[Federal Register Volume 83, Number 144 (Thursday, July 26, 2018)]
[Notices]
[Pages 35490-35494]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-15941]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5976-N-07]


Housing Opportunity Through Modernization Act of 2016: Final 
Implementation of Public Housing Income Limit

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Notice.

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SUMMARY: The Housing Opportunity Through Modernization Act of 2016 
(HOTMA) was signed into law on July 29, 2016. One of the statutory 
amendments made by HOTMA adds an income limit to the Public Housing 
program. This notice informs the public of how HUD is setting that 
income limit and makes the income limit effective, while providing 
information to public

[[Page 35491]]

housing agencies on how to start the process for tracking over-income 
families.

DATES: Applicable Date: September 24, 2018.

FOR FURTHER INFORMATION CONTACT: If you have any questions, please 
contact Todd Thomas, Program Analyst, Office of Public Housing 
Programs, at 202-402-4542, or send an email to [email protected].

SUPPLEMENTARY INFORMATION: 

I. Background

    HOTMA was signed into law on July 29, 2016 (Pub. L. 114-201, 130 
Stat. 782). Section 103 of HOTMA amends section 16(a) of the United 
States Housing Act of 1937 (42 U.S.C. 1437n(a)) (1937 Act) to place an 
income limitation on a public housing tenancy for families. The law 
requires that after a family's income has exceeded 120 percent of the 
area median income (AMI) (or a different limitation established by the 
Secretary) for two consecutive years, a public housing agency (PHA) 
must terminate the family's tenancy within 6 months of the second 
income determination or charge the family a monthly rent equal to the 
greater of (1) the applicable Fair Market Rent (FMR); or (2) the amount 
of monthly subsidy for the unit including amounts from the operating 
and capital fund, as determined by regulations. For purposes of this 
notice, the income limit established by HOTMA will be referred to as 
the ``over-income limit''. A PHA must notify a family of the potential 
changes to monthly rent after one year of the family's income exceeding 
the over-income limit. Pursuant to section 3(a)(5) of the 1937 Act, the 
over-income limit does not apply to PHAs operating fewer than 250 
public housing units that are renting to families with income exceeding 
the over-income limit, if the PHAs are renting to those families 
because there are no income-eligible families on the PHA's waiting 
list. Each PHA must submit a report annually to HUD about the number of 
families residing in public housing with incomes exceeding the over-
income limit and the number of families on the waiting lists for 
admission to public housing projects. Such reports must be publicly 
available.
    The new language in section 16(a)(5) of the 1937 Act sets the over-
income limit at 120 percent of the AMI. However, HUD has the ability to 
adjust the over-income limit if the Secretary determines that it is 
necessary due to prevailing levels of construction costs or unusually 
high or low family incomes, vacancy rates, or rental costs.
    On November 29, 2016, at 81 FR 85996, HUD published a notice 
soliciting public input on a proposal to determine the over-income 
limit by using the very low-income (VLI) level for the applicable area 
as the baseline and multiplying it by 2.4. Because VLI is preliminarily 
calculated as 50 percent of the estimated AMI for the family, in most 
cases this would result in a figure matching 120 percent AMI. However, 
in areas where the VLI has been adjusted to account for high or low 
housing costs or to prevent it from being lower than 50 percent of the 
State non-metro median family income, the final amount would result in 
an adjusted eligibility income limit, as well.
    HUD's income limits were developed by HUD's Office of Policy 
Development and Research and are updated annually. Information about 
HUD's income limits and HUD's methodology for adjusting income limits 
as part of the income limit calculation can be found at https://www.huduser.gov/portal/datasets/il/il16/index_il2016.html.
    This notice finalizes how the over-income limit is determined and 
informs PHAs how to begin implementing the statutory income limit for 
public housing. However, this notice does not address how a PHA is to 
determine the monthly subsidy to use in setting rents for over-income 
families that the PHA has allowed to remain in public housing. Section 
103 of HOTMA requires HUD to issue a regulation on that determination, 
and HUD will follow this notice with a proposed rule, which will also 
include guidelines for how PHAs are to set their policies for 
addressing over-income families after the 2-year grace period has 
ended. Additionally, this notice does not make effective the 
requirement to submit the annual report on the number of over-income 
families and the number of families on the public housing waiting 
lists. HUD intends to make this reporting requirement effective through 
a forthcoming notice.
    The regulations at 24 CFR 960.261 provide discretion to PHAs to 
evict or terminate assistance to families whose income exceeds the 
local low-income limit, except for families with a valid Family Self-
Sufficiency (FSS) contract, or families where at least one family 
member is receiving the Earned Income Disregard benefit. The statutory 
changes in section 103 of HOTMA do not address the treatment of 
families whose income exceeds the local low-income limit but is below 
the applicable over-income limit established in HOTMA. As such, the 
requirements and flexibilities provided through the regulations at 24 
CFR 960.216 continue to apply for families with incomes above the local 
low-income limit but below the over-income limit established in this 
notice.

II. Summary of Comments

    In response to the November 29, 2017, notice, HUD received 11 
comments.

Adjustments

    1. Commenters stated that HUD should never adjust the over-income 
limit downward (below 120 percent AMI), but rather use it as a floor 
for all areas and only adjust upward for high-cost areas. Others stated 
that it is necessary to keep as many higher-income families in public 
housing as possible to subsidize the lower-income families, 
particularly in light of reduced public housing funding.
    HUD Response: HUD disagrees with the suggestion that 120 percent of 
AMI should be a floor for over-income families. Section 16(a)(5) of the 
1937 Act provides discretion to HUD to establish income limits higher 
or lower than 120 percent of AMI to account for several factors 
including construction costs, family incomes, vacancy rates, or rental 
costs. HUD's methodology considers several of these factors and makes 
proportional adjustments. Were HUD to establish a floor of 120 percent, 
residents in localities with higher housing costs would receive 
disproportionate treatment than those in lower housing cost areas. HUD 
believes its methodology adequately makes proportional adjustments--
both upward and downward--to reflect the factors required by the 
statute.
    HUD also recognizes the concern that higher-income families allow 
PHAs to more deeply subsidize lower-income families. The statute allows 
PHAs to continue to house over-income families without providing them 
subsidy, if the PHA opts to do so. HUD will issue further guidance to 
PHAs on how to set their over-income policies.
    2. Commenters asked that HUD include adjustments based on 
construction costs and vacancy rates, as those are two cost categories 
included in the statute but not contemplated in HUD's proposal. Some 
stated that HUD should include local vacancy rates in adjusting the 
income limit. Others also asked that HUD should include factors for 
increasing the limit for larger families and should consider family 
composition so as not to penalize families with an adult child 
beginning to work who will soon leave the household.
    HUD Response: HUD's methodology takes into account local housing 
market factors such as construction costs and vacancy rates by using 
the metropolitan-

[[Page 35492]]

wide FMR to make adjustments for high and low housing costs. 
Specifically, HUD develops its FMRs annually using survey data of local 
gross rents paid, which are based on local housing market factors, 
including vacancy rates. Therefore, HUD will not make separate 
adjustments to the over-income limit because the FMR used to adjust 
income limits where necessary has already factored in such costs in its 
current methodology.
    HUD's program income limits are also adjusted by household size 
such that a 1-person family has a different income limit value than the 
value for a 4-person or 8-person family. HUD will annually publish the 
over-income limits for each locality, specifying over-income limits for 
each family size. However, HUD has no discretion to consider family 
composition related to the over-income limit.
    3. Commenters stated that using income definitions used for 
admissions limits may be inappropriate for determining the over-income 
limit, as factors that are important at very low-income levels may not 
be important at 120 percent AMI, and vice versa.
    HUD Response: HUD disagrees that the factors used to make 
adjustments to very low-income limits are inappropriate for determining 
an over-income limit. The factors HUD uses for the very low-income 
limits consider local family incomes and local housing costs. HUD 
adjusts the very low-income limits upward and downward based on changes 
to family incomes, changes in housing costs, and to account for large 
spikes in changes to family incomes at the local level. HUD believes 
that these adjustments are precisely the types of adjustments included 
in section 16(a)(5) of the 1937 Act and therefore respectfully declines 
to amend its methodology.

Annual Reviews

    Commenters stated that some PHAs use forms for annual 
reexaminations instead of forms for a unit change when program 
participants move units. The commenters asked if whether the two 
consecutive income reviews specified by HOTMA to judge whether a family 
has been over the income limit means two subsequent Annual 50058s or 24 
months of 50058s reporting that the family is over the income 
threshold.
    HUD Response: HUD intends to provide guidance on how to notify 
families, track over-income families, and report into HUD systems. 
However, to this specific question, the statute requires that a 
household must have maintained an income above the limit for two 
consecutive years before a PHA may terminate or raise rents on that 
household. If a PHA becomes aware, through an annual reexamination or 
an interim reexamination for an increase in income, that a family has 
reached the over-income limit, that will be the point in time for which 
the two-year clock will start.

Caps on Changes

    Commenters asked if HUD was going to impose a 5 percent cap on 
changes to the over-income limit that would be on top of caps on 
changes already in place related to program income limits and, if so, 
asked HUD to provide additional justification for and examples of this 
policy. Others stated that HUD should eliminate the 5 percent ceiling 
for increase in the very low-income limit to account for expensive 
rental markets, but only for the purpose of determining the over-income 
limits.
    HUD Response: HUD does not intend to impose additional adjustments 
beyond those adjustments made by HUD to the very low-income limits, 
which includes a 5 percent cap on annual changes to such income limits. 
Specifically, HUD's current cap on income limit increases is the 
greater of 5 percent or twice the increase in national median income 
growth. Because there is a two-year process to declare a family 
ineligible for public housing subsidy under section 16(a)(5) of the 
1937 Act, large increases to the over-income limit for higher rental 
markets may result in families who are over-income in one year not 
being considered over-income in the second year as the over-income 
limit is adjusted upward in subsequent years.

Exemptions

    1. Commenters pointed out that the notice states that PHAs housing 
families with incomes over 120 percent AMI under section 3(a)(5) of the 
1937 Act are exempt from the income limit in HOTMA, but that the 
statutory provision was directed at individual families and did not 
seem to encompass the entire PHA.
    HUD Response: Section 3(a)(5) of the 1937 Act permits PHAs 
operating fewer than 250 units to admit families that are not low-
income at the time of admission into the program under certain 
circumstances as included in 24 CFR 960.503. HOTMA reiterates that 
families admitted by such PHAs under the circumstances included in 
section 3(a)(5) are not subject to the over-income limit. The 
requirements, including those governing rental payments for such 
families, will continue as established in 24 CFR 960.503. However, 
families served by PHAs operating fewer than 250 units that were not 
admitted under the circumstances included in section 3(a)(5) will be 
subject to the over-income limit established in HOTMA and made 
effective by this notice.
    2. Commenters recommended that HUD include exemptions from the 
over-income limit for vulnerable populations, including seniors and 
disabled individuals and those that face specific financial constraints 
(e.g., large families). Some stated that HUD should provide an explicit 
exemption to over-income limits for families participating in self-
sufficiency programs. Commenters also stated that PHAs should be 
required to consider whether evicting a family for having an income 
that exceeds the over-income limit would create a hardship (such as for 
a household member caring for a relative close to the home or if a 
household member is ill). Others asked that HUD allow PHAs the ability 
to apply for an exception to the over-income limit entirely, based on 
the local market and conditions.
    HUD Response: HUD does not have the authority under HOTMA to permit 
PHAs to exempt any public housing family from the over-income 
limitation established by HOTMA. However, PHAs are required to 
establish policies for continued occupancy in public housing. Through 
the development of those policies, a PHA is able to consider specific 
circumstances in which they would provide for flexibility in the 
administration of over-income requirements, provided such policies are 
in compliance with the 1937 Act and all applicable fair housing 
requirements. PHAs are subject to, among other fair housing and civil 
rights authorities, Section 504 of the Rehabilitation Act (Section 
504), the Fair Housing Act, and Title II of the Americans with 
Disabilities Act (ADA), which include, among other requirements, the 
obligation to grant reasonable accommodations that may be necessary for 
persons with disabilities.

Fair Market Rents (FMRs)

    1. Commenters stated that new guidance on small area fair market 
rents (SAFMRs) might make calculation of income thresholds 
administratively cumbersome for PHAs.
    HUD Response: For each locality, HUD will publish over-income 
limits annually. Therefore, there is no associated burden on PHAs to 
calculate the over-income limits.
    2. Commenters stated that FMRs do not accurately reflect rental 
market prices and that they are too volatile year-to-year, and are 
therefore

[[Page 35493]]

inappropriate to use when determining very low-incomes.
    HUD Response: FMRs are HUD's best estimates of gross rents paid in 
each locality for which FMRs are published. Therefore, FMRs represent 
the best known, consistently calculated measurement of housing costs 
across the country. Furthermore, as required by section 107 of HOTMA, 
HUD will publish annual notices of proposed material changes in the 
methodology for estimating FMRs for public comment. The Federal 
Register notice announcing proposed material changes in the methodology 
for estimating FY 2018 FMRs, published June 26, 2017, at 82 FR 24377, 
contains specific proposals to limit the year-to-year volatility in FMR 
estimates that are concerning to the commenters.
    3. Commenters stated that HUD should consider additional changes to 
the VLI FMR determination only for the purpose of determining the 
income limit. The commenters asked that HUD increase the annualized 
two-bedroom FMR from 85 percent to 100 percent to follow the 
expectation that FMRs allow access to 40-50 percent of the rental 
market in any given area. The commenters also suggested that HUD change 
the VLI limit from 35 percent to 30 percent.
    HUD Response: The current high housing cost adjustment is that the 
4-person very low-income limit is increased if the limit would 
otherwise be less than the amount at which 35 percent of it equals 85 
percent of the annualized two-bedroom 40th percentile rent in the area. 
This adjusts income limits upward for areas where rental housing costs 
are unusually high in relation to the median income. The high housing 
cost adjustment is not meant to mimic programmatic requirements but to 
increase income limits in areas where the housing cost relative to 
incomes are extreme high.

Mixed Income Developments

    1. Commenters stated that a barrier to implementing the income 
limit is that many public housing developments use Low-Income Housing 
Tax Credits, and the tax credit program does not allow PHAs to 
terminate households from affordable housing programs when household 
income increases over time. They asked that HUD and the Department of 
Treasury more closely align their policies.
    HUD Response: HUD's and Treasury's policies are aligned when it 
comes to the treatment of over-income families. HUD regulations protect 
initially qualifying households from being displaced as their income 
rises, provided that their income remains below 80 percent AMI, which 
is a statutorily mandated public housing income limit. Similarly, under 
Treasury's regulations, the fact that a family is over-income under the 
Tax Credit program (which generally has a lower income limit than the 
public housing program) does not by itself amount to good cause for 
lease termination, although the over-income designation may affect the 
tax credits.
    2. Commenters urged HUD to consider implementing a mechanism where 
public housing tenants in a mixed-finance building can switch to a 
market unit if the family's income exceeds the applicable over-income 
limit (freeing up an ACC unit), but allowing them to easily access a 
subsidized unit again should the family's income drop again.
    HUD Response: HUD appreciates the comment and will take it in 
consideration during the rulemaking stage, which will address how a PHA 
determines its policies on dealing with over-income families after the 
2-year grace period.

Over-Income Tenants

    1. Commenters asked whether the decision to require an over-income 
family to vacate the unit or charge them the greater of FMR or the 
subsidy amount is a decision that a PHA can make on a unit-by-unit 
basis or whether it must be an agency-wide policy decision.
    HUD Response: As with any other discretion provided to PHAs, PHAs 
are required to develop policies in their Admissions and Continued 
Occupancy Policies (ACOP) regarding when families will be permitted to 
remain in the unit and pay an alternative rent or be terminated. All 
such decisions must be consistent with applicable non-discrimination 
and other fair housing requirements. HUD will further address this 
issue in the rulemaking stage.
    2. Commenters stated that the assumption in HOTMA that families 
with incomes exceeding the applicable over-income limit will be able to 
find housing in the private market is unrealistic in cities with very 
expensive housing markets.
    HUD Response: HUD recognizes the concern expressed by this 
commenter, which is the reason that HUD chose to exercise its authority 
to establish higher over-income limits for such cities.

Utility Allowance

    Commenters asked whether, when charging over-income families FMR, 
the PHA would be allowed to reduce the FMR rent for the utility 
allowance.
    HUD Response: This question is outside of the scope of this notice. 
In a forthcoming rulemaking, HUD will address the alternative rent 
options. HUD will specifically address the implications of utility 
allowances in that rulemaking.

Reports to HUD

    Commenters asked for additional guidance on what the report on 
over-income families (required by HOTMA) would look like.
    HUD Response: Under the new requirements in the 1937 Act, PHAs will 
need to report annually on the number of over-income families residing 
in public housing and the number of families on the admissions waiting 
lists for public housing at the end of that year. The report will be in 
a format specified by HUD in the future.

Temporary Income Decreases

    Commenters asked if the two-year over-income clock is restarted if 
a family has a temporary decrease in income.
    HUD Response: If a family requests an interim reexamination, which 
then demonstrates that a family's income has dropped below the over-
income limit, the family is no longer considered over-income. If a PHA 
becomes aware, through a subsequent annual reexamination or an interim 
reexamination that the family's income has increased to an amount that 
exceeds the over-income limit, the family would begin a new two-year 
clock.

Other Questions

    1. Commenters asked for additional clarity on how HUD will 
determine rent structures for over-income families that the PHA allows 
to stay in their unit.
    HUD Response: This question is outside of the scope of this notice. 
In a forthcoming rulemaking, HUD will address the alternative rent 
options.
    2. Commenters stated that HUD should explicitly require compliance 
with fair housing and civil rights laws in its implementing 
regulations.
    HUD Response: HUD appreciates the concerns regarding fair housing 
and civil rights laws. PHAs, in the administration of their public 
housing program, are always required to comply with fair housing and 
civil rights laws and their implementing regulations. HUD will consider 
whether any reference to fair housing and civil rights laws and 
regulations in forthcoming program regulations would be particularly 
helpful during the rulemaking stage.

[[Page 35494]]

    3. Commenters stated that HUD should try to streamline its over-
income policies across multiple HUD programs.
    HUD Response: HUD appreciates the suggestion. However, this comment 
is outside of the scope of this notice. In many cases, over-income 
policies vary by program due to program design and funding structures, 
so HUD is limited in its ability to align such requirements.

III. Implementation

    Through this notice, HUD is announcing that as of the date this 
notice is effective, HUD will be following the provisions of section 
16(a)(5) of the 1937 Act, as added by section 103 of HOTMA, using the 
method of determining the over-income limit as described in the 
November 29, 2016, notice. PHAs must update their Admissions and 
Continued Occupancy Policies (ACOP) to implement these changes. Such 
policies must include the imposition of an over-income limit in the 
program, all instances of when the two-year timeframe begins, and 
notification requirements. If the implementation of this provision 
requires a significant amendment to a PHA's annual plan, a PHA should 
immediately take steps to complete the significant amendment process in 
order to effectuate the policy change. PHAs must complete all relevant 
policy and PHA plan changes no later than 6 months after the effective 
date of this notice.
    Once a PHA has completed updates to its ACOP and, if necessary, its 
PHA plan, when the PHA becomes aware, through an annual reexamination 
or an interim reexamination for an increase in income, that a family's 
income exceeds the applicable income limit, the PHA must, per section 
16(a)(5) of the 1937 Act, document that the family exceeds the 
threshold to compare with the family's income a year later.
    If, one year after the initial determination by the PHA that a 
family's income exceeds the over-income limit, the family's income 
continues to exceed the over-income limit, the PHA must, as required by 
section 16(a)(5) of the 1937 Act, provide written notification to the 
family that their income has exceeded the over-income limit for one 
year, and that if the family's income continues to exceed the over-
income limit for the next 12 consecutive months, the family will be 
subject to either a higher rent or termination based on the PHA's 
policies. If, however, a PHA discovers through an annual or interim 
reexamination that a previously over-income family has income that is 
now below the over-income limit, the family is no longer subject to 
these provisions. The family is entitled to a new 2-year grace period 
if the family's income once again exceeds the over-income limit.
    HUD will provide additional information on where to locate 
applicable income limits, guidelines for PHAs to set alternative rents 
for over-income families, and any other guidance regarding this 
provision in a forthcoming notice.

IV. Environmental Impact Certification

    This notice involves statutorily required income limits and 
exclusions with regard to eligibility for or calculation of HUD housing 
assistance or rental assistance which does 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 notice is 
categorically excluded from environmental review under the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321).

    Dated: July 9, 2018.
Danielle Bastarache,
Deputy Assistant Secretary for Public and Indian Housing.
[FR Doc. 2018-15941 Filed 7-25-18; 8:45 am]
 BILLING CODE 4210-67-P