[Federal Register Volume 67, Number 151 (Tuesday, August 6, 2002)]
[Rules and Regulations]
[Pages 51030-51033]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-19751]



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Part III





Department of Housing and Urban Development





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24 CFR Part 903



Public Housing Agency Plans: Deconcentration--Amendments to 
``Established Income Range'' Definition; Final Rule

  Federal Register / Vol. 67, No. 151 / Tuesday, August 6, 2002 / Rules 
and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 903

[Docket No. FR-4677-F-02]
RIN 2577-AC31


Public Housing Agency Plans: Deconcentration--Amendments to 
``Established Income Range'' Definition

AGENCY: Office of the Secretary, HUD.

ACTION: Final rule.

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SUMMARY: This final rule amends the deconcentration component of HUD's 
Public Housing Agency (PHA) Plans regulations and revises the 
definition of Established Income Range (EIR) to include within the EIR 
those developments in which the average income level is at or below 30 
percent of the area median income, and therefore ensure that such 
developments cannot be categorized as having average income ``above'' 
the EIR. An income level that is at or below 30 percent of the area 
median income is defined as ``extremely low income'' in HUD's 
regulations. HUD believes that developments with an average family 
income at or below 30 percent of the area median income should not be 
categorized as higher income developments for purposes of income mixing 
because efforts to place lower income families into these developments 
would not result in income deconcentration as contemplated by the 
statute. This rule follows publication of an August 15, 2001, proposed 
rule, takes into consideration public comment received on the proposed 
rule, and slightly revises the proposed rule for clarity.

DATES: Effective Date: September 5, 2002.

FOR FURTHER INFORMATION CONTACT: Rod Solomon, Deputy Assistant 
Secretary, Office of Policy, Program and Legislative Initiatives, 
Office of Public and Indian Housing, Department of Housing and Urban 
Development, 451 Seventh Street, SW, Room 4116, Washington, DC 20410; 
telephone (202) 708-0713 (this is not a toll-free number). Persons with 
hearing or speech impairments may access that number via TTY by calling 
the Federal Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    On December 22, 2000 (65 FR 81214), HUD amended the deconcentration 
provisions of its Public Housing Agency (PHA) Plan regulations to 
achieve two purposes: (1) to assure that PHAs know what they must do to 
deconcentrate poverty in the public housing program; and (2) to assure 
that PHAs know what they must do to affirmatively further fair housing, 
as it relates to admissions to public housing. The December 22, 2000, 
final rule was preceded by an April 17, 2000, proposed rule, and took 
into consideration public comment received on the proposed rule. By a 
final rule published on February 5, 2001 (66 FR 8897), HUD amended the 
December 22, 2000, final rule to provide that the first PHA fiscal year 
that is covered by the new deconcentration requirements of the December 
2000 final rule is the PHA fiscal year that begins October 1, 2001. 
(The December 22, 2000, final rule provided that the first PHA fiscal 
year that is covered by the new deconcentration requirements is the PHA 
fiscal year that begins July 1, 2001.)
    Following issuance of the December 22, 2000, final rule, HUD 
received additional feedback from PHAs. PHAs advised HUD that in 
determining Established Income Range (EIR) for certain developments, in 
accordance with the procedures of the rule, the EIR for these 
developments is sufficiently low that some developments for which the 
average income is at or below 30 percent of the area median income, 
actually fall above the EIR. Developments that fall above the EIR are 
categorized as ``higher income developments'' and, in accordance with 
the deconcentration requirements, PHAs must undertake efforts to place 
lower income families into higher income developments. HUD regulations 
issued in December 2000 defined an income level that is at or below 30 
percent of the area median income as ``extremely low income'' (24 CFR 
5.603(b)). HUD agreed with PHA concerns that in all practicality 
deconcentration would not be fostered through efforts to place lower 
income families in developments categorized as higher income in which 
the average family income is in fact at the extremely low-income level.
    While HUD's regulations issued on December 22, 2000, allowed a PHA 
to seek an exemption from income mixing by explaining why, in a given 
case, efforts to income mix would not effectively promote income 
deconcentration, HUD believed that this situation was widespread enough 
to merit a change in the regulation rather than PHAs and HUD having to 
treat developments in which the average family income is extremely low 
income on a case-by-case basis. On August 15, 2001 (66 FR 42926), HUD 
therefore published a proposed rule that would amend the 
deconcentration component of HUD's PHA Plans regulations to revise the 
definition of EIR to include within the EIR those developments in which 
the average income level is at or below 30 percent of the area median 
income.

II. This Final Rule

    This final rule follows the August 15, 2001 proposed rule and is 
issued to help ensure that developments in which the average income 
level is at or below 30 percent of the median income cannot be 
categorized as having average income ``above'' the EIR. This final rule 
takes into consideration the public comments received on the proposed 
rule and slightly revises the proposed rule for clarity.

III. Public Comments Generally

    The public comment period for the proposed rule closed on October 
15, 2001. HUD received ten comments. Seven of the comments received 
were from PHAs; the remaining three comments were from legal service 
organizations. Most of the commenters expressed their support for HUD's 
proposed amendment to the deconcentration rule. However, most of the 
commenters also expressed that, while they supported HUD's efforts to 
revise the definition of EIR, they did not support the overall rule to 
deconcentrate. Several commenters in support of HUD's deconcentration 
efforts wrote that developments with average annual income at or below 
30 percent of the area median income should not be categorized as 
``higher income'' developments. Another commenter wrote that it is 
impractical to place ``higher income'' families in lower income 
developments as a mechanism to raise the average household income in 
these developments. All ten commenters offered suggestions to clarify 
and strengthen the deconcentration policy to better serve the housing 
community.
    HUD also sought comments from PHAs on the requirements of the 
December 22, 2000, final rule for placing ``higher income families'' 
into ``lower income developments''. No changes were being proposed to 
those requirements in this rule. In requesting comments on this issue, 
however, HUD recognized that the success of income mixing actions may 
depend on marketability of a development and therefore may be beyond 
the PHA's control, at least to a certain extent; and that PHA efforts 
to achieve deconcentration by supporting resident self-sufficiency 
efforts as well as

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necessary admissions efforts should be encouraged. HUD was therefore 
interested in PHA comments and feedback on the suitability of the 
December 22, 2000, final rule in this regard. In particular, HUD 
requested comments on whether the current rule's provisions that allow 
for explanations and justifications (and require corrective actions in 
the event HUD determines the explanations are not adequate) are 
sufficiently flexible to take into account these concerns. The 
following section of the preamble presents a summary of the significant 
issues raised by the public commenters on the August 15, 2001, proposed 
rule and HUD's responses to these comments.

IV. Discussion of Public Comments Received on the August 15, 2001, 
Proposed Rule

    Comment: In the August 15 proposed rule HUD proposes to exclude 
from the requirement public housing developments with average incomes 
below 30 percent of area median income. The commenter wrote that should 
the amendment be adopted, every public housing development in its State 
would be exempt and there would be no need for the rule. The commenter 
noted further that should the amendment be adopted, such a result, 
could not have been anticipated by Congress.
    HUD Response: According to HUD data about 82 percent of public 
housing family developments have average incomes below 30 percent of 
the area median income and 18 percent of public housing family 
developments have average incomes above 30 percent of the area median 
income. HUD believes that developments with an average family income at 
or below 30 percent of the area median income should not be categorized 
as higher income developments for purposes of income mixing because 
efforts to place lower income families into these developments would 
not result in income deconcentration as contemplated by the statute. 
Also, the deconcentration and income mixing policy should address only 
extensive income disparities among developments within a PHA.
    Comment: HUD should consider changing ``the 30 percent of median'' 
criteria to ``30 percent of the national median income'' or, 30 percent 
of area median, whichever is higher. The commenter wrote that pursuant 
to HUD Notice PDR-2001-03 (April 6, 2001), the national median income 
is $52,500. Thirty percent of that amount is $15,750. The commenter 
noted that $15,750 is no more high-income than 30 percent of the 
median-income ($11,040) in their jurisdiction, and it is illogical to 
put lower income people into a $15,750 development to bring down the 
average as it is to put them into an $11,040 average development to 
bring down that average.
    HUD Response: It is appropriate for HUD to take into account local 
market conditions when calculating median incomes. This method is used 
for public housing as well as HUD's other assisted housing programs 
when calculating median incomes.
    Comment: HUD should abandon the deconcentration proposal in order 
to avoid harming low-income families in high-income states. One 
commenter wrote that in a state that has a much higher cost of living 
than most other wealthy states, low-income families with incomes that 
may be much higher than incomes elsewhere may be in greater distress. 
The commenter further noted that these families should not be deprived 
of the opportunity to reside in better and newer housing in less 
impacted neighborhoods.
    HUD Response: As mentioned above, HUD's method for calculating 
median incomes takes into account local market conditions and makes 
adjustments for unusually high housing costs to income relationships. 
Also, nothing in this rule excludes low-income families from residing 
in better or newer housing. Admission policies, including preferences, 
are established at the local level.
    Comment: HUD has failed to justify the need for the rule. One 
commenter wrote that HUD's deconcentration policy remains seriously 
flawed, and that the rule is unnecessary. The commenter noted further 
that their own statistical analysis indicates that there are very few 
developments that would fall outside the EIR and have residents with 
incomes above 30 percent of area median income. Additionally, the 
commenter wrote that HUD's deconcentration policy is administratively 
burdensome, and will require PHAs to do unnecessary income analysis of 
their developments.
    HUD Response: As already discussed, HUD data indicate about 82 
percent of public housing family developments have average incomes 
below 30 percent of the area median income and 18 percent of public 
housing family developments have average incomes above 30 percent of 
the area median income. This rule will simplify administrative 
requirements and not require a PHA to seek an exemption when the EIR 
for certain developments is sufficiently low that some developments for 
which the average income is at or below 30 percent of the area median 
income, actually fall above the EIR.
    Comment: The policy requires an admissions-based solution if even 
one development in a portfolio is outside the parameters set by HUD. 
One commenter wrote that key management and policy decisions should be 
made through a local planning process that is responsive to local 
conditions, and not be mandated by the Federal government. The 
commenter noted further that he opposes the Federal requirement that 
the PHAs must ``deconcentrate'' through their admissions policies. 
Additionally, the commenter noted that the more important goal should 
be improving the economic conditions of all residents, rather than 
focusing on choosing families for a development based solely on their 
income.
    HUD Response: Achieving deconcentration through admission policies 
is a statutory requirement. However, the final deconcentration rule 
published on December 22, 2000, does permit agencies to explain or 
justify cases where developments fall outside the EIR. HUD agrees that 
improving the economic conditions of all residents is an important 
goal.
    Comment: HUD should amend the deconcentration rule to allow PHAs to 
adjust for unit/family size in a more refined method than required by 
the final rule. The commenter wrote that HUD's established method of 
adjustment is imprecise. The commenter noted further that PHAs should 
have the option of utilizing a range of methodologically valid 
techniques to make these adjustments instead of the prescribed method 
currently allowed by HUD.
    HUD Response: This rule amends the definition of EIR but does not 
make changes to the broader deconcentration policy as described by the 
comment. However, the final deconcentration rule published on December 
22, 2000, permits an agency to use median income instead of average 
income and to adjust its income analysis for unit size. This approach 
strikes a balance and provides agencies flexibility to perform their 
analysis, but at the same time makes administration and monitoring for 
HUD manageable.
    Comment: True income mixing in public housing requires marketable 
units and adequate service levels. The commenter wrote that marketing 
to higher income families would be extremely difficult given the 
current poor condition of some public housing stock due to under 
funding of both the capital and operating costs. The commenter noted 
further that according

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to HUD's own data, PHA operating subsidies have been under funded in 
the amount of almost $1.2 billion from fiscal year 1993 to fiscal year 
2001.
    HUD Response: This rule amends the definition of the EIR but does 
not make changes to the broader deconcentration policy as described by 
the comment. However, the final deconcentration rule published on 
December 22, 2000, does permit agencies to explain or justify cases 
where developments fall outside the EIR.
    Comment: Increasing incomes in public housing will require more 
than administrative remedies. The commenter wrote that an admissions-
based policy alone would never have the salutary effect of creating 
more viable, functional communities. The commenter suggested that this 
goal would be better served by strategies that aim not only to bring 
new, higher income residents into public housing, but that have the 
primary purpose to increase the incomes of existing public housing 
families.
    HUD Response: HUD agrees that it is important to increase the 
incomes of existing residents. HUD has a strong commitment to providing 
employment opportunities, training, and supportive services to help 
low-income persons become self-sufficient. HUD has aggressively 
implemented laws to further many self-sufficiency efforts, for example 
by providing a model cooperation agreement for economic self-
sufficiency between PHAs and Temporary Assistance to Needy Families 
(TANF) agencies. HUD plans additional initiatives to strengthen self-
sufficiency efforts in the near future.
    Comment: The rule should be modified to allow for certain family 
developments to always be treated as higher income. The commenter wrote 
that small developments in non-poverty areas, HOPE VI, mixed income, 
mixed finance and any development built after October 1998, the date 
Congress enacted the deconcentration policy, should always be treated 
as higher income. The commenter wrote that alternatively, if HUD 
decides to adopt the proposed 30 percent of the Area Median Income 
(AMI) rule, it should create an exception to that rule and not permit 
PHAs to exclude small developments in non-poverty areas, HOPE VI, mixed 
income, mixed finance, and any development built after October 1998, 
the date Congress enacted the deconcentration policy. The commenter 
noted further that these developments might be excluded if the 30 
percent rule was applied uniformly.
    HUD Response: HUD is not changing the rule to always treat certain 
developments as higher income. This would unnecessarily complicate the 
rule. Further, an income level that is at or below 30 percent of the 
area median income is defined as ``extremely low-income'' in HUD's 
regulations and is a low enough standard as a national policy. Nothing 
in this rule excludes extremely low-income families from residing in 
HOPE VI, mixed income, small, or scattered site developments of a PHA. 
The income mix of such developments may be addressed locally, including 
through local admissions preferences.
    Comment: With respect to high-income Metropolitan Statistical Areas 
(MSAs), the rule should not apply. One commenter wrote that it is 
misleading to use 30 percent of the MSA median income of high-income 
MSAs, when there are great income disparities within the MSA as a 
result of affluent suburban areas or wealthy urban pockets. The 
commenter further noted that even in MSAs that are not high-income, it 
would be far more appropriate to use the median income figure for the 
area over which the PHA units are located (usually the central city) if 
there is to be any exclusion from the current rule at all. Additionally 
the commenter noted that it is inconceivable to use income figures 
based on areas in which the PHA has no units, when there is no way the 
deconcentration rule would result in any housing being offered in those 
areas.
    HUD Response: As discussed in an earlier response, all HUD assisted 
housing programs use the same method to calculate income limits. HUD 
will not deviate from this approach and thus complicate the rule. PHAs 
may address the types of concerns raised by the comments through means 
such as local admissions preferences.
    Comment: Scattered site developments should be excluded from the 
exemption. The commenter wrote that such developments should be 
excluded or at least subjected to closer scrutiny, perhaps by basing 
the analysis on the median income of the census tract in which the 
units are located.
    HUD Response: As discussed in an earlier response, all HUD assisted 
housing programs use the same method to calculate income limits and HUD 
will not deviate from this approach. Also, local admissions preferences 
can address such situations.
    Comment: The wording of the proposed rule is not entirely clear. 
The commenter wrote that the rule would be easier to understand if it 
read as follows: ``The EIR is from 85 percent to 115 percent 
(inclusive) of the average family income (the PHA-wide average income 
for covered developments as defined in Step 1), except that the upper 
limit shall never be less than the extremely low-income threshold (30 
percent of median income) for the jurisdiction.''
    HUD Response: HUD has accepted the suggestion and agreed to change 
part of the regulatory language. However, the rule will continue to 
reference the definition of extremely low-income family under 24 CFR 
5.603(b) since the complete definition is too lengthy to repeat and the 
definition cite is referenced so that any future changes to the 
definition are made in one place only. The revised language at 
Sec. 903.2(c)(1)(iii) Step 3 reads as follows: ``A PHA shall determine 
whether each of its covered developments falls above, within or below 
the EIR. The EIR is from 85 percent to 115 percent (inclusive) of the 
average family income (the PHA-wide average income for covered 
developments as defined in Step 1), except that the upper limit shall 
never be less than the income at which a family would be defined as an 
extremely low-income family under 24 CFR 5.603(b).''
    Comment: HUD's resident database does not facilitate accurate 
analysis of poverty concentrations, so PHAs have to spend more time 
doing their own data analysis. The commenter wrote that HUD should 
suspend the ``decon- centration of poverty'' rule until the Multifamily 
Tenant Characteristics System (MTCS) or the Public Housing Information 
Center can provide accurate information on average tenant incomes for 
each family development. For example, the PHA has a 153-unit hi-rise 
for elderly and disabled residents in the same development (same HUD 
project number) as a 298-unit family townhouse development. The MTCS 
standard reports blend all of the resident data together, so a PHA 
cannot isolate the family development data needed to analyze 
``concentration of poverty.''
    HUD Response: The MTCS has a field that identifies the HUD project 
number of the development in which the resident lives. A public housing 
development includes units or buildings with the same project number. 
Typically developments with more than one building house similar types 
of residents, such as elderly or disabled persons or families, in each 
building. In the case described, where one project number includes an 
elderly and disabled resident hi-rise and a family townhouse 
development, this is considered a single development for purposes of 
deconcentration. If such a development falls outside the EIR, the final 
deconcentration rule published on December 22, 2000, permits an agency

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to explain or justify the circumstances of how this development meets 
the goals of deconcentration and income mixing.
    Comment: As amended, the deconcentration rule imposes new 
administrative burdens on PHAs and further complicates the already 
difficult task of running public housing, thereby driving up 
administrative costs. The commenter wrote that applicants and advocates 
are likely to be confused by a system of ``higher income'' and ``lower 
income'' buildings and developments, resulting in more complaints, more 
staff time devoted to explaining the system, more customer 
dissatisfaction, and more fair housing complaints.
    HUD Response: This rule, which revises the definition of EIR to 
include within the EIR those developments in which the average income 
level is at or below 30 percent of the area median income, and 
therefore ensure that such developments cannot be categorized as having 
average income ``above'' the EIR, will simplify deconcentration 
requirements for many PHAs that will no longer have to explain or 
justify why they need not undertake documentation measures for some of 
their developments.

V. Findings and Certifications

Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this final rule, and in so 
doing certifies that this rule does not have a significant economic 
impact on a substantial number of small entities. This rule amends the 
deconcentration component of HUD's PHA Plans regulations and revises 
the definition of EIR to ensure that included within that range are 
developments in which the average income level is at or below 30 
percent of the area median income and therefore such developments 
cannot be categorized as having average income ``above'' the EIR. This 
rule does not impose a burden on small entities. This rule alleviates 
an administrative burden on PHAs that have developments in which the 
average income is extremely low-income.

Executive Order 13132, Federalism

    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 final rule does not have 
federalism implications and does not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive Order.

Environmental Impact

    This issuance involves a discretionary establishment of external 
administrative or fiscal requirements or procedures related to rate or 
cost determinations that do not constitute a development decision 
affecting the physical condition of specific project areas or building 
sites. Accordingly, under 24 CFR 50.19(c)(6), this final rule is 
categorically excluded from environmental review under the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321).

Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, Regulatory Planning and Review. OMB determined 
that this 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 this 
rule after its submission to OMB are identified in the docket file, 
which is available for public inspection in the office of the 
Department's Office of General Counsel, Regulations Division, Room 
10276, 451 Seventh Street, SW, Washington, DC 20410-0500.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) establishes requirements for Federal 
agencies to assess the effects of their regulatory actions on State, 
local, and tribal governments, and on the private sector. This rule 
does not impose any Federal mandates on any State, local, or tribal 
governments, or on the private sector, within the meaning of the UMRA.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers applicable to 
the programs affected by this rule are 14.850 and 14.855.

List of Subjects in 24 CFR Part 903

    Administrative practice and procedure, Public housing, Reporting 
and recordkeeping requirements.

    For the reasons stated in the preamble, HUD amends part 903 of 
title 24 of the Code of Federal Regulations as follows:

PART 903--PUBLIC HOUSING AGENCY PLANS

    1. The authority for 24 CFR part 903 continues to read as follows:

    Authority: 42 U.S.C. 1437c; 42 U.S.C. 3535(d).


    2. In Sec. 903.2, paragraph (c)(1)(iii) is revised to read as 
follows:


Sec. 903.2  With respect to admissions, what must a PHA do to 
deconcentrate poverty in its developments and comply with fair housing 
requirements?

* * * * * *
    (c) * * *
    (1) * * *
    (iii) Step 3. A PHA shall determine whether each of its covered 
developments falls above, within or below the Established Income Range. 
The Established Income Range is from 85 to 115 percent (inclusive) of 
the average family income (the PHA-wide average income for covered 
developments as defined in Step 1), except that the upper limit shall 
never be less than the income at which a family would be defined as an 
extremely low income family under 24 CFR 5.603(b).
* * * * *

    Dated: July 9, 2002.
Michael Liu,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 02-19751 Filed 8-5-02; 8:45 am]
BILLING CODE 4210-33-P