[Federal Register Volume 65, Number 191 (Monday, October 2, 2000)]
[Rules and Regulations]
[Pages 58870-58875]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-24922]



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Part III





Department of Housing and Urban Development





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24 CFR Parts 888, 982, and 895



Fair Market Rents: Increased Fair Market Rents and Higher Payment 
Standards for Certain Areas; Interim Rule

  Federal Register / Vol. 65, No. 191 / Monday, October 2, 2000 / Rules 
and Regulations  

[[Page 58870]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 888, 982, 985

[Docket No. FR 4606-I-01]
RIN 2501-AC75


Fair Market Rents: Increased Fair Market Rents and Higher Payment 
Standards for Certain Areas

AGENCY: Office of the Secretary, HUD.

ACTION: Interim rule.

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SUMMARY: This interim rule implements HUD's new fair market rent (FMR) 
policy. The new FMR policy targets relief to areas where higher FMRs 
are needed to help families, assisted under HUD's Housing Choice 
Voucher Program as well as other HUD programs, find and lease decent 
and affordable housing. With respect to the Housing Choice Voucher 
Program, the policy provides that where necessary to ensure the 
effective operation of this program, PHAs will be allowed to set their 
payment standards based on the 50th percentile rent rather than the 
published 40th percentile FMR. This aspect of the policy is designed to 
ensure that families with housing vouchers have access to at least half 
of all available units in those areas. In addition, the new FMR policy 
increases FMRs to the 50th percentile in those metropolitan areas where 
an FMR increase is most needed to promote residential choice, help 
families move closer to areas of job growth, and deconcentrate poverty. 
Where it is determined that an FMR increase is needed in a metropolitan 
area, the increased FMR applies to all the HUD programs that use FMRs 
in that metropolitan area.

DATES: Effective Date: December 1, 2000. Comment Due Date: November 16, 
2000.

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

FOR FURTHER INFORMATION CONTACT: Gerald J. Benoit, Director, Real 
Estate and Housing Performance Division, Office of Public and Assisted 
Housing Delivery, Office of Public and Indian Housing, Department of 
Housing and Urban Development, Room 4210, 451 Seventh Street, SW., 
Washington, DC 20410-8000, telephone number (202) 708-0477; or Lynn A. 
Rodgers, Economic and Market Analysis Division, Office of Economic 
Affairs, Office of Policy Development and Research, Department of 
Housing and Urban Development, Room 8224, 451 Seventh Street, SW., 
Washington, DC 20410-8000, telephone number (202) 708-0590. Persons 
with hearing or speech impairments may access this number via TTY by 
calling the toll-free Federal Information Relay Service at 1-800-877-
8339. (Other than the ``800'' TTY number, telephone numbers are not 
toll free.)

SUPPLEMENTARY INFORMATION:

I. HUD's New FMR Policy

    HUD's new FMR policy, being implemented through this interim rule, 
is designed to achieve two fundamental program objectives: (1) Ensuring 
that low-income families are successful in finding and leasing decent 
and affordable housing; and (2) ensuring that low-income families have 
access to a broad range of housing opportunities throughout a 
metropolitan area. To achieve the first objective, the policy provides 
that for the Housing Choice Voucher program, PHAs will be allowed to 
set their payment standards based on the 50th percentile rent rather 
than the published 40th percentile FMR in areas where families are 
having difficulty using housing vouchers to find and lease decent and 
affordable housing. To achieve the second objective, FMRs will be 
increased to the 50th percentile in those metropolitan areas where a 
FMR increase is most needed to promote residential choice, help 
families move closer to areas of job growth, and deconcentrate poverty. 
Where it is determined that a FMR increase is needed in a metropolitan 
area, the increased FMR applies to all the HUD programs that use FMRs 
in that area.
    Section II of this preamble which immediately follows further 
discusses how HUD intends to achieve these two objectives through its 
new FMR policy.

II. Increasing the Proportion of Voucher-Holders That Find Housing 
and Expanding Housing Opportunities Throughout the Metropolitan 
Area

    Ensuring that voucher-holders are successful in finding decent 
affordable housing. In many areas, HUD's current FMRs based on the 40th 
percentile rent are adequate to allow low-income families with housing 
vouchers to find and lease decent and affordable housing. In some 
areas, however, these FMRs are inadequate to enable these families to 
lease decent and affordable units. HUD's new FMR policy authorizes PHAs 
to use voucher payment standards based on a 50th percentile rent 
(rather than the published 40th percentile FMR) where fewer than three-
fourths of the families issued vouchers succeed in using them to find 
and lease housing.
    Unlike HUD's former certificate program, in which maximum subsidy 
levels were governed by the FMR, maximum subsidies under the new 
Housing Choice Voucher program are governed by a ``payment standard.'' 
Rather than being required to set subsidy levels at the FMR that 
applies to the entire FMR area--which may be too low or too high for 
the particular communities they serve--PHAs have discretion, without 
requesting HUD approval, to set voucher payment standard amounts 
anywhere between 90 and 110 percent of the published FMR for each unit 
size. PHAs also may set different payment standard amounts within this 
range for designated parts of the FMR area. This gives PHAs substantial 
flexibility to adapt the voucher program to local market conditions.
    Most PHAs can run a successful voucher program within this normal 
90 to 110 percent range of the current published 40th percentile FMR. 
In some cases, however, even the maximum 110 percent of the FMR is too 
low to enable families to find suitable housing with a voucher. The new 
policy addresses this problem by providing that where a PHA has 
increased its voucher payment standard to 110 percent of the FMR, but 
still finds that fewer than 75 percent of all families issued rental 
vouchers over the course of six months have become participants in the 
voucher program, the PHA will be eligible to set its payment standard 
based on a 50th percentile rent (rather than the published 40th 
percentile FMR).
    PHAs that qualify for the higher payment standard amounts will 
still retain the flexibility to vary their payment standard amounts. 
The range of payment standards available to them will simply be 90 to 
110 percent of a 50th percentile rent (rather than 90 to 110 percent of 
a published 40th percentile FMR).
    This policy which is directed to achieving higher success rates 
among voucher-holders in finding decent and affordable housing is 
implemented in Sec. 982.503(e).
    Ensuring that low-income families have access to a broad range of 
housing opportunities throughout the metropolitan area. Another 
objective of the new policy is to ensure that low-income families are 
free to move to

[[Page 58871]]

neighborhoods of their choice throughout the metropolitan area--to have 
access to a broad range of housing opportunities. Families should not 
be restricted by low subsidy levels to a narrow range of neighborhoods, 
and in particular should not be restricted to areas of high poverty 
concentration. Moreover, to promote welfare-to-work objectives, 
families with tenant-based rental assistance should have access to 
housing in areas of job growth or with good transportation access to 
job centers.
    To advance this objective, the new policy provides that HUD will 
increase FMRs to the 50th percentile in metropolitan areas where there 
is both: concentration among voucher-holders and evidence suggesting 
that this problem may be due to the distribution of affordable rental 
units in the area. This two-part test ensures that scarce resources are 
properly targeted on the areas most in need of assistance. As a first 
step in identifying the areas in need of assistance, there obviously 
needs to be evidence of concentration among low-income families. 
Because this concentration may be due to low FMRs or to other factors 
that are unrelated to FMRs, such as family choice, HUD has added a 
second test to identify those areas where affordable rental housing is 
not well-distributed throughout the metropolitan area.
    Specifically, HUD will increase FMRs to the 50th percentile for 
metropolitan areas that HUD determines meet the following criteria at 
the time of annual publication of the FMRs:
     The FMR area contains at least 100 census tracts;
     70 percent or fewer of the census tracts with at least 10 
two bedroom rental units are census tracts in which at least 30 percent 
of the two bedroom rental units have gross rents at or below the two 
bedroom FMR set at the 40th percentile rent; and
     25 percent or more of the tenant-based rental program 
participants in the FMR area reside in the five percent of the census 
tracts within the FMR area that have the largest number of program 
participants.
    For the purposes of this analysis, census tracts have been 
identified as ``accessible'' to voucher-holders where at least 30 
percent of the two-bedroom rental units in the tract fell below the 
40th percentile FMR in the last decennial census.
    Because mobility is an issue primarily for large metropolitan 
areas, this aspect of the new FMR policy provides for FMR increases 
only in metropolitan areas with more than 100 census tracts.
    A PHA with jurisdiction in an area with a published FMR at the 50th 
percentile rent to provide a broad range of housing opportunities may 
choose to establish its payment standards between 90 and 110 percent of 
the 50th percentile FMR in accordance with Sec. 982.503(b)(1)(i). 
However, in the event a PHA determines that its jurisdiction does not 
require higher payment standards based on the 50th percentile the PHA 
may request HUD approval to keep or establish payment standards below 
90 percent of the 50th percentile FMR in accordance with 
Sec. 982.503(b)(2).
    This aspect of the new FMR policy which is directed at ensuring a 
broad range of housing opportunities for section 8 voucher holders is 
being implemented in Sec. 888.113(c).
    As provided in this rule, there may be circumstances in which PHAs 
that had been authorized to use FMRs set at the 50th percentile rent 
may be required to use FMRs set at the 40th percentile rent. This would 
occur if the FMR were set at the 50th percentile rent to provide a 
broad range of housing opportunities throughout a metropolitan area for 
three years, but the concentration of voucher holders in the 
metropolitan area did not lessen and the PHA issuing the voucher did 
not meet minimum deconcentration objectives. HUD's existing regulations 
in 24 CFR part 982 provide that a family is not subject to a subsidy 
reduction because of a reduction in the payment standard until the 
second regular reexamination of family income and composition following 
such a payment standard reduction. After this protection period of 13 
to 24 months, depending on the timing of recertifications for a family, 
the family would no longer be protected from the reduction in federal 
subsidy and thus would have to pay a greater share of rent or move. 
This rule would provide the same level of protection for families who 
live in an area where PHAs are no longer authorized to use the 50th 
percentile FMR.

III. PHA Performance Measurement

    HUD is committed to ensuring that its funding to PHAs is spent in 
an efficient manner that achieves the desired programmatic outcomes. 
HUD believes that PHAs that adopt payment standard amounts based on the 
50th percentile rent to increase success rates of families leasing 
housing must be held accountable for results through the use of new 
performance measurements. Accordingly, the interim rule amends HUD's 
Section 8 Management Assessment Program (SEMAP) regulations in 24 CFR 
985.3(p) to provide how the PHA's actions to increase success rates may 
be measured.
    To similar effect, PHAs that choose to utilize the higher FMRs 
awarded to promote mobility and deconcentration (as indicated by the 
adoption of payment standards in excess of the new 50th percentile FMR) 
will be measured under SEMAP to determine their progress in achieving 
deconcentration.
    To allow time for the full effects of the higher FMRs or payment 
standards to be felt, the new SEMAP measures will not apply during the 
first year in which the 50th percentile rent is utilized.

IV. This Interim Rule and Related Initiatives

    HUD believes that implementation of the new FMR policy through this 
interim rule (as described above and reflected in the regulatory text 
that follows) will increase the effectiveness of HUD's programs in 
assisting families find and lease decent and affordable housing, and 
increase the pool of housing units available for rent by voucher 
holders. HUD recognizes, however, that increasing FMRs and allowing 
PHAs to adopt a higher payment standard may not be sufficient to 
achieve the results HUD is seeking through this new policy. HUD 
recognizes that PHAs must also promote and assist the families they 
serve by providing better housing search assistance. HUD will promote 
PHA efforts and initiatives to enhance the level and scope of housing 
search assistance provided and increase the availability of information 
that explains how the voucher program works.

V. Specific Issues for Comment

    HUD seeks comments on its new FMR policy and the implementation of 
this policy as provided in this interim rule. HUD specifically seeks 
comment on the following issues:
    1. HUD solicits comment on whether the higher FMRs adopted to 
ensure that low-income families have access to a broad range of housing 
opportunities throughout the metropolitan area should apply to all HUD 
programs that use FMRs or just to the Housing Choice Voucher program. 
Currently, HUD publishes a single FMR for each bedroom size in each FMR 
area. If the higher FMRs were applied only to the Housing Choice 
Voucher program, and the current FMRs were applied to other HUD 
programs, HUD would be required to publish two different sets of FMRs 
for the same FMR area which could cause confusion. On the other hand, 
utilizing the higher FMRs in connection with other HUD programs would 
have cost and policy implications.

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    Among other purposes, the FMRs published by HUD are used (1) to 
establish payment standards for the Housing Choice Voucher program; (2) 
to determine initial contract rents in new commitments for Section 8 
project-based assistance (e.g., the project-based voucher program); (3) 
to determine whether comparability applies to adjustment of contract 
rents during the term of an existing Housing Assistance Payments 
contract in the Section 8 new construction, substantial rehabilitation 
and moderate rehabilitation programs; (4) as a limit on renewal rents 
for certain Section 8 projects; and (5) to determine eligibility for 
mark-up-to-market and the maximum rent that may be granted for that 
program. FMRs are also used to determine subsidy levels in the HOME 
tenant-based rental assistance program and maximum rent levels in 
multifamily rental housing developed with HOME funds. HUD welcomes 
comments that assess the costs and benefits of utilizing the higher 
FMRs in connection with HUD programs other than the Section 8 Housing 
Choice Voucher Program.
    2. HUD invites proposals on how best to allow State, regional, and 
multi-jurisdictional PHAs to justify and implement the success-rate 
payment standard, including whether multi-jurisdictional PHAs should be 
able to request success rate payment standards for only one or more 
jurisdictions, and if so, what data should be required to justify such 
a request and measure performance.
    3. HUD also solicits comments on the SEMAP requirements that will 
apply to PHAs that take advantage of the 50th percentile rent under the 
terms of this rule. Although the SEMAP rule changes will take effect on 
the published effective date, the new SEMAP standards will not be 
implemented for rating purposes until the second PHA fiscal year 
following implementation of higher payment standards based on the 50th 
percentile FMR. The final rule, responding to any comments received on 
the rule, will be published for effect before any ratings are assigned 
for the new SEMAP standards.

VI. Publication of FMRs

    Section 8(c) of the U.S. Housing Act of 1937 (1937 Act) requires 
the Secretary of HUD to publish FMRs periodically, but not less 
frequently than annually. HUD's regulations reflect this statutorily 
required process. Section 888.115 provides that HUD will publish FMRs 
at least annually. Both section 8(c) of the 1937 Act and Sec. 888.115 
also provide that HUD first publish proposed FMRs and provide a comment 
period for the proposed FMRs of at least 30 days. For the areas that 
meet the three criteria described earlier in this preamble, HUD will be 
publishing at a later date the proposed FMRs at the 50th percentile for 
comment.

VII. Justification for Interim Rulemaking

    In general, HUD publishes a rule for public comment before issuing 
a rule for effect, in accordance with its own regulations on rulemaking 
at 24 CFR part 10. Part 10, however, provides for exceptions from that 
general rule where HUD finds good cause to omit advance notice and 
public participation. The good cause requirement is satisfied when the 
prior public procedure is ``impracticable, unnecessary, or contrary to 
the public interest'' (24 CFR 10.1). HUD finds that good cause exists 
to publish this rule for effect without a delay in effectiveness that 
would result from first soliciting public comment, in that such a delay 
in the implementation of this rule would be contrary to the public 
interest.
    With the recent merger of HUD's tenant-based certificate and 
voucher programs into a new Housing Choice Voucher program, HUD has 
made significant strides in increasing housing choice for voucher 
holder families. However, even with HUD's own investment in expanding 
the supply of affordable housing and a booming economy, there are a 
record number of families with worst case housing needs. The nation's 
strong economy is actually pushing up rents, and as the economy has 
grown stronger, it has become more difficult in some markets for 
voucher holders to find affordable housing. In many communities, 
Housing Choice vouchers holders are literally being priced out of the 
market, and some recipients are being forced to return their vouchers 
because they cannot find suitable housing that qualifies under HUD's 
existing FMR policy. Families have a minimum of 60 days in which to 
locate suitable housing; PHAs have the discretion to extend this search 
time.
    Over the last several months, PHAs, low-income families, and State 
and local officials have contacted HUD about the increasing shortage of 
available affordable housing in certain metropolitan areas and their 
increasing concern about the growing number of voucher holders who are 
unsuccessful in finding and leasing affordable housing. Those involved 
in and affected by this housing issue acknowledge that HUD has done 
much to increase housing choice, but have requested that HUD take 
action to increase the pool of rental housing options affordable to 
families with vouchers, and thereby make housing choice a real 
opportunity for all voucher holders. These constituents advise that 
HUD's Fair Market Rents are unrealistically low in certain rental 
markets, and that HUD's FMRs must be raised to reflect the changing 
market conditions and assist voucher holder.
    Issuance and implementation of this rule, which puts in place the 
new FMR policy described in this preamble, responds to these concerns. 
The new FMR policy will significantly increase the pool of housing 
affordable to voucher holders in difficult rental markets. While HUD's 
new FMR policy does not adopt all measures requested by HUD 
constituents to address housing availability problems and concentration 
of poverty, the rule is a significant step forward in resolving these 
concerns. The new FMR policy, when implemented, will offer relief to 
those areas where market conditions are contributing to difficulties 
that voucher holders experience in successfully using Housing Choice 
vouchers.
    Delaying the effectiveness of this rule to first solicit prior 
public comment would only contribute to the significant housing 
problems already documented and experienced in these areas. As noted, 
HUD has heard from the public on this issue and their comments have 
been that FMRs need to be raised as soon as possible to a level that 
will provide relief in tight markets.
    For the reasons stated above, HUD believes that good cause exists 
to publish this rule for effect without prior public comment. HUD also 
recognizes, however, the value of public comment in the development of 
its regulations. HUD has, therefore, issued this rule on an interim 
basis and has provided the public with a 45-day comment period. HUD 
welcomes comment on the regulatory amendments made by this interim 
rule. The public comments will be addressed in the final rule.

VIII. Findings and Certifications

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
as required by the National Environmental Policy Act (42 U.S.C. 4321-
4374) is unnecessary, since the Housing Choice Voucher Program is 
categorically excluded from the Department's National Environmental 
Policy Act procedures under 24 CFR 50.19(c)(d).

Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, Regulatory Planning and Review. OMB determined

[[Page 58873]]

that this rule is an ``economically significant regulatory action'' 
under section 3(f) of the Order because this rule when fully 
implemented will have an annual effect on the economy of $100 million 
or more. In accordance with the Executive Order and OMB's 
determination, HUD has prepared an economic analysis for this rule.
    HUD's economic analysis estimates the increased level of transfers 
that would result from implementation of the interim rule. The economic 
analysis measures transfers because in economic terms, HUD's tenant-
based program provide transfers from the general population to program 
participants, transfers that enable the program participants to enjoy 
better housing and have more income left over after rent for other 
needs. Changes in the regulations governing these transfers do not 
generate costs or benefits in economic terms and, therefore, the 
economic analysis does not involve a comparison of costs and benefits. 
The actual increase in transfers in the year with highest increase 
(year 5 of the five years studied) is $174 million. This is 1.8 percent 
of total program transfers that year. The economic analysis assumes the 
new FMR policy provided by this rule would be implemented in Fiscal 
Year 2001. The economic analysis for this rule, which presents HUD's 
detailed analysis, 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.
    Additionally, any changes made to this rule as a result of review 
under Executive Order 12866 are identified in the docket file for this 
rule, which is also available for public inspection in the Office of 
the Rules Docket Clerk.

Congressional Review of Major Final Rules

    This rule is a ``major rule'' as defined in Chapter 8 of 5 U.S.C. 
The rule will be submitted for Congressional review in accordance with 
this chapter at the final rule stage.

Regulatory Flexibility Act

    The Secretary has reviewed this rule before publication and by 
approving it certifies, in accordance with the Regulatory Flexibility 
Act (5 U.S.C. 605(b)), that this rule would not have a significant 
economic impact on a substantial number of small entities because FMRs 
do not change the rent from that which would be charged if the unit 
were not in the program. While HUD has determined that this rule would 
not have a significant economic impact on a substantial number of small 
entities, HUD welcomes any comments regarding alternatives to this rule 
that would meet HUD's objectives, as described in this preamble, and 
would be less burdensome to small entities.

Federalism Impact

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on State and local 
governments and is not required by statute, or the rule preempts State 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive Order. This rule would not have 
federalism implications and would not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive Order.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538), establishes requirements for Federal agencies to assess the 
effects of regulatory actions on State, local, and tribal governments, 
and the private sector. This rule does not impose any Federal mandates 
on any State, local, or tribal governments or the private sector within 
the meaning of Unfunded Mandates Reform Act of 1995.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance program number if 
14.156, Lower-Income Housing Assistance Program (Section 8).

List of Subjects

24 CFR Part 888

    Grant programs--housing and community development, Rent subsidies.

24 CFR Part 982

    Grant program--housing and community development, Rent subsidies.

24 CFR Part 985

    Grant programs--housing and community development, Rent subsidies.


    Accordingly, title 24 of the Code of Federal Regulations is amended 
as follows:

PART 888--SECTION 8 HOUSING ASSISTANCE PAYMENT PROGRAM--FAIR MARKET 
RENTS AND CONTRACT RENT ANNUAL ADJUSTMENT FACTORS

    1. The authority citation for part 888 continues to read as 
follows:

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

    2. In Sec. 888.113, paragraph (a) is revised, paragraphs (b) 
through (e) are redesignated as paragraphs (d) through (g), the heading 
of newly redesignated paragraph (f) is revised, newly redesignated 
paragraph (g) is revised, and new paragraphs (b) and (c) are added to 
read follows:


Sec. 888.113  Fair market rents for existing housing: Methodology.

    (a) Basis for setting fair market rents. Fair Market Rents (FMRs) 
are estimates of rent plus the cost of utilities, except telephone. 
FMRs are housing market-wide estimates of rents that provide 
opportunities to rent standard quality housing throughout the 
geographic area in which rental housing units are in competition. The 
level at which FMRs are set is expressed as a percentile point within 
the rent distribution of standard quality rental housing units in the 
FMR area. FMRs are set at either the 40th or 50th percentile rent--the 
dollar amount below which the rent for 40 or 50 percent of standard 
quality rental housing units falls. The 40th or 50th percentile rent is 
drawn from the distribution of rents of all units that are occupied by 
recent movers. Adjustments are made to exclude public housing units, 
newly built units and substandard units.
    (b) Setting FMRs at the 40th or 50th percentile rent. Generally HUD 
will set the FMRs at the 40th percentile rent. HUD will set FMRs at the 
50th percentile only in accordance with paragraph (c) of this section.
    (c) Setting FMRs at the 50th percentile rent to provide a broad 
range of housing opportunities throughout a metropolitan area. (1) HUD 
will set the FMRs at the 50th percentile rent for all unit sizes in 
each metropolitan FMR area that meets all of the following criteria at 
the time of annual publication of the FMRs:
    (i) The FMR area contains at least 100 census tracts;
    (ii) 70 percent or fewer of the census tracts with at least 10 two 
bedroom rental units are census tracts in which at least 30 percent of 
the two bedroom rental units have gross rents at or below the two 
bedroom FMR set at the 40th percentile rent; and
    (iii) 25 percent or more of the tenant-based rental program 
participants in the

[[Page 58874]]

FMR area reside in the 5 percent of the census tracts within the FMR 
area that have the largest number of program participants.
    (2) If the FMRs are set at the 50th percentile rent in accordance 
with paragraph (c)(1) of this section, HUD will set the FMRs at the 
50th percentile rent for a total of three years.
    (i) At the end of the three-year period, HUD will continue to set 
the FMRs at the 50th percentile rent only so long as the concentration 
measure for the current year is less than the concentration measure at 
the time the FMR area first received an FMR set at the 50th percentile 
rent. HUD will publish FMRs based on the 40th percentile rent for FMR 
areas that do not qualify for continued use of the 50th percentile 
rent.
    (ii) For purposes of this section, the term ``concentration 
measure'' means the percentage of tenant-based rental program 
participants in the FMR area who reside in the 5 percent of the census 
tracts within the FMR area that have the largest number of program 
participants.
    (iii) FMR areas that do not meet the test for continued use of FMRs 
set at the 50th percentile will be ineligible to use FMRs set at the 
50th percentile for a period of three years.
    (iv) A PHA whose jurisdiction includes one or more FMR areas that 
are no longer eligible to use FMRs set at the 50th percentile may be 
eligible for a higher payment standard under Sec. 982.503(f).
* * * * *
    (f) Unit size adjustments. * * *
    (g) Manufactured home space rental. The FMR for a manufactured home 
space rental (for the voucher program under part 982 of this title) is:
    (1) 40 percent of the FMR for a two bedroom unit; or
    (2) When approved by HUD on the basis of survey data submitted in 
public comments, either the 40th or 50th percentile as applicable of 
the rental distribution of manufactured home spaces for the FMR area. 
HUD accepts public comments requesting revision of the proposed 
manufactured home spaces FMRs for areas where space rentals are thought 
to differ from 40 percent of the FMR for a two-bedroom unit. To be 
considered for approval, the comments must contain statistically valid 
survey data that show either the 40th or 50th percentile manufactured 
home space rent (including the cost of utilities for the manufactured 
home) for the FMR area. Once approved, the revised manufactured home 
space FMRs establish new base-year estimates that will be updated 
annually using the same data used to update the FMRs.

PART 982--SECTION 8 TENANT BASED ASSISTANCE: HOUSING CHOICE VOUCHER 
PROGRAM

    3. The authority citation for part 982 continues to read as 
follows:

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

    4. In Sec. 982.503, paragraphs (b)(2), (c)(2) and the introductory 
paragraph of (c)(3)(i) are revised, paragraph (e) is redesignated as 
paragraph (g), and new paragraphs (e) and (f) are added to read as 
follows:


Sec. 982.503  Voucher tenancy: Payment standard amount and schedule.

* * * * *
    (b) * * *
    (2) The PHA must request HUD approval to establish a payment 
standard amount that is higher or lower than the basic range. HUD has 
sole discretion to grant or deny approval of a higher or lower payment 
standard amount. Paragraphs (c) and (e) of this section describe the 
requirements for approval of a higher payment standard amount 
(``exception payment standard amount'').
    (c) HUD approval of exception payment standard amount. * * *
    (2) Above 110 percent of FMR to 120 percent of published FMR. (i) 
The HUD Field Office may approve an exception payment standard amount 
from above 110 percent of the published FMR to 120 percent of the 
published FMR (upper range) if the HUD Field Office determines that 
approval is justified by either the median rent method or the 40th or 
50th percentile rent method as described in paragraph (c)(2)(i)(B) of 
this section (and that such approval is also supported by an 
appropriate program justification in accordance with paragraph (c)(4) 
of this section).
    (A) Median rent method. In the median rent method, HUD determines 
the exception payment standard amount by multiplying the FMR times a 
fraction of which the numerator is the median gross rent of the 
exception area and the denominator is the median gross rent of the 
entire FMR area. In this method, HUD uses median gross rent data from 
the most recent decennial United States census, and the exception area 
may be any geographic entity within the FMR area (or any combination of 
such entities) for which median gross rent data is provided in 
decennial census products.
    (B) 40th or 50th percentile rent method. In this method, HUD 
determines that the area exception payment standard amount equals 
either the 40th or 50th percentile of rents for standard quality rental 
housing in the exception area. HUD determines whether the 40th or 50th 
percentile rent applies in accordance with the methodology described in 
Sec. 888.113 of this title for determining FMRs. A PHA must present 
statistically representative rental housing survey data to justify HUD 
approval.
    (ii) The HUD Field Office may approve an exception payment standard 
amount within the upper range if required as a reasonable accommodation 
for a family that includes a person with disabilities.
    (3) Above 120 percent of published FMR. (i) At the request of a 
PHA, the Assistant Secretary for Public and Indian Housing may approve 
an exception payment standard amount for the total area of a county, 
PHA jurisdiction, or place if the Assistant Secretary determines that:
* * * * *
    (e) HUD approval of success rate payment standard amounts. In order 
to increase the number of voucher holders who become participants, HUD 
may approve requests from PHAs whose FMRs are computed at the 40th 
percentile rent to establish higher, success rate payment standard 
amounts. A success rate payment standard amount is defined as any 
amount between 90 percent and 110 percent of the 50th percentile rent, 
calculated in accordance with the methodology described in Sec. 888.113 
of this title.
    (1) A PHA may obtain HUD Field Office approval of success rate 
payment standard amounts provided the PHA demonstrates to HUD that it 
meets the following criteria:
    (i) Fewer than 75 percent of the families to whom the PHA issued 
rental vouchers during the most recent 6 month period for which there 
is success rate data available have become participants in the voucher 
program;
    (ii) The PHA has established payment standard amounts for all unit 
sizes in the entire PHA jurisdiction within the FMR area at 110 percent 
of the published FMR for at least the 6 month period referenced in 
paragraph (e)(1)(i) of this section and up to the time the request is 
made to HUD; and
    (iii) The PHA has a policy of granting automatic extensions of 
voucher terms to at least 90 days to provide a family who has made 
sustained efforts to locate suitable housing with additional search 
time.
    (2) In determining whether to approve the PHA request to establish 
success rate payment standard amounts, HUD will consider whether the 
PHA has a

[[Page 58875]]

SEMAP overall performance rating of ``troubled''. If a PHA does not yet 
have a SEMAP rating, HUD will consider the PHA's SEMAP certification.
    (3) HUD approval of success rate payment standard amounts shall be 
for all unit sizes in the FMR area. A PHA may opt to establish a 
success rate payment standard amount for one or more unit sizes in all 
or a designated part of the PHA jurisdiction within the FMR area.
    (f) Payment standard protection for PHAs that meet deconcentration 
objectives. Paragraph (f) of this section applies only to a PHA with 
jurisdiction in an FMR area where the FMR had previously been set at 
the 50th percentile rent to provide a broad range of housing 
opportunities throughout a metropolitan area, pursuant to 
Sec. 888.113(c), but is now set at the 40th percentile rent.
    (1) Such a PHA may obtain HUD Field Office approval of a payment 
standard amount based on the 50th percentile rent if the PHA scored the 
maximum number of points on the deconcentration bonus indicator in 
Sec. 985.3(h) in the prior year, or in two of the last three years.
    (2) HUD approval of payment standard amounts based on the 50th 
percentile rent shall be for all unit sizes in the FMR area that had 
previously been set at the 50th percentile rent pursuant to 
Sec. 888.113(c). A PHA may opt to establish a payment standard amount 
based on the 50th percentile rent for one or more unit sizes in all or 
a designated part of the PHA jurisdiction within the FMR area.
* * * * *

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

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

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


    6. Section 985.3 is amended by amending paragraph (h)(1) 
introductory text to add two new sentences to the beginning of the 
paragraph and adding a new paragraph (p) to read as follows:


Sec. 985.3  Indicators, HUD verification methods and ratings.

* * * * *
    (h) Deconcentration bonus. (1) Submission of deconcentration data 
in the HUD-prescribed format for this indicator is mandatory for a PHA 
using one or more payment standard amount(s) that exceed(s) 100 percent 
of the published FMR set at the 50th percentile rent to provide access 
to a broad range of housing opportunities throughout a metropolitan 
area in accordance with Sec. 888.113(c) of this title, starting with 
the second full PHA fiscal year following initial use of payment 
standard amounts based on the FMR set at the 50th percentile rent. 
Submission of deconcentration data for this indicator is optional for 
all other PHAs. * * *
* * * * *
    (p) Success rate of voucher holders. (1) This indicator shows 
whether voucher holders were successful in leasing units with voucher 
assistance. This indicator applies only to PHAs that have received 
approval to establish success rate payment standard amounts in 
accordance with Sec. 982.503(e). This indicator becomes initially 
effective for the second full PHA fiscal year following the date of HUD 
approval of success rate payment standard amounts.
    (2) HUD verification method: MTCS Report.
    (3) Rating (5 points): (i) The proportion of families issued rental 
vouchers during the last PHA fiscal year that have become participants 
in the voucher program is more than the higher of:
    (A) 75 percent; or
    (B) The proportion of families issued rental vouchers that became 
participants in the program during the six month period utilized to 
determine eligibility for success rate payment standards under 
Sec. 982.503(e)(1) plus 5 percentage points; and
    (ii) The percent of units leased during the last PHA fiscal year 
was 95 percent or more, or the percent of allocated budget authority 
expended during the last PHA fiscal year was 95 percent or more 
following the methodology of Sec. 985.3(n).

    Dated: September 12, 2000.
Andrew Cuomo,
Secretary.
[FR Doc. 00-24922 Filed 9-29-00; 8:45 am]
BILLING CODE 4210-32-P