarding income targeting; however, these requirements are statutory. 
For most jurisdictions, it will not be difficult to meet the 40% 
targeting requirement for public housing.
    Comment. The final rule should clarify whether the income targeting 
requirement is applicable to ``move-in'' actions only or also includes 
situations where an initial certification is done to move someone from 
a section 236 project to a section 8 project.
    Response. The rule has been revised to clarify that the income 
targeting requirement applies upon initial admission to the Section 8 
project-based assistance program.
    Comment. The final rule should define the term ``relatively low 
incomes,'' which is used in Sec. 5.607(a)(3). Another comment suggests 
that the final rule needs to clearly express the prohibition against 
concentration in public housing.
    Response. The rule, at Sec. 960.202, is revised to refer to the 
deconcentration requirements (more detail is in the PHA Plan rule), as 
well as the targeting requirements. The term ``relatively low incomes'' 
is no longer referenced.
    Comment. The final rule should clarify that income targeting 
standards are to be applied on a PHA-wide basis and not on a project-
by-project basis.
    Response. The rule, at Sec. 960.202(b)(1)(i), requires that at 
least 40% of the admissions to the public housing program in each 
fiscal year must be extremely low income families. This language 
clearly reflects that the requirement is applied on a PHA-wide basis. 
The rule at Sec. 960.202(b)(ii) also reflects that this requirement is 
applicable to PHAs on a PHA-wide basis.
    Comment. HUD must be cognizant that PHAs will be in a quandry when 
attempting to simultaneously implement the skipping provision, 
associated with the deconcentration policy, and the targeting 
requirement for annual admissions to public housing. HUD should 
consider the income mix and deconcentration policies that agencies 
submit as part of their PHA Plan, and the HUD respect the ``good faith 
efforts'' that PHAs undertake to create mixed-income communities based 
on the PHA management discretion and local conditions.

[[Page 16702]]

    Response. The deconcentration of poverty and income mixing 
requirements are discussed in the final rule on the PHA Plan.
    Comment. In some jurisdictions, there are apparent discrepancies 
between SSI grant levels, minimum wage earnings, and the extremely low 
income level in some counties, but these discrepancies can be 
administratively addressed by HUD.
    Response. HUD makes adjustments every year for areas with unusually 
high or low housing costs relative to means. HUD also has made further 
adjustments for unusually high or low incomes for income eligibility to 
take into account State Supplemental Security Income (SSI) benefit 
levels. HUD issued Notice PDR 99-04 on July 21, 1999, to make changes 
that relate to the ``30 percent of area median income'' limits. These 
income limits have been increased wherever necessary to ensure that the 
one-person 30 percent income limit is at least as high as the State 
Supplemental Security Income (SSI) benefit level. The SSI program 
provides a minimum entitlement income standard for elderly and disabled 
households.
    HUD will not make further adjustments to fiscal year income limits 
to accommodate minimum wage households, because this would drastically 
alter the 30 percent standard and would be inconsistent with 
Congressional intent.

F. Annual Income, Adjusted Income (Proposed and Final Rule 
Sec. Sec. 5.603, 5.609, and 5.611) (Section 508 of the 1998 Act 
Amending Section 3 of the 1937 Act)

1. Exclusions vs. Deductions
    Comment. The mandatory deduction from income for the earned income 
of minors will have the consequences of reducing the number of 
households eligible to move in. HUD has the statutory authority 
discretion to exclude (not deduct) income from minors.
    Response. HUD agrees with this comment. The final rule maintains 
the language Sec. 5.609(c)(1) that excludes the income of minors from 
the definition of annual income. HUD provided advance notice of this 
provision to PHAs in its notice on ``Public Housing Rent Policies; 
Guidance Pending Publication of Final Rule on Admission and Occupancy 
Requirements'' published on August 6, 1999 (64 FR 42956). The change 
from the proposed rule applies to all Section 8 programs as well as to 
public housing.
    Comment. HUD should revise the mandatory deduction language 
pertaining to the $480 for each dependent. Section 5.611(a)(1) should 
be modified to read as follows: ``$480 for each member of the family 
residing in the household (other than the head of the household or his 
or her spouse) who is less than 18 years of age or is attending school 
or vocational training on a full-time basis, or who is 18 years of age 
or older and is a person with disabilities.''
    Response. The suggested revision is not necessary. The $480 
deduction applies for each dependent. The term ``dependent'' is defined 
in Sec. 5.603(d) and includes the recommended categories of dependent.
    Comment. Section 5.611(a)(3)(ii) of the current rule places a limit 
on the amount of the deduction for unreimbursed reasonable attendant 
care and auxiliary apparatus expenses. It states that ``this allowance 
may not exceed the employment income received by family members who are 
age 18 years of age or older.'' The proposed provision does not contain 
any limit on the amount of the deduction. The limitation language in 
the existing rule should be retained.
    Response. HUD agrees with this comment and has revised 
Sec. 5.611(a)(3)(ii) to clarify that the allowance may not exceed the 
employment income received by family members who are 18 years of age or 
older and who are able to work as a result of the assistance to the 
person with disabilities.
    Comment. Section 508 of the 1998 Act does not support HUD's 
interpretation that certain exclusions from income be treated as 
deductions. Congress refers to the items listed in section 508 as 
mandatory exclusions from income not deductions. HUD's interpretation, 
as reflected in Sec. 5.611, applies the permissive exclusions to 
adjusted income but not to annual income. Since PHAs do have the 
authority under the current regulation to exclude earned income from 
annual income, and this rule removes that authority, this rule renders 
certain families ineligible for assistance. The statutory grant of 
authority to PHAs--to adopt ``permissive exclusions'' (42 U.S.C. 
1437a(b)(5)(B)--does not deprice HUD of the authority pursuant to which 
it granted PHAs the discretion to adopt non-mandatory exclusions for 
the purpose of ascertaining public housing income eligibility under 
Sec. 5.609(d), which HUD now proposes to repeal.
    Response. The language on ``permissive exclusions'' (found in 
section 508 of the 1998 Act, which amends section 3(b) of the 1937 Act) 
makes a change in the determination of ``adjusted income'' (which is 
used to determine rent), not in ``annual income'' (which is used to 
determine eligibility). HUD has distinguished between subtractions from 
these terms by calling the subtractions from annual income 
``exclusions'' and the subtractions from adjusted income 
``deductions.'' Therefore, the statutory change directs that there be 
permissive deductions from adjusted income. Of course, adjusted income 
is an amount that is based on ``annual income,'' so an exclusion from 
annual income also impacts ``adjusted income.''
    Since the new statutory language mandates permitting a deduction 
from ``adjusted income'' and an exclusion from ``annual income'' on the 
same basis could result in a double benefit with respect to the same 
type of income, HUD has eliminated the permissive exclusion from annual 
income for earned income. However, HUD notes that the new permissive 
deduction is much broader than the language in the regulations 
regarding optional exclusions for earned income. Although the new rule 
provides flexibility with respect to the subsidy amount paid to the 
family as a result of the rent calculation rather than flexibility on 
what families are admitted (based on an eligibility determination), it 
permits a PHA to grant a permissive deduction for categories other than 
working families. Therefore, the proposed language in Sec. 5.611 is not 
revised in this final rule.
    Comment. The term ``adult co-tenant'' used in Sec. 5.611(a)(5) 
should be added to the definition of ``family head or spouse.'' The 
final rule should also clarify whether an adult co-tenant has the same 
status as a spouse for eligibility determination and other purposes.
    Response. The rule does not currently define ``family head or 
spouse,'' and HUD does not believe a definition of ``adult co-tenant'' 
is necessary. A PHA has the discretion to define ``family'' and a PHA 
can include in its definition of family the term ``adult co-tenant.''
2. Permissive Deductions--Applicable to Public Housing Only
    Comment. Permissive deductions should be extended to the Section 8 
tenant-based programs. Permissive deductions should not be limited to 
public housing.
    Response. Section 508(a)(5)(B) of the 1998 Act explicitly provides 
that permissive deductions are applicable only to the income of 
families residing in public housing units. HUD therefore is precluded 
by statute from extending permissive deductions to the Section 8 
tenant-based programs.

[[Page 16703]]

    Comment. The statute provides several examples of permissive 
deductions for public housing such as excessive travel expenses up to 
$25 per week and earned income in certain situations, and these 
examples should be included in the rule.
    Response. While HUD recognizes that examples are helpful, HUD 
believes that regulatory text generally is not the appropriate place to 
include examples, guidance and similar information. There are better 
formats other than codified regulations (which are updated only once a 
year) to provide this sort of information. HUD will provide examples in 
future guidance.
    Comment. Section 5.611(b) of the rule provides that the PHA must 
describe its permissive deductions in its written policies. The final 
rule should provide that private entities administering public housing 
units are allowed to diverge from the PHA's plan, and these entities 
can implement permissive income exclusions without being included in 
the PHA's plan.
    Response. The PHA and any private entity administering public 
housing units on behalf of a PHA must follow the PHA's written 
policies, which are required to be available to the public locally in 
connection with the PHA's Plan.

G. Minimum Rents (Proposed Rule Sec. 5.616; Final Rule Sec. 5.630) 
(Section 507 of the 1998 Act Amending Section 3(a) of the 1937 Act)

    Comment. For project-based Section 8, there are a set of exemptions 
to minimum rent. It is unclear in this rulemaking whether these 
exemptions are eliminated and replaced by the financial hardship 
exemption, or is financial hardship being added to the list?
    Response. The financial hardship exemption constitutes the only 
statutory exemption to minimum rent. The statute then establishes 
subcategories of financial hardship exemptions.
    Comment. While HUD has taken the minimum rent requirements directly 
from the statute, these requirements, as written in the proposed rule, 
make the imposition and collection of minimum rent meaningless. Since 
the law (and proposed rule) would prohibit the eviction of any family 
who fails to pay the minimum rent. PHAs have no way to enforce 
collection. The impact of the no eviction policy on public housing will 
result in an increase in operating subsidy needs to offset uncollected 
rents. By prohibiting PHAs from evicting those who do not pay, PHAs 
will likely experience an increase in tenant accounts receivable. 
Additionally, the hardship exemption eliminates any need for minimum 
rent. The exemption from payment of minimum rent due to financial 
hardship will have the effect of causing PHAs to establish a minimum 
rent of $0, and a minimum rent of $0 should be allowed only for 
exceptional situations.
    Response. The exemption that prohibits public housing and Section 8 
evictions resulting from the minimum rent is statutorily required. PHAs 
still have the option to determine the level of minimum rent. For 
public housing and the Section 8 certificate, voucher and moderate 
rehabilitation programs, the minimum rent maybe set any where from $0 
to $50. For other project-based Section 8, the minimum rent is $25.
    Comment. The initial rent freeze for hardship determinations should 
be reduced from 90 days to 30 days. This will benefit the family should 
the PHA find that a hardship does not exist, resulting in the family 
having to pay retroactive rent for a period that the rent was frozen. 
If a hardship does exist, PHAs could extend the rent freeze in 30 day 
increments (with documentation from the family). A maximum limit for 
hardships should be established at the discretion of the PHA.
    Response. The statute dictates the 90-day waiting period. This 
would not preclude a family from paying back amounts owed prior to that 
period.
    Comment. Although the choice of minimum rents is discretionary on 
the part of the PHA, the final rule should be explicit that this 
discretionary decisionmaking is subject to all the due process 
protections of any lease change, especially given the fact that 
electing to institute a minimum rent affects residents' property 
rights.
    Response. Protections regarding any lease changes are already 
provided under 24 CFR part 966.
    Comment. The final rule should direct PHAs to make sure that they 
have procedures in place to prevent any eviction against a family in 
minimum rent status. The final rule should make clear that the tenants 
in minimum rent status my not be evicted for non-payment of the minimum 
rent in excess of the tenant rent otherwise payable; that is (1) 
eviction restriction is not limited to a 90-day period and (2) it does 
not apply to section 8 families.
    Response. The rule already provides that PHAs must have written 
policies governing hardship. Those policies must include an exemption 
of payment of the minimum rent when the family would be evicted as a 
result of the imposition of the minimum rent requirement. (See 
Sec. 5.630.)
    Comment. The final rule should clarify that inability to pay 
minimum rent cannot be grounds to reject an applicant for housing if 
the applicant qualifies for a hardship exemption.
    Response. Eligibility for housing is a separate determination from 
calculation of rent. If a family is income-eligible and meets the PHA 
of owner's screening criteria, then the family's applicant for housing 
would not be rejected. Once the family signs a lease, it has the same 
protections as all families with respect to hardship exemptions.
    Comment. Notwithstanding the authority to set a minimum rent in 
project-based settings of not more than $50 per month, HUD has chosen 
to continue its previous decision to set a minimum rent amount of $25 
for all project-based settings. In light of the burden and complexity 
of the decisionmaking process concerning hardship requests which HUD 
delegated to project-based owners, HUD should set the minimum rent at a 
maximum of $25 for project-based owners and let the private owner at 
its operation choose to impose a $0 minimum rent.
    Response. The final rule maintains the language of the proposed 
rule. The statute directed HUD to establish the minimum rent for the 
project-based Section 8 assistance programs of not more that $50 month. 
HUD selected a mid-point figure of $25 as a reasonable minimum for 
these programs.
    Comment. The statutory language is clearer than HUD's rule on the 
hardship exemption, and the rule should more closely mirror the 
statutory language. Another comment suggests that the final rule should 
make clear that Sec. 5.616(b)(1) includes situations where a tenant has 
requested government assistance, been denied, and is appealing the 
denial, either through the administrative or a judicial process. 
Another comment states the proposed rule omitted language from the 1998 
Act regarding families with a member who is an alien lawfully admitted 
for permanent resident, and suggests that Sec. 5.616(b)(1) be revised 
accordingly.
    Response. HUD has revised Sec. 5.60(b)(1)(i) in this final rule to 
read as follows: ``When the family has lost eligibility for or is 
awaiting an eligibility determination for a Federal, State, or local 
assistance program, including a family that includes a member who is a 
noncitizen lawfully admitted for permanent residence under the 
Immigration and Nationality Act who would be entitled to public 
benefits but for title IV of the Personal Responsibility and Work 
Opportunity Act of 1996.'' HUD believes that this revision will address 
the first and third

[[Page 16704]]

comments. HUD disagrees that additional language is necessary on the 
second matter regarding appeals. The language in the regulation mirrors 
the statutory language.
    Comment. It is not clear why HUD established different standards in 
Sec. 5.616 for public housing tenants and Section 8 tenants. For public 
housing this section provides that one a family requests an exemption, 
the PHA must immediately suspend the minimum rent until a hardship 
determination is made. With respect to Section 8 tenants, the rule 
provides that the PHA must suspend the minimum rent beginning the month 
following the request, not immediately. There seems no reason to 
provide less protection to section 8 tenants.
    Response. HUD interprets ``Immediately'' to mean the month 
following the family's hardship request until the responsible entity 
determines whether there is a qualifying financial hardship, and 
whether or not it is temporary or long term. The rule now contains 
identical language regarding suspension of the minimum rent requirement 
beginning the month following the hardship request for both the public 
housing and Section 8 tenant-based programs (Sec. 5.630(b)(2)).
    Comment. The final rule should clarify that temporary hardship is 
90 days or less, and a long term hardship is one that is of more than 
90 days duration. Once the hardship lasts 90 days, the rule should 
require the PHA to treat the hardship as long term, grant the exemption 
and make it retroactive to the beginning. The final rule should further 
provide that in situations where it is immediately clear that an income 
loss will last longer than 90 days or that income loss has already 
lasted more than 90 days, HUD should require the PHA to grant the 
exemption.
    Response.The statute does not provide 90 days as an absolute in 
defining temporary hardship versus long term hardship. The 90 days 
relates to a prohibition on eviction commencing on the date of the 
family's request for exemption from the minimum rent in excess of the 
tenant rent otherwise payable.
    Comment. The final rule should provide a specific time frame for 
notifying residents of their right to request a minimum rent hardship 
exemption.
    Response. HUD declines to provide a specific time frame for 
notification to residents. The statute, and consequently the rule also, 
leave this decision to the PHA.
    Comment. The minimum rent exception policy does not address (and 
should address) the family's inability to repay a retroactive rent 
without creating another hardship. The temporary hardship period should 
be debt free. Additionally, the rule needs to address more fully the 
repayment agreement process.
    Response. HUD declines to adopt this suggestion, which is not 
supported by the statute. The language in the regulation that requires 
the PHA or owner to offer the family a reasonable repayment agreement 
addresses this concern in a manner consistent with the statute.
    Comment. Allowing housing authorities to set a minimum rent based 
on local conditions is a good idea. However, the exemption from payment 
of the minimum rent due to financial hardship will result in housing 
authorities electing not to establish a minimum rent. A minimum rent of 
$0 should only be allowed for exceptional situations.
    Response. The exemption for hardship cases is statutorily required.

H. Self-Sufficiency Incentives--Public Housing Only (Proposed Rule 
Sec. 5.612; Final Rule Sec. 960.255) (Section 508 of the 1998 Act 
Amending Section 3 of the 1937 Act)

1. Disallowance of Increases in Income as a Result of Employment
    Comment. The April 30, 1999 proposed rule did not place a limit on 
the number of times a family or individual can benefit from 
disallowance of increases in income as a result of employment, but HUD 
specifically sought comment on that issue. The majority of commenters 
who commented on this issue favored a limit. Some commenters favored a 
limit but did not make suggestions on what the limit should be. One 
commenter simply opposed the disallowance. Specific suggestions on the 
limits that should be placed on claiming an income disregard were as 
follows: (1) Limit to fixed number of months, as opposed to some fixed 
number of times an individual could qualify to begin the period of 
earning disallowances; (2) limit one time per household; limit one time 
per household but allow family to retain welfare benefits longer; (3) 
limit two times per household; (4) limit two times in a five-year 
period; (5) limit 3 times and each time the 12 month period is 
decreased; and (6) allow PHAs to set limit.
    Response. HUD appreciates and carefully considered all proposals. 
HUD has revised the rule to limit each member of a family to receipt of 
the benefit of the 12 month cumulative income disregard (and the 
subsequent 12 month phase in) for no more than twelve months of each 
benefit (the full disregard and the phase-in) over a four year period 
commencing the first time the individual is eligible for the benefit. 
After that 48-month period, there would be no further eligibility of 
the family member for this disregard. Additionally, the rule also 
limits eligibility for persons who are or were assisted, within 6 
months, under any State program of temporary assistance under part A of 
title IV of the Social Security Act only when the amount of TANF-funded 
assistance, benefits or services during the 6 month period totals at 
least $500. The $500 floor was chosen because that amount demonstrated 
that the person was not receiving only minimal assistance. These 
limitations both recognize the potential administrative burden for 
PHAs, and support the self-sufficiency efforts by individuals who need 
to use this provision more than one time for valid reasons (newly 
working families often have changes in jobs and experience periods of 
unemployment, especially during the first few years of starting 
employment). A Congressional floor colloquy [144 Cong. Rec. S11840 
(daily ed. October 8, 1998) (statement of Sen. Mack)] before enactment 
of the statute, suggested that the rules implementing the disallowance 
of increased income as a result of employment should provide 
flexibility but at the same time not encourage households to change 
their employment patterns to take advantage of the disregard.
    Comment. HUD should not impose a limit on the income disregard. The 
statute imposes no limit on the availability of the income disregard, 
and neither should the rule.
    Response. HUD has the authority to implement the disallowance of 
increases in income as a result of employment in a flexible manner that 
creates incentives for work, but does not allow for abuse of this 
benefit. The floor colloquy cited earlier directed HUD to do this.
    Comment. PHAs should not have to wait to increase a family's rent 
and also be limited in the amount of increase.
    Response. The new statute clearly requires PHAs to delay increase 
in the rent of a newly employed family for one year, and then limits 
the amount of increase for another year.
    Comment. In Sec. 5.612(a)(1), HUD should replace the phrase 
``established minimum wage'' with the ``highest applicable minimum 
wage.'' This change, if implemented, will account for variations in 
minimum wage among jurisdictions and where the state

[[Page 16705]]

minimum wage is higher, assure that the higher wage is used in the 
calculation.
    Response. HUD recognizes that the minimum wage may be higher in 
some states, and that the higher minimum wage of the state is the 
prevailing wage for HUD purposes. The language of the rule is clear on 
this point and no elaboration is needed.
    Comment. The final rule should clarify the continued application of 
existing Sec. 5.609(c)(13) for transition purposes. The preamble to the 
proposed rule repeats the statute's continued application of 
Sec. 5.609(c) for residents qualified prior to October 1, 1999. This 
continued coverage should be stated in the final rule, to minimize 
difficulty with implementation of the income disregard.
    Response. The continued application of Sec. 5.609(c)(13) is clear 
and no elaboration of this point is needed in the rule.
    Comment. HUD needs to develop a fool proof data tracking system for 
monitoring the periods used for this disregard. This tracking system 
could be incorporated into the HUD 50058 form and the Multifamily 
Tenant Characteristics System (MTCS).
    Response. HUD is in the process of updating MTCS to capture all of 
the changes necessary as a result of the changes made by the 1998 Act.
    Comment. The final rule should clarify that the burden is on the 
family to notify the PHA of eligibility for an income disallowance. 
Section 5.612 should contain language that requires a family to notify 
the PHA of its eligibility for a disallowance for increases in income 
as a result of employment, and to provide the requisite information in 
support of any requested disallowance.
    Response. It is at the PHA's discretion to establish policies 
prescribing when and under what conditions a family must report changes 
in income, if other than at the annual re-examination, and to establish 
reasonable income verification. Additionally, under revised 
Sec. 960.257(b), a family may request an interim reexamination of 
income at any time.
    Comment. The final rule should provide a broad interpretation of 
participation in a self-sufficiency or job training program to include 
not only the phase of the program spent in job training or job 
preparation but also to include the work experience phase of self-
sufficiency training in which participants are working full-time but 
still receive monitoring or counseling from the self-sufficiency 
program.
    Response. There is nothing in the proposed rule or this final rule 
that limits the interpretation suggested by the comment. No additional 
clarification is needed.
    Comment. The final rule should clarify that eligibility for the 
disallowance for increases in income as a result of employment begins 
at the time the income is earned.
    Response. The rule is clear that eligibility for this disallowance 
begins on the date the employment starts or the date income from 
employment increases (see revised Sec. 960.255(b)(1)).
    Comment. To serve as a self-sufficiency incentive, the rule needs 
to accord favorable treatment to increased earnings that occur shortly 
after completion of a training program, rather than during 
participation in one. Section 5.612(a)(2) of the proposed rule leads 
one to the conclusion that increased earnings that occur after 
completion of a training program would not qualify for special 
treatment under the rule because the increase did not occur ``during 
participation.''
    Response. The statute is clear regarding this provision. Eligible 
amounts to be excluded under Sec. 960.255(a)(ii) are any income 
increases received by a family member during participation in any 
family self-sufficiency or other job training program and not increases 
that occur after participation in a self-sufficiency or other job 
training program. For example, a family member could be eligible for 
this exclusion if a component of the training program provides 
training, monitoring, or assistance after the person becomes employed. 
However, a family member whose income does not increase during 
participation in a family self-sufficiency or other job training 
program may still be eligible for a disallowance of increases in income 
under paragraph Sec. 960.255(a)(i) or (a)(iii).
    Comment. The rule should state clearly that families may qualify 
for the limit on rent increases when they begin employment or increase 
their earnings. The rule should clarify that for the purposes of 
determining eligibility for disregard of earned income, a family has 
been assisted within 6 months ``under any state program for temporary 
assistance for needy families funded under Part A of Title IV of the 
Social Security Act.'' The final rule should clarify that there are two 
programs under Part A of Title IV of the Social Security Act that 
qualify a family for the earned income disregard, and that there are 
several benefits and services funded from federal or state TANF funds.
    Response. The two programs under Part A of Title IV of the Social 
Security Act include the TANF program administered by the State or 
local welfare agency and the Welfare-to-Work (WTW) program administered 
by the State or local WTW agency. Under the TANF program, the State or 
local welfare agency can use funds to pay for benefits or services, 
such as wage subsidies, child care, and transportation, as well as a 
one-time payment of assistance or diversion assistance funded from 
Federal or State TANF funds. Families assisted under any program under 
Part A of Title IV of the Social Security Act and who meet the other 
criteria under Sec. 5.612 are eligible for the disallowance for 
increases in income as a result of employment. The PHA needs to 
coordinate and verify with its local welfare and WTW agencies to help 
the PHA determine who is eligible under Sec. 5.612 for this 
disallowance.
    Comment. The final rule should clarify that training includes 
technical schools and community colleges. The final rule also should 
clarify in Sec. 5.612 that family self-sufficiency includes training 
programs for people with disabilities that provide stipends or very low 
wages in a sheltered workshop type of job prior to transitioning to 
competitive employment.
    Response. There is nothing in the rule that would preclude 
technical schools, community colleges and training programs for persons 
with disabilities from being considered as family self-sufficiency or 
job training. The rule cannot list all eligible programs that may 
qualify as training, but this could be addressed further in future 
guidance issued by the Department.
2. Individual Savings Account
    Comment. The final rule should clarify that individual savings 
accounts are permissive on the part of PHAs and not mandatory.
    Response. The statute and regulation, at Sec. 960.255(d), clearly 
state that a public housing agency may establish an individual savings 
account. The PHA has the option of offering individual savings 
accounts. The rule reflects the statutory language. Therefore, a family 
cannot require the PHA to establish an individual savings account.
    Comment. Section 5.612(c) gives the PHA the choice of offering 
individual savings accounts to eligible families and the choice 
transfers to the residents. This is not what the statute provides. The 
statute places the choice first with the eligible family, not the PHA. 
The rule should be revised to conform to the statutory language.
    Response. HUD disagrees with this comment. As noted in the 
preceding response, the statute clearly gives the PHA the option to 
offer individual

[[Page 16706]]

savings accounts. A family cannot compel the PHA to offer these 
accounts.
    Comment. The final rule should clarify conditions of authorized 
withdrawals from the individual savings account, and specifically 
should provide guidance on the term ``moving out.''
    Response. Sections 960.255(d)(3) and (6) of the rule address the 
conditions under which a family receives its account when moving out.
    Comment. Section 5.612(c) states: ``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.'' The 
rule language is not clear whether the family loses its savings account 
if the family is evicted for any reason.
    Response. A family does not automatically lose its savings account 
if the family is not in compliance with the lease and is evicted. If a 
family is evicted for non-compliance with the lease, the family would 
receive its savings account, less any amounts the family owes the PHA.
    Comment. HUD's individual savings accounts should be modeled on 
accounts developed by other Federal agencies or organizations.
    Response. Both the statute and the regulation provide a PHA with 
flexibility in establishing individual savings accounts. Given this 
flexibility, HUD declines to require a PHA to establish an individual 
savings account in accordance with a specific model. However, the final 
rule does clarify that a PHA may not charge a fee for maintaining an 
account for a family, but it may pass along to the family any fee that 
a financial institution imposes on it for maintaining the account.

I. Income Changes Resulting From Noncompliance With Welfare Program 
Requirements (Proposed Rule Sec. 5.618; Final Rule Secs. 5.603, 5.613, 
and 5.615) (Section 512 of the 1998 Act Amending Section 12 of the 1937 
Act)

    Comment. Section 5.618(a) lists those households whose rental 
payments may not reflect welfare reductions. It includes failure to 
satisfy economic self-sufficiency requirements imposed by the welfare 
agency. This list should be expanded to include categories such as 
failure to comply with child support requirements.
    Response. The statute is specific regarding compliance with welfare 
program requirements, including fraud eradication and support for 
economic self-sufficiency and work activity requirements. When 
determining tenant rent for families participating in the public 
housing and tenant-based Section 8 programs, PHAs are required not to 
consider reductions in income attributable to the welfare agency's 
sanctioning and enforcement of other welfare program requirements that 
are not related to economic self-sufficiency and work activity 
requirements. The statute contains a definition of economic self-
sufficiency programs, which the regulation incorporates (Sec. 5.615).
    Comment. The list of households exempt from the limitation on rent 
reduction should also include a household that may have lost welfare 
income due to economic self-sufficiency sanction, but has subsequently 
obtained income from new sources.
    Response. The definition of ``covered family'' in the statute means 
a family that (1) receives benefits for welfare assistance or public 
assistance from a State, or other public agency under a program for 
which the Federal State, or local law relating to the program requires, 
as a condition of eligibility for assistance under the program, 
participation of a member of the family in an economic self-sufficiency 
program, and (2) resides in a public housing dwelling unit or is 
provided tenant-based assistance under Section 8. The comment suggests 
adding as an exemption, persons who were sanctioned but have since 
obtained employment or have gained other sources (of income).
    This exception to the usual rent rules provided by the statute is 
for loss or reduction of welfare assistance or public assistance 
benefits due to sanctioning. The amount of income not actually received 
by the family as a result of sanctioning is included in the annual 
income as ``imputed welfare income''. If the member of the family is no 
longer receiving any such benefits (because the family member is now 
working) the exception is not applicable. If, however, the member of 
the family is still receiving some portion of welfare/public assistance 
benefits (due to a reduction and not a total loss of benefits as a 
result of sanctioning), the exception remains applicable, even if the 
member of the family has income from other sources. A PHA should 
continue to include the imputed welfare income until either the 
sanction term ends or the family's income from other resources is at 
least equal to the imputed welfare income.
    Comment. It is not clear in Sec. 5.618(a) that the only households 
subject to the rent reduction limitation at issue are those who meet 
the definition of ``covered family'' in the statute at 42 U.S.C. 
1436j(d)(1). The final rule should clarify this point.
    Response. HUD revised the rule, at Sec. 5.615(b), to include a 
definition of ``covered family'' that tracks the statutory language.
    Comment. The final rule should provide clarification of the term 
``fraud.'' PHA staff is not always knowledgeable about welfare law and 
the subtleties involved in welfare fraud issues, and therefore it may 
not be clear to a PHA employee that the allegation of fraud that 
results in restitution and participation in civil rehabilitation 
programs results in no welfare fraud allegation or conviction.
    Response. As noted earlier, each State or local welfare agency 
determines for its program when a family has failed to comply with 
particular requirements or has committed fraud. The PHA must work with 
the State or local welfare agency to understand what constitutes fraud 
or noncompliance that results in a reduction of welfare assistance or 
public assistance benefits of a covered family.
    Comment. Section 5.618(b) needs to clarify that a PHA cannot deny a 
rent reduction pursuant to the statutory requirements before the PHA 
obtains notice described in the statute that justifies application of 
42 U.S.C. 1437j(d)(2) and (3) and justifies its denial of rent 
reduction.
    Response. The final rule, at Sec. 5.615(c)(2), is clear regarding 
the obligation of the PHA to obtain written verification from the 
welfare agency of the basis for the reduction of welfare assistance or 
public assistance benefits and the term of the reduction of benefits.
    Comment. Section 5.618(b) should state with specificity that the 
PHA is bound by federal confidentiality laws as well as state and local 
data privacy and confidentiality laws in its sharing of information 
with the welfare agency.
    Response. The verification of income or welfare benefits is covered 
under HUD existing regulations that provide for confidentially and use 
of information obtained from third parties.
    Comment. HUD must provide clear guidance to PHAs on what 
information is appropriately required from the welfare agency. The PHA 
will probably need a release from the family to obtain the verification 
the statute and regulation require. HUD must provide guidance in 
clearly limiting the scope of the release to protect the resident and 
the housing authority staff from overreaching inquiries and unnecessary 
release of protected information that may leave the housing authority 
open to liability if information is carelessly

[[Page 16707]]

handled. HUD should provide PHAs with a model release form.
    Response. HUD is in the process of developing a model cooperation 
agreement, which can be used to specify the verification process to 
determine welfare assistance or public assistance benefits, as well as 
obtaining verification of any loss of benefits due to noncompliance or 
fraud. PHAs, however, may not delay the implementation of this 
provision based on the Department's timetable for design or issuance of 
a model cooperation agreement. The PHA is required to make its best 
efforts to enter into such cooperation agreements, with State, local or 
other agencies providing assistance to covered families under welfare 
assistance or public assistance programs, as may be necessary.
    Comment. Section 5.618(c) references the hearing procedures in 
Sec. 982.555, which are applicable to tenant-based Section 8 tenants. 
This section should also refer to the hearing procedures for public 
housing residents in Sec. 966.55(e)(2).
    Response. The rule was revised, at Sec. 5.615(d)(1), to reference 
the public housing hearing procedures in part 966.
    Comment. A PHA's notice to a family of the PHA's decision to deny 
the rent reduction after obtaining verification of income reduction for 
noncompliance with economic self-sufficiency requirements should be in 
writing, timely provided, specifically state the decision of the PHA 
and the basis for the decision in law and fact, and advise the family 
of the procedure for seeking review.
    Response. The final rule, at Sec. 5.615(d), provides that a PHA 
must notify the family in writing that they have a right to ask for an 
explanation stating the specific grounds of a PHA determination, and 
that the family may request a hearing under the grievance procedure if 
they disagree with the determination.
    Comment. The rule should be revised to require final action on the 
part of the welfare agency before rent reduction can be refused. 
Section 5.618(b), as proposed, permits responsible entities to delay 
rent adjustments until verification is obtained from the welfare 
program. The proposed rule conflicts with the statutory basis for the 
rule, 42 U.S.C. 1437j(d), which states at subsection (d)(4) that the 
PHA may not refuse to take action to reduce rent until written 
notification is obtained from the welfare program.
    Response. The final rule provides, at Sec. 5.615(c)(2), that the 
PHA must rely on the written determination of the welfare agency to 
base its decision concerning rent reduction, which tracks the statutory 
requirement.
    Comment. Rent reduction limitation also should apply to families 
for which other benefits are decreased due to fraud, for example, 
Social Security benefits which have decreased due to defrauding the 
Social Security Administration.
    Response. The treatment of income changes resulting from welfare 
program requirements which prohibit the reduction of rent due to 
noncompliance or fraud is statutory and is applicable to welfare 
assistance and public assistance benefits specifically. HUD does not 
have the authority to expand this provision to other federal assistance 
programs.
    Comment. The rent reduction process results in additional 
administrative burden, specifically, increased reporting requirements 
and tracking of eligible families.
    Response. HUD is aware that the rent reduction process will require 
PHAs to obtain written verification of sanctioning from welfare 
agencies. HUD believes that the administrative responsibility imposed 
by the verification process can be simplified and minimized through 
cooperative relationships with the welfare agencies.
    Comment. HUD must provide additional guidance for Sec. 5.618 
because of the complex nature of the various welfare programs and PHA 
unfamiliarity with their operation.
    Response. The best guidance concerning the nature and operation of 
the various welfare programs comes from the welfare agencies who 
administer these programs. HUD anticipates that these welfare agencies 
will be cooperative in assisting PHAs in understanding their programs. 
HUD strongly encourages PHAs to coordinate with their State or local 
welfare agencies to improve the reporting of income and detection of 
fraud and to streamline the process where possible. Additionally, HUD 
encourages PHAs to use the cooperation agreements, as described in 
section 12(d)(7) of the 1937 Act, as amended by section 512 of the 1998 
Act, to improve the service delivery between the two agencies to 
promote self-sufficiency and otherwise address the needs of low-income 
families.

J. Rents in Public Housing (Proposed Rule Secs. 5.603 and 5.614; Final 
Rule Secs. 5.603 and 960.253) (Section 523 of the 1998 Act Amending 
Section 3(a) of the 1937 Act)

1. Income-Based Rents
    Comment. The preamble language in the proposed rule that stated HUD 
cannot provide assurance of its ability to subsidize ceiling rents is 
inappropriate. Whenever Congress has conditioned a commitment on the 
availability of future appropriations, it has explicitly said so. There 
is no such language conditioning the statutory commitment to provide a 
fair and equitable level of operating assistance for tenancies that pay 
flat rents or ceiling rents established in accordance with section 523 
of the 1998 Act.
    Response. While the 1998 Act does not explicitly condition this 
provision on the availability of future appropriations, the subsidy of 
either flat rents or ceiling rents is an issue being considered during 
the operating fund negotiated rulemaking because of the cost 
implications. The subsidy to pay for any particular level or type of 
rent cannot be assured.
2. Flat Rents
    Comment. The language in Sec. 5.614(a)(1) concerning the use of 
comparability studies to justify a flat rent system seems contrary to 
the Federal Government's policy disfavoring statements in the Code of 
Federal Regulations that give advice about what a regulated entity 
should do, rather than stating what it must do. With respect to the 
specific suggestion that a PHA should use a comparability study to 
justify a flat rent system, section 523 of the 1998 Act, which 
establishes the requirement for alternative rent systems, does not 
employ the term ``comparability.'' To the extent that comparability 
studies may constitute one manner for developing flat rents, section 
523 of the 1998 Act, makes it one method among equals.
    Response. It is important that there be a uniform standard for 
setting flat rents, to ensure that the rents established meet the 
statutory requirements and are established in a comparable manner 
across all PHAs. The cost implications of flat rents further make a 
uniform policy necessary. HUD has revised Sec. 960.253(b)(2) to more 
clearly articulate the statutory link between flat rents and the rental 
market. The rule has been further revised to clarify the requirement 
for documenting the method for setting the flat rents equal to 
comparable market rents. In addition, we note that to have adequate 
information about the income levels of families served by the 1937 Act 
programs, HUD may seek income information on a sampling basis from 
families paying flat rents, whose incomes are not regularly required to 
be examined more often than every three years.

[[Page 16708]]

    Comment. If a comparability study is used, the rule needs to make 
sure that such study includes certain additional factors, such as crime 
level in the project and in the vicinity; drug activities in the 
project and in the vicinity; and gang activities in the project and in 
the vicinity, to name a few.
    Response. Section 960.253(b)(3) broadly identifies the factors a 
PHA must consider when determining flat rents. HUD has clarified that 
the flat rent must be the estimated rent at which the PHA actually 
could rent the unit once it is prepared for occupancy.
3. Family Choice
    Comment. The family's ability to choose between an income-based 
rent and a flat rent will be an administrative burden for the PHA.
    Response. Choice of rent is required by section 523 of the 1998 
Act. Section 523 increases a PHA's flexibility regarding rent policies, 
while also requiring that a family be given a choice of flat or income-
based rent.
    Comment. Section 523 of the 1998 Act requires that tenants who pay 
a ceiling or flat rent receive income reexaminations not less than once 
every three years. HUD should adopt the statutory three-year standard. 
While the statute allows the family to ``elect annually'' without 
showing hardship to change its rent-payment method, that is the 
family's choice, and in the absence of that election, a PHA should not 
be required to go through the costly, unnecessary task of conducting an 
annual income-based rent determination for a family who does not want 
one and does not need one.
    Response. As stated in the comment, section 523 of the 1998 Act 
requires PHAs to provide families residing in public housing the choice 
to elect annually, which rent option they prefer, even if they are 
paying a ceiling rent or flat rent, but permits income to be reviewed 
every three years if the family chooses the flat rent. HUD emphasizes 
that a family must be offered a choice of rent options annually, and 
must be provided sufficient information to make an informed choice. To 
illustrate, if a family elected an income-based rent (because according 
to their calculations, the income based rent is less than the flat 
rent), but upon re-examination by the PHA discovered that the income-
based rent is actually higher than the flat rent, the family should be 
allowed to opt for the flat rent at that time (because the information 
regarding choice of rents seems insufficient for the family to have 
made a reasonable choice). In response to the comment, however, the 
final rule provides that where a family previously has elected a flat 
rent (prior to the three year required reexamination), the PHA must 
provide the calculation of the income-based rent only at the family's 
request.
    Comment. The PHA is responsible for providing the rent option to 
the family every year along with sufficient information for the family 
to make an informed choice. The rule should clarify the meaning of 
``sufficient information.'' Additionally, the preamble to the proposed 
rule provides that the PHA should provide each affected family a 
worksheet so that it may compute its own income-based alternative rent. 
The preamble language appears to contradict proposed Sec. 5.614(c), 
which requires the PHA to conduct an annual rent determination for the 
family--as though the family had elected to pay rent based on income--
and provide the family a copy of its policy on switching between rent 
systems.
    Response. The preamble to the proposed rule provided a discussion 
of the minimum amount of information a PHA should, and the types of 
information a PHA could provide to a family regarding choice of rents. 
The regulation clearly states what minimum amount of ``sufficient'' 
information is necessary. The preamble suggested a worksheet as a 
possible alternative, in a manner similar to PHAs who provide residents 
worksheets at annual re-examination.
    Comment. All residents should be notified by the PHA about the flat 
rent and income-based rent prior to implementation.
    Response. HUD believes that a PHA's obligations concerning rent 
options and notification to families of their options is appropriately 
addressed in the rule. The rule requires the PHA to (1) establish 
written policies concerning rent policies, and (2) inform families of 
their rent options.
4. Switching Rent Methods to Lower Rent Because of Financial Hardship
    Comment. Switching rents due to financial hardship creates a 
significant administrative burden.
    Response. As noted earlier in this preamble, choice of rent is 
explicitly required by section 523 of the 1998 Act, as is the ability 
to switch rents because of financial hardship. Choice of rents is 
intended to provide increased amount of flexibility regarding rent 
policies for PHAs and residents, as families transition from welfare to 
work. Congress believed it necessary, however, to have hardship 
provisions for families who may need additional assistance at certain 
points in the transition.
    Comment. Granting a rent waiver to one family penalizes other 
families who are meeting their obligations; additional rent collections 
will decrease. A sizable percentage of all households living in public 
housing experience financial hardship frequently, yet the PHA expects 
them to pay their rent in full, on time. In special circumstances, a 
family may sign a payment agreement to make up rent which is in 
arrears. However, granting a rent ``waiver'' to one family penalizes 
others who are meeting their rent obligation. Ultimately rent 
collection rates will go down.
    Response. Section 960.257(b) now provides that families may request 
an interim reexamination of family income or composition because of any 
changes since the last determination. Families who experience an 
unanticipated reduction in income are able to request an interim 
reexamination, and have their rent adjusted accordingly. Therefore, 
these families are not penalized, as suggested by the comment.
    Comment. The final rule should make clear that a family must 
specifically notify the PHA of its wish to switch rent methods due to 
financial hardship, and the rule should provide that the rent be 
lowered no later than the first of the month following the month the 
family reports the hardship is unreasonable and should be revised.
    Response. As stated in the proposed rule, the PHA must switch the 
family's rental payment immediately if there is a hardship. However, 
HUD realizes that the PHA may not be able to immediately adjust its 
systems to switch a family's rental payment. When establishing its 
policies, a PHA should indicate the timeframe in which a family must 
notify the PHA of a financial hardship, and the need to switch rent 
systems, and the PHA should be able to act within 30 days, which 
includes verifying the financial hardship, before switching the family 
from one rent system to another. Such policies should attempt to 
maintain administrative simplicity while being responsive to unforeseen 
changes in family circumstances.
    Comment. There should be a limit on the number of times within a 
specified period of time that a family or individual can claim the 
hardship exemption.
    Response. The rule provides such a limitation. The rule provides 
that once a family switches to income based rent due to financial 
hardship, the family must wait until its next annual option to select 
the type of rent.
    Comment. The final rule should clarify that circumstances for

[[Page 16709]]

exemptions for death apply only to family members on the lease or 
principal wage earners, to prevent multiple requests for hardships due 
to death for other circumstances not envisioned by the Congress or HUD.
    Response. The statute indicates that financial hardship policies 
must include situations where the family has experienced a decrease in 
income because of a death in the family. HUD does not believe that this 
was intended to be limited to the death of family members who are wage 
earners, but rather any family members on the lease for the unit, whose 
death created a loss of income in the household.
    Comment. The statute requires a PHA to ``immediately'' provide for 
the family to switch to an income-based rent upon a determination that 
a family is unable to pay the previously chosen flat rent because of 
financial hardship. The rule seems to imply that the PHA can make its 
own policy on switching from a flat rent to income-based; however, it 
appears that the statute gives the PHA no choice in certain specific 
instances. HUD needs to clarify this matter.
    Response. As stated in the proposed rule, the PHA must switch the 
family's rental payment immediately if there is a hardship. Though the 
PHA does not have discretion in determining whether or not to switch a 
family's rent because of hardship, the PHA does have discretion in 
establishing its hardship policies, including the time frame in which a 
family must notify the PHA of a financial hardship, and the need to 
switch, the type of verification required, etc. When establishing such 
policies, the PHA should attempt to maintain administrative simplicity 
while being responsive to unforeseen changes in the family 
circumstances.
5. Retaining Ceiling Rents
    Comment. HUD should provide the option to use ceiling rents beyond 
three years. HUD's interpretation that the statute limits the retention 
of ceiling rents is wrong. The 1998 Act explicitly permits PHAs with 
ceiling rents to retain them, instead of developing flat rents based on 
neighborhood market rental levels for comparable housing.
    Response. HUD is not revising the ceiling rent provision from that 
provided in the proposed rule. As stated in the proposed rule, PHAs 
that have already established ceiling rents may continue to use those 
ceiling rents in lieu of establishing a flat rent for those units for 
three years. After the three year period, ceiling rents will continue 
to be allowed as a cap on an income based rent, but not as an 
alternative to flat rents.
    At the time the 1998 Act was enacted, a proposed rule was pending 
which would have resulted in a requirement that ceiling rents reflect 
the market in a manner similar to that required by the statute and this 
regulation for flat rents. That rule would have been finalized 
accordingly. HUD thus believes that a maximum 3-year time period on 
retention of ceiling rents as an alternative to flat rents is both 
reasonable and fully consistent with Congressional intent. Of course, 
the flat rents will have a similar effect to ceiling rents set at 
market. In addition, tenants for whom the flat rents are higher than 
the current ceiling rents always can choose to pay the income-based 
rent, which will not exceed thirty percent of their adjusted incomes.

K. New Community Service and Self-Sufficiency Requirements for Public 
Housing (Proposed Rule Secs. 960.603-960.611; Final Rule Secs. 960.601-
960.609) (Section 512 of the 1998 Act Amending Section 12 of the 1937 
Act)

1. General
    Comment. There is a significant administrative burden associated 
with the new community service and self-sufficiency requirements. The 
community service requirement is punitive to public housing residents. 
The requirement to establish a community service program exceeds the 
PHA's charter. These requirements clearly constitute an unfunded 
mandate. HUD must take steps to minimize the burden to the fullest 
extent without compromising statutory intent.
    Response. The new community service and self-sufficiency 
requirements are statutory. HUD has strived to provide as much 
flexibility as possible to PHAs to allow them to administer this 
provision without creating significant burden.
    HUD urges implementation of this provision in a manner consistent 
with its intent, as discussed in the Senate Committee Report (S. Rep. 
No. 63, 105th Cong., 1st Sess. 1997). The Report states that the 
provision is not intended to be perceived as punitive, but rather 
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.
    Comment. The final rule should eliminate the requirement for a PHA 
to identify and notify each individual of the community service status. 
The PHA should only be obligated to notify all families of the general 
requirements and exemptions and place the burden upon the family to 
notify the housing authority of the required participation of some of 
its family members, under the pain of lease violation and subsequent 
eviction actions. Additionally, the final rule should permit the 
resident to self-certify concerning his or her ability to comply with 
the community service requirement.
    Response. HUD has revised Secs. 960.605 and 960.607 to provide PHAs 
as much flexibility as possible, while still meeting the statutory 
requirement. The revision to Sec. 960.605(c) requires PHAs to verify 
compliance annually, at least 30 days before the expiration of the 
lease term. Self-certification by residents is not acceptable; third 
party certification must be provided by the entity with whom the 
resident is working.
    There are various community service models that PHAs may want to 
consider in developing their process for administration of the 
community service requirement. One of the models is based on a high 
school requirement for graduation used by high schools, that each 
student is required to perform a certain number of hours of community 
service in order to graduate. Similarly, PHAs could provide guidance 
lists of acceptable activities to residents, along with ways to contact 
various groups or PHA-sponsored activities that meet the requirement 
and intent of the community service provision. Residents could, perhaps 
two months prior to the end of the lease, have a signed certificate 
from the community service or self-sufficiency activity contact, that 
in fact they have provided the requisite amount of service.
    Additionally, PHAs may, but are not required to, provide advance 
approval of a community service activity. Advance approval by the PHA 
may avoid the possibility of refusing to recognize the activity as 
eligible after it was performed by the resident. Advance approval also 
may help to ensure that the activity is not performed under conditions 
that would be considered hazardous, or 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.
    Comment. Residents who are not exempt from community service should 
be provided a statement of rights and obligations.
    Response. The rule provides, at Sec. 960.605(c), for written 
notification of the provisions of the community service requirement to 
all residents, including a description of the service requirement, who 
is exempt, and how the exemption will be verified.

[[Page 16710]]

    Comment. A community service contribution of 8 hours a month is too 
low. The requirement should be at least 16 hours a month. Another 
comment suggests that the rule should clarify whether required hours 
may be accrued.
    Response. The statute is clear that the expectation is that each 
adult member of the family unless otherwise exempt is required to 
contribute eight hours per month of community service. HUD, however, 
believes that there should be some flexibility for PHAs to allow 
individuals, based on circumstances that may prevent the individual 
from performing the eight hours of community service/economic self-
sufficiency each month, to remedy this requirement by performing the 
activity prior to the renewal of the lease or within a reasonable 
period determined by the PHA.
    Comment. The final rule should go further and require residents to 
provide verification that they applied for employment in 3 different 
locations each week.
    Response. This suggestion exceeds the requirement imposed by the 
statute. The rule reflects the statutory requirement to engage in 
community service.
    Comment. The final rule should provide for duly-elected resident 
councils to administer community service requirements and have 
community service activities include activities to develop and 
strengthen the capacity of resident councils. Additionally, the final 
rule needs to address issue of acceptable community service providers.
    Response. As noted earlier in this preamble, HUD's position is to 
allow PHAs as much flexibility as possible in administering the 
community service and self-sufficiency requirements. PHAs have the 
discretion to involve duly-elected resident councils in the 
administration of community service requirements. Additionally, PHAs 
are in the best position to determine acceptable community service 
activities within the broad parameters established. HUD encourages PHAs 
to involve qualified resident councils where they can facilitate 
effective implementation of the community service requirement.
    Comment. HUD should provide funding from resident initiatives funds 
for third party administration of the community service requirement.
    Response. This comment is outside the scope of this rulemaking. The 
purpose of this rulemaking is limited to implementing the changes in 
admission and occupancy requirements made by the 1998 Act.
    Comment. With respect to Sec. 960.607(d) that provides, in relevant 
part, ``if the noncompliant adult moves from the unit, the lease may be 
renewed,'' the rule should explain how a PHA should respond to a report 
that a covered individual has moved from the household.
    Response. HUD believes the following revision to Sec. 960.607(c)(2) 
will address this issue. Section 960.607, which addresses ``Assuring 
Resident Compliance,'' is revised at the final rule stage to add the 
following language: ``All members of the family who are subject to the 
service requirement are complying with the service requirement or are 
no longer residing in the unit.''
    Comment. There is concern about liability that may be attributable 
to PHAs for requiring or explicitly approving community service 
activities. HUD and the Congress must fully consider the implications 
of this requirement and implement this provision so as to ensure 
maximum protection for PHAs against possible litigation in this regard.
    Response. Again, PHAs are given considerable discretion to 
implement the community service and self-sufficiency requirements as 
they determine appropriate, taking into consideration their resident 
population and local circumstances (e.g., using local community service 
providers). PHAs can and should implement community service programs in 
a prudent manner that will minimize liability.
    Comment. The final rule should provide no adverse action against a 
resident if a community service provider is not responsive. Since PHAs 
will rely on other agencies for verification of resident community 
service activity, it is essential that no adverse action be taken 
against a resident if the third party agency fails to respond to 
housing authority and resident requests for verification. Another 
comment suggests that the rule should provide owners and PHAs with the 
right to require tenants to provide reasonable documentation for 
activities that meet community service requirements. Another comment 
suggests that the rule also should require PHAs to provide notice to 
residents of programs in which the residents may participate to meet 
the community service requirement. Another comment suggests that the 
rule should provide that the 8 hour per month requirement can be a 
combination of the community service and economic self-sufficiency 
requirements. Another comment suggests that HUD should advise whether 
it will issue a form of certification to be executed by entities for 
which residents perform community service activities; if the 
certification appears valid on its face, may the PHA rely on the 
certification, or must it take any further action to confirm that the 
certification is accurate.
    Response. The rule strikes the appropriate balance of setting out 
the basic requirements for community service (and the exemptions) and 
self-sufficiency, as required by the statute, and providing PHAs with 
the flexibility to establish the manner in which they will administer 
these requirements. HUD therefore declines to adopt all of these 
specific suggestions. The regulation has been revised to clarify that 
the eight hours can be a combination of the community service and 
economic self-sufficiency activities to meet the requirement.
    Comment. The final rule needs to address the relationship between a 
person performing community service and the PHA or community service 
provider. The rule should clearly specify that: the resident performing 
community service is neither an employee of the PHA nor the community 
service provider; the resident is not entitled to a stipend, 
unemployment or worker's compensation or disability benefits.
    Response. The statute and this regulation clearly do not create or 
contemplate an employer/employee relationship between the public 
housing resident performing community service and the PHA or other 
community service provider.
2. Exemptions
    Comment. Persons with disabilities should not be exempt from 
community service requirements, because generally all persons with 
disabilities can perform some type of community service--for example, 
collating material for a nonprofit agency. In contrast to this first 
comment were the following comments. Persons with disabilities should 
be exempt on basis of any existing documentation already in place of 
their status, and not require new certification. There should not be a 
dual test to exempt persons with disabilities, i.e., disability and 
inability to work. The final rule must provide clear standards on how 
to determine that a person with disabilities is unable to work. The 
final rule should exempt persons with disabilities who are not yet 
officially labeled as such. Persons receiving disability assistance 
under a state disability program should be automatically exempt.

[[Page 16711]]

Exempt all persons with disabilities absent clear evidence to the 
contrary.
    Response. The exemption from the community service requirement for 
persons with disabilities who are also not able to perform community 
service is statutory. In terms of documentation of a disability, 
standards already exist, as provided in the language of Sec. 960.601. 
Existing documentation will be accepted as evidence of a disability, 
and disabled individuals will be permitted to self-certify that they 
can or cannot perform community service or self-sufficiency activities. 
The rule cannot exempt persons with disabilities who are not yet 
officially classified as such, because documentation is required, as 
provided in Sec. 960.601 and in the statute. Persons receiving 
disability assistance under a State disability program may be exempt, 
if they meet the disability definition in section 12 of the 1937 Act 
and in Sec. 960.601.
    Comment. Any PHA verification of disability is not consistent with 
Fair Housing Act regulations.
    Response. Verification of disability is not inconsistent with the 
Fair Housing Act regulations. The new law establishes a community 
service requirement and provides a definition of person with 
disabilities that is separate from the definition provided under the 
Fair Housing Act.
    Comment. Documentation that a family is receiving assistance under 
the TANF Program should be sufficient verification of a family member's 
exemption from community service requirement. If PHAs verify that the 
resident family is receiving assistance under the TANF program without 
sanction for non-compliance with a work activity requirement, there 
should be no additional verification.
    Response. To determine whether a family member is exempt from the 
community service requirement, the PHA must verify with the welfare 
agency that the person is complying with a work activities requirement. 
``Work activities'' is broadly defined in Section 407(d) of the Social 
Security Act (42 U.S.C. 607(d)), and it is expected that individuals 
participating in these work activities will be exempt from community 
service requirements under this part. (HUD will make the definition of 
work activities available through its website and through additional 
guidance.) Additionally, the PHA has the discretion to adopt the 
verification process suggested by the commenter.
    Comment. Exemption for welfare status will be difficult to 
determine and enforce because status can change frequently.
    Response. To minimize burden to the PHA, HUD suggests that PHAs 
include the determination of welfare status in the cooperation 
agreement they enter into with the local welfare agency.
    Comment. The final rule should provide that PHAs are to rely on 
documentary evidence from other agencies bearing responsibility for 
determining an exemption category. PHAs are not responsible for making 
an independent determination of status.
    Response. Nowhere in the rule is a burden placed on PHAs to 
determine an exemption category of a family member that is related to 
welfare programs. That determination is clearly left to welfare 
agencies, and PHAs are to look to these agencies for the determination 
of exemption of a family member.
    Comment. The process for qualification for an exemption needs to be 
addressed by the rule. The proposed rule did not adequately address how 
a PHA would determine whether an adult, non-elderly household member 
would establish qualification for an exemption from the community 
service requirement.
    Response. As stated in an earlier response, the rule strikes the 
appropriate balance of setting out the basic requirements for community 
service (and the exemptions) and self-sufficiency as required by the 
statute, and providing PHAs with the flexibility to establish the 
manner in which they will administer these requirements. HUD declines 
to establish by rule a process for qualification for an exemption.
    Comment. The final rule should exempt primary caregivers; retirees 
below the age of 62; homemakers; and pregnant women.
    Response. The categories of individuals exempt from the community 
service and self-sufficiency requirements are statutory. HUD does not 
have the authority to add additional categories.
    Comment. The final rule should codify in the regulatory text the 
preamble language that states that PHAs must establish policies that 
permit residents to change exemption status during the year if their 
situation changes. This language should be added to paragraph (2) of 
Sec. 960.605(c).
    Response. HUD has included language at Sec. 960.605(c) that 
requires PHAs to establish and describe policies addressing categories 
of individuals exempt from the service requirement. The PHA policy 
should include how the PHA will deal with any changes in exemption 
status.
3. Noncompliance
    Comment. The rule should clarify whether a person who has been 
declared to be required to participate in community service has the 
right to a grievance hearing to challenge the decision of the PHA.
    Response. Section 512 of the 1998 Act contains the requirement of 
due process for residents when the PHA is reviewing and determining 
resident compliance with the community service and self-sufficiency 
requirements.
    Comment. Notice of noncompliance and a copy of any agreement for 
cure should be given to both the noncompliant resident and the 
leaseholder. It is critical that the leaseholder be included because it 
is the leaseholder's obligation to ensure compliance.
    Response. HUD agrees. The rule (at Sec. 960.607(b)) already 
specifies that the noncompliant adult and the head of household must 
sign any noncompliance and cure agreement.

L. Reexamination and Verification of Family Income and Composition 
(Proposed Rule Secs. 5.617 and 960.209; Final Rule Secs. 5.657, 
960.257, and 960.259)

    Comment. For a family paying income-based rent, it is of paramount 
importance that the rent is income-based and that an interim 
reexamination be processed immediately, not ``within a reasonable time 
after the family request.'' The responsible entity should be required 
to make the reexamination immediately, or within 5 working days of the 
family's request to prevent hardship to the family. Another comment 
suggests that Sec. 5.617 should require that any reduction must be 
effective either in the month in which the family loses income or the 
following month and that reductions can be retroactive. Another comment 
suggests the final rule specify how long an interim reexamination must 
take, as the current regulations do, otherwise delays in decreases in 
rent can cause tenants to be able to afford rents and be evicted.
    Response. HUD does not prescribe the time period between the 
reexamination and implementation of the new rent. Whatever action the 
responsible entity intends to take in this regard and the time periods 
involved should be reasonable, consistent with and according to State 
law. When establishing its lease policies, the responsible entity 
should attempt to maintain administrative simplicity, while being 
responsive to unforeseen changes in family's circumstances. 
Additionally, current regulations do not

[[Page 16712]]

specify how long an interim reexamination must take.
    Comment. The rule requires strict annualization of interim income 
changes in every case, and annualization can cause substantial 
increases in rent for assisted tenants even where significant income 
reductions are quite foreseeable in the future. The rule should permit 
responsible entities to be able to ``look back'' at a family's 
historical income patterns in appropriate cases if available 
information is not reliable for predicting income for the reasonably 
foreseeable future.
    Response. Annual income is defined in Sec. 5.609(a)(2) as ``all 
amounts monetary or not, which . . . are anticipated to be received 
from a source outside the family during the 12-month period following 
admission or annual reexamination effective date . . .'' This 
definition always has allowed PHAs to base anticipated income for the 
next year on historical patterns rather than current or immediate past 
income, and PHAs will have an additional incentive to do this in 
situations where the family's income then will assist the PHA in 
meeting income targeting goals. To provide additional flexibility in 
this area, section 5.609 (e) of the existing rule, which permits PHAs 
to anticipate income for a shorter period when 12 months is not 
feasible, has been further revised in the new Sec. 5.609(d). It now 
references seasonal or cyclic income and permits--but does not 
require--annualization when the PHA believes that past income is the 
best available indicator of expected future income. PHAs should 
consider the effect of their policy on the treatment of seasonal or 
cyclic income on their ability to satisfy the requirement for targeting 
admission to very low income families.
    Comment. Section 5.617 requires at least annual income and family 
composition determinations for public housing residents paying income-
based rent, but notes that the rule does not require this determination 
for public housing residents who have chosen flat rents. Annual 
reexaminations of income and family composition are necessary for 
families paying flat rents because PHAs must allow families to choose 
their rent structure annually.
    Response. The statute specifically states that for families 
electing to pay a flat rent, the PHA need only reexamine their income 
every three years. As reflected in responses to other comments, during 
the three-year period, PHAs are required to provide families paying a 
flat rent with the calculation of the income-based rent only if the 
family requests that information.
    Comment. Section 5.617(b)(2) should be revised to assure that any 
interim reporting process include oral and written explanation to the 
resident of the factors considered in the rent recalculation, 
particularly disregard of increases in income from employment, choice 
of rent, and child care and medical care deductions.
    Response. A PHA must establish policies and procedures regarding 
interim reexaminations, and such policies are reported in connection 
with the PHA Annual Plan. It is at the PHA's discretion to establish 
policies on how it will conduct an interim reexamination, beyond what 
is specified in Sec. 960.257(b) for the public housing program.

M. Occupancy by Police Officers and Over-Income Families (Proposed and 
Final Rule Secs. 5.619 and 960.503-960.505) (Sections 524 and 548 of 
the 1998 Act Amending Sections 3 and 8 of the 1937 Act)

    Comment. In light of the public nature of the PHA planning process, 
the portion of the plan that addresses police officer placement in 
public housing should not contain the level of detail demanded by the 
current rule with respect to the number and location of officers to be 
placed in particular projects.
    Response. The regulation clarifies that the PHA Plan or supporting 
documents include the number and location of the public housing units 
to be occupied by police officers and the terms and conditions of their 
tenancies and a statement that the action is taken to increase security 
for public housing residents. The new law provided substantial relief 
to PHAs in this area compared to previous requirements found in 24 CFR 
part 960. Reporting of this limited information in connection with the 
PHA Plan is not unreasonable.
    Comment. The rule requires owners of Section 8 project-based 
buildings to submit a written plan to the local HUD Field Office for 
authorization to lease a unit to over income police officers. Such 
plans should be submitted to the PHA for approval or disapproval in 
those instances where the housing authority is the contract 
administrator.
    Response. HUD agrees with this comment and has revised the rule to 
adopt this suggestion.

N. Changes to Existing Self-Sufficiency Programs--Public Housing and 
Section 8 Certificate/Voucher Programs (Proposed and Final Rule Part 
984) (Section 509 of the 1998 Act Amending Section 23 of the 1937 Act)

    Comment. The change to the definition of ``welfare assistance'' for 
purposes of the Family Self-Sufficiency Program in Sec. 984.103 (i.e., 
removing Medicaid and SSI from the definition) will assist low-income 
families by allowing working participants to complete the program 
successfully without sacrificing their family's health associated 
benefits.
    Response. HUD agrees that the new definition of ``welfare 
assistance'' for purposes of the Family Self Sufficiency (FSS) program 
supports welfare reform. This definition remains basically unchanged in 
the final rule, except that we have borrowed language from the 
definition of assistance used in the TANF program. Additional 
clarifications are addressed in the following comments and responses.
    Comment. The final rule should clarify whether the new definition 
of welfare assistance covers emergency assistance and food stamps.
    Response. HUD has revised the language in Sec. 984.103 to confirm 
that Food Stamps and emergency rental and utilities assistance are not 
included in welfare assistance for purposes of the FSS program.
    Comment. The definition of welfare assistance in Sec. 984.103 
should be revised to read as follows: ``Welfare assistance does not 
include the income assistance received by non-head-of-house family 
members for their disabilities (SSI, SSDI, etc.) or for Social 
Security.'' Without this change an FSS participant is penalized for 
having a disabled or elderly family member.
    Response. HUD has revised the language at Sec. 984.103 to confirm 
that SSDI, SSI, and Social Security benefits are not welfare 
assistance.
    Comment. The final rule should clarify participants to which the 
new definition of ``welfare assistance'' is applicable.
    Response. Guidance on this issue is more appropriate for 
implementing instructions and guidance documents than for this rule.
    Comment. The definition of ``welfare assistance'' appears 
contradictory, because it states that the term ``welfare assistance'' 
does not include programs that provide ``health care, child care, or 
other services to working families'', but the TANF program provides 
these very services and the TANF program is included in the definition 
of welfare assistance.

[[Page 16713]]

    Response. HUD has revised the definition of ``welfare assistance'' 
for purposes of the FSS program to clarify what is and is not included.
    Comment. The rule should clarify that for voluntary or mandatory 
FSS programs, HUD reimburses PHAs for the cost of the FSS escrow.
    Response. This comment is not within the scope of this rulemaking. 
The issue of reimbursement is a matter to be addressed by the 
negotiated rulemaking committees for the Section 8 Renewal Fund and the 
Public Housing Operating Fund.
    Comment. The rule should include authorization for Section 8 FSS 
families to use their escrow accounts funds for homeownership through 
HUD programs, as well as other governmental programs.
    Response. The rule does not provide any restriction to use escrow 
account funds for homeownership through HUD programs or other 
governmental programs. Therefore no explicit authorization is needed.
    Comment. The rule should address PHA approval of portability moves 
during the initial year of the FSS contract. Additionally, the rule 
should clarify whether a tenant has a right to a hearing if a PHA 
denies the tenant's request to move outside of a PHA's jurisdiction 
during the first 12 months after the effective date of the contract.
    Response. The rule is not the appropriate place to address the 
various situations in which a PHA should or should not approve requests 
for moves during the first year of the FSS contract. Specifying the 
circumstances in which a PHA must approve a move would unnecessarily 
limit the PHA's discretion in administering its programs. Although a 
PHA should not arbitrarily restrict moves where there is good cause for 
the tenant to move, the decision to approve or disapprove the move 
rests with the PHA. A hearing is not required if a PHA denies the 
tenant's request to move outside of a PHA's jurisdiction. Families, 
however, always have the option of bringing their complaints to HUD if 
they believe that the PHA has acted without justification. Also, see 
Sec. 982.353 for portability restrictions during the first 12 months 
after admission.
    Comment. The rule should contain a specific requirement that in 
determining whether to grant a FSS participant's request to move within 
the initial 12 month period of tenancy, the PHA must consider its duty 
to affirmatively further fair housing.
    Response. The Department will not adopt this suggestion. A PHA's 
duty to affirmatively further fair housing is a consideration at the 
basis of many PHA decisions with respect to tenants. This is only one 
factor, however, considered by a PHA with respect to a tenant's request 
to move. Others include the availability of appropriate services, 
training, and employment opportunities.

O. Lease Requirements (Proposed and Final Rule Sec. 966.4) (Section 512 
of the 1998 Act Adding Section 6(l)(1) to the 1937 Act)

    Comment. The requirement for a 12-month lease will adversely affect 
PHAs both financially and with respect to unit occupancy. The 12-month 
lease will have an adverse impact on Tenant Accounts Receivable. The 
12-month lease term should be optional. Allow PHAs to establish lease 
terms based on local practices and conditions. The rule should provide 
exceptions to the 12-month lease term.
    Response. The requirement for a 12-month lease is statutory, as 
well as the requirement that the PHA lease be renewable for all 
purposes except noncompliance with community service requirements. 
Regardless of the term of the lease, PHAs may allow for a 30-day (or 
less) notice period for tenants to notify the PHA that they wish to 
terminate the lease. This will eliminate any adverse impact on tenants 
or Tenant Accounts Receivable. In establishing the initial term, a PHA 
may extend the period a few days beyond 12 months to make the lease 
term extend to the end of a month.

P. Escrow Deposits (Proposed and Final Rule Sec. 966.55)

    Comment. Escrow deposits, as provided in Sec. 966.55, should be 
required only when the PHA asserts that rent is due because of the 
family's act or failure to act.
    Response. The regulatory language is clear that an escrow deposit 
is required only in instances where a hearing is scheduled in any 
grievance involving the amount of rent. The rule goes on to say that 
the escrow deposit 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. No additional 
clarification is necessary.
    Comment. Escrow requirements should be waived whenever recent 
hardship or welfare benefit rent reductions are involved.
    Response. The regulatory language is clear that the PHA must waive 
the requirement for an escrow deposit in cases where either (1) a 
family is appealing a financial hardship determination related to 
minimum rent requirements, or (2) the family is appealing a PHA's 
decision not to reduce the annual income of a family as a result of a 
reduction in welfare benefits attributable to fraud or a failure to 
participate in an economic self-sufficiency program or to comply with a 
work activities requirement. No additional clarification is necessary.

IV. Findings and Certifications

Public Reporting Burden

    The information collection requirements contained in this final 
rule are unchanged from the proposed rule. The final rule, however, 
reorganized certain regulatory sections of the proposed rule. The 
sections containing the information collections affected by the 
proposed and final rules are stated in the chart below. These 
information collections were reviewed by the Office of Management and 
Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520) and assigned OMB control number 2577-0230. In accordance with the 
Paperwork Reduction Act, no agency may 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.

------------------------------------------------------------------------
                                                   Section of 24 CFR in
       Section of 24 CFR in Proposed Rule               final rule
------------------------------------------------------------------------
5.410 Residency Preferences.....................  5.655(c)
                                                  960.206(b)
5.611 New Deductions............................  5.611
5.612(c) Individual Savings Accounts............  960.255(d)
5.614(c) Written Rent Options...................  960.253(e)
5.618(b) Welfare Rent Verification..............  5.615(c)
5.618(c) Welfare Rent Notice....................  5.615(d)

[[Page 16714]]

 
960.605(c) Community Service....................  960.605(c)
960.505 Over Income Families in Small PHAs......  960.505
------------------------------------------------------------------------

Regulatory Review

    The Office of Management and Budget (OMB) reviewed this final rule 
under Executive Order 12866, Regulatory Planning and Review. OMB 
determined that this final 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 final 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 rule and in so doing 
certifies that this rule would not have a significant economic impact 
on a substantial number of small entities. The rule implements changes 
to admission and occupancy requirements in public housing made by the 
Quality Housing and Work Responsibility Act of 1998. These are 
statutory changes, and these admission and occupancy requirements apply 
to all families residing in public housing or receiving Section 8 
assistance or applying for public housing or Section 8 assistance. The 
Congress did not provide exceptions for admission and occupancy 
requirements to families because the PHAs or responsible entities that 
administer the covered HUD programs are small entities. Admission and 
occupancy policies are the type of policies that should be uniform 
throughout HUD's programs, except to the extent that the type of 
program (i.e., public housing or Section 8 assistance) because of its 
statutory basis creates differences in this requirements. Because these 
are statutory requirements, HUD has no discretion to alter these 
requirements on the basis of the size of the entity administering the 
program, but has made every effort in this rule to minimize 
administrative burden for all entities whenever possible.

Environmental Finding

    A Finding of No Significant Impact with respect to the environment 
was made at the proposed rule stage 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 remains 
applicable to this final rule, and 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, S.W., Washington, DC 20410.

Federalism Impact

    This final rule does not have federalism implications. It does not 
impose substantial direct compliance costs on State and local 
governments or preempt State law within the meaning of Executive Order 
13132 (entitled ``Federalism'').

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 rule does not impose a Federal mandate that 
will result in the expenditure by State, local, or tribal governments, 
in the aggregate, or by the private sector, 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, 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 880

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

24 CFR Part 881

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

24 CFR Part 884

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

24 CFR Part 886

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

24 CFR Part 891

    Aged, Capital advance programs, Civil rights, Grant programs--
housing and community development, Individuals with disabilities, Loan 
programs--housing and community development, Low- and moderate-income 
housing, Mental health programs, 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.

24 CFR Part 985

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

    Accordingly, HUD amends parts 5, 880, 881, 884, 886, 891, 960, 966, 
984, and 985 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.


[[Page 16715]]



    2. In part 5, revise all references to the term ``HA'' to read 
``PHA''.

Subpart A--Generally Applicable Definitions and Federal 
Requirements; Waivers

    3. Amend Sec. 5.100 as follows:
    a. Revise the introductory text to read as set forth below;
    b. Remove the definition of ``housing agency (HA)'';
    c. Add, in alphabetical order, definitions of the terms ``public 
housing'', and ``responsible entity''.


Sec. 5.100  Definitions.

    The following definitions apply to this part and also in other 
regulations, as noted:
* * * * *
    Public housing means housing assisted under the 1937 Act, other 
than under Section 8. ``Public housing'' includes dwelling units in a 
mixed finance project that are assisted by a PHA with capital or 
operating assistance.
* * * * *
    Responsible entity means:
    (1) For the public housing program, the Section 8 tenant-based 
assistance program (part 982 of this title), and the Section 8 project-
based certificate or voucher programs (part 983 of this title), and the 
Section 8 moderate rehabilitation program (part 882 of this title), 
responsible entity means the PHA administering the program under an ACC 
with HUD;
    (2) For all other Section 8 programs, responsible entity means the 
Section 8 project owner.
* * * * *


Sec. 5.105  [Amended]

    4. Amend paragraph (a) of Sec. 5.105 by adding, after the phrase 
``section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794) and 
implementing regulations at'', the phrase ``part 8 of this title; title 
II of the Americans with Disabilities Act, 42 U.S.C. 12101 et seq.;''.

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


Sec. 5.210  [Amended]

    5. Amend paragraph (b)(2) of Sec. 5.210 by removing the phrase ``, 
as provided in parts 813 and 913 of this title''.

    6. Amend Sec. 5.214 as follows:
    a. In the definition of ``assistance applicant'', revise paragraph 
(2) to read as set forth below;
    b. In the definition of ``participant'', revise paragraph (2) to 
read as set forth below;
    c. Revise the definition of the term ``Processing entity'' to read 
as set forth below:


Sec. 5.214  Definitions.

* * * * *
    Assistance applicant. * * *
    (2) For the public housing program: A family or individual that 
seeks admission to the program.
* * * * *
    Participant. * * *
    (2) For the public housing program: A family or individual that is 
assisted under the program;
* * * * *
    Processing entity means the person or entity that, under any of the 
programs covered under this subpart B, is responsible for making 
eligibility and related determinations and an income reexamination. (In 
the Section 8 and public housing programs, the ``processing entity'' is 
the ``responsible entity'' as defined in Sec. 5.100.)
* * * * *

    7. In Sec. 5.236, revise paragraphs (b)(1) and (b)(3)(i)(B) and (C) 
to read as follows:


Sec. 5.236  Procedures for termination, denial, suspension, or 
reduction of assistance based on information obtained from a SWICA or 
Federal agency.

* * * * *
    (b) * * *
    (1) Procedures for independent verification. (1) Any determination 
or redetermination of family income verified in accordance with this 
paragraph must be carried out in accordance with the requirements and 
procedures applicable to the individual covered program. Independent 
verification of information obtained from a SWICA or a Federal agency 
may be:
    (i) By HUD;
    (ii) In the case of the public housing program, by a PHA; or
    (iii) In the case of any Section 8 program, by a PHA acting as 
contract administrator under an ACC.
* * * * *
    (3) * * *
    (i) * * *
    (B) The responsible entity (as defined in Sec. 5.100) in the case 
of the public housing program or any Section 8 program.
    (C) The owner or mortgagee, as applicable, with respect to the rent 
supplement, Section 221(d)(3) BMIR, Section 235 homeownership 
assistance, or Section 236 programs.
* * * * *

    8. Add new Sec. 5.240 to read as follows:


Sec. 5.240  Family disclosure of income information to the responsible 
entity and verification.

    (a) This section applies to families that reside in dwelling units 
with assistance under the public housing program, the Section 8 tenant-
based assistance programs, or for which project-based assistance is 
provided under the Section 8, Section 202, or Section 811 program.
    (b) The family must promptly furnish to the responsible entity any 
letter or other notice by HUD to a member of the family that provides 
information concerning the amount or verification of family income.
    (c) The responsible entity must verify the accuracy of the income 
information received from the family, and change the amount of the 
total tenant payment, tenant rent or Section 8 housing assistance 
payment, or terminate assistance, as appropriate, based on such 
information.

Subpart C--Pet Ownership for the Elderly or Persons with 
Disabilities

    9. In Sec. 5.300 revise paragraph (a)(3) to read as follows:


Sec. 5.300  Purpose.

    (a) * * *
    (3) The public housing program.
* * * * *


Sec. 5.306  [Amended]

    10. Amend Sec. 5.306 by removing the definition of ``public housing 
programs''.

    11. Revise the heading of Subpart D to read as follows:

Subpart D--Definitions for Section 8 and Public Housing Assistance 
Under the United States Housing Act of 1937


Sec. 5.400  [Amended]

    12. Amend Sec. 5.400 by removing the parenthetical phrase.


Sec. 5.403  [Amended]

    13. Amend Sec. 5.403 as follows:
    a. Remove paragraph (a), the introductory text of paragraph (b), 
and the paragraph designation of paragraph (b);
    b. Revise the definitions of ``disabled family'' and ``elderly 
family'' to read as set forth below; and
    c. Add, in alphabetical order, the definition of ``person with 
disabilities'' to read as set forth below:


Sec. 5.403  Definitions.

* * * * *
    Disabled family means a family whose head, spouse, or sole member 
is a

[[Page 16716]]

person with disabilities. It may include two or more persons with 
disabilities living together, or one or more persons with disabilities 
living with one or more live-in aides.
* * * * *
    Elderly family means a family whose head, spouse, or sole member is 
a person who is at least 62 years of age. It may include two or more 
persons who are at least 62 years of age living together, or one or 
more persons who are at least 62 years of age living with one or more 
live-in aides.
* * * * *
    Person with disabilities:
    (1) Means a person who:
    (i) Has a disability, as defined in 42 U.S.C. 423;
    (ii) Is determined, pursuant to HUD regulations, to have a 
physical, mental, or emotional impairment that:
    (A) Is expected to be of long-continued and indefinite duration;
    (B) Substantially impedes his or her ability to live independently, 
and
    (C) Is of such a nature that the ability to live independently 
could be improved by more suitable housing conditions; or
    (iii) Has a developmental disability as defined in 42 U.S.C. 6001.
    (2) Does not exclude persons who have the disease of acquired 
immunodeficiency syndrome or any conditions arising from the etiologic 
agent for acquired immunodeficiency syndrome;
    (3) For purposes of qualifying for low-income housing, does not 
include a person whose disability is based solely on any drug or 
alcohol dependence; and
    (4) Means ``individual with handicaps'', as defined in Sec. 8.3 of 
this title, for purposes of reasonable accommodation and program 
accessibility for persons with disabilities.


Secs. 5.405, 5.410, 5.415, 5.420, 5.425, and 5.430  [Removed]

    14. Remove Secs. 5.405, 5.410, 5.415, 5.420, 5.425, and 5.430.

    15. In part 5, revise the heading of subpart F to read as follows:

Subpart F--Section 8 and Public Housing: Family Income and Family 
Payment; Occupancy Requirements for Section 8 Project-Based 
Assistance

    16. Revise Sec. 5.601 to read as follows:


Sec. 5.601  Purpose and applicability.

    This subpart states HUD requirements on these subjects:
    (a) Determining annual and adjusted income of families who apply 
for or receive assistance in the Section 8 and public housing programs;
    (b) Determining payments by and utility reimbursements to families 
assisted in these programs;
    (c) Additional occupancy requirements that apply to the Section 8 
project-based assistance programs. These additional requirements 
concern:
    (1) Income-eligibility and income-targeting when a Section 8 owner 
admits families to a Section 8 project or unit;
    (2) Owner selection preferences;
    (3) Owner reexamination of family income and composition.

    17. Amend Sec. 5.603 as follows:
    a. Remove paragraphs (b) and (c) and redesignate paragraph (d) as 
paragraph (b);
    b. Revise paragraph (a) to read as set forth below;
    c. Amend the definition of ``owner'' in newly designated paragraph 
(b) by removing the phrase ``24 CFR part 885.'' and adding in its place 
``part 891 of this title.''; and
    d. Amend newly designated paragraph (b) by revising the definitions 
of ``full-time student'', ``tenant rent'', and ``utility 
reimbursement''; and by adding, in alphabetical order, definitions of 
``economic self-sufficiency program'', ``extremely low income family'', 
``imputed welfare income'', ``low income family'', ``very low income 
family'', and ``work activities'' to read as set forth below:


Sec. 5.603  Definitions.

* * * * *
    (a) Terms found elsewhere in part 5--(1) Subpart A. The terms 1937 
Act, elderly person, public housing, public housing agency (PHA), and 
Section 8 are defined in Sec. 5.100.
    (2) Subpart D. The terms ``disabled family'', ``elderly family'', 
``family'', ``live-in aide'', and ``person with disabilities'' are 
defined in Sec. 5.403.
    (b) * * *
    Economic self-sufficiency program. Any program designed to 
encourage, assist, train, or facilitate the economic independence of 
HUD-assisted families or to provide work for such families. These 
programs include programs for job training, employment counseling, work 
placement, basic skills training, education, English proficiency, 
workfare, financial or household management, apprenticeship, and any 
program necessary to ready a participant for work (including a 
substance abuse or mental health treatment program), or other work 
activities.
    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, except that HUD 
may establish income ceilings higher or lower than 30 percent of the 
median income for the area if HUD finds that such variations are 
necessary because of unusually high or low family incomes.
* * * * *
    Full-time student. A person who is attending school or vocational 
training on a full-time basis.
    Imputed welfare income. See Sec. 5.615.
    Low income family. A family whose annual income does not exceed 80 
percent of the median income for the area, as determined by HUD with 
adjustments for smaller and larger families, except that HUD may 
establish income ceilings higher or lower than 80 percent of the median 
income for the area on the basis of HUD's findings that such variations 
are necessary because of unusually high or low family incomes.
* * * * *
    Tenant rent. The amount payable monthly by the family as rent to 
the unit owner (Section 8 owner or PHA in public housing). (This term 
is not used in the Section 8 voucher program.)
* * * * *
    Utility reimbursement. The amount, if any, by which the utility 
allowance for a unit, if applicable, exceeds the total tenant payment 
for the family occupying the unit. (This definition is not used in the 
Section 8 voucher program, or for a public housing family that is 
paying a flat rent.)
    Very low income family. A family whose annual income does not 
exceed 50 percent of the median family income for the area, as 
determined by HUD with adjustments for smaller and larger families, 
except that HUD may establish income ceilings higher or lower than 50 
percent of the median income for the area if HUD finds that such 
variations are necessary because of unusually high or low family 
incomes.
* * * * *
    Work activities. See definition at section 407(d) of the Social 
Security Act (42 U.S.C. 607(d)).


Secs. 5.605 and 5.607  [Removed]

    18. Remove Secs. 5.605 and 5.607.

    19. Before Sec. 5.609, add an undesignated center heading to read 
as follows:

Family Income

    20. Amend Sec. 5.609 as follows:
    a. Remove and reserve paragraph (c)(13);
    b. Revise paragraph (c)(8)(iv) to read as set forth below;
    c. Revise paragraph (d) to read as set forth below; and
    d. Remove paragraph (e).

[[Page 16717]]

Sec. 5.609  Annual income.

* * * * *
    (c) * * *
    (8) * * *
    (iv) Amounts received under a resident service stipend. A resident 
service stipend is a modest amount (not to exceed $200 per month) 
received by a resident for performing a service for the PHA or owner, 
on a part-time basis, that enhances the quality of life in the 
development. Such services may include, but are not limited to, fire 
patrol, hall monitoring, lawn maintenance, resident initiatives 
coordination, and serving as a member of the PHA's governing board. No 
resident may receive more than one such stipend during the same period 
of time;
* * * * *
    (d) Annualization of income. If it is not feasible to anticipate a 
level of income over a 12-month period (e.g., seasonal or cyclic 
income), or the PHA believes that past income is the best available 
indicator of expected future income, the PHA may annualize the income 
anticipated for a shorter period, subject to a redetermination at the 
end of the shorter period.

    21. Revise Sec. 5.611 to read as follows:


Sec. 5.611  Adjusted income.

    Adjusted income means annual income (as determined by the 
responsible entity) 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, the 
responsible entity 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 
disabilities, to the extent necessary to enable any member of the 
family (including the member who is a person with disabilities) to be 
employed, but this allowance may not exceed the earned income received 
by family members who are 18 years of age or older who are able to work 
because of such attendant care or auxiliary apparatus; and
    (4) Any reasonable child care expenses necessary to enable a member 
of the family to be employed or to further his or her education.
    (b) Permissive deductions--for public housing only. For public 
housing only, a PHA may adopt additional deductions from annual income. 
The PHA must establish a written policy for such deductions.

    22. Revise Secs. 5.613 and 5.615 to read as follows:


Sec. 5.613  Public housing program and Section 8 tenant-based 
assistance program: PHA cooperation with welfare agency.

    (a) This section applies to the public housing program and the 
Section 8 tenant-based assistance program.
    (b) The PHA must make best efforts to enter into cooperation 
agreements with welfare agencies under which such agencies agree:
    (1) To target public assistance, benefits and services to families 
receiving assistance in the public housing program and the Section 8 
tenant-based assistance program to achieve self-sufficiency;
    (2) To provide written verification to the PHA concerning welfare 
benefits for families applying for or receiving assistance in these 
housing assistance programs.


Sec. 5.615  Public housing program and Section 8 tenant-based 
assistance program: How welfare benefit reduction affects family 
income.

    (a) Applicability. This section applies to covered families who 
reside in public housing (part 960 of this title) or receive Section 8 
tenant-based assistance (part 982 of this title).
    (b) Definitions. The following definitions apply for purposes of 
this section:
    Covered families. Families who receive welfare assistance or other 
public assistance benefits (``welfare benefits'') from a State or other 
public agency (``welfare agency'') under a program for which Federal, 
State, or local law requires that a member of the family must 
participate in an economic self-sufficiency program as a condition for 
such assistance.
    Economic self-sufficiency program. See definition at Sec. 5.603.
    Imputed welfare income. The amount of annual income not actually 
received by a family, as a result of a specified welfare benefit 
reduction, that is nonetheless included in the family's annual income 
for purposes of determining rent.
    Specified welfare benefit reduction.
    (1) A reduction of welfare benefits by the welfare agency, in whole 
or in part, for a family member, as determined by the welfare agency, 
because of fraud by a family member in connection with the welfare 
program; or because of welfare agency sanction against a family member 
for noncompliance with a welfare agency requirement to participate in 
an economic self-sufficiency program.
    (2) ``Specified welfare benefit reduction'' does not include a 
reduction or termination of welfare benefits by the welfare agency:
    (i) at expiration of a lifetime or other time limit on the payment 
of welfare benefits;
    (ii) because a family member is not able to obtain employment, even 
though the family member has complied with welfare agency economic 
self-sufficiency or work activities requirements; or
    (iii) because a family member has not complied with other welfare 
agency requirements.
    (c) Imputed welfare income.
    (1) A family's annual income includes the amount of imputed welfare 
income (because of a specified welfare benefits reduction, as specified 
in notice to the PHA by the welfare agency), plus the total amount of 
other annual income as determined in accordance with Sec. 5.609.
    (2) At the request of the PHA, the welfare agency will inform the 
PHA in writing of the amount and term of any specified welfare benefit 
reduction for a family member, and the reason for such reduction, and 
will also inform the PHA of any subsequent changes in the term or 
amount of such specified welfare benefit reduction. The PHA will use 
this information to determine the amount of imputed welfare income for 
a family.
    (3) A family's annual income includes imputed welfare income in 
family annual income, as determined at the PHA's interim or regular 
reexamination of family income and composition, during the term of the 
welfare benefits reduction (as specified in information provided to the 
PHA by the welfare agency).
    (4) The amount of the imputed welfare income is offset by the 
amount of additional income a family receives that commences after the 
time the sanction was imposed. When such additional income from other 
sources is at least equal to the imputed welfare income, the imputed 
welfare income is reduced to zero.
    (5) The PHA may not include imputed welfare income in annual income 
if the family was not an assisted resident at the time of sanction.
    (d) Review of PHA decision. (1) Public housing. If a public housing 
tenant claims that the PHA has not correctly calculated the amount of 
imputed welfare income in accordance with HUD

[[Page 16718]]

requirements, and if the PHA denies the family's request to modify such 
amount, the PHA shall give the tenant written notice of such denial, 
with a brief explanation of the basis for the PHA determination of the 
amount of imputed welfare income. The PHA notice shall also state that 
if the tenant does not agree with the PHA determination, the tenant may 
request a grievance hearing in accordance with part 966, subpart B of 
this title to review the PHA determination. The tenant is not required 
to pay an escrow deposit pursuant to Sec. 966.55(e) for the portion of 
tenant rent attributable to the imputed welfare income in order to 
obtain a grievance hearing on the PHA determination.
    (2) Section 8 participant. A participant in the Section 8 tenant-
based assistance program may request an informal hearing, in accordance 
with Sec. 982.555 of this title, to review the PHA determination of the 
amount of imputed welfare income that must be included in the family's 
annual income in accordance with this section. If the family claims 
that such amount is not correctly calculated in accordance with HUD 
requirements, and if the PHA denies the family's request to modify such 
amount, the PHA shall give the family written notice of such denial, 
with a brief explanation of the basis for the PHA determination of the 
amount of imputed welfare income. Such notice shall also state that if 
the family does not agree with the PHA determination, the family may 
request an informal hearing on the determination under the PHA hearing 
procedure.
    (e) PHA relation with welfare agency. (1) The PHA must ask welfare 
agencies to inform the PHA of any specified welfare benefits reduction 
for a family member, the reason for such reduction, the term of any 
such reduction, and any subsequent welfare agency determination 
affecting the amount or term of a specified welfare benefits reduction. 
If the welfare agency determines a specified welfare benefits reduction 
for a family member, and gives the PHA written notice of such 
reduction, the family's annual incomes shall include the imputed 
welfare income because of the specified welfare benefits reduction.
    (2) The PHA is responsible for determining the amount of imputed 
welfare income that is included in the family's annual income as a 
result of a specified welfare benefits reduction as determined by the 
welfare agency, and specified in the notice by the welfare agency to 
the PHA. However, the PHA is not responsible for determining whether a 
reduction of welfare benefits by the welfare agency was correctly 
determined by the welfare agency in accordance with welfare program 
requirements and procedures, nor for providing the opportunity for 
review or hearing on such welfare agency determinations.
    (3) Such welfare agency determinations are the responsibility of 
the welfare agency, and the family may seek appeal of such 
determinations through the welfare agency's normal due process 
procedures. The PHA shall be entitled to rely on the welfare agency 
notice to the PHA of the welfare agency's determination of a specified 
welfare benefits reduction.


Sec. 5.617  [Removed]

    23. Remove Sec. 5.617.
    24. After Sec. 5.615, add an undesignated center heading and new 
Secs. 5.628, 5.630, 5.632, and 5.634 to read as follows:

Family Payment


Sec. 5.628  Total tenant payment.

    (a) Determining total tenant payment (TTP). 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 so designated; or
    (4) The minimum rent, as determined in accordance with Sec. 5.630.
    (b) Determining TTP if family's welfare assistance is ratably 
reduced. 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.


Sec. 5.630  Minimum rent.

    (a) Minimum rent. (1) The PHA must charge a family no less than a 
minimum monthly rent established by the responsible entity, except as 
described in paragraph (b) of this section.
    (2) For the public housing program and the section 8 moderate 
rehabilitation, and certificate or voucher programs, the PHA may 
establish a minimum rent of up to $50.
    (3) For other section 8 programs, the minimum rent is $25.
    (b) Financial hardship exemption from minimum rent. (1) When is 
family exempt from minimum rent? The responsible entity must grant an 
exemption from payment of minimum rent if the family is unable to pay 
the minimum rent because of financial hardship, as described in the 
responsible entity's written policies. Financial hardship includes 
these situations:
    (i) When the family has lost eligibility for or is awaiting an 
eligibility determination for a Federal, State, or local assistance 
program, including a family that includes a member who is a noncitizen 
lawfully admitted for permanent residence under the Immigration and 
Nationality Act who would be entitled to public benefits but for title 
IV of the Personal Responsibility and Work Opportunity Act of 1996;
    (ii) When the family would be evicted because it is unable to pay 
the minimum rent;
    (iii) When the income of the family has decreased because of 
changed circumstances, including loss of employment;
    (iv) When a death has occurred in the family; and
    (v) Other circumstances determined by the responsible entity or 
HUD.
    (2) What happens if family requests a hardship exemption? (i) 
Public housing. (A) If a family requests a financial hardship 
exemption, the PHA must suspend the minimum rent requirement beginning 
the month following the family's request for a hardship exemption, and 
continuing until the PHA determines whether there is a qualifying 
financial hardship and whether it is temporary or long term.
    (B) The PHA must promptly determine whether a qualifying hardship 
exists and whether it is temporary or long term.
    (C) The PHA may not evict the family for nonpayment of minimum rent 
during the 90-day period beginning the month following the family's 
request for a hardship exemption.
    (D) If the PHA determines that a qualifying financial hardship is 
temporary, the PHA must reinstate the minimum rent from the beginning 
of the suspension of the minimum rent. The PHA must offer the family a 
reasonable repayment agreement, on terms and conditions established by 
the PHA, for the amount of back minimum rent owed by the family.
    (ii) All section 8 programs. (A) If a family requests a financial 
hardship exemption, the responsible entity must suspend the minimum 
rent requirement beginning the month following the family's request for 
a hardship exemption until the responsible entity

[[Page 16719]]

determines whether there is a qualifying financial hardship, and 
whether such hardship is temporary or long term.
    (B) The responsible entity must promptly determine whether a 
qualifying hardship exists and whether it is temporary or long term.
    (C) If the responsible entity determines that a qualifying 
financial hardship is temporary, the PHA must not impose the minimum 
rent during the 90-day period beginning the month following the date of 
the family's request for a hardship exemption. At the end of the 90-day 
suspension period, the responsible entity must reinstate the minimum 
rent from the beginning of the suspension. The family must be offered a 
reasonable repayment agreement, on terms and conditions established by 
the responsible entity, for the amount of back rent owed by the family.
    (iii) All programs. (A) If the responsible entity determines there 
is no qualifying financial hardship exemption, the responsible entity 
must reinstate the minimum rent, including back rent owed from the 
beginning of the suspension. The family must pay the back rent on terms 
and conditions established by the responsible entity.
    (B) If the responsible entity determines a qualifying financial 
hardship is long term, the responsible entity must exempt the family 
from the minimum rent requirements so long as such hardship continues. 
Such exemption shall apply from the beginning of the month following 
the family's request for a hardship exemption until the end of the 
qualifying financial hardship.
    (C) The financial hardship exemption only applies to payment of the 
minimum rent (as determined pursuant to Sec. 5.628(a)(4) and 
Sec. 5.630), and not to the other elements used to calculate the total 
tenant payment (as determined pursuant to Sec. 5.628(a)(1), (a)(2) and 
(a)(3)).
    (3) Public housing: Grievance hearing concerning PHA denial of 
request for hardship exemption. If a public housing family requests a 
hearing under the PHA grievance procedure, to review the PHA's 
determination denying or limiting the family's claim to a financial 
hardship exemption, the family is not required to pay any escrow 
deposit in order to obtain a grievance hearing on such issues.


Sec. 5.632  Utility reimbursements.

    (a) Applicability. This section is applicable to:
    (1) The Section 8 programs other than the Section 8 voucher program 
(for distribution of a voucher housing assistance payment that exceeds 
rent to owner, see Sec. 982.514(b) of this title);
    (2) A public housing family paying an income-based rent (see 
Sec. 960.253 of this title). (Utility reimbursement is not paid for a 
public housing family that is paying a flat rent.)
    (b) Payment of utility reimbursement. (1) The responsible entity 
pays a utility reimbursement if the utility allowance (for tenant-paid 
utilities) exceeds the amount of the total tenant payment.
    (2) In the public housing program (where the family is paying an 
income-based rent), the Section 8 moderate rehabilitation program and 
the Section 8 certificate or voucher program, the PHA may pay the 
utility reimbursement either to the family or directly to the utility 
supplier to pay the utility bill on behalf of the family. If the PHA 
elects to pay the utility supplier, the PHA must notify the family of 
the amount paid to the utility supplier.
    (3) In the other Section 8 programs, the owner must pay the utility 
reimbursement either:
    (i) To the family, or
    (ii) With consent of the family, to the utility supplier to pay the 
utility bill on behalf of the family.


Sec. 5.634  Tenant rent.

    (a) Section 8 programs. For Section 8 programs other than the 
Section 8 voucher program, tenant rent is total tenant payment minus 
any utility allowance.
    (b) Public housing. See Sec. 960.253 of this title for the 
determination of tenant rent.

    25. Add an undesignated center heading, followed by Secs. 5.653, 
5.655, 5.657, 5.659, and 5.661 to read as follows:

Section 8 Project-Based Assistance: Occupancy Requirements


Sec. 5.653  Section 8 project-based assistance programs: Admission--
Income-eligibility and income-targeting.

    (a) Applicability. This section describes requirements concerning 
income-eligibility and income-targeting that apply to the Section 8 
project-based assistance programs, except for the moderate 
rehabilitation and the project-based certificate or voucher programs.
    (b) Who is eligible?
    (1) Basic eligibility. An applicant must meet all eligibility 
requirements in order to receive housing assistance. At a minimum, the 
applicant must be a family, as defined in Sec. 5.403, and must be 
income-eligible, as described in this section. Such eligible applicants 
include single persons.
    (2) Low income limit. No family other than a low income family is 
eligible for admission to the Section 8 project-based assistance 
programs. (This paragraph (b) does not apply to the Section 8 project-
based voucher program under part 983 of this title.)
    (c) Targeting to extremely low income families. For each project 
assisted under a contract for project-based assistance, of the dwelling 
units that become available for occupancy in any fiscal year that are 
assisted under the contract, not less than 40 percent shall be 
available for leasing only by families that are extremely low income 
families at the time of admission.
    (d) Limitation on admission of non-very low income families.
    (1) Admission to units available before October 1, 1981. Not more 
than 25 percent of the Section 8 project-based dwelling units that were 
available for occupancy under Section 8 Housing Assistance Payments 
Contracts effective 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.
    (2) Admission to units available on or after October 1, 1981. Not 
more than 15 percent of the Section 8 project-based dwelling units that 
initially become available for occupancy under Section 8 Housing 
Assistance Payments (HAP) Contracts on or after October 1, 1981 shall 
be available for leasing by low income families other than families 
that are very low income families at the time of admission to the 
Section 8 program. Except with the prior approval of HUD under 
paragraphs (d)(3) and (d)(4) of this section, the owner may only lease 
such units to very low income families.
    (3) Request for exception. A request by an owner for approval of 
admission of low income families other than very low income families to 
section 8 project-based units must state the basis for requesting the 
exception and provide supporting data. Bases for exceptions that may be 
considered include the following:
    (i) 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;
    (ii) Commitment of an owner to attaining occupancy by families with 
a broad range of incomes;
    (iii) 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

[[Page 16720]]

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); and
    (iv) Low-income families that otherwise would be displaced from a 
Section 8 project.
    (4) Action on request for exception. Whether to grant any request 
for exception is a matter committed by law to HUD's 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.
    (e) Income used for eligibility and targeting. Family annual income 
(see Sec. 5.609) is used both for determination of income-eligibility 
and for income-targeting under this section.
    (f) Reporting. The Section 8 owner must comply with HUD-prescribed 
reporting requirements, including income reporting requirements that 
will permit HUD to maintain the data necessary to monitor compliance 
with income-eligibility and income-targeting requirements.


Sec. 5.655  Section 8 project-based assistance programs: Owner 
preferences in selection for a project or unit.

    (a) Applicability. This section applies to the section 8 project-
based assistance programs. The section describes requirements 
concerning the Section 8 owner's selection of residents to occupy a 
project or unit, except for the moderate rehabilitation and the 
project-based certificate or voucher programs.
    (b) Selection. (1) Selection for owner's project or unit. Selection 
for occupancy of a project or unit is the function of the Section 8 
owner. However, selection is subject to the income-eligibility and 
income-targeting requirements in Sec. 5.653.
    (2) Tenant selection plan. The owner must adopt a written tenant 
selection plan in accordance with HUD requirements.
    (3) Amount of income. The owner may not select a family for 
occupancy of a project or unit in an order different from the order on 
the owner's waiting list for the purpose of selecting a relatively 
higher income family. However, an owner may select a family for 
occupancy of a project or unit based on its income in order to satisfy 
the targeting requirements of Sec. 5.653(c).
    (4) Selection for particular unit. In selecting a family to occupy 
a particular unit, the owner may match family characteristics with the 
type of unit available, for example, number of bedrooms. If a unit has 
special accessibility features for persons with disabilities, the owner 
must first offer the unit to families which include persons with 
disabilities who require such features (see Secs. 8.27 and 100.202 of 
this title).
    (5) Housing assistance limitation for single persons. A single 
person who is not an elderly or displaced person, a person with 
disabilities, or the remaining member of a resident family may not be 
provided a housing unit with two or more bedrooms.
    (c) Particular owner preferences. The owner must inform all 
applicants about available preferences and must give applicants an 
opportunity to show that they qualify for available preferences.
    (1) Residency requirements or preferences. (i) Residency 
requirements are prohibited. Although the owner is not prohibited from 
adopting a residency preference, the owner may only adopt or implement 
residency preferences in accordance with non-discrimination and equal 
opportunity requirements listed at Sec. 5.105(a).
    (ii) A residency preference is a preference for admission of 
persons who reside in a specified geographic area (``residency 
preference area'').
    (iii) An owner's residency preference must be approved by HUD in 
one of the following methods:
    (A) Prior approval of the housing market area in the Affirmative 
Fair Housing Marketing plan (in accordance with Sec. 108.25 of this 
title) as a residency preference area;
    (B) Prior approval of the residency preference area in the PHA plan 
of the jurisdiction in which the project is located;
    (C) Modification of the Affirmative Fair Housing Marketing Plan, in 
accordance with Sec. 108.25 of this title,
    (iv) Use of a residency preference may not have the purpose or 
effect of delaying or otherwise denying admission to a project or unit 
based on the race, color, ethnic origin, gender, religion, disability, 
or age of any member of an applicant family.
    (v) A residency preference must not be based on how long an 
applicant has resided or worked in a residency preference area.
    (vi) Applicants who are working or who have been notified that they 
are hired to work in a residency preference area must be treated as 
residents of the residency preference area. The owner may treat 
graduates of, or active participants in, education and training 
programs in a residency preference area as residents of the residency 
preference area if the education or training program is designed to 
prepare individuals for the job market.
    (2) Preference for working families. (i) The owner may adopt a 
preference for admission of working families (families where the head, 
spouse or sole member is employed). However, an applicant shall be 
given the benefit of the working family preference if the head and 
spouse, or sole member, is age 62 or older, or is a person with 
disabilities.
    (ii) If the owner adopts a preference for admission of working 
families, the owner must not give a preference based on the amount of 
earned income.
    (3) Preference for person with disabilities. The owner may adopt a 
preference for admission of families that include a person with 
disabilities. However, the owner may not adopt a preference for 
admission of persons with a specific disability.
    (4) Preference for victims of domestic violence. The owner should 
consider whether to adopt a preference for admission of families that 
include victims of domestic violence.
    (5) Preference for single persons who are elderly, displaced, 
homeless or persons with disabilities over other single persons. The 
owner may adopt a preference for admission of single persons who are 
age 62 or older, displaced, homeless, or persons with disabilities over 
other single persons.


Sec. 5.657  Section 8 project-based assistance programs: Reexamination 
of family income and composition.

    (a) Applicability. This section states requirements for 
reexamination of family income and composition in the Section 8 
project-based assistance programs, except for the moderate 
rehabilitation and the project-based certificate or voucher programs.
    (b) Regular reexamination. The owner must conduct a reexamination 
and redetermination of family income and composition at least annually.
    (c) Interim reexaminations. A family may request an interim 
reexamination of family income because of any changes since the last 
examination. The owner must make the interim reexamination within a 
reasonable time after the family request. The owner may adopt policies 
prescribing when and under what conditions the family must report a 
change in family income or composition.

[[Page 16721]]

Sec. 5.659  Family information and verification.

    (a) Applicability. This section states requirements for 
reexamination of family income and composition in the Section 8 
project-based assistance programs, except for the moderate 
rehabilitation program and the project-based certificate or voucher 
programs.
    (b) Family obligation to supply information. (1) The family must 
supply any information that HUD or the owner determines is necessary in 
administration of the Section 8 program, including submission of 
required evidence of citizenship or eligible immigration status (as 
provided by part 5, subpart E of this title). ``Information'' includes 
any requested certification, release or other documentation.
    (2) The family must supply any information requested by the owner 
or HUD for use in a regularly scheduled reexamination or an interim 
reexamination of family income and composition in accordance with HUD 
requirements.
    (3) For requirements concerning the following, see part 5, subpart 
B of this title:
    (i) Family verification and disclosure of social security numbers;
    (ii) Family execution and submission of consent forms for obtaining 
wage and claim information from State Wage Information Collection 
Agencies (SWICAs).
    (4) Any information supplied by the family must be true and 
complete.
    (c) Family release and consent. (1) As a condition of admission to 
or continued occupancy of a unit with Section 8 assistance, the owner 
must require the family head, and such other family members as the 
owner designates, to execute a HUD-approved release and consent form 
(including any release and consent as required under Sec. 5.230 of this 
title) authorizing any depository or private source of income, or any 
Federal, State or local agency, to furnish or release to the owner or 
HUD such information as the owner or HUD determines to be necessary.
    (2) The use or disclosure of information obtained from a family or 
from another source pursuant to this release and consent shall be 
limited to purposes directly connected with administration of the 
Section 8 program.
    (d) Owner responsibility for verification. The owner must obtain 
and document in the family file third party verification of the 
following factors, or must document in the file why third party 
verification was not available:
    (1) Reported family annual income;
    (2) The value of assets;
    (3) Expenses related to deductions from annual income; and
    (4) Other factors that affect the determination of adjusted income.


Sec. 5.661  Section 8 project-based assistance programs: Approval for 
police or other security personnel to live in project.

    (a) Applicability. This section describes when a Section 8 owner 
may lease a Section 8 unit to police or other security personnel with 
continued Section 8 assistance for the unit. This section applies to 
the Section 8 project-based assistance programs.
    (b) Terms. (1) Security personnel means:
    (i) A police officer, or
    (ii) A qualified security professional, with adequate training and 
experience to provide security services for project residents.
    (2) Police officer means a person 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.
    (3) Security includes the protection of project residents, 
including resident project management from criminal or other activity 
that is a threat to person or property, or that arouses fears of such 
threat.
    (c) Owner application. (1) The owner may submit a written 
application to the contract administrator (PHA or HUD) for approval to 
lease an available unit in a Section 8 project to security personnel 
who would not otherwise be eligible for Section 8 assistance, for the 
purpose of increasing security for Section 8 families residing in the 
project. (2) The owner's application must include the following 
information:
    (i) A description of criminal activities in the project and the 
surrounding community, and the effect of criminal activity on the 
security of project residents.
    (ii) Qualifications of security personnel who will reside in the 
project, and the period of residence by such personnel. How owner 
proposes to check backgrounds and qualifications of any security 
personnel who will reside in the project.
    (iii) Full disclosure of any family relationship between the owner 
and any security personnel. For this purpose, ``owner'' includes a 
principal or other interested party.
    (iv) How residence by security personnel in a project unit will 
increase security for Section 8 assisted families residing in the 
project.
    (v) The amount payable monthly as rent to the unit owner by 
security personnel residing in the project (including a description of 
how this amount is determined), and the amount of any other 
compensation by the owner to such resident security personnel.
    (vi) The terms of occupancy by such security personnel. The lease 
by owner to the approved security personnel may provide that occupancy 
of the unit is authorized only while the security personnel is 
satisfactorily performing any agreed responsibilities and functions for 
project security.
    (vii) Other information as requested by the contract administrator.
    (d) Action by contract administrator. (1) The contract 
administrator shall have discretion to approve or disapprove owner's 
application, and to impose conditions for approval of occupancy by 
security personnel in a section 8 project unit.
    (2) Notice of approval by the contract administrator shall specify 
the term of such approved occupancy. Such approval may be withdrawn at 
the discretion of the contract administrator, for example, if the 
contract administrator determines that such occupancy is not providing 
adequate security benefits as proposed in the owner's application; or 
that security benefits from such occupancy are not a sufficient return 
for program costs.
    (e) Housing assistance payment and rent. (1) During approved 
occupancy by security personnel as provided in this section, the amount 
of the monthly housing assistance payment to the owner shall be equal 
to the contract rent (as determined in accordance with the HAP contract 
and HUD requirements) minus the amount (as approved by the contract 
administrator) of rent payable monthly as rent to the unit owner by 
such security personnel. The owner shall bear the risk of collecting 
such rent from such security personnel, and the amount of the housing 
assistance payment shall not be increased because of non-payment by 
such security personnel. The owner shall not be entitled to receive any 
vacancy payment for the period following occupancy by such security 
personnel.
    (2) In approving the amount of monthly rent payable by security 
personnel for occupancy of a contract unit, the contract administrator 
may consider whether security services to be performed are an adequate 
return for housing assistance payments on the unit, or whether the cost 
of security services should be borne by the owner from other project 
income.

[[Page 16722]]

PART 880--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM FOR NEW 
CONSTRUCTION

    26. The authority citation for part 880 continues to read as 
follows:

    Authority:  42 U.S.C. 1437a, 1437c, 1437f, 3535(d), 12701, and 
13611-13619.

    27. Amend Sec. 880.104 as follows:
    a. Revise the section heading to read as set forth below;
    b. Revise paragraph (c) to read as set forth below;
    c. Amend paragraph (d) by removing the phrase ``(concerning 
preferences for selection of applicants)''.


Sec. 880.104  Applicability of part 880.

* * * * *
    (c) Section 880.607 (Termination of tenancy and modification of 
leases) applies to all families.
* * * * *

    28. Amend Sec. 880.201 as follows:
    a. Remove the introductory text;
    b. Remove the definitions of the terms ``Gross rent'', ``Household 
type'', ``Housing type'', and ``Housing Assistance Plan'';
    c. Add definitions, in alphabetical order, of the terms ``Fair 
Market Rent (FMR)'', ``HUD'', ``NOFA'', and ``Public Housing Agency 
(PHA)'';
    d. Revise the definitions of ``ACC (Annual Contributions 
Contract)'', ``Annual income'', ``Contract rent'', ``Elderly family'', 
``Family'', ``Housing Assistance Payment'', ``Low income family'', 
``Tenant rent'', ``Total tenant payment'', ``Utility allowance'', 
``Utility reimbursement'' and ``Very low-income family'' to read as set 
forth below.


Sec. 880.201  Definitions.

    Annual Contributions Contract (ACC). As defined in part 5 of this 
title.
* * * * *
    Annual income. As defined in part 5 of this title.
* * * * *
    Contract rent. The total amount of rent specified in the contract 
as payable to the owner for a unit.
* * * * *
    Elderly family. As defined in part 5 of this title.
    Fair Market Rent (FMR). As defined in part 5 of this title.
    Family. As defined in part 5 of this title.
* * * * *
    Housing assistance payment. The payment made by the contract 
administrator to the owner of an assisted unit as provided in the 
contract. Where the unit is leased to an eligible family, the payment 
is the difference between the contract rent and the tenant rent. An 
additional payment is made to the family when the utility allowance is 
greater than the total tenant payment. A housing assistance payment, 
known as a ``vacancy payment''. may be made to the owner when an 
assisted unit is vacant, in accordance with the terms of the contract.
    HUD. Department of Housing and Urban Development.
* * * * *
    Low income family. As defined in part 5 of this title.
    NOFA. As defined in part 5 of this title.
* * * * *
    Public Housing Agency (PHA). As defined in part 5 of this title.
* * * * *
    Tenant rent. As defined in part 5 of this title.
    Total tenant payment. As defined in part 5 of this title.
    Utility allowance. As defined in part 5 of this title.
    Utility reimbursement. As defined in part 5 of this title.
* * * * *
    Very low income family. As defined in part 5 of this title.

    29. In Sec. 880.501, revise paragraph (e) to read as follows:


Sec. 880.501  The contract.

* * * * *
    (e) Payment of utility reimbursement. Where applicable, the owner 
will pay a utility reimbursement in accordance with Sec. 5.632 of this 
title. HUD will provide funds for the utility reimbursement to the 
owner in trust solely for the purpose of paying the utility 
reimbursement.

    30. In Sec. 880.601, revise paragraph (b) to read as follows:


Sec. 880.601  Responsibilities of owner.

* * * * *
    (b) Management and maintenance. The owner is responsible for all 
management functions, including determining eligibility of applicants, 
selection of tenants, reexamination and verification of family income 
and composition, determination of family rent (total tenant payment, 
tenant rent and utility reimbursement), collection of rent, termination 
of tenancy and eviction, and performance of all repair and maintenance 
functions (including ordinary and extraordinary maintenance), and 
replacement of capital items. (See part 5 of this title.) All functions 
must be performed in accordance with applicable equal opportunity 
requirements.
* * * * *


Sec. 880.603  [Amended]

    31. Amend Sec. 880.603 as follows:
    a. In the introductory text of paragraph (b), remove the phrase 
``in accordance with 24 CFR part 813'' and ``and 24 CFR part 813'';
    b. In paragraph (c)(1), remove the phrase ``24 CFR part 813'' and 
add in its place ``part 5 of this title''; and
    c. In paragraph (c)(3), remove the phrase ``Gross Rent'' and add in 
its place ``contract rent plus any utility allowance''.


Sec. 880.612a  [Amended]

    32. In Sec. 880.612a, remove paragraph (g) and redesignate 
paragraph (h) as paragraph (g).

PART 881--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM FOR 
SUBSTANTIAL REHABILITATION

    33. The authority citation for part 881 continues to read as 
follows:

    Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d), 12701, and 
13611-13619.

    34. Amend Sec. 881.104 as follows:
    a. Revise the section heading to read as set forth below;
    b. Revise paragraph (c) to read as set forth below;
    c. Amend paragraph (d) by removing the phrase ``(concerning 
preferences for selection of applicants)''.


Sec. 881.104  Applicability of part 881.

* * * * *
    (c) Section 881.607 (Termination of tenancy and modification of 
leases) applies to all families.
* * * * *

    35. Amend Sec. 881.201 as follows:
    a. Remove the introductory text;
    b. Remove the definitions of the terms ``Gross rent'', ``Household 
type'', ``Housing Assistance Plan'', and ``Housing type'';
    c. Add definitions, in alphabetical order, of the terms ``Fair 
Market Rent (FMR)'', ``HUD'', ``NOFA'', and ``Public Housing Agency 
(PHA)'';
    d. Revise the definitions of ``ACC (Annual Contributions 
Contract)'', ``Annual income'', ``Contract rent'', ``Elderly family'', 
``Family'', ``Housing Assistance Payment'', ``Low income family'', 
``Tenant rent'', ``Total tenant payment'', ``Utility allowance'', 
``Utility reimbursement'' and ``Very low-income family'' to read as set 
forth below.


Sec. 881.201  Definitions.

    Annual Contributions Contract (ACC). As defined in part 5 of this 
title.
    Annual income. As defined in part 5 of this title.
* * * * *

[[Page 16723]]

    Contract rent. The total amount of rent specified in the contract 
as payable to the owner for a unit.
* * * * *
    Elderly family. As defined in part 5 of this title.
    Fair Market Rent (FMR). As defined in part 5 of this title.
    Family. As defined in part 5 of this title.
* * * * *
    Housing assistance payment. The payment made by the contract 
administrator to the owner of an assisted unit as provided in the 
contract. Where the unit is leased to an eligible family, the payment 
is the difference between the contract rent and the tenant rent. An 
additional payment is made to the family when the utility allowance is 
greater than the total tenant payment. A housing assistance payment, 
known as a ``vacancy payment''. may be made to the owner when an 
assisted unit is vacant, in accordance with the terms of the contract.
    HUD. Department of Housing and Urban Development.
* * * * *
    Low income family. As defined in part 5 of this title.
    NOFA. As defined in part 5 of this title.
* * * * *
    Public Housing Agency (PHA). As defined in part 5 of this title.
* * * * *
    Tenant rent. As defined in part 5 of this title.
    Total tenant payment. As defined in part 5 of this title.
    Utility allowance. As defined in part 5 of this title.
    Utility reimbursement. As defined in part 5 of this title.
* * * * *
    Very low income family. As defined in part 5 of this title.

PART 884--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM, NEW 
CONSTRUCTION SET-ASIDE FOR SECTION 515 RURAL RENTAL HOUSING 
PROJECTS

    36. The authority citation for part 884 continues to read as 
follows:

    Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d), and 13611-
13619.


    37. Amend Sec. 884.102 as follows:
    a. Remove the definition of ``Gross rent''; and
    b. Revise the definitions of ``Annual income'', ``Family'', 
``Tenant rent'', ``Total tenant payment'', ``Utility allowance'', 
``Utility reimbursement'', and ``Very low-income family'' to read as 
follows:


Sec. 884.102  Definitions.

* * * * *
    Annual income. As defined in part 5 of this title.
* * * * *
    Family. As defined in part 5 of this title.
* * * * *
    Low-income family. As defined in part 5 of this title.
* * * * *
    Tenant rent. As defined in part 5 of this title.
    Total tenant payment. As defined in part 5 of this title.
    Utility allowance. As defined in part 5 of this title.
    Utility reimbursement. As defined in part 5 of this title.
    Very low-income family. As defined in part 5 of this title.


Sec. 884.105  [Amended]

    38. Amend Sec. 884.105(a) by removing the phrase ``Gross Rents'' 
and adding in its place ``Contract Rents plus any utility allowances''.


Sec. 884.116  [Amended]

    39. Amend Sec. 884.116(b) by removing the phrase ``24 CFR part 
813'' and adding in its place ``part 5 of this title''.


Sec. 884.118  [Amended]

    40. Amend Sec. 884.118 as follows:
    a. In paragraph (a)(3), remove the phrase ``24 CFR parts 5 and 
813'' and add in its place ``part 5 of this title'';
    b. In paragraph (a)(7), remove the phrase ``24 CFR part 813'' and 
add in its place ``part 5 of this title''; and
    c. In paragraph (a)(8), remove the phrase ``813 of this chapter'' 
and add in its place ``5 of this title''.


Sec. 884.214  [Amended]

    41. Amend Sec. 884.214 as follows:
    a. Paragraph (b)(2) is amended by removing from the second sentence 
the comma before the word ``except'', adding a period in its place, and 
removing the remainder of the sentence starting with the word 
``except'' and ending with the period.
    b. Paragraph (b)(8) is amended by removing the phrase ``24 CFR 
812.9, and also 24 CFR 812.10'' and add in its place ``part 5 of this 
title''.


Sec. 884.218  [Amended]

    42. Amend Sec. 884.218 as follows:
    a. In paragraph (a), remove the phrase ``813 of this chapter'' and 
add in its place ``5 of this title''; and
    b. In paragraph (c), remove the phrase ``Gross Rent'' and add in 
its place ``Contract Rent plus any utility allowance''.


Sec. 884.223a  [Amended]

    43. Amend Sec. 884.223a by removing paragraph (g) and redesignating 
paragraph (h) as paragraph (g).

PART 886--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM--SPECIAL 
ALLOCATIONS

    44. The authority citation for part 886 continues to read as 
follows:

    Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d), and 13611-
13619.

    45. Amend Sec. 886.102 as follows:
    a. Remove the definition of ``Gross rent''; and
    b. Revise the definitions of ``Annual income'', ``Family'', ``Low-
income family'', ``Tenant rent'', ``Total tenant payment'', ``Utility 
allowance'', ``Utility reimbursement'', and ``Very low-income family'' 
to read as follows:


Sec. 886.102  Definitions.

* * * * *
    Annual income. As defined in part 5 of this title.
* * * * *
    Family. As defined in part 5 of this title.
* * * * *
    Low-income family. As defined in part 5 of this title.
* * * * *
    Tenant rent. As defined in part 5 of this title.
    Total tenant payment. As defined in part 5 of this title.
    Utility allowance. As defined in part 5 of this title.
    Utility reimbursement. As defined in part 5 of this title.
    Very low-income family. As defined in part 5 of this title.


Sec. 886.119  [Amended]

    46. Amend Sec. 886.119 as follows:
    a. In paragraph (a)(3), remove the phrases ``24 CFR parts 812 and 
813'' and ``24 CFR part 5'' and add in their place ``part 5 of this 
title''; and remove the phrase ``provision of Federal selection 
preferences''; and
    b. In paragraphs (a)(7) and (a)(8), remove the phrase ``813 of this 
chapter'' and add in its place ``5 of this title''.


Sec. 886.121  [Amended]

    47. Amend Sec. 886.121 as follows:
    a. In paragraph (b), remove the phrase ``24 CFR part 812'' and add 
in its place ``part 5 of this title''; and
    b. In paragraph (c), remove the phrase ``24 CFR 812.9, and also 24 
CFR 812.10'' and add in its place ``part 5, subpart E, of this title''.


Sec. 886.124  [Amended]

    48. Amend Sec. 886.124 as follows:

[[Page 16724]]

    a. In paragraph (a), remove the phrase ``part 813 of this chapter'' 
and add in its place ``part 5 of this title'';
    b. In paragraphs (a) and (b), remove the phrase ``24 CFR part 812'' 
from the three places that it occurs, and add in its place ``part 5, 
subpart E, of this title''; and
    c. In paragraph (c), remove the phrase ``24 CFR 812.9 and also 24 
CFR 812.10'' and add in its place ``part 5, subpart E, of this title''.


Sec. 886.128  [Amended]

    49. Amend Sec. 886.128 as follows:
    a. Remove the phrase ``24 CFR parts 247 and 812'' and add in its 
place ``parts 247 and 5 of this title''; and
    b. Remove the phrase ``24 CFR 812.10'' and add in its place ``part 
5, subpart E, of this title''.


Sec. 886.129  [Amended]

    50. Amend Sec. 886.129(e) by removing the phrase ``24 CFR 812.9'' 
from the one place it appears and by removing the phrase ``24 CFR 
812.10'' from the two places it appears, and adding in each of those 
places ``part 5, subpart E, of this title''.

    51. Revise Sec. 886.132 to read as follows:


Sec. 886.132  Tenant selection.

    Sections 5.653 through 5.661 of this title govern selection of 
tenants and occupancy requirements applicable under this subpart A.


Sec. 886.138  [Amended]

    52. Amend Sec. 886.138 by removing from paragraph (g)(1)(iii)(A)(2) 
the phrase ``24 CFR 813.107'' and by adding in its place ``part 5 of 
this title''.

    53. Section 886.302 is amended as follows:
    a. Remove the definition of ``Gross rent''; and
    b. Revise the definitions of ``Annual income'', ``Family'', ``Low-
income family'', ``Tenant rent'', ``Total tenant payment'', ``Utility 
allowance'', ``Utility reimbursement'', and ``Very low-income family'' 
to read as follows:


Sec. 886.302  Definitions.

* * * * *
    Annual income. As defined in part 5 of this title.
* * * * *
    Family. As defined in part 5 of this title.
* * * * *
    Low-income family. As defined in part 5 of this title.
* * * * *
    Tenant rent. As defined in part 5 of this title.
    Total tenant payment. As defined in part 5 of this title.
    Utility allowance. As defined in part 5 of this title.
    Utility reimbursement. As defined in part 5 of this title.
    Very low-income family. As defined in part 5 of this title.


Sec. 886.318  [Amended]

    54. Amend Sec. 886.318 as follows:
    a. Remove the phrase ``parts 812 and 813'' from paragraph (a)(3) 
and add ``part 5 of this title'' in its place;
    b. Remove the phrase ``provision of Federal selection preferences 
in accordance with Sec. 886.337,'' from paragraph (a)(3);
    c. In paragraph (a)(6), remove the phrase ``part 813 of the 
chapter'' and add in its place ``part 5 of this title''; and
    d. In paragraph (a)(7), remove the phrase ``part 813 of this 
chapter'' and add in its place ``part 5 of this title''.

    55. Amend Sec. 886.321 as follows:
    a. Revise paragraph (b)(1) to read as set forth below;
    b. In paragraph (b)(2), remove the phrase ``or to accept 
applications only from families that claim a Federal preference under 
Sec. 886.337'' and remove the sentence starting with the word 
``Notwithstanding''; and
    c. In paragraph (b)(7), remove the phrase ``24 CFR 812.9, and 24 
CFR 812.10'' and add in its place ``part 5 of this title'':


Sec. 886.321  Marketing.

* * * * *
    (b)(1) HUD will determine the eligibility for assistance of 
families in occupancy before sales closing. After the sale, the owner 
shall be responsible for taking applications, selecting families, and 
all related determinations, in accordance with part 5 of this title. 
(See especially, Secs. 5.653 through 5.661.)
* * * * *


Sec. 886.324  [Amended]

    56. Amend Sec. 886.324 as follows:
    a. In paragraph (a), remove the phrase ``part 813 of this chapter'' 
and add in its place ``part 5 of this title'', and remove the phrase 
``of part 812'' and add in its place ``of part 5 of this title'';
    b. In paragraphs (a) and (b), remove the phrase ``24 CFR part 812'' 
and add in its place ``part 5 of this title'';
    c. In paragraph (c), remove the phrase ``Gross Rent'' and add in 
its place ``Contract Rent plus any applicable Utility Allowance'', and 
remove the phrase ``24 CFR 812.9, and also 24 CFR 812.10'' and add in 
its place ``part 5, subpart E, of this title''.


Sec. 886.328  [Amended]

    57. Amend Sec. 886.328 by removing the phrase ``24 CFR parts 247 
and 812'' and by adding in its place ``parts 247 and 5 of this title'', 
and by removing the phrase ``24 CFR 812.10'' and by adding in its place 
``part 5, subpart E, of this title''.


Sec. 886.329  [Amended]

    58. Amend Sec. 886.329(e) by removing the phrase ``24 CFR 812.9'' 
and by adding in its place ``part 5, subpart E, of this title'', and by 
removing the phrase ``24 CFR 812.10'' from the two places where it 
occurs and by adding in those places ``part 5, subpart E, of this 
title''.


Sec. 886.329a  [Amended]

    59. In Sec. 886.329a, remove paragraph (g) and redesignate 
paragraph (h) as paragraph (g).


Sec. 886.334  [Amended]

    60. Amend Sec. 886.334 by removing from paragraph (b)(4) the phrase 
``Gross Rents'' and adding in its place ``Contract Rents plus any 
applicable Utility Allowances''.


Sec. 886.338  [Amended]

    61. Amend Sec. 886.338 by removing from paragraph (g)(1)(iii)(A)(2) 
the phrase ``24 CFR 813.107'' and adding in its place ``part 5 of this 
title''.

PART 891--SUPPORTIVE HOUSING FOR THE ELDERLY AND PERSONS WITH 
DISABILITIES

    62. The authority citation for part 891 continues to read as 
follows:

    Authority: 12 U.S.C. 1701q; 42 U.S.C. 1437f, 3535(d), and 8013.


Sec. 891.410  [Amended]

    63. Amend Sec. 891.410 by removing paragraph (h).


Sec. 891.550  [Removed]

    64. Remove Sec. 891.550.

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

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

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

    66. Amend part 960 by adding a new subpart A to read as follows:
Subpart A--Applicability, definitions, equal opportunity requirements.
Sec.
960.101   Applicability.
960.102   Definitions.
960.103   Equal opportunity requirements.
Subpart A--Applicability, Definitions, Equal Opportunity Requirements


Sec. 960.101  Applicability.

    This part is applicable to public housing.

[[Page 16725]]

Sec. 960.102  Definitions.

    (a) Definitions found elsewhere: (1) General definitions. The 
following terms are defined in part 5, subpart A of this title: 1937 
Act, HUD, MSA, public housing, public housing agency (PHA), Section 8.
    (2) Definitions under the 1937 Act. The following terms are defined 
in part 5, subpart D of this title: annual contributions contract 
(ACC), applicant, elderly family, elderly person, extremely low income 
family, family, low income family, person with disabilities.
    (3) Definitions and explanations concerning income and rent. The 
following terms are defined or explained in part 5, subpart F of this 
title: Annual income (see Sec. 5.609); economic self-sufficiency 
program, tenant rent, total tenant payment (see Sec. 5.628), utility 
allowance.
    (b) Additional definitions. In addition to the definitions in 
paragraph (a), the following definitions and cross-references apply:
    Ceiling rent. See Sec. 960.253(d).
    Designated housing. See part 945 of this chapter.
    Disabled families. See Sec. 5.403 of this title.
    Eligible families. Low income families who are eligible for 
admission to the public housing program.
    Flat rent. See Sec. 960.253(b).
    Income-based rent. See Sec. 960.253(c).
    Mixed population development. A public housing development, or 
portion of a development, that was reserved for elderly and disabled 
families at its inception (and has retained that character). If the 
development was not so reserved at its inception, the PHA has obtained 
HUD approval to give preference in tenant selection for all units in 
the development (or portion of development) to elderly families and 
disabled families. These developments were formerly known as elderly 
projects.
    Over-income family. A family that is not a low income family. See 
subpart E of this part.
    PHA plan. See part 903 of this chapter.
    Residency preference. A preference for admission of persons who 
reside in a specified geographic area.
    Tenant-based. See Sec. 982.1(b) of this chapter.


Sec. 960.103  Equal opportunity requirements.

    (a) Applicable requirements. The PHA must administer its public 
housing program in accordance with all applicable equal opportunity 
requirements imposed by contract or federal law, including the 
authorities cited in Sec. 5.105(a) of this title.
    (b) PHA duty to affirmatively further fair housing. The PHA must 
affirmatively further fair housing in the administration of its public 
housing program.
    (c) Equal opportunity certification. The PHA must submit signed 
equal opportunity certifications to HUD in accordance with 
Sec. 903.7(o) of this title, including certification that the PHA will 
affirmatively further fair housing.

    67. Revise the heading of subpart B of part 960 to read as follows:

Subpart B--Admission

    68. Revise Secs. 960.201 and 960.202 to read as follows:


Sec. 960.201  Purpose.

    (a) This subpart states HUD eligibility and selection requirements 
for admission to public housing.
    (b) See also related HUD regulations in this title concerning these 
subjects:
    (1) 1937 Act definitions: part 5, subpart D;
    (2) Restrictions on assistance to noncitizens: part 5, subpart E;
    (3) Family income and family payment: part 5, subpart F;
    (4) Public housing agency plans: part 903;
    (5) Rent and reexamination: part 960, subpart C;
    (6) Mixed population developments: part 960, subpart D;
    (7) Occupancy by over-income families or police officers: part 960, 
subpart E.


Sec. 960.202  Eligibility and targeting for admission.

    (a) Who is eligible? (1) Basic eligibility. An applicant must meet 
all eligibility requirements in order to receive housing assistance. At 
a minimum, the applicant must be a family, as defined in Sec. 5.403 of 
this title, and must be income-eligible, as described in this section. 
Such eligible applicants include single persons.
    (2) Low income limit. No family other than a low income family is 
eligible for admission to a PHA's public housing program.
    (b) Targeting admissions to extremely low income families.--(1) 
Targeting requirement. (i) Not less than 40 percent of the families 
admitted to a PHA's public housing program during the PHA fiscal year 
from the PHA waiting list shall be extremely low income families. This 
is called the ``basic targeting requirement''.
    (ii) To the extent provided in paragraph (b)(2) of this section, 
admission of extremely low income families to the PHA's Section 8 
voucher program during the same PHA fiscal year is credited against the 
basic targeting requirement.
    (iii) A PHA must comply with both the targeting requirement found 
in this part and the deconcentration requirements found in part 903 of 
this chapter.
    (2) Credit for admissions to PHA voucher program. (i) If admissions 
of extremely low income families to the PHA's voucher program during a 
PHA fiscal year exceeds the 75 percent minimum targeting requirement 
for the PHA's voucher program (see Sec. 982.201(b)(2) of this chapter), 
such excess shall be credited (subject to the limitations in paragraph 
(b)(2)(ii) of this section) against the PHA's basic targeting 
requirement for the same fiscal year.
    (ii) The fiscal year credit for voucher program admissions that 
exceed the minimum voucher program targeting requirement shall not 
exceed the lower of:
    (A) Ten percent of public housing waiting list admissions during 
the PHA fiscal year;
    (B) Ten percent of waiting list admission to the PHA's Section 8 
tenant-based assistance program during the PHA fiscal year; or
    (C) The number of qualifying low income families who commence 
occupancy during the fiscal year of PHA public housing units located in 
census tracts with a poverty rate of 30 percent or more. For this 
purpose, qualifying low income family means a low income family other 
than an extremely low income family.
    (c) Income used for eligibility and targeting. Family annual income 
(see Sec. 5.609) is used both for determination of income eligibility 
under paragraph (a) and for PHA income targeting under paragraph (b) of 
this section.
    (d) Reporting. The PHA must comply with HUD-prescribed reporting 
requirements that will permit HUD to maintain the data, as determined 
by HUD, necessary to monitor compliance with income eligibility and 
targeting requirement.

    69. Amend Sec. 960.204 as follows:
    a. Revise paragraph (a)(2)(i) to read as set forth below;
    b. Remove existing paragraph (a)(2)(iii) and redesignate paragraph 
(a)(2)(iv) as new paragraph (a)(2)(iii);
    c. Amend paragraph (a)(3)(ii) by inserting a semicolon after the 
words ``waiting list'', by removing the phrase ``that includes the 
following:'', and by removing paragraphs (a)(3)(ii)(A) through (D).


Sec. 960.204  Tenant selection policies.

    (a) * * *

[[Page 16726]]

    (2) * * *
    (i) To provide for deconcentration and income-mixing in accordance 
with the PHA plan (see Sec. 903.7 of this title).
* * * * *

    70. Amend Sec. 960.205 as follows:
    a. Revise paragraph (b) introductory text to read as set forth 
below; and
    b. Revise paragraph (c) to read as set forth below


Sec. 960.205  Selection criteria.

* * * * *
    (b) In selection of families for admission to its public housing 
program, or to occupy a public housing development or unit, the PHA is 
responsible for screening family behavior and suitability for tenancy. 
The PHA may consider all relevant information, which may include, but 
is not limited to:
* * * * *
    (c) The requirements with respect to deconcentrating poverty and 
producing a mix of incomes in the PHA's public housing developments are 
found in the PHA Plan rule, at part 903 of this title.
* * * * *

    71. Revise Sec. 960.206 to read as follows:


Sec. 960.206  Waiting list: Local preferences in admission to public 
housing program.

    (a) Establishment of PHA local preferences. (1) The PHA may adopt a 
system of local preference for selection of families admitted to the 
PHA's public housing program. The PHA system of selection preferences 
must be based on local housing needs and priorities as determined by 
the PHA. In determining such needs and priorities, the PHA shall use 
generally accepted data sources. Such sources include public comment on 
the PHA plan (as received pursuant to Sec. 903.17 of this chapter), and 
on the consolidated plan for the relevant jurisdiction (as received 
pursuant to part 91 of this title).
    (2) The PHA may limit the number of applicants that qualify for any 
local preference.
    (3) PHA adoption and implementation of local preferences is subject 
to HUD requirements concerning income-targeting (Sec. 960.202(b)), 
deconcentration and income-mixing (Sec. 903.7), and selection 
preferences for developments designated exclusively for elderly or 
disabled families or for mixed population developments (Sec. 960.407).
    (4) The PHA must inform all applicants about available preferences 
and must give applicants an opportunity to show that they qualify for 
available preferences.
    (b) Particular local preferences.--(1) Residency requirements or 
preferences. (i) Residency requirements are prohibited. Although a PHA 
is not prohibited from adopting a residency preference, the PHA may 
only adopt or implement residency preferences in accordance with non-
discrimination and equal opportunity requirements listed at 
Sec. 5.105(a) of this title.
    (ii) A residency preference is a preference for admission of 
persons who reside in a specified geographic area (``residency 
preference area''). A county or municipality may be used as a residency 
preference area. An area smaller than a county or municipality may not 
be used as a residency preference area.
    (iii) Any PHA residency preferences must be included in the 
statement of PHA policies that govern eligibility, selection and 
admission to the program, which is included in the PHA annual plan (or 
supporting documents) pursuant to part 903 of this chapter. Such 
policies must specify that use of a residency preference will not have 
the purpose or effect of delaying or otherwise denying admission to the 
program based on the race, color, ethnic origin, gender, religion, 
disability, or age of any member of an applicant family.
    (iv) A residency preference must not be based on how long an 
applicant has resided or worked in a residency preference area.
    (v) Applicants who are working or who have been notified that they 
are hired to work in a residency preference area must be treated as 
residents of the residency preference area. The PHA may treat graduates 
of, or active participants in, education and training programs in a 
residency preference area as residents of the residency preference area 
if the education or training program is designed to prepare individuals 
for the job market.
    (2) Preference for working families. The PHA may adopt a preference 
for admission of working families (families where the head, spouse, or 
sole member, is employed). However, an applicant must be given the 
benefit of the working family preference if the head and spouse, or 
sole member is age 62 or older, or is a person with disabilities.
    (3) Preference for person with disabilities. The PHA may adopt a 
preference for admission of families that include a person with 
disabilities. However, the PHA may not adopt a preference for persons 
with a specific disability.
    (4) Preference for victims of domestic violence. The PHA should 
consider whether to adopt a local preference for admission of families 
that include victims of domestic violence.
    (5) Preference for single persons who are elderly, displaced, 
homeless or a person with disabilities. The PHA may adopt a preference 
for admission of single persons who are age 62 or older, displaced, 
homeless, or persons with disabilities over other single persons.
    (c) Selection for particular unit. In selecting a family to occupy 
a particular unit, the PHA may match characteristics of the family with 
the type of unit available, for example, number of bedrooms. In 
selection of families to occupy units with special accessibility 
features for persons with disabilities, the PHA must first offer such 
units to families which include persons with disabilities who require 
such accessibility features (see Secs. 8.27 and 100.202 of this title).
    (d) Housing assistance limitation for single persons. A single 
person who is not an elderly or displaced person, or a person with 
disabilities, or the remaining member of a resident family may not be 
provided a housing unit with two or more bedrooms.
    (e) Selection method. (1) The PHA must use the following to select 
among applicants on the waiting list with the same priority for 
admission:
    (i) Date and time of application; or
    (ii) A drawing or other random choice technique.
    (2) The method for selecting applicants must leave a clear audit 
trail that can be used to verify that each applicant has been selected 
in accordance with the method specified in the PHA plan.


Sec. 960.208  [Removed]

    72. Remove Sec. 960.208.


Sec. 960.207  [Redesignated]

    73. Redesignate Sec. 960.207 as Sec. 960.208.


Secs. 960.209 and 960.210  [Removed]

    74. Remove Secs. 960.209 and 960.210.
    75. In part 960, add new subpart C, to read as follows:

Subpart C--Rent and Reexamination

Sec.
960.253   Choice of rent.
960.255   Self-sufficiency incentives--Disallowance of increase in 
annual income.
960.257   Family income and composition: Regular and interim 
reexaminations.
960.259   Family information and verification.
960.261   Restriction on eviction of families based on income.

Subpart C--Rent and Reexamination


Sec. 960.253  Choice of rent.

    (a) Rent options. (1) Annual choice by family. Once a year, the PHA 
must give

[[Page 16727]]

each family the opportunity to choose between the two methods for 
determining the amount of tenant rent payable monthly by the family. 
The family may choose to pay as tenant rent either a flat rent as 
determined in accordance with paragraph (b) of this section, or an 
income-based rent as determined in accordance with paragraph (c) of 
this section. Except for financial hardship cases as provided in 
paragraph (d) of this section, the family may not be offered this 
choice more than once a year.
    (2) Relation to minimum rent. Regardless of whether the family 
chooses to pay a flat rent or income-based rent, the family must pay at 
least the minimum rent as determined in accordance with Sec. 5.630 of 
this title.
    (b) Flat rent. (1) The flat rent is based on the market rent 
charged for comparable units in the private unassisted rental market. 
It is equal to the estimated rent for which the PHA could promptly 
lease the public housing unit after preparation for occupancy.
    (2) The PHA must use a reasonable method to determine the flat rent 
for a unit. To determine the flat rent, the PHA must consider:
    (i) The location, quality, size, unit type and age of the unit; and
    (ii) Any amenities, housing services, maintenance and utilities 
provided by the PHA.
    (3) 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.
    (4) If the family chooses to pay a flat rent, the PHA does not pay 
any utility reimbursement.
    (5) The PHA must maintain records that document the method used to 
determine flat rents, and also show how flat rents are determined by 
the PHA in accordance with this method, and document flat rents offered 
to families under this method.
    (c) Income-based rent. (1) An income-based rent is a tenant rent 
that is based on the family's income and the PHA's rent policies for 
determination of such rents.
    (2) The PHA rent policies may specify that the PHA will use 
percentage of family income or some other reasonable system to 
determine income-based rents. The PHA rent policies may provide for 
depositing a portion of tenant rent in an escrow or savings account, 
for imposing a ceiling on tenant rents, for adoption of permissive 
income deductions (see Sec. 5.611(b) of this title), or for another 
reasonable system to determining the amount of income-based tenant 
rent.
    (3) The income-based tenant rent must not exceed the total tenant 
payment (Sec. 5.628 of this title) for the family minus any applicable 
utility allowance for tenant-paid utilities. If the utility allowance 
exceeds the total tenant payment, the PHA shall pay such excess amount 
(the utility reimbursement) either to the family or directly to the 
utility supplier to pay the utility bill on behalf of the family. If 
the PHA elects to pay the utility supplier, the PHA must notify the 
family of the amount of utility reimbursement paid to the utility 
supplier.
    (d) Ceiling rent. Instead of using flat rents, a PHA may retain 
ceiling rents that were authorized and established before October 1, 
1999, for a period of three years from October 1, 1999. After this 
three year period, the PHA must adjust such ceiling rents to the level 
required for flat 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.
    (e) 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 written information:
    (1) The PHA's policies on switching type of rent in circumstances 
of financial hardship, and
    (2) The dollar amounts of tenant rent for the family under each 
option. If the family chose a flat rent for the previous year, the PHA 
is required to provide the amount of income-based rent for the 
subsequent year only the year the PHA conducts an income reexamination 
or if the family specifically requests it and submits updated income 
information. For a family that chooses the flat rent option, the PHA 
must conduct a reexamination of family income at least once every three 
years.
    (f) Switch from flat rent to income-based rent because of hardship. 
(1) A family that is paying a flat rent may at any time request a 
switch to payment of income-based rent (before the next annual option 
to select the type of rent) if the family is unable to pay flat rent 
because of financial hardship. The PHA must adopt written policies for 
determining when payment of flat rent is a financial hardship for the 
family.
    (2) If the PHA determines that the family is unable to pay the flat 
rent because of financial hardship, the PHA must immediately allow the 
requested switch to income-based rent. The PHA shall make the 
determination within a reasonable time after the family request.
    (3) The PHA policies for determining when payment of flat rent is a 
financial hardship must provide that financial hardship include the 
following situations:
    (i) The family has experienced a decrease in income because of 
changed circumstances, including loss or reduction of employment, death 
in the family, or reduction in or loss of earnings or other assistance;
    (ii) The family has experienced an increase in expenses, because of 
changed circumstances, for medical costs, child care, transportation, 
education, or similar items; and
    (iii) Such other situations determined by the PHA to be 
appropriate.


Sec. 960.255  Self-sufficiency incentives--Disallowance of increase in 
annual income.

    (a) Definitions. The following definitions apply for purposes of 
this section.
    Disallowance. Exclusion from annual income.
    Previously unemployed includes a person who has earned, in the 
twelve months previous to employment, no more than would be received 
for 10 hours of work per week for 50 weeks at the established minimum 
wage.
    Qualified family. A family residing in public housing:
    (i) Whose annual income increases as a result of employment of a 
family member who was unemployed for one or more years previous to 
employment;
    (ii) Whose annual income increases as a result of increased 
earnings by a family member during participation in any economic self-
sufficiency or other job training program; or
    (iii) Whose annual income increases, as a result of new employment 
or increased earnings of a family member, during or within six months 
after receiving assistance, benefits or services 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 agencies administering temporary assistance 
for needy families (TANF) and Welfare-to-Work (WTW) programs. The TANF 
program is not limited to monthly income maintenance, but also includes 
such benefits and services as one-time payments, wage subsidies and 
transportation assistance--provided that the total amount over a six-
month period is at least $500.
    (b) Disallowance of increase in annual income. (1) Initial twelve 
month exclusion. During the cumulative twelve

[[Page 16728]]

month period beginning on the date a member of a qualified family is 
first employed or the family first experiences an increase in annual 
income attributable to employment, the PHA must exclude from annual 
income (as defined in Sec. 5.609 of this title) of a qualified family 
any increase in income of the family member as a result of employment 
over prior income of that family member.
    (2) Second twelve month exclusion and phase-in. During the second 
cumulative twelve month period after the date a member of a qualified 
family is first employed or the family first experiences an increase in 
annual income attributable to employment, the PHA must exclude from 
annual income of a qualified family fifty percent of any increase in 
income of such family member as a result of employment over income of 
that family member prior to the beginning of such employment.
    (3) Maximum four year disallowance. The disallowance of increased 
income of an individual family member as provided in paragraph (b)(1) 
or (b)(2) of this section is limited to a lifetime 48 month period. It 
only applies for a maximum of twelve months for disallowance under 
paragraph (b)(1) and a maximum of twelve months for disallowance under 
paragraph (b)(2), during the 48 month period starting from the initial 
exclusion under paragraph (b)(1) of this section.
    (c) Inapplicability to admission. The disallowance of increases in 
income as a result of employment under this section does not apply for 
purposes of admission to the program (including the determination of 
income eligibility and income targeting).
    (d) Individual Savings Accounts. As an alternative to the 
disallowance of increases in income as a result of employment described 
in paragraph (b) of this section, a PHA may choose to 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 account the total amount that would have been included in 
tenant rent payable to the PHA as a result of increased income that is 
disallowed in accordance with paragraph (b) of this section;
    (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 net interest income, and 
the PHA may not charge a fee for maintaining the account;
    (5) At least annually the PHA must provide the family with a report 
on the status of the account; and
    (6) If the family moves out of public housing, the PHA shall pay 
the tenant any balance in the account, minus any amounts owed to the 
PHA.


Sec. 960.257  Family income and composition: Regular and interim 
reexaminations.

    (a) When PHA is required to conduct reexamination. (1) For families 
who pay an income-based rent, the PHA must conduct a reexamination 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.
    (2) For families who choose flat rents, the PHA must conduct a 
reexamination of family composition at least annually, and must conduct 
a reexamination of family income at least once every three years.
    (3) For all families who include nonexempt individuals, as defined 
in Sec. 960.601, the PHA must determine compliance once each twelve 
months with community service and self-sufficiency requirements in 
subpart F of this part.
    (4) The PHA may use the results of these reexaminations to require 
the family to move to an appropriate size unit.
    (b) Interim reexaminations. A family may request an interim 
reexamination of family income or composition because of any changes 
since the last determination. The PHA must make the interim 
reexamination within a reasonable time after the family request. The 
PHA must adopt policies prescribing when and under what conditions the 
family must report a change in family income or composition.
    (c) PHA reexamination policies. The PHA must adopt admission and 
occupancy policies concerning conduct of annual and interim 
reexaminations in accordance with this section, and shall conduct 
reexaminations in accordance with such policies. The PHA reexamination 
policies must be in accordance with the PHA plan.


Sec. 960.259  Family information and verification.

    (a) Family obligation to supply information. (1) The family must 
supply any information that the PHA or HUD determines is necessary in 
administration of the public housing program, including submission of 
required evidence of citizenship or eligible immigration status (as 
provided by part 5, subpart E of this title). ``Information'' includes 
any requested certification, release or other documentation.
    (2) The family must supply any information requested by the PHA or 
HUD for use in a regularly scheduled reexamination or an interim 
reexamination of family income and composition in accordance with HUD 
requirements.
    (3) For requirements concerning the following, see part 5, subpart 
B of this title:
    (i) Family verification and disclosure of social security numbers;
    (ii) Family execution and submission of consent forms for obtaining 
wage and claim information from State Wage Information Collection 
Agencies (SWICAs).
    (4) Any information supplied by the family must be true and 
complete.
    (b) Family release and consent. (1) As a condition of admission to 
or continued assistance under the program, the PHA shall require the 
family head, and such other family members as the PHA designates, to 
execute a consent form (including any release and consent as required 
under Sec. 5.230 of this title) authorizing any depository or private 
source of income, or any Federal, State or local agency, to furnish or 
release to the PHA or HUD such information as the PHA or HUD determines 
to be necessary.
    (2) The use or disclosure of information obtained from a family or 
from another source pursuant to this release and consent shall be 
limited to purposes directly connected with administration of the 
program.
    (c) PHA responsibility for reexamination and verification. (1) The 
PHA must obtain and document in the family file third party 
verification of the following factors, or must document in the file why 
third party verification was not available:
    (i) Reported family annual income;
    (ii) The value of assets;
    (iii) Expenses related to deductions from annual income; and

[[Page 16729]]

    (iv) Other factors that affect the determination of adjusted income 
or income-based rent.


Sec. 960.261  Restriction on eviction of families based on income.

    No PHA shall commence eviction proceedings based on the income of 
the tenant family unless:
    (a) It has determined that there is decent, safe, and sanitary 
housing of suitable size for the family available at a rent not 
exceeding the tenant rent; or
    (b) It is required to do so by local law.

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


Sec. 960.405  [Removed]

    76. Remove Sec. 960.405.
    77. Revise Sec. 960.407 to read as follows:


Sec. 960.407  Selection preference for mixed population developments.

    (a) The PHA must give preference to elderly families and disabled 
families equally in determining priority for admission to mixed 
population developments. 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 development.
    (b) In selecting elderly families and disabled families to occupy 
units in mixed population developments, the PHA must first offer units 
that have special accessibility features for persons with disabilities 
to families who include persons with disabilities who require the 
accessibility features of such units (see Secs. 8.27 and 100.202 of 
this title).

    78. Revise subpart E to read as follows:

Subpart E--Occupancy by over-income families or police officers

Sec.
960.503   Occupancy by over-income families.
960.505   Occupancy by police officers to provide security for 
public housing residents.

Subpart E--Occupancy by over-income families or police officers


Sec. 960.503  Occupancy by over-income families.

    A PHA that owns or operates fewer than two hundred fifty (250) 
public housing units, may lease a unit in a public housing development 
to an over-income family (a family whose annual income exceeds the 
limit for a low income family at the time of initial occupancy), in 
accordance with its PHA annual plan (or supporting documents), if all 
the following conditions are satisfied:
    (a) There are no eligible low income families on the PHA waiting 
list or applying for public housing assistance when the unit is leased 
to an over-income family;
    (b) The PHA has publicized availability of the unit for rental to 
eligible low income families, including publishing public notice of 
such availability in a newspaper of general circulation in the 
jurisdiction at least thirty days before offering the unit to an over-
income family;
    (c) The over-income family rents the unit on a month-to-month basis 
for a rent that is not less than the PHA's cost to operate the unit;
    (d) The lease to the over-income family provides that the family 
agrees to vacate the unit when needed for rental to an eligible family; 
and
    (e) The PHA gives the over-income family at least thirty days 
notice to vacate the unit when the unit is needed for rental to an 
eligible family.


Sec. 960.505  Occupancy by police officers to provide security for 
public housing residents.

    (a) Police officer. For purpose of this subpart E, ``police 
officer'' means 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.
    (b) Occupancy in public housing. For the purpose of increasing 
security for residents of a public housing development, the PHA may 
allow police officers who would not otherwise be eligible for occupancy 
in public housing, to reside in a public housing dwelling unit. The PHA 
must include in the PHA annual plan or supporting documents the number 
and location of the units to be occupied by police officers, and the 
terms and conditions of their tenancies; and a statement that such 
occupancy is needed to increase security for public housing residents.

    79. Add a new subpart F, to read as follows:

Subpart F--When Resident Must Perform Community Service Activities 
or Self-Sufficiency Work Activities

Sec.
960.600   Implementation.
960.601   Definitions.
960.603   General requirements.
960.605   How PHA administers service requirements.
960.607   Assuring resident compliance.
960.609   Prohibition against replacement of PHA employees.

Subpart F--When Resident Must Perform Community Service Activities 
or Self-Sufficiency Work Activities


Sec. 960.600  Implementation.

    PHAs and residents must comply with the requirements of this 
subpart beginning with PHA fiscal years that commence on or after 
October 1, 2000. Unless otherwise provided by Sec. 903.11 of this 
chapter, Annual Plans submitted for those fiscal years are required to 
contain information regarding the PHA's compliance with the community 
service requirement, as described in Sec. 903.7 of this chapter.


Sec. 960.601  Definitions.

    (a) Definitions found elsewhere.
    (1) General definitions. The following terms are defined in part 5, 
subpart A of this title: public housing, public housing agency (PHA).
    (2) Definitions concerning income and rent. The following terms are 
defined in part 5, subpart F of this title: economic self-sufficiency 
program, work activities.
    (b) Other definitions. In addition to the definitions in paragraph 
(a) of this section, the following definitions apply:
    Community service. The performance of voluntary work or duties that 
are a public benefit, and that serve to improve the quality of life, 
enhance resident self-sufficiency, or increase resident self-
responsibility in the community. Community service is not employment 
and may not include political activities.
    Exempt individual. An adult who:
    (1) Is 62 years or older;
    (2)(i) Is a blind or disabled individual, as defined under 
216(i)(1) or 1614 of the Social Security Act (42 U.S.C. 416(i)(1); 
1382c), and who certifies that because of this disability she or he is 
unable to comply with the service provisions of this subpart, or
    (ii) Is a primary caretaker of such individual;
    (3) Is engaged in work activities;
    (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 a member of a family receiving assistance, benefits or 
services 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

[[Page 16730]]

the PHA 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.
    Service requirement. The obligation of each adult resident, other 
than an exempt individual, to perform community service or participate 
in an economic-self sufficiency program required in accordance with 
Sec. 960.603.


Sec. 960.603  General requirements.

    (a) Service requirement. Except for any family member who is an 
exempt individual, each adult resident of public housing must:
    (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; or
    (3) Perform 8 hours per month of combined activities as described 
in paragraphs (a)(1) and (a)(2) of this section.
    (b) Family violation of service requirement. The lease shall 
specify that it shall be renewed automatically for all purposes, unless 
the family fails to comply with the service requirement. Violation of 
the service requirement is grounds for nonrenewal of the lease at the 
end of the twelve month lease term, but not for termination of tenancy 
during the course of the twelve month lease term (see 
Sec. 966.4(l)(2)(i) of this chapter).


Sec. 960.605  How PHA administers service requirements.

    (a) PHA policy. Each PHA must develop a local policy for 
administration of the community service and economic self-sufficiency 
requirements for public housing residents.
    (b) Administration of qualifying community service or self-
sufficiency activities for residents. The PHA may administer qualifying 
community service or economic self-sufficiency activities directly, or 
may make such activities available through a contractor, or through 
partnerships with qualified organizations, including resident 
organizations, and community agencies or institutions.
    (c) PHA responsibilities. (1) The PHA policy must describe how the 
PHA determines which family members are subject to or exempt from the 
service requirement, and the process for determining any changes to 
exempt or non-exempt status of family members.
    (2) The PHA must give the family a written description of the 
service requirement, and of the process for claiming status as an 
exempt person and for PHA verification of such status. The PHA must 
also notify the family of its determination identifying the family 
members who are subject to the service requirement, and the family 
members who are exempt persons.
    (3) The PHA must review family compliance with service 
requirements, and must verify such compliance annually at least thirty 
days before the end of the twelve month lease term. If qualifying 
activities are administered by an organization other than the PHA, the 
PHA shall obtain verification of family compliance from such third 
parties.
    (4) The PHA must retain reasonable documentation of service 
requirement performance or exemption in participant files.
    (5) The PHA must comply with non-discrimination and equal 
opportunity requirements listed at Sec. 5.105(a) of this title.


Sec. 960.607  Assuring resident compliance.

    (a) Third-party certification. If qualifying activities are 
administered by an organization other than the PHA, a family member who 
is required to fulfill a service requirement must provide signed 
certification to the PHA by such other organization that the family 
member has performed such qualifying activities.
    (b) PHA notice of noncompliance. (1) If the PHA determines that 
there is a family member who is required to fulfill a service 
requirement, but who has violated this family obligation (noncompliant 
resident), the PHA must notify the tenant of this determination.
    (2) The PHA notice to the tenant must:
    (i) Briefly describe the noncompliance;
    (ii) State that the PHA will not renew the lease at the end of the 
twelve month lease term unless:
    (A) The tenant, and any other noncompliant resident, enter into a 
written agreement with the PHA, in the form and manner required by the 
PHA, to cure such noncompliance, and in fact cure such noncompliance in 
accordance with such agreement; or
    (B) The family provides written assurance satisfactory to the PHA 
that the tenant or other noncompliant resident no longer resides in the 
unit.
    (iii) State that the tenant may request a grievance hearing on the 
PHA determination, in accordance with part 966, subpart B of this 
chapter, and that the tenant may exercise any available judicial remedy 
to seek timely redress for the PHA's nonrenewal of the lease because of 
such determination.
    (c) Tenant agreement to comply with service requirement. If the 
tenant or another family member has violated the service requirement, 
the PHA may not renew the lease upon expiration of the term unless:
    (1) The tenant, and any other noncompliant resident, enter into a 
written agreement with the PHA, in the form and manner required by the 
PHA, to cure such noncompliance by completing the additional hours of 
community service or economic self-sufficiency activity needed to make 
up the total number of hours required over the twelve-month term of the 
new lease, and
    (2) All other members of the family who are subject to the service 
requirement are currently complying with the service requirement or are 
no longer residing in the unit.


Sec. 960.609  Prohibition against replacement of PHA employees.

    In implementing the service requirement under this subpart, the PHA 
may not substitute community service or self-sufficiency activities 
performed by residents for work ordinarily performed by PHA employees, 
or replace a job at any location where residents perform activities to 
satisfy the service requirement.

PART 966--LEASE AND GRIEVANCE PROCEDURES

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

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

    81. Amend Sec. 966.4 as follows:
    a. Revise paragraph (a) to read as set forth below;
    b. Revise paragraph (b)(1) to read as set forth below;
    c. Add new headings for paragraphs (b)(2) to (b)(5) as set forth 
below;
    d. Revise paragraph (l)(1) and paragraph (l)(2)(i) to read as set 
forth below;
    e. Add paragraphs (l)(2)(iii) and (l)(2)(iv) to read as set forth 
below;
    f. Remove paragraph (o) and paragraph (p).


Sec. 966.4  Lease requirements.

* * * * *
    (a) Parties, dwelling unit and term. (1) The lease shall state:
    (i) The names of the PHA and the tenant;
    (ii) The unit rented (address, apartment number, and any other 
information needed to identify the dwelling unit);

[[Page 16731]]

    (iii) The term of the lease (lease term and renewal in accordance 
with paragraph (a)(2) of this section);
    (iv) A statement of what utilities, services and equipment are to 
be supplied by the PHA without additional cost, and what utilities and 
appliances are to be paid for by the tenant;
    (v) The composition of the household as approved by the PHA (family 
members and any PHA-approved live-in-aide). The family must promptly 
inform the PHA of the birth, adoption or court-awarded custody of a 
child. The family must request PHA approval to add any other family 
member as an occupant of the unit.
    (2) Lease term and renewal. (i) The lease shall have a twelve month 
term. Except as provided in paragraph (a)(2)(ii) of this section, the 
lease term must be automatically renewed for the same period.
    (ii) The PHA may not renew the lease if the family has violated the 
requirement for resident performance of community service or 
participation in an economic self-sufficiency program in accordance 
with part 960, subpart F of this chapter.
    (iii) At any time, the PHA may terminate the tenancy in accordance 
with Sec. 966.4(l).
    (3) Execution and modification. The lease must be executed by the 
tenant and the PHA, except for automatic renewals of a lease. The lease 
may modified at any time by written agreement of the tenant and the 
PHA.
    (b) Payments due under the lease. (1) Tenant rent. (i) The tenant 
shall pay the amount of the monthly tenant rent determined by the PHA 
in accordance with HUD regulations and other requirements. The amount 
of the tenant rent is subject to change in accordance with HUD 
requirements.
    (ii) The lease shall specify the initial amount of the tenant rent 
at the beginning of the initial lease term. The PHA shall give the 
tenant written notice stating any change in the amount of tenant rent, 
and when the change is effective.
    (2) PHA charges. * * *
    (3) Late payment penalties. * * *
    (4) When charges are due. * * *
    (5) Security deposits. * * *
* * * * *
    (l) Termination of tenancy and eviction.
    (1) Procedures. The lease shall state the procedures to be followed 
by the PHA and by the tenant to terminate the tenancy.
    (2) Grounds for termination of tenancy. (i) The PHA may terminate 
the tenancy only for serious or repeated violation of material terms of 
the lease, such as failure to make payments due under the lease or to 
fulfill tenant obligations, as described in paragraph (f) of this 
section, or for other good cause (including failure to accept the PHA's 
offer of a lease revision in accordance with paragraph (l)(2)(iv) of 
this section).
* * * * *
    (iii) Failure of a family member to comply with service requirement 
provisions of part 960, subpart F of this chapter, is grounds only for 
non-renewal of the lease and termination of tenancy at the end of the 
twelve month lease term.
    (iv) The PHA may terminate the tenancy if the family fails to 
accept the PHA's offer of a revision to an existing lease. Such 
revision must be on a form adopted by the PHA in accordance with 
Sec. 966.3. The PHA must give the family written notice of the offer of 
a revision at least 60 calendar days before it is scheduled to take 
effect. The offer must specify a reasonable time limit within that 
period for acceptance by the family.
* * * * *

    82. 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)) 
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. 5.630 of this title (financial hardship exemption from 
minimum rent requirements) or Sec. 5.615 of this title (effect of 
welfare benefits reduction in calculation of family income). 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

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

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

    84. Throughout part 984, remove the terms ``an HA'' and ``HA'' and 
add in their place the terms ``a PHA'' and ``PHA''.

    85. Amend Sec. 984.101 as follows:
    a. In paragraph (a)(1), remove the phrase ``and Indian''; and
    b. Revise paragraphs (b)(3) and (c) to read as set forth below:


Sec. 984.101  Purpose, scope, and applicability.

* * * * *
    (b) * * *
    (3) Unless the PHA receives an exemption under Sec. 984.105:
    (i) Each PHA for which HUD reserved funding (budget authority) for 
additional rental certificates or rental vouchers in FY 1993 through 
October 20, 1998 must operate a Section 8 FSS program.
    (ii) Each PHA for which HUD reserved funding (budget authority) to 
acquire or construct additional public housing units in FY 1993 through 
October 20, 1998 must operate a public housing FSS program.
    (c) Applicability. This part applies to:
    (1) The public housing program, and
    (2) The Section 8 certificate and voucher programs.


Sec. 984.102  [Amended]

    86. Amend Sec. 984.102 by removing the phrase ``or Indian housing 
assistance''.

    87. Amend Sec. 984.103 as follows:
    a. Revise paragraph (a) as set forth below;
    b. In paragraph (b), remove the parenthetical phrase from the 
definition of ``Earned income'';
    b. Remove the definition of ``HA'' from paragraph (b); and
    c. Revise the definitions of ``Low-income family'' and ``welfare 
assistance'' in paragraph (b) to read as follows:


Sec. 984.103  Definitions.

    (a) The terms 1937 Act, Fair Market Rent, HUD, Public Housing, 
Public Housing Agency (PHA), Secretary, and Section 8, as used in this 
part, are defined in part 5 of this title.
    (b) * * *
    Low-income family. As defined in part 5 of this title.
* * * * *
    Welfare assistance means (for purposes of the FSS program only)

[[Page 16732]]

income assistance from Federal or State welfare programs, and includes 
only cash maintenance payments designed to meet a family's ongoing 
basic needs. Welfare assistance does not include:
    (1) Nonrecurrent, short-term benefits that:
    (i) Are designed to deal with a specific crisis situation or 
episode of need;
    (ii) Are not intended to meet recurrent or ongoing needs; and
    (iii) Will not extend beyond four months.
    (2) Work subsidies (i.e., payments to employers or third parties to 
help cover the costs of employee wages, benefits, supervision, and 
training);
    (3) Supportive services such as child care and transportation 
provided to families who are employed;
    (4) Refundable earned income tax credits;
    (5) Contributions to, and distributions from, Individual 
Development Accounts under TANF;
    (6) Services such as counseling, case management, peer support, 
child care information and referral, transitional services, job 
retention, job advancement and other employment-related services that 
do not provide basic income support;
    (7) Transportation benefits provided under a Job Access or Reverse 
Commute project, pursuant to section 404(k) of the Social Security Act, 
to an individual who is not otherwise receiving assistance;
    (8) Amounts solely directed to meeting housing expenses;
    (9) Amounts for health care;
    (10) Food stamps and emergency rental and utilities assistance; and
    (11) SSI, SSDI, or Social Security.

    88. Amend Sec. 984.105 as follows:
    a. Revise paragraphs (a) and (b) to read as set forth below;
    b. Redesignate paragraph (e) as paragraph (f); and
    c. Add a new paragraph (e), to read as set forth below.


Sec. 984.105  Minimum program size.

    (a) FSS program size. (1) Minimum program size requirement. A PHA 
must operate an FSS program of the minimum program size determined in 
accordance with paragraph (b) of this section.
    (2) Exception or reduction of minimum program size. Paragraph (c) 
of this section states when HUD may grant an exception to the minimum 
program size requirement, and paragraph (d) states when the minimum 
program size may be reduced.
    (3) Option to operate larger FSS program. A PHA may choose to 
operate an FSS program of a larger size than the minimum.
    (b) How to determine FSS minimum program size. (1) Public housing. 
The minimum size of a PHA's public housing FSS program is equal to the 
number of public housing units specified below:
    (i) The total number of public housing units reserved in FY 1993 
through October 20, 1998; plus
    (ii) The number of public housing units reserved in FY 1991 and FY 
1992 under the FSS incentive award competitions; minus
    (iii) The number of families that have graduated from the PHA's 
public housing FSS program on or after October 21, 1998, by fulfilling 
their FSS contract of participation obligations.
    (2) Section 8. The minimum size of a PHA's Section 8 FSS program is 
equal to the number of Section 8 certificate and voucher program units 
as calculated below:
    (i) Units included. (A) The number of rental certificates and 
rental voucher units reserved under the combined FY 1991/1992 FSS 
incentive award competition; plus
    (B) The number of additional rental certificates and rental voucher 
units reserved in FY 1993 through October 20, 1998 (not including the 
renewal of funding for units previously reserved), minus such units 
that are excluded from minimum program size in accordance with 
paragraph (b)(2)(ii) of this section; minus
    (C) The number of families who have graduated from the PHA's 
Section 8 FSS program on or after October 21, 1998, by fulfilling their 
contract of participation obligations.
    (ii) Units excluded. When determining a PHA's minimum Section 8 FSS 
program size, funding reserved in FY 1993 through October 20, 1998 for 
the following program categories is excluded (except as provided in 
paragraph (b)(2)(ii)(B) of this section):
    (A) Funding for families affected by termination, expiration or 
owner opt-out under Section 8 project-based programs;
    (B) Funding for families affected by demolition or disposition of a 
public housing project or replacement of a public housing project;
    (C) Funding for families affected by conversion of assistance from 
the Section 23 leased housing or housing assistance payments programs 
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.
    (3) Maintaining minimum program size. The minimum program size for 
a PHA's public housing or Section 8 FSS program is reduced by one slot 
for each family that graduates from the FSS program by fulfilling its 
FSS contract of participation on or after October 21, 1998. If an FSS 
slot is vacated by a family that has not completed its FSS contract of 
participation obligations, the slot must be filled by a replacement 
family which has been selected in accordance with the FSS family 
selection procedures set forth in Sec. 984.203.
* * * * *
    (e) Expiration of exception. A full or partial exception to the FSS 
minimum program size requirement (approved by HUD in accordance with 
paragraph (c) or (d) of this section) expires three years from the date 
of HUD approval of the exception. 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.
* * * * *

    89. 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 receive 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

[[Page 16733]]

requires other changes. The PHA must submit any changes to the Action 
Plan to HUD for approval.
* * * * *

    90. Amend Sec. 984.301(a) as follows:
    a. Redesignate paragraphs (a)(1), (a)(2), and (a)(3), as paragraphs 
(a)(2)(i), (a)(2)(ii), and (a)(2)(iii);
    b. Add a new paragraph (a)(1) to read as set forth below; and
    c. Add a new heading for 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.
* * * * *


Sec. 984.302  Administrative fees.

    91. Amend Sec. 984.302(a) by removing the phrase ``the minimum 
program size of''.

    92. 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 the initial PHA jurisdiction under portability (in 
accordance with Sec. 982.353 of this chapter) 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 initial 
PHA jurisdiction under portability procedures (in accordance with 
Sec. 982.353 of this chapter).
* * * * *

PART 985--SECTION 8 MANAGEMENT ASSESSMENT PROGRAM (SEMAP)

    93. The authority citation for part 985 continues to read as 
follows:

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


    94. Revise the second sentence of paragraph (o)(2) to read as 
follows:


Sec. 985.3  Indicators, HUD verification methods and ratings. * * *

* * * * *
    (o) * * *
    (2) * * * This number is divided by the number of mandatory FSS 
slots, as determined under Sec. 984.105 of this chapter.
* * * * *

    Dated: March 14, 2000.
Andrew Cuomo,
Secretary.
[FR Doc. 00-6898 Filed 3-28-00; 8:45 am]
BILLING CODE 4210-32-P