Housing Opportunity Through Modernization Act of 2016-Housing Choice Voucher (HCV) and Project-Based Voucher Implementation; Additional Streamlining Changes

Federal RegisterOct 8, 2020

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 888, 982, 983, and 985

[Docket No. FR-6092-P-01]

RIN 2577-AD06

Housing Opportunity Through Modernization Act of 2016—Housing Choice Voucher (HCV) and Project-Based Voucher Implementation; Additional Streamlining Changes

AGENCY:

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

ACTION:

Proposed rule.

SUMMARY:

The Housing Opportunity Through Modernization Act of 2016 (HOTMA) was signed into law on July 29, 2016. HOTMA made numerous changes that affect either the Housing Choice Voucher (HCV) tenant-based program or the Project-Based Voucher (PBV) program, or both. Among other changes, HOTMA established alternatives to HUD's housing quality standard inspection requirements, it established a statutory definition of public housing agency (PHA)-owned housing, and it amended several elements of both the HCV and PBV programs, in the latter case ranging from owner proposal selection procedures to how participants are selected. In addition to implementing these HOTMA provisions, HUD has included regulatory changes in this proposed rule that are intended to reduce the burden on public housing agencies, by either modifying requirements or simplifying and clarifying existing regulatory language.

DATES:

Comment Due Date:

December 7, 2020.

ADDRESSES:

Interested persons are invited to submit comments regarding this proposed rule. Copies of all comments submitted are available for inspection and downloading at

www.regulations.gov.

To receive consideration as public comments, comments must be submitted through one of two methods, specified below. All submissions must refer to the above docket number and title.

Electronic Submission of Comments.

Interested persons may submit comments electronically through the Federal eRulemaking Portal at

www.regulations.gov.

HUD strongly encourages commenters to submit comments electronically. Electronic submission of comments allows the commenter maximum time to prepare and submit a comment, ensures timely receipt by HUD, and enables HUD to make them immediately available to the public. Comments submitted electronically through the

www.regulations.gov

website can be viewed by other commenters and interested members of the public. Commenters should follow the instructions provided on that site to submit comments electronically.

Submission of Comments by Mail.

Comments may be submitted by mail to the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW, Room 10276, Washington, DC 20410-0500.

FOR FURTHER INFORMATION CONTACT:

HOTMAquestions@hud.gov

with your questions about this proposed rule.

SUPPLEMENTARY INFORMATION:

I. Background

On July 29, 2016, HOTMA was signed into law (Pub. L. 114-201, 130 Stat. 782). HOTMA makes numerous changes to statutes that govern HUD programs, including section 8 of the United States Housing Act of 1937 (1937 Act) (42 U.S.C. 1437f). HUD issued a notice in the

Federal Register

on October 24, 2016, at 81 FR 73030, announcing to the public which of the statutory changes made by HOTMA could be implemented immediately and which statutory changes required further guidance from HUD before owners, PHAs, or other grantees may use the new statutory provisions.

On January 18, 2017, at 82 FR 5458, HUD published a second notice, making multiple HOTMA provisions effective and requesting comments. Several of the comments pointed out the need for technical corrections or clarifications to the January 18, 2017, implementation document. HUD published a document on July 14, 2017, at 82 FR 32461, making several technical corrections and clarifications. HUD also received comments recommending changes that were not technical corrections or clarifications, but rather suggested alternative approaches to implementing the HOTMA provisions. The January 18, 2017, FR notice, as amended by the July 14, 2017, FR notice, is referred to as the “FR Implementation Notice” throughout the preamble of this proposed rule.

In the fall of 2017, HUD published three notices (Notices PIH 2017-18, PIH 2017-20, and PIH 2017-21) that provide guidance on HCV provisions included in the FR Implementation Notice. Notice PIH 2017-18 provides guidance on the HOTMA provision related to the housing assistance payment calculation for manufactured home space rentals, while Notices PIH 2017-20 and 2017-21 cover the implemented HOTMA Housing Quality Standard (HQS) inspection and PBV provisions, respectively.

This proposed rule does a number of things. First, it proposes codification of the HOTMA provisions that have been implemented via notices published in the

Federal Register

as described above, taking into account public comments received in response to HUD's January 18, 2017, notice. Second, it proposes to implement several HOTMA provisions that have not yet been implemented. Third, it contains several proposed changes to regulatory provisions unrelated to HOTMA, in order to reduce the regulatory burden on PHAs and owners by clarifying, simplifying, and, in some instances, eliminating HUD-imposed requirements. Finally, the rule also proposes elimination of obsolete regulatory provisions.

II. This Proposed Rule—Summary of Changes

General Summary

The proposed rule would codify the following HOTMA provisions that have already implemented through the FR Implementation Notice. Please refer to the identified subsection for preamble discussion related to the codification of these HOTMA provisions.

• Initial inspection options—non-life-threatening deficiencies and alternative inspections (HOTMA section 101(a)(1))—subsection 5

• Definition of life-threatening deficiencies (HOTMA section 101(a)(1))—subsection 5

• PHA-owned unit definition (HOTMA section 105)—subsection 2 (and related preamble discussion sections identified in subsection 2)

• Manufactured home space rent calculation (HOTMA section 112)—subsection 10

• PBV Program Cap (HOTMA section 106(a)(2))—subsection 16

• PBV Project Cap (HOTMA section 106(a)(3))—subsection 23

• PBV units not subject to project cap or program cap (HOTMA sections 106(a)(2) and (3))—subsection 28

• PBV initial term of HAP contract and extension of term (HOTMA sections 106(4) and (5))—subsection 40

• PBV priority of assistance contracts—insufficient funding (HOTMA section 106(a)(4))—subsection 41

• PBV adding units to HAP contract without competition (HOTMA section 106(a)(4))—subsection 42

• PBV additional contract conditions/tenant-based assistance for families at termination/expiration without renewal of PBV HAP contract

(HOTMA section 106(a)(4))—subsection 41

• PBV preference for voluntary services (HOTMA section 106(a)(7))—subsection 46

• Attaching PBVs to projects where the PHA has an ownership interest (HOTMA section 106(a)(9))—subsection 20

Through the FR Implementation Notice, HUD also previously implemented the HOTMA provision at section 106(a)(9) that authorizes PHAs to project-base Veterans Affairs Supportive Housing (VASH) vouchers and Family Unification Program (FUP) vouchers without requiring additional HUD approval. HUD has determined that no modifications are needed to 24 CFR part 983 to codify these statutory changes. Any VASH vouchers and FUP vouchers project-based pursuant to this authority must comply with the requirements of 24 CFR part 983.

HOTMA further provides that no PHA is required to reduce the payment standard applied to a family as a result of a reduction in the fair market rent (FMR). This provision was implemented in HUD's Small Area FMR (SAFMR) Final Rule

at § 982.505(c)(3).

“Establishing a More Effective Fair Market Rent System; Using Small Area Fair Market Rents in the Housing Choice Voucher Program Instead of the Current 50th Percentile FMRs,” published November 16, 2016, at 81 FR 80567.

HUD also proposes to implement the HOTMA HCV provisions that have not yet been implemented as part of this rule. Please see the identified preamble subsection for information on the proposed implementation of the following HOTMA provisions.

• Enforcement of Housing Quality Standards (HQS) (HOTMA section 101(a)(3))—subsection 5

• Manufactured home space rental—PHA option to make single assistance payment to family instead of owner (HOTMA section 112)—subsection 10

• Entering into a PBV HAP Contract for rehabilitation and new construction projects without an Agreement to Enter a HAP Contract (HOTMA section 106(a)(4))—subsection 34

• Providing rent adjustments using an operating cost adjustment factor (OCAF) (HOTMA section 106(a)(6)—subsection 55

• Owner-maintained site-based waiting lists (HOTMA section 106(a)(7)—subsection 46

• Environmental requirements for existing housing (HOTMA section 106(a)(8)—subsection 25

In addition to the HOTMA changes, HUD is also proposing numerous non-HOTMA related changes. In some cases, these changes are to better clarify existing regulatory requirements. In other circumstances, HUD is seeking to improve the administration of the program, simplify program rules, or reduce administrative burden and cost. For example, in this rule HUD is proposing to change the current requirements to reflect a determination that PBV existing housing is not subject to Davis-Bacon wage requirements (see the discussion in subsection 44 of this preamble). In addition, in certain sections, HUD is inserting references to obligations under Section 504 and the Americans with Disabilities Act, as appropriate, as a helpful tool for entities implementing HOTMA who are also covered by those laws. Such references do not constitute all Section 504 or ADA requirements, and covered entities should consult the relevant regulations to fully understand their Section 504 and ADA obligations.

Furthmermore, HUD is replacing “disabled person” to “person with disabilities,” the terms “person with disabilities” and “person with a disability” are sometimes used interchangeably in program regulations. A person with a disability is a qualified individual with a disability if the individual meets the definition of “disability” under the ADA Amendments Act, which is also the relevant definition for purposes of Section 504. See 42 U.S.C. 12102; 28 CFR 35.108.

A description and discussion of the proposed changes for each regulatory section of this proposed rule (including in certain sections specific questions soliciting input from the commenters) follows.

Section-by-Section Summary

1. Fair Market Rents for Existing Housing: Methodology (§ 888.113

)

HUD proposes to clarify in the regulatory text that a PHA that wishes to voluntarily opt in to SAFMRs must request and receive HUD approval prior to adopting SAFMRs. This proposed change is unrelated to HOTMA.

2. Definitions (§ 982.4)

The proposed rule would revise part 982 definitions to define the terms

abatement, independent entity,

PHA-owned units, Request for Tenancy Approval,

Section 8 Management Assessment Program (SEMAP), and

withholding,

terms that were previously used but not formally defined in the definitions section of the regulation.

The term

independent entity

would conform to current HUD guidance and would provide that the independent entity cannot be connected to the PHA legally, financially (except regarding compensation for services performed for PHA-owned units), or in any other manner that could cause the PHA to improperly influence the independent entity. However, HUD is proposing to adopt a modified definition, such that if the independent entity is a unit of general local government or an agency of such government, the unit of general local government or government agency may perform the functions of the independent entity without prior HUD approval. If the independent entity is not a unit of general local government or an agency of such government, then the independent agency would have to be approved by HUD. (Under current regulations at § 982.352(iv)(B), the independent entity must always be approved by HUD. HUD is proposing this change to reduce administrative burden and reporting requirements on PHAs.)

The proposed rule would also add the terms Section 8 Management Assessment Program (SEMAP) and

Small Area Fair Market Rents (SAFMRs), terms that are defined elsewhere and referenced in Part 982,

and define the terms

authorized voucher units

and

tenant-paid utilities,

which, though generally understood, merit specific definition.

HOTMA defined

units owned by a PHA,

which overrides the definition of a

PHA-owned unit

previously established in regulation. HUD first implemented the HOTMA definition in the FR Implementation Notice. A few commenters to that notice commented that the definition as implemented by HUD was adequate. Others commented that the definition should be revised to include situations in which the PHA is the ground lessor or participates in the owner entity in any capacity, or when the PHA provides a loan and has a security interest in the property. The HOTMA definition explicitly provides, however, that none of these three situations constitutes PHA ownership. Therefore, HUD is proposing to conform the HCV and the PBV regulations (at §§ 982.4 and 983.3, respectively) to the final FR Implementation Notice without any changes and incorporate this definition as needed throughout the regulations. In addition to these HOTMA changes, HUD is proposing to make other changes to the requirements for PHA-owned units. Please see the related preamble discussion at §§ 982.352(b), 982.451, 983.57, and 983.204.

Question 1.

HUD is specifically requesting comment on the proposed definition of a PHA-owned unit. In

addition, the proposed rule specifies in the definition of independent entity that the independent entity cannot be connected to the PHA legally, financially (except regarding compensation for services performed for PHA-owned units), or in any other manner that could cause the PHA to improperly influence the independent entity. Is this standard too broad, particularly as it relates to an existing financial relationship? Under what circumstances could the PHA and the independent entity be connected financially where the independent entity would still retain sufficient independence to perform its administrative responsibilities for PHA owned units?

3. Administrative Plan (§ 982.54)

This rule would update § 982.54 by adding new Administrative Plan requirements for the tenant-based program regarding PHA policymaking authority with respect to programmatic concerns such as payment standards and inspections. These changes reflect options made available to the PHA by HOTMA and as otherwise proposed in this rulemaking. (HUD proposes to add a new § 983.10, which identifies areas in which PHAs have policymaking discretion specific to the PBV program.) The list proposed in this proposed rule is not intended to be an all-inclusive list; instead, the list would highlight the major policy areas where the PHA has some administrative discretion.

Question 2.

Are there areas other than those specified in the new § 983.10 where HUD could provide greater discretion to PHAs to support their efforts to operate their programs effectively?

4. Information When Family Is Selected (§ 982.301)

HUD proposes to correct the regulation at § 982.301(b) to reinstate the requirement that the briefing packet to the family include information regarding when the PHA is required to provide a program participant with the opportunity for an informal hearing, including how the participant may request a hearing. The September 1, 2015, technical correction to the streamlining portability rule, published at 80 FR 52619, inadvertently deleted this requirement.

In addition to this correction, HUD is proposing several changes related to the oral briefing the PHA gives the family to explain additional disability-related obligations that exist under other regulations. This includes: (1) Citing 28 CFR part 35 (Title II), Subpart E and 28 CFR part 36 (Title III) along with 24 CFR 8.6 as additional, relevant regulations that require the PHA to take appropriate steps to ensure effective communication with persons with disabilities; (2) adding that when briefing the family on when the PHA will consider granting exceptions to the subsidy standards, the PHA must discuss reasonable accommodations that may be required for a person with disabilities; (3) specifying that the oral briefing must include contact information for the Section 504 coordinator and information on how to request a reasonable accommodation or modification under Section 504, the Fair Housing Act, or the ADA, as applicable; and (4) specifyingthat if the family includes a person with disabilities, the PHA must provide not only notice that the family may request a current listing of accessible units known to the PHA that may be available but also, if necessary, other assistance in locating an available accessible unit in accordance with § 8.28(a)(3).

HUD is also proposing to add a new subsection (c) regarding information for persons with limited English proficiency. Specifically, PHAs would need to take reasonable steps to ensure meaningful access by persons with limited English proficiency in accordance with Title VI of the Civil Rights Act of 1964, Executive Order 13166, and HUD's LEP Guidance (see 72 FR 2732 (2007)).

5. Inspection of Dwelling Units (§§ 982.305, 982.401, 982.404, 982.405, 982.406, 983.103, 983.208)

Section 101 of HOTMA made significant changes to the unit inspection requirements for the HCV program (both tenant-based and project-based assistance). In general, a PHA may not execute a HAP contract until the PHA has inspected the unit and determined that it meets the Housing Quality Standards of the HCV program. HUD previously implemented two HQS initial inspection options provided under HOTMA in the FR Implementation Notice. The first is in the case of the non-life threatening (NLT) option, where the PHA may choose to approve an assisted tenancy, execute the HAP contract, and begin making housing assistance payments on a unit that fails the initial HQS inspection, provided the unit's failure to meet HQS is the result only of non-life-threatening conditions. The second is the alternative inspection option, where the PHA may approve the tenancy and execute the HAP contract prior to inspecting the unit if the property has in the previous 24 months passed an alternative inspection (

i.e.,

an inspection conducted for another housing program). The PHA cannot make a payment to the owner until the PHA has inspected the unit and found it to meet HQS standards, at which point the PHA makes the assistance payments retroactively back to the effective date of the HAP contract. This rule proposes changes to conform the HCV program regulations to account for these two previously implemented options.

HOTMA also contains specific requirements for (1) the withholding of assistance payments from the owner during the HQS deficiency correction period, (2) the abatement of payments and the termination of the HAP contract for units that fail to comply with HQS, and (3) the relocation of families where the HAP contract will be terminated due to the failure to comply with HQS. Under HOTMA, the family must be given 90 days or longer to lease a new unit upon termination of the HAP contract. In addition, the family must be given a preference for public housing if the family fails to find a new unit with their voucher. The PHA may also use up to two months of the assistance payments that were withheld or abated under the family's terminated HAP contract for cost directly associated with the relocation of the family, which includes security deposits and reimbursements for moving expenses. HOTMA further provides that these new HQS enforcement and family relocation requirements must be implemented by regulation, and this proposed rule initiates the rule-making process for those provisions.

In addition to the HOTMA-related changes, as an administrative streamlining measure HUD is also proposing adding a new subsection to § 982.405 on the verification methods that may be used by the PHA to confirm an HQS deficiency has been corrected.

Specifically, HUD is proposing the following changes with respect to the HOTMA inspection requirements. (HUD has included proposed definitions of

abatement

and

withholding

in § 982.4, as discussed above.)

a. Approval of Assisted Tenancy (982.305)

The existing regulations at § 982.305 contain the PHA requirements that must be met to approve an assisted tenancy. This proposed rule would update § 982.305 to reflect that a HAP contract may, in certain cases, be executed prior to a dwelling unit meeting HQS when the PHA adopts either the initial HQS inspection NLT option or the initial HQS inspection alternative inspection option (discussed in detail below at

§§ 982.405 and 982.406 respectively). The purpose of these two options would be to provide PHAs with additional flexibility to implement policies that assist families to be more competitive in the private market and increase their chances of obtaining an affordable unit.

Specifically, in § 982.305(f), HUD proposes codification in the regulations of the actions the PHA must take regarding the initial inspection of the unit to approve the assisted tenancy, revised to include the applicable requirements if the PHA has implemented and determined the unit is eligible for either the initial HQS inspection options (

i.e.,

the NLT option or the alternative inspection).

HUD is also proposing a non-HOTMA related change to § 982.305(c)(4). The paragraph would generally provide that if the HAP contract is executed later than 60 calendar days from the beginning of the lease term, the contract is void, and the PHA may not pay any housing assistance payment to the owner, as is currently the case under the current regulations. The proposed regulation provides that if there are extenuating circumstances that prevent or prevented the PHA from meeting the 60-day deadline, then the PHA may submit a request to HUD for an extension. HUD is proposing to allow PHAs to request this extension in recognition that there are situations where the PHA may need an extension and approving the request would be in the best interest of the family. The PHA request would have to include an explanation of the extenuating circumstances and any supporting documentation.

b. Establishment of Life-Threatening Conditions (§ 982.401(o))

As discussed above in § 982.305, HOTMA provided an exception to the generally applicable requirement that units must be inspected and must meet Housing Quality Standards before the PHA may make a housing assistance payment. Under the initial inspection NLT option, PHAs may choose to approve an assisted tenancy, execute the HAP contract, and begin making housing assistance payments on a unit that fails to meet HQS, provided the unit's failure to meet HQS is the result only of non-life-threatening conditions, as such conditions are defined by HUD. For the purposes of implementing the NLT option in the FR Implementation Notice, HUD defined a non-life-threatening condition as any condition that would fail to meet the Housing Quality Standards under § 982.401 and is not a life-threatening condition, and then proposed a definition of life-threatening conditions and invited comment. Some commenters supported the definition, while others suggested expansion. For example, commenters recommended that HUD include mold or conditions that could lead to mold. HUD determined that the suggested items do not meet the threshold for inclusion in the list of life-threatening conditions and made no revisions to the proposed definition. This proposed rule would codify the existing list of life-threatening deficiencies list (cited in § 982.401(o)). In addition, HUD is proposing that the proposed definition of life-threatening deficiencies would be applicable to all PHAs. (Under the FR Implementation Notice, PHAs were only required to adopt HUD's list of life-threatening deficiencies if they implemented the NLT option.) In addition, any other condition identified by the PHA as life-threatening would also be a life-threatening deficiency, provided the condition was identified as such in the PHA administrative plan. All other conditions that would cause a failure of HQS are NLT. The list of life-threatening conditions would continue to be updated by HUD through notices published in the

Federal Register

. These FR notices would provide for the opportunity for public comment before any changes to the list of life-threatening deficiencies became effective.

HUD is also proposing to add a new subparagraph (5) to § 982.401(a) to clarify in this section that all defects that are not life-threatening conditions must be remedied within 30 days of the owner's receipt of written notice of the defects or a reasonable longer period that the PHA establishes.

Question 3.

Is HUD's list of life-threatening conditions appropriate? Are there conditions listed that should not be considered life-threatening? Are there conditions absent from the list that should be considered life-threatening?

c. Enforcement of HQS (§§ 982.404, 983.208)

Section 101 of HOTMA established certain requirements PHAs must follow when an owner fails to bring a unit into compliance with HQS. These requirements include specific time frames for compliance, after which a PHA must first withhold and then abate payments; ultimately, HOTMA provides that a PHA must terminate a HAP contract in response to continued noncompliance. HOTMA also includes certain protections for affected families and requirements related to the relocation of those families when the HAP contract is terminated. These same statutory provisions apply to both tenant-based units and project-based units. For the PBV program, the PHA may take an enforcement action on an individual unit that is part of a HAP contract (for example, removing the unit from the HAP contract), or it may terminate the HAP contract. These HOTMA provisions are set forth in section 8(o)(8)(G) of the United States Housing Act of 1937.

The law provides that these provisions shall apply “to any dwelling unit for which a housing assistance payments contract is entered into or renewed after the date of the effectiveness of the regulations implementing subparagraph (G).” For tenant-based HAP contracts, HUD is interpreting a contract that is “renewed” to mean a HAP contract that has continued beyond the end of the initial lease term. For PBV, HUD is interpreting a contract that is “renewed” to be a contract that has been extended beyond the initial term of the contract. For contracts that were not entered into or renewed after the effective date of the regulations, §§ 982.404 and 983.208 as of the date before the effective date of the final rule will remain in effect. Please see the related PBV discussion in the preamble below at § 983.208.

Specifically, § 982.404(a) would be revised to codify the HOTMA requirement that a unit is out of compliance with the Housing Quality Standards if either the PHA or an inspector authorized by the State or unit of local government (1) determines upon inspection of the unit that the unit fails to comply with HQS, (2) notifies the owner in writing of the failure, and (3) the defects are not corrected within the new statutorily mandated timeframes. These timeframes are consistent with the existing regulatory timeframes under the current regulations. If the defect is life-threatening, the owner must correct the defect within no more than 24 hours after notification. For other defects, the owner must correct the defect within no more than 30 days after notification (or any PHA-approved extension).

Under the current regulations at § 982.404(a)(4), the owner is not responsible for a breach of the HQS that is not caused by the owner and for which the family is responsible. This is not always the case under HOTMA. HOTMA provides that if a PHA determines that any damage to a unit that results in a HQS deficiency (other than damage resulting from ordinary use) was caused by the tenant, any member of the tenant's household, or any guest or other person under the tenant's control, the PHA may waive the requirement that the owner is responsible for correcting the

deficiency. If the PHA waives the owner's responsibility to correct the deficiency, then the family is responsible for making the repairs. Under HOTMA, the PHA must proactively take action to waive the owner's responsibility to correct the tenant related HQS deficiency in order for that responsibility to be placed on the family. HUD assumes that PHAs would want to waive the owner's responsibility in cases where the HQS deficiency was caused by the tenant in order not to discourage owners from participating in the program, so this change should not have much of a practical impact in terms of the responsibility for the family to make the necessary repairs. However, the proposed regulation at § 982.404(a)(4) would comply with the new HOTMA standard that the tenant is not automatically responsible for making the HQS repair for tenant caused damage, but rather such responsibility is dependent on the PHA waiving the owner's responsibility to correct the deficiency in those instances.

HUD is also proposing to add a new paragraph to § 982.404 to implement the HOTMA provisions regarding when a PHA may withhold payments and when a PHA must abate payments and terminate the HAP contract as the result of HQS deficiencies (§ 982.404(d)). If a PHA “withholds” payments, the PHA has stopped making payments to the owner but is holding the payments for potential retroactive adjustment depending on the action the owner takes. If the PHA “abates” payments, the PHA has stopped making payments to an owner and there is no potential for retroactive payment.

HOTMA provides that a PHA may choose to withhold payments once the PHA has notified the owner in writing of the deficiencies. If the PHA withholds the payments and the unit is brought into compliance during the applicable cure period (24 hours for life-threatening deficiencies and 30 days (or other reasonable period established by the PHA) for NLT deficiencies), the PHA must resume payments and provide assistance payments to cover the time period for which the assistance payment was withheld (§ 982.404(d)(1)). This is a significant change from the current requirements, where the PHA may not withhold payments from the owner during the permitted cure period.

HOTMA also provides that the PHA must abate the HAP if the owner fails to make the repairs within the applicable cure period. Furthermore, if the owner fails to make the repairs within 60 days (or a reasonable longer period established by the PHA) of the determination of noncompliance, the PHA is required to terminate the HAP contract (§ 982.404(d)(2)). The date of determination of noncompliance would be the day following the expiration of the cure period (24 hours for a life-threatening deficiency and 30 days (or other reasonable period established by the PHA) for non-life-threatening deficiencies).

Along with the new designated timeframes for abating and then terminating the HAP contract, this proposed rule would provide that in accordance with HOTMA the PHA must notify the family and the owner that the PHA is abating the payments and that if the unit does not meet HQS within 60 days after the determination of noncompliance (or a reasonable longer period established by the PHA), the PHA must terminate the HAP contract and the family will have to move if the family wishes to continue to receive assistance (§ 982.404(d)(2)(ii)). As provided in HOTMA, the rule would expressly provide that the owner may not terminate the tenancy of the family due to the withholding or abatement of the payment, and that the family may terminate the tenancy during the abatement period by notifying the owner and the PHA (§ 982.404(d)(3)).

Finally, under HOTMA, if the owner makes the repairs and the unit complies with the HQS within the required timeframe, the PHA must recommence payments to the owner. However, the PHA may not make any payments to the owner for the period of time the payments were abated. If the owner fails to make the repairs within 60 days (or the reasonable longer period established by the PHA, the PHA must terminate the HAP contract (§ 982.404(d)(4) and (5)).

The proposed rule would add a new paragraph § 982.404(e) to implement the HOTMA provisions related to the family's relocation due to HQS deficiencies. The family protections would be as follows: (1) The PHA must give the family at least 90 days following the termination of the HAP contract to lease a new unit. (2) If the family is unable to lease a unit within that period and the PHA owns or operates public housing, the PHA must offer and provide the family with a preference for the first appropriately sized public housing that become available for occupancy after the family's search time expires. (3) The PHA may choose to use up to 2 months of the withheld and abated assistance payments for costs directly associated with relocating to a new unit, including security deposits or reasonable moving costs. Use of the abated HAP for this purpose would be an eligible HAP expense under the HCV program and would be part of the HAP renewal funding eligibility calculation for the PHA.

As discussed above, HOTMA provides that new provisions under section 8(o)(8)(G) of the 1937 Act apply only to HAP contracts that are either executed or renewed after the effective date of the implementing regulation. HUD is proposing to add a new paragraph (f) on the applicability of § 982.404 in accordance with the statutory requirement. For HAP contracts not covered by these new HOTMA provision, § 982.404 as in effect the day before the Final Rule becomes effective will remain applicable.

HUD is proposing similar changes to § 983.208 to implement these same HOTMA provisions for the PBV program. Please see the related discussion at § 983.208 later in this preamble.

d. PHA Initial Unit Inspection (§ 982.405)

Section 982.405 covers the requirements for PHA initial and periodic unit inspections. As discussed previously, HOTMA provides two new alternative initial HQS inspection options for the PHA. If a PHA adopts the initial HQS inspection NLT option, the PHA may approve a tenancy after a unit has failed a housing quality inspection if the unit has failed only for non-life-threatening conditions. Allowing HAP payments to begin while the owner makes minor repairs to the unit could result in increasing the number of landlords willing to participate in the program. This proposed rule would add a new paragraph (§ 982.405(i)) to cover the initial HQS inspection non-life-threatening option. The PHA would be allowed to apply the NLT option to all of the PHA's initial inspections or may limit the use of the option to certain units. The proposed requirements under the new § 982.405(i) are consistent with the current requirements that HUD established when it implemented the initial HQS inspection NLT option in the FR Implementation Notice, including the requirement that the family may choose to decline the unit based on the identified NLT deficiencies and simply continue their housing search.

In addition to adding the new NLT option subsection, HUD is proposing non-HOTMA related changes to § 982.405, including § 982.405(g), which concerns the inspection the PHA must conduct on a unit when notified of a potential life-threatening deficiency by a family or a government official. In the

case where the reported deficiency, if confirmed, would be a life-threatening deficiency, the PHA would have to both inspect the housing unit and notify the owner (if any life-threatening deficiency is confirmed) within 24 hours of receiving the report of the potential deficiency. The owner would have to make the repairs within 24 hours of the PHA notification. If the reported deficiency (if confirmed) would be NLT, the PHA would have to both inspect the unit and notify the owner whether the deficiency is confirmed within 15 days that the family or government official reported the suspected deficiency. The current regulation provides the time frames by which the PHA must make the inspection but is silent on the timeframe by which the PHA must notify the owner if the deficiency is confirmed. In addition, § 982.405(g) is being revised to reference the proposed definition of what constitutes life-threatening conditions at § 982.401(o) of this rule.

Question 4.

Are HUD's proposed deadlines by which the PHA must both inspect the unit and notify the owner if the reported deficiency is confirmed reasonable?

Finally, HUD is proposing to add a new paragraph (h) that would expressly provide that when a PHA must verify a correction of an HQS deficiency, the PHA may use verification methods other than another on-site inspection. This proposal builds on Notice PIH 2013-17,

where HUD provided guidance on the use of photos to document the correction of HQS deficiencies for annual inspections. This guidance was issued to provide administrative relief as well as a cost-savings measure by reducing the need for on-site reinspection. Currently, on-site verification is required for initial inspections. In codifying that alternative verification methods to on-site re-inspections are acceptable, HUD also proposes to expand the use of the alternative verification methods to include verifying that deficiencies identified in the initial inspection have been corrected.

“Housing Choice Voucher (HCV) Program—Review of Existing HQS Requirements and the Use of Photos to Improve HQS Oversight”, published July 2, 2013,

available at https://www.hud.gov/sites/documents/PIH2013-17.PDF.

e. Use of Alternative Inspections (§ 982.406)

Section 982.406 covers the requirements for the use of alternative inspections. This rule would add a new paragraph (e) to § 982.406 to codify the HOTMA-authorized use of alternative inspections for initial HQS inspections, in addition to the existing requirements for biennial inspections once the unit is under HAP contract. Adoption of the alternative inspection option for initial HQS inspections would enable a PHA to approve an assisted tenancy and enter into a HAP contract, provided the unit has passed an approved alternative inspection within the 24 months prior to execution of the HAP contract. The PHA may not make payments to the owner, however, until the PHA inspects the unit. The proposed § 982.406(e) for the initial HQS inspection alternative inspection option is consistent with the current requirements implemented under the FR Implementation Notice with one exception. In response to comments received, HUD is proposing to extend the amount of time available to a PHA to conduct its own inspection of the unit from 15 to 30 days from receipt of the Request for Tenancy Approval.

Please see the related discussion on the HOTMA alternative inspection requirements for PBV later in this preamble at § 983.103.

6. Eligible Housing (§ 982.352)—Compensating Independent Entity for PHA-Owned Units

HUD is taking this opportunity to propose a non-HOTMA related change regarding the wording and organization of the current regulation at § 982.352(b)(1)(iv)(C). HUD is proposing to clarify that the PHA may compensate the independent entity from PHA administrative fees (including fees credited to the administrative fee reserve). The current regulation refers to “ongoing administrative fee income” which includes fees in the administrative fee reserve. However, this language inadvertently created confusion as to whether the undefined term “ongoing administrative fee income” included funds in the administrative fee reserve. HUD is proposing to revise the language so it specifically provides that the administrative fee reserve may be used by the PHA to compensate the independent entity.

HUD further is proposing to redesignate § 982.352(b)(1)(iv)(C) to § 982.352(b)(1)(iv)(B). This is a conforming change. Since HUD would be formally defining “independent entity” in § 982.4 of this proposed rule, HUD proposes to eliminate the current § 983.352(b)(1)(iv)(B), which explains what that term means. Please see the related discussion on the definition of independent entity in this preamble above at § 982.4.

Question 5.

Are there functions, other than those identified in the proposed rule (see §§ 982.352(b)(1)(iv)(A), 982.628(d)(3), and 983.57), that an independent entity should perform in the case of PHA-owned units?

Question 6.

In contrast, are there functions identified by the proposed rule (besides rent reasonableness determinations and inspections, which are required by statute) that the PHA should be able to perform with respect to PHA-owned units instead of having an independent entity do so? If so, why should the PHA perform those functions instead of an independent entity?

7. Housing Assistance Payments Contract (§§ 982.451, 983.204)—PHA-Owned Unit Certification Option

The proposed rule would address how the PHA executes the HAP contract for a PHA-owned unit for both tenant-based units (§ 982.451(c)) and project-based units (§ 983.204(d)). As a general principle of contract law, a PHA cannot execute a HAP contract with itself (

i.e.,

signing the HAP contract as both the PHA and the owner). For some PHA-owned units, a separate legal entity already owns the PHA-owned unit (

e.g.,

an entity wholly controlled by the PHA, a limited liability corporation controlled by the PHA, or a limited partnership controlled by the PHA). However, in other cases a separate legal entity does not own the PHA-owned unit. Instead, the PHA is in fact the actual legal entity that owns the unit. In order to eliminate confusion over the execution of the HAP contract for PHA-owned units, the proposed rule would expressly provide that the PHA must execute the HAP contract for a PHA-owned unit with a separate legal entity. If the PHA is the legal entity that owns the unit, then in order to execute the HAP contract the PHA would need to create a separate legal entity. This separate legal entity would be established by the PHA to serve as the owner solely for the purpose of executing the HAP contract with the PHA. The proposed rule would provide that this separate legal entity may be one of the following: (a) A non-profit affiliate or instrumentality of the PHA; (b) a limited liability corporation, (c) a limited partnership; (d) a corporation; or (e) any other legally acceptable entity recognized under State law.

This separate legal entity would be completely different from the independent entity that is required to perform certain administrative responsibilities on behalf of the PHA for a PHA-owned unit. The proposed rule would further clarify that the independent entity may notify either the PHA, the separate legal entity created by the PHA to serve as the owner for

purposes of executing the HAP contract, or both the PHA and the separate legal entity, of a determination the independent entity has made (

e.g.,

the unit passed inspections, the rent for the unit is determined to be reasonable) in carrying out its responsibilities for the PHA-owned unit.

HUD recognizes that creating a separate legal entity to serve as the owner for the sole purpose of executing the HAP contract may create complexity and administrative burden for the PHA, particularly in the case of a tenant-based voucher family that wishes to rent an individual PHA-owned unit. HUD is therefore proposing a new PHA option for a PHA-owned unit that is not already owned by a separate legal entity. Under this option, the PHA would not execute the HAP contract but instead sign a HUD-prescribed certification. The PHA would certify that it will fulfill all the program responsibilities required of the private owner under the HAP contract. In addition, the PHA would certify it will also fulfill all the PHA's responsibilities for the PHA-owned unit, including that the PHA has obtained the services of an independent entity to perform the required PHA functions. The PHA-executed certification would essentially serve as the equivalent of the HAP contract for the PHA-owned unit, under which the PHA is legally committed to and responsible for fulfilling its responsibilities as both the PHA and the owner of the PHA-owned unit.

The certification option would be available both for tenant-based PHA-owned units (§ 982.451(c)(3)) and project-based PHA-owned units (§ 983.204(d)). However, this option would not be available if the PHA-owned unit is owned by an entity wholly controlled by the PHA or owned by either a limited liability company or limited partnership in which the PHA (or an entity wholly controlled by the PHA) holds a controlling interest in the managing member or general partner. In that circumstance, the PHA would simply execute the HAP contract as the PHA, and the entity, limited liability company, or limited partnership executes the HAP contract as the owner. Additional changes to § 983.204 are discussed below.

8. Payment Standards and How To Calculate Housing Assistance Payments (§§ 982.503, 982.505)

HOTMA provides that no PHA is required to reduce the payment standard applied to a family as a result of a reduction in the fair market rent (FMR). This provision was implemented in HUD's Small Area FMR (SAFMR) Final Rule at § 982.503(c)(3),

and comprehensive guidance was published in Notice PIH 2018-01.

Besides revising § 982.505(c)(3) for greater clarity, and making other non-HOTMA related revisions to parts of § 982.505 to better convey the intent of the current requirements, HUD is also proposing several changes related to the administration of increases and decreases in the payment standard amount. These changes are not required by HOTMA, but they are proposed to improve the process by which changes in payment standard amounts are applied to impacted families.

“Guidance on Recent Changes in Fair Market Rent (FMR), Payment Standard, and Rent Reasonableness Requirements in the Housing Choice Voucher Program,” published January 17, 2018, available at

https://www.hud.gov/sites/dfiles/PIH/documents/PIH-2018-01.pdf.

a. Payment Standard Areas, Schedule, and Amount (§ 982.503)

This proposed rule would address the conditions and procedures that apply to the establishment of exception payment standard areas and amounts, whether or not SAFMRs are in effect in the exception payment standard area. The regulations at § 983.503 would be revised and reorganized for greater clarity. In addition, HUD is proposing to (1) establish a minimum size for an exception payment standard area, (2) increase the PHA's administrative discretion to establish higher exception payment standards without HUD approval, and (3) allow the PHA to reduce the payment standard below the basic range without HUD approval if certain conditions are met. These proposals are described in greater detail below.

b. Minimum Size of Exception Payment Standard Area (§ 982.503(a)(3)(ii))

HUD proposes to revise the regulations at § 983.503(a) to specify that HUD publishes FMRs for Small Area FMR areas, metropolitan areas and non-metro counties. In addition, HUD proposes to require that an exception payment standard area be no smaller than a census tract block group. A census tract block group is the smallest area of geography for which rental data is available. The current regulation does not address the size of a designated area.

c. Payment Standard Schedules and Basic Range Amounts (§ 982.503(b) and (c))

Sections 982.503(b) and (c) would be revised as part of the § 982.503 restructuring. The proposed § 982.503(b) would cover the payment standard schedule that the PHA must maintain (which, in the current regulation, is covered under § 982.503(a)). The proposed § 982.503(c) would cover basic range payment standard amounts (which, in the current regulation, is covered under § 982.503(b)). The basic range payment standard amount is any amount in the range from 90 percent up to and including 110 percent of the published FMR. The PHA would be permitted, as is in current regulations, to establish a payment standard in the basic range without HUD approval. Payment standards above the basic range are exception payment standards. The requirements for payment standards that fall outside the basic range—some of which are currently covered under § 982.503(b) and (c)—would all be consolidated in § 982.503(d) of this proposed rule. The proposed changes to the requirements for exception payments standards and also payment standards that are set below the basic range are discussed below.

d. Exception Payment Standards (§ 982.503(d))

Section 982.503(d) would address how a PHA may establish exception payment standard amounts. In paragraph (d)(1), the regulation would clarify that the PHA may establish an exception payment standard for all units or may limit the exception payment standard to units of a given size, as is currently permitted in the HCV program. The paragraph would also clarify that the exception area must meet the minimum size requirements (no smaller than a census tract) that is proposed at § 982.503(a)(3)(ii) in this rule.

Paragraph (d)(2) would continue the current exception payment standard policy that permits a PHA that is not in a designated SAFMR area or has not opted to voluntarility inplement SAFMRs under 24 CFR 888.113(c)(3) to establish exception payment standards for a ZIP code area above the basic range of the metropolitan FMR without prior HUD approval, provided the exception payment standard does not exceed 110 percent of the HUD published SAFMR for the ZIP code area. The proposed rule clarifies that if the PHA exception area crosses one or more FMR boundaries (

i.e.,

contains more than one ZIP Code area), then the maximum exception

payment standard amount that a PHA may adopt for the exception area without HUD approval is 110 percent of the ZIP code area with the lowest SAFMR amount.

Paragraph (d)(3) would address the ability of PHAs to set exception payment standard amounts for exception areas higher than 110 percent of the applicable FMR with prior HUD approval. The PHA would need to provide rental market data demonstrating that the exception payment standard amount requested is needed to enable families to access rental units in the exception payment standard area. The data submitted by the PHA would not have to be the same level as that required to request a reevaluation of the FMR established in accordance with 24 CFR part 888. Instead, the PHA would be permitted to use local sources of information to support its request.

Question 7.

For an exception payment standard request unrelated to a reasonable accommodation request, should HUD provide greater flexibility to PHAs to establish exception payment standards without HUD approval in order to reduce administrative burden and allow the PHA to respond more quickly to rapidly changing rental markets? If so, what parameters or limits should apply to that exception payment standard authority (

e.g.,

allow the PHA to establish an exception payment standard without prior HUD approval up to 120 percent of the SAFMR)? With respect to exception payment standard requests requiring HUD approval, should HUD establish a minimum standard for the type of rental market data that a PHA must provide to demonstrate the need for an exception payment standard in the requested area, and what should that standard be? For example, should HUD continue to require that the rental market data provided by PHAs include a statistically representative sample of rental housing survey data in the exception payment standard area? More specifically, should HUD require a PHA to obtain, for a sample of properties located in the exception payment standard area, a Rent Comparability Study prepared in accordance with HUD's Multifamily Accelerated Processing Guide? Should HUD require that any assessment of rental market data be prepared by a certified appraiser?

Question 8.

For an exception payment standard request unrelated to a reasonable accommodation request, should HUD establish a maximum cap on exception payment standard amounts that it will consider for approval (for example, some percentage of the SAFMR)? HUD has concerns that in some high-cost markets, exception payment standards could reach unreasonably high levels.

Finally, HUD proposes consolidating all exception payment standards requirements into § 982.503(d) by moving requirements for exception payment standards that are required for a reasonable accommodation from § 982.505(d) to § 982.503(d)(4). HOTMA provides that, without HUD approval, a PHA may establish an exception payment standard of not more than 120 percent of the FMR if needed as a reasonable accommodation for a family that includes a person with a disability. A PHA may establish a payment standard greater than 120 percent of the FMR after requesting and receiving HUD approval. These flexibilities had already been implemented as part of the SAFMR Final Rule. In this proposed rule, HUD would clarify that the exception payment standard limit applies to the metropolitan area FMR or the Small Area FMR, whichever FMR is in effect in the ZIP code area in which the family resides.

e. Payment Standard Below the Basic Range (§ 982.503(e))

HUD proposes that a PHA be permitted to establish a payment standard amount that is not lower than 90 percent of the SAFMR for a ZIP code area that is subject to metropolitan area FMRs, without HUD approval. HUD approval for a payment standard below 90 percent of the applicable SAFMR would still be required. Currently, a PHA that has not implemented SAFMRs would need HUD approval to reduce the payment standard below 90 percent of the metropolitan FMR. As is the case for exception payment standards, the HUD-published SAFMRs provide the justification that the reduced payment standard would still be reasonable for the ZIP code area based on rents in that area, and consequently HUD review and approval of a payment standard that is within the basic range of the SAFMR for the ZIP code area is not necessary.

Question 9.

The current regulation (at § 982.503(h)) provides that HUD will monitor PHAs' payment standards for units of a particular size if HUD finds that 40 percent or more of families occupying units of that unit size pay more than 30 percent of adjusted monthly income (AMI) as the family share. The statutory standard for HUD review is that a “significant percentage” of families pay more than 30 percent of adjusted income for rent.

a. Is 40 percent a reasonable “significant percentage of families,” or should the trigger be raised to a higher percentage of families (for example, the HUD review would be triggered if 50 percent of families pay more than 30 percent of AMI as the family share)?

b. If HUD were to replace 40 percent with a higher percentage of families, as described above, should HUD also establish an additional threshold that would trigger a review even though the number of families paying more than 30 percent of AMI had not reached the significant percentage? (For example, the HUD review would be triggered if 30 percent of families pay more than 40 percent of AMI, even though less than 50 percent of families are paying no more than 30 percent of AMI.)

Question 10.

Should HUD retain success rate payment standards, or, in the interest of streamlining the regulation, is there a way to use SAFMRs to accomplish the same purpose as success rate payment standards?

f. Payment Standard Reduction (§ 982.505(c)(3))

Section 982.505(c)(3) would detail how a PHA is to address a reduction in the payment standard amount for a family that remains in their unit after the reduction. HUD is proposing changes throughout this provision to provide clarity on the obligations of and flexibilities afforded to the PHA. In addition, HUD is proposing that the family protections related to the application of decrease in the payment standard amount apply during the time the family remains assisted in the same unit, as opposed to during the term of the HAP contract. There are circumstances where the owner and the PHA may terminate the existing HAP contract and execute a new HAP contract to continue to assist the same family in the same unit. For example, tenant-based assistance may not be continued unless the PHA has approved a new tenancy in accordance with the program requirements and executed a new HAP contract with the owner if there are any changes in lease requirements governing tenant or owner responsibilities for utilities or appliances. If those circumstances occur shortly after the decrease in the payment standard, it is not fair to the family to apply the reduction in the payment standard amount at the new HAP contract effective date, since the family hasn't moved and is being continuously assisted at the same unit.

HUD is also proposing a change in the notification requirements to families when a reduction in the family's payment standard amount will result in the family paying a higher rent if they stay in their unit. Specifically, the 12-

month advance notice provided to families affected by a decrease in the payment standard would have to state the new payment standard amount, explain that the family's new payment standard amount will be the greater of the amount listed in the current written notice or the new amount (if any) on the PHA's payment standard schedule at the end of the 12-month period, and make clear where the family will find the PHA's payment standard schedule (

e.g.,

online). A notification to the family that does not include the amount of the reduced payment standard would not be sufficient for families to make an informed decision on whether or not they can afford to remain in their current unit and pay the higher rent or if they should use the 12 months to begin searching for a lower-cost unit.

The proposed rule would further provide that the initial reduction to the family's payment standard amount may not be applied any earlier than two years following the effective date of the decrease in the payment standard. This 2-year requirement would replace the current standard that the initial reduction may not be applied any earlier than the family's second regular examination following the effective date of the decrease in the payment standard. HUD believes that the 2-year standard will provide a consistent and more equitable protection to families than the current standard. Under the current policy, the length of the “hold harmless” protection varies significantly among individual families since it is based on when the family's regular examination is scheduled compared to when the decrease in payment standard went into effect. For example, one family might have the decrease in the payment standard applied 13 months following the effective date of the payment standard change, while another family would benefit from the protection for 23 months.

In addition to the change to a standard, consistent 2-year protection for families that remain in-place, the rule further proposes that the decrease in the payment standard could not be applied unless the family had received the required 12-month advance notice.

g. Payment Standard Increase During HAP Contract Term (§ 982.505(c)(4))

Section 982.505(c)(4) would address what a PHA is to do when a payment standard amount is increased during the term of a family's HAP contract. HUD proposes to require that the increased payment standard amount must be used to calculate the family's housing assistance payment no later than the earliest of the effective date of (1) an increase in the gross rent that will result in an increase in the family's share, (2) the family's first regular reexamination, or (3) one year following the effective date of the increase in the payment standard amount. The intent of this change is to eliminate the potential lag time between an increase in the rent to owner brought about by an increase in the payment standard, and the increase in the assistance payment made on behalf of the family as a result of the increase in the payment standard.

HUD is also proposing to move the requirements at § 982.505(d) for the PHA approval of a higher payment standard for a family that is necessary as a reasonable accommodation to § 982.503. This change would consolidate all the exception payment standard requirements into the same regulatory section.

9. Utility Allowance Schedule (§ 982.517)

HUD proposes several non-HOTMA related updates to the utility allowance regulations at § 982.517 in order to lessen administrative requirements and provide greater flexibility for PHAs in determining both area-wide schedules and site-based schedules for the PBV program. HUD is also proposing to reorganize § 982.517 for better clarity.

In § 982.517(e), HUD is proposing to revise the text to provide greater detail on additional fair housing requirements that a PHA may be subject to in determining if a higher utility allowance is needed as a reasonable accommodation under Section 504 or the ADA for a family that includes a person with disabilities.

This rule would also eliminate the requirement that a PHA submit its utility allowance schedule to the field office in order to reduce PHA reporting requirements and administrative burden. While each PHA must still maintain a utility allowance schedule and provide the schedule to HUD upon request, a PHA would no longer be required to routinely submit the schedule to the field office under this proposed rule.

HUD also proposes to allow a PHA to adopt additional options for setting its utility allowance schedule. Currently, each PHA must maintain one area-wide utility allowance schedule based on energy-conservative households.

Through this rulemaking, HUD proposes the following changes:

a. Area-Wide Energy-Efficient Utility Allowance Schedule (§ 982.517(b)(2)(ii))

The proposed changes to § 982.517 would provide each PHA with the option to adopt an area-wide utility allowance schedule for energy-efficient units in addition to the traditional utility allowance schedule. The PHA would be able to use its energy-efficient utility allowance schedule only for units in projects that meet certain energy-efficiency standards. This change would allow the utility allowance schedule to reflect utility allowance amounts that more accurately reflect what the family's actual utility costs will be in cases where the family is leasing an energy efficient unit. This change is intended to expand the number of energy efficient units that are available to the family. Since the restriction on the maximum amount that the family may pay at initial occupancy of a unit is based on the gross rent (rent to owner plus the utility allowance for tenant-supplied utilities), a utility allowance that reflects the lower utility costs of the energy efficient units will allow energy efficient units with correspondingly higher rents to now be an option for the family to consider leasing on the program.

Question 11.

Should HUD authorize PHAs to use energy-efficient utility allowance schedules for a broader range of projects than are defined at § 982.517(b)(2)(ii)?

b. Utility Allowance Based on Flat Fees (§ 982.517(b)(2)(iii))

Under the proposed regulation, PHAs would have the option of substituting flat fees charged for certain utilities in the lease for the area-wide utility allowance for that utility, but only if the flat fees are lower than those in the area-wide utility allowance. Sometimes the flat fee charged by the owner reflects actual utility costs and is considerably lower than the utility allowance amounts. In effect, if the PHA uses the utility allowance rather than the actual utility costs, the gross rent would be higher. In competitive housing markets, this can make the unit exceed the maximum family share at initial occupancy even though the rent to owner and the actual utility charges do not exceed 40 percent of the family's adjusted monthly income. In other cases, the PHA could provide a smaller subsidy if the gross rent were based on the flat fee rather than the utility allowance schedule.

If a PHA adopts an area-wide energy-efficient utility allowance schedule or utility allowances based on flat fees, the policies would have to be applied consistently for all families and stated in the PHA's Administrative Plan.

10. Manufactured Home Space Rental (§ 982.623)

Section 112 of HOTMA amended section 8(o)(12) of the 1937 Act with respect to the use of voucher assistance provided to families that are owners of manufactured housing and are paying rent on the space on which the manufactured home is located (the manufactured home space). The manufactured home space rental is a special housing type under Subpart M of the 982 HCV regulations.

Prior to the HOTMA amendment, voucher assistance payments on behalf of owners of manufactured housing under section 8(o)(12) could only be made to assist the family with the rent for the manufactured home space. Section 112 expanded this definition of the “rent” to include other housing expenses, specifically the monthly payments made by the family to amortize the cost of purchasing the manufactured home (including any required insurance and property taxes). This change in the rental subsidy calculation for families renting manufactured home spaces was implemented by the FR Implementation Notice. The practical effect of this change was to increase the amount of housing assistance payment that may be paid on the behalf of the family by taking into account family housing expenses related to the manufactured home they own beyond the space rent and tenant-paid utilities. This proposed rule would codify the new subsidy calculation by revising § 983.623. Section 112 effectuated the change in the subsidy calculation by redefining “rent” to include the family's monthly debt payments. While section 112 achieves the statutory intent to allow housing assistance payments to assist with the family's monthly debt payments for the purchase of the home as well as the space rent, characterizing the debt payments to be part of the “rent” creates confusion in the administration of this provision, since these monthly debt payments in reality are independent of the space rent, and have no relation to the normally understood concept and definition of “gross rent” (the sum of the rent to owner plus any utility allowance) that applies to other rent calculations in the HCV program. In order to simplify program administration and more clearly convey the actual intent of the statutory language, HUD is proposing in this rule to use the term “eligible housing expenses” instead of “rent” in the HAP calculation. “Eligible housing expenses” under this proposed rule includes the same expenses and results in the same amount of HAP for the family in accordance with the HOTMA amendment, but does so using terminology that better explains and distinguishes between what the subsidy calculation takes into account as opposed to what the term “rent” normally suggests for PHAs, participating families, and the owners either leasing the space or considering doing so under the HCV program.

In addition to revising the monthly housing assistance calculation, the proposed change would also remove an obsolete reference to a separate fair market rent for a manufactured home space. Since the housing assistance payment now takes the family's housing costs besides the space rent into consideration in determining the subsidy, it no longer makes sense to publish a separate “manufactured home space rent” FMR for this special housing type. Instead, the PHA uses its regular payment standard for the HCV program in the housing assistance payment calculation. This change was previously implemented by the FR Implementation Notice.

Section 112 further provided that the PHA may choose to make a single payment to the family for the entire monthly assistance amount, rather than making the assistance payment directly to the owner of the manufactured home space the family is renting. HUD has not yet implemented this option. In addition to the changes in § 982.623 for the revised subsidy calculation, HUD is proposing a new paragraph to implement this single housing assistance payment to the family option. Under this proposed rule, if the owner of the manufactured home space agrees, the PHA may make the entire housing assistance payment to the family, rather than making the payment to the owner. Because the assistance payment now covers family housing costs beyond the space rent, in many instances the PHA would be paying an assistance payment to both the owner of the space rent and the family under this special housing type. Under the single payment to the family option, the family would be responsible for paying the owner directly for the full amount of the rent of the manufactured home space. The PHA and the owner must still execute a HAP contract and the owner is still responsible for fulfilling all the owner obligations under the HAP contract.

The HOTMA provisions related to the exclusion of the family's manufactured home from the prohibition of the family having a present ownership interest in real property that is suitable for occupancy by the family, and the exclusion of the equity in the family's manufactured home from the net family assets, is being implemented through a proposed rule published September 17, 2019, at 84 FR 48820.

11. HCV Homeownership Option (§§ 982.625, 982.628, 982.630, 983.635, 982.641)

HUD is proposing several non-HOTMA related changes to the HCV homeownership special housing type under Subpart M. The HOTMA provisions related to the exclusion of the family's HCV homeownership unit from the prohibition of the family having a present ownership interest in real property that is suitable for occupancy by the family, and the exclusion of the equity in the family's homeownership unit from the net family assets, is being implemented through a proposed rule published September 17, 2019, at 84 FR 48820.

a. PHA-Owned Units (§ 982.628(d)

HUD is proposing to make a clarifying change to § 982.628(d) to reference the definition of a PHA-owned unit in the proposed § 982.4.

b. Homeownership Counseling (§ 982.630(e))

The regulation currently allows a PHA to use a housing counseling agency that is not approved by HUD if the PHA ensures that the counseling program of such agency is consistent with the homeownership counseling provided under HUD's Housing Counseling program. HUD is proposing to revise the homeownership regulation to conform with current Housing Counseling requirements, which require any homeownership counseling to be conducted by a HUD-certified housing counselor working for a HUD-approved housing counseling agency. HUD believes that the homeownership counseling is a critical component for the success of the HCV homeownership program and believes this proposed change will help ensure that the counselor and the counseling meet acceptable standards.

c. Amount and Distribution of HAP (§§ 982.635(b), 982.641(f))

Currently, the utility allowance amount for a homeownership family is based on the lower of the size of the home purchased or the family unit size per PHA subsidy standards. The proposed rule would require that the utility allowance for a homeownership family always be based on the size of the home purchased. This will minimize the possibility of default when the family composition changes in the home because the amount of the

family's expenses for purposes of calculating homeownership assistance will still reflect the actual utility allowance for which the family is responsible.

The proposed rule also proposes to restructure the payment standard provisions and clarify that the payment standard amount used to calculate the family's homeownership assistance cannot be lower than what the payment standard was at the start of homeownership assistance. This is the current requirement, but HUD is proposing to refine the wording of the regulation so that the requirement is more easily understood.

12. PBV: When the Tenant-Based Voucher Rule Applies (§ 983.2)

Unit size and utility allowance schedule.

The regulation governing the utility allowance schedule for tenant-based assistance (§ 982.517(d)) requires the PHA to use the utility allowance for the lesser of the unit size rented by the family or the unit size per PHA subsidy standards (the size of the voucher). This provision is not applicable to the PBV program, because a family residing in a PBV-assisted unit must be housed in a unit consistent with the family unit size per the PHA subsidy standards. PBV regulations currently state at § 983.2(c)(3) that § 982.517 applies to the PBV program in its entirety. HUD proposes to make a technical correction to expressly provide that § 982.517(d), which states that the PHA must use the appropriate utility allowance for the lesser of the size of dwelling unit actually leased by the family or the family unit size as determined under the PHA subsidy standards, is not applicable to the PBV program. This change would further clarify that the PHA continues to use the utility allowance for the unit size leased by a family for the period of time prior to a family's move to an appropriately sized unit, in cases in which a family is in a wrong-sized PBV-assisted unit due, for example, to a change in family size.

Other technical fixes. HUD has taken this opportunity to clarify that § 982.201(e) does not apply to the PBV program. Section 982.201(e) provides that the PHA must receive information verifying that an applicant is eligible within the period of 60 days before the PHA issues a voucher to the applicant. However, voucher issuance is one of the HCV provisions that does not apply to the PBV program. HUD has also revised § 983.251(a)(2) to clarify that the PHA determines eligibility for admission of an applicant family (other than a voucher participant determined eligible at original admission to the voucher program) within 60 days before commencement of PBV assistance.

13. PBV Definitions (§ 983.3)

For administrative ease and convenience, the proposed rule would revise the PBV definitions section to include those part 982 terms that are also used in part 983. In limited cases, where there is a slight PBV distinction to the part 982 term, an annotation would be made in this section.

In addition to adding the applicable terms that are defined in part 982, the following terms would be added:

Applicant, areas where vouchers are difficult to use,

in-place family, participant,

tenant selection plan, transferee,

and

waiting list admission.

The terms

applicant, in-place family,

participant, tenant selection plan,

and

waiting list admission

were terms previously used but not defined in the regulation.

The following previously defined terms would be revised to conform to the HOTMA changes:

Agreement to enter into a HAP contract, development activity

(formerly “development”),

excepted units, existing housing,

newly constructed housing, rehabilitated housing,

and

Request for Release of Funds.

Also, the term

admission

would be revised to specify the date of admission for families that were not previously admitted to the HCV tenant-based program.

Areas Where Vouchers Are Difficult To Use

HOTMA establishes exceptions to the percentage limitation and income-mixing requirement for projects located in areas where vouchers are “difficult to use.” HUD requested comments on this provision on the January 18, 2017, notice, though it did not implement the provision at that time. Commenters offered a variety of suggestions for how HUD might define areas where vouchers are “difficult to use” such as: Rental vacancy rates; voucher lease-up success rates; areas with rapid rent appreciation; areas undergoing revitalization; and high-cost areas. Ultimately, HUD would adopt the following definition in this proposed rule: (1) A ZIP code area where the rental vacancy rate is less than 4 percent; or (2) A ZIP code area where 90 percent of the Small Area FMR is more than 110 percent of the metropolitan FMR. HUD took into consideration the ideas submitted but determined that many of them would be administratively burdensome to determine and/or monitor and, in some cases, not determinable for a specific area of a PHA's jurisdiction. Instead, HUD is proposing two factors that are easily identifiable and consistent data points.

Question 12.

HUD seeks feedback on this proposal, which defines areas where vouchers are difficult to use as areas where costs are high relative to metropolitan area FMRs. Keeping in mind that HUD wants the definition to be fairly straightforward (

i.e.,

not involving a complex calculation), is there a better way to identify such areas?

Existing Housing

With respect to the definition of existing housing, HUD is concerned that the current definition is overly broad. The current definition of “existing housing” is housing that exists on the proposal selection date and “substantially complies” with HQS on that date. By further defining what is meant by “substantially complies,” HUD intends to provide greater clarity to PHAs and prospective owners regarding whether a property may be selected as “existing housing” or must undergo rehabilitation prior to being placed under a HAP contract. This distinction becomes even more critical as this proposed rule is also implementing the HOTMA provision that eliminates the environmental review requirement for PBV existing housing in certain circumstances.

On June 25, 2014, at 79 FR 36145, HUD published a final rule making conforming changes to regulations as a result of the Housing and Economic Recovery Act of 2008 (HERA), entitled, “Changes to the Section 8 Tenant-Based Voucher and Section 8 Project-Based Voucher Programs” (HERA Final Rule). In that rule, HUD left the current definition of “existing housing” in place, while the preamble explained that HUD would continue to determine if changes were appropriate:

HUD will further consider what may be the best metric for determining compliance with HQS; that is, whether HUD should measure the amount of time that must pass from the date of selection to date of compliance or identify an appropriate dollar standard of the total amount of work that must be performed, or determine some other mechanism. HUD will resubmit for public comment any proposed changes to the definition of existing housing.

HUD is using this proposed rule to propose changes to the definition of existing housing as provided in the HERA Final Rule preamble. Under this proposed rule, the definition of existing housing would be revised to define “substantially complying” with HQS as a unit that has HQS deficiencies that require only minor repairs to correct (repairs that could reasonably be

expected to be completed within 48 hours of notification of the deficiencies). To qualify as existing housing, all proposed PBV units in the project must reasonably be expected to be in compliance with HQS within 48 hours of notification. Furthermore, to qualify as existing housing, the project is ready to go under HAP contract with minimal delay—after the unit inspections are complete, all proposed PBV units not meeting HQS could be brought into compliance to allow PBV HAP contract execution within 48 hours.

The distinction between PBV existing housing and PBV rehabilitation under the proposed rule is, at its essence, based on whether the units in their “as-is” condition either meet or can meet (with minimal repairs and little or no delay in HAP contract execution) the Housing Quality Standards, which would allow the PHA to promptly execute the PBV HAP contract with the owner. If the repairs are extensive in nature, or if the number of units that require repairs is so large that the HAP contract execution cannot occur within a relatively short amount of time, then the appropriate type of PBV for the project is rehabilitation.

HUD believes that this standard, which is based on the time the HQS repairs could reasonably be expected to take as the measure of substantial compliance and how promptly the project would be able to be placed under HAP contract, has advantages over the use of a dollar threshold because of the variation of repair costs across the country and because a cost measure would need to be adjusted periodically to reflect cost increases. It would also provide a common-sense standard—for a project to qualify as existing housing for PBV assistance, any repairs needed to bring the units into HQS compliance would have to be relatively minor in nature and easily completed. Any project requiring more extensive and time-consuming repairs would not qualify as existing housing and instead would be subject to the PBV rehabilitation requirements.

The current definition provides that the existing units must fully comply with the HQS before execution of the HAP contract. Since that requirement will not apply if the PHA is using either the alternative inspection or NLT option in fulfilling the initial HQS inspection requirements for the PBV existing housing project, HUD is proposing to revise the definition to state that the units must meet the pre-HAP inspection requirements, as opposed to HQS, prior to HAP execution.

Question 13.

HUD seeks comment on the proposed change to the definition of existing housing. Is the 48-hour standard reasonable, particularly for larger projects? Are there better alternative definitions of existing housing that would meet the objective of more clearly providing uniformity as to whether a project qualifies as existing housing? HUD also seeks comment on whether the definition should be tightened to prevent the circumvention of rehabilitation program requirements by selecting a project as existing housing when significant work is needed for the property to comply fully with HQS. For example, a previous proposed definition of existing housing provided that to qualify as existing housing, the owner must not be planning to perform rehabilitation work on the units within one year after HAP contract execution that would cause the units to be in noncompliance with HQS and that would total more than $1,000 per assisted unit.

Question 14:

The proposed and current definition of “project” is statutory and must be used to determine PHA compliance with the income-mixing requirement. HUD has applied this statutory definition to the PBV program in general for the sake of administrative consistency. Should HUD adopt a different definition of “project” for other elements of the PBV program? If so, what definition should HUD adopt, and for which program elements?

14. Cross-Reference to Other Federal Requirements (§ 983.4)—Labor Standards

The proposed rule would make changes to the description of labor standards to conform to the changes made elsewhere in the rule regarding the applicability of Davis-Bacon wage rates to the PBV program. Please see the detailed preamble discussion concerning the proposed Davis Bacon change in § 983.210, below.

15. Description of PBV Program (§ 983.5)

The proposed rule would revise § 983.5(a)(3) to conform it to changes made elsewhere in the rule that newly constructed or rehabilitated housing may be developed with or without an Agreement. Please see the below preamble discussion on the proposed change to implement the HOTMA provision that PBV housing may be developed without an Agreement if certain requirements are met at § 983.155.

The rule would also make another conforming change to § 983.5(d) to reference the new section on PBV provisions in the Administrative Plan that is proposed at § 983.10 and discussed later in this preamble. Finally, HUD is also proposing to revise this section to clarify that PBV assistance may be attached to both single-family and multifamily buildings, and that HCV administrative fee funding made available to the PHA is used for both the administration of tenant-based and project-based assistance.

16. Maximum Amount of PBV Assistance (§ 983.6)

HUD implemented the HOTMA PBV program limit provisions through the FR Implementation Notice. HUD is proposing to substantially revise § 983.6 to codify the new HOTMA requirements in the 24 CFR part 983 program regulations.

HOTMA changed the methodology used to calculate the PBV program limit from a budget authority percentage to a unit count, meaning that a PHA may project-base up to 20 percent of its authorized voucher units. This proposed rule updates § 983.6(a) to reflect that change. Notwithstanding the change in the program limit methodology, PHAs would still be responsible for determining that they have sufficient funding available to support the vouchers they are planning to place under a PBV HAP contract.

HOTMA also authorizes a PHA to project-base an additional 10 percent of its authorized voucher units, but only for units that serve the homeless, veterans, provide supportive housing to persons with disabilities or elderly persons, or are located in areas where vouchers are difficult to use. HOTMA also authorizes a PHA to project-base an additional 10 percent of its authorized voucher units, but only for units that serve the homeless, veterans, provide supportive housing to persons with disabilities or elderly persons, or are located in areas where vouchers are difficult to use. Under this proposed rule, solely for purposes of applying the additional 10 percent veterans exception to the PBV program cap, the term “veteran” means a person who served in the active military, naval, or air service, and who was discharged or released therefrom under conditions other than dishonorable, which is the definition of veteran defined by 38 U.S.C. 101. For purposes of determining this statutory cap exception, the term veteran needs to have a standard definition that is applied consistently by PHAs across the program. This definition does not preclude a PHA from applying the term “veteran” differently for other purposes of program administration. For example, the PHA could choose to apply a

broader standard as to who would qualify as a veteran when establishing a local preference for admissions for veterans. However, under this proposed rule in order for a PBV unit to qualify for the 10% exception on the basis that the unit is designated for veterans, the veteran must be a person who served in the active military, naval, or air service, and who was discharged or released therefrom under conditions other than dishonorable.

These additional units are covered by proposed changes in § 983.6(d). In addition, HUD would add a proposed definition of “areas where vouchers are difficult to use” to § 983.3, which is discussed in detail in section 13 of the section-by-section summary.

Commenters on the FR Implementation Notice suggested that other categories of units (

e.g.,

units that need preservation) should be made eligible for project-basing under the 10 percent exception; HUD however lacks the authority to except units that are not specified in statute.

Commenters also stated that limiting the exception to contracts that were first executed on or after April 18, 2017, as provided in the FR Implementation Notice, penalizes PHAs who have already made efforts to serve the populations favored with the exception. HUD lacks the statutory authority to apply the exception retroactively to units that were under contract prior to April 18, 2017. After further considering these comments, however, HUD proposes to allow units that are added to an existing contract under § 983.207(b) and are eligible for the exception to qualify for the exception, even if the existing contract itself was executed prior to April 18, 2017.

HOTMA excludes certain categories of units from this program limitation entirely (these are referred to in the proposed regulation as units excepted from the program cap and project cap). Please see the discussion concerning these units later in this preamble under § 983.59.

Lastly, under the current regulation at § 983.6(d), a PHA must submit information to HUD prior to issuing a request for proposals or otherwise selecting a project for an award of PBVs. The intent of the requirement is to assure that PHAs determine whether any new selection will push them above the statutory cap on project-basing. Taken as a whole, HOTMA significantly complicates this calculation through the number of different ways a cap may be expanded, or may not apply to a unit. In this proposed rule, HUD would eliminate the requirement at § 983.6(d) and establish a new § 983.58 that would state all the scenarios under which a PHA must perform calculations prior to project-basing additional units of assistance.

17. PBV Provisions in the Administrative Plan (§ 983.10)

The proposed rule would redesignate the current § 983.10, Project-based certificate (PBC) program, as § 983.11 and add a new § 983.10 to contain Administrative Plan requirements unique to the PBV program. It would define areas in which the PHA has discretion to establish policies with respect to such things as the PHA's standard for deconcentrating poverty and expanding housing and economic opportunity, waiting list management, and whether the PHA will retain the use of an Agreement for new construction/rehabilitation. The list provided in the rule is not intended to be an all-inclusive list; instead, the list highlights the major policy areas where the PHA has some discretion.

18. Project-Based Certificate (PBC) Program (§ 983.11)

HUD is proposing to redesignate § 983.10, Project-based certificate (PBC) program, to § 983.11. There are no proposed changes to the text.

19. Prohibition of Excess Public Assistance (§ 983.12)

HUD is proposing to add a new section as part of an effort to better organize and clarify the subsidy layering requirements for the PBV program. Currently, the subsidy layering requirements are found in § 983.55, which is found in Subpart B, Selection of PBV Owner Proposals. The prohibition of excess public assistance applies only to newly constructed and rehabilitated housing after the project is selected and placed under HAP. In order to better clarify the current requirements and to consolidate information related to development requirements, HUD is proposing to add a new § 983.12 that speaks generally to the prohibition of excess public assistance for PBV new construction and rehabilitated housing. The new section would refer readers to § 983.153(b) for the requirements related to placing new construction and rehabilitated housing under HAP contract. In addition, this new section would include language (currently found in the PBV HAP contract for new construction and rehabilitated housing) that the owner must disclose information to the PHA regarding any additional related public assistance that is made available with respect to the contract units during the term of the PBV new construction and rehabilitation HAP contract. In those instances, a new subsidy layering review would be required to determine if the additional assistance would result in excess public assistance in the project. The PHA must adjust the housing assistance payments to the owner if the additional public assistance results in excess public assistance to the project.

As is currently the case and in accordance with section 8(o)(13)(M)(i) of the 1937 Act, under this proposed rule the subsidy layering requirements never apply when a PHA is attaching PBV assistance to existing housing, either prior to HAP contract execution or during the term of the contract.

20. Owner Proposal Selection Procedures (§ 983.51)

HOTMA authorizes a PHA that is engaged in an initiative to improve, develop, or replace a public housing property or site to attach PBV assistance to an existing, newly constructed, or rehabilitated structure in which the PHA has an ownership interest or over which the agency has control without following a competitive process, as long as the PHA has notified the public of its intent to do so through its PHA Plan. While the PHA must have ownership interest in or control over the project to attach PBV assistance to it without following a competitive process, it is important to emphasize that having “ownership interest” in the project does not mean that the unit must meet the definition of PHA-owned unit. An ownership interest means that the PBV PHA or its officers, employees, or agents are in an entity that holds any direct or indirect interest in the project in which the units are located, including but not limited to an interest as: Titleholder, lessee, stockholder, member, or general or limited partner; or member of a limited liability corporation. A PHA ownership interest also includes cases where the PBV PHA is the lessor of the ground lease for the land upon which the PBV project is located. With this proposed rule, HUD proposes to codify this HOTMA provision in the 24 CFR part 983 regulations, which was previously implemented in the FR Implementation Notice. In § 983.51(c) under the proposed rule, the PHA may select a project in their public housing inventory, or a project that may have been removed from the public housing inventory through any available legal removal tool within 5 years of the proposal selection date. In accordance with § 983.54, Prohibition of assistance for units in subsidized housing (redesignated as § 983.53 in this

proposed rule), the PHA may not attach or pay PBV assistance until the public housing units are removed from the public housing inventory. HUD would also make clear in this proposed rule that newly developed or replacement housing developed under this authority need not be on the same site as the original public housing, in contrast with replacement units for which a PHA is claiming an exception from the PBV program and project caps (see § 983.59(d)).

HUD is also proposing to eliminate the $25,000 per unit cost requirement for rehabilitation and new construction that was part of the initial implementation requirements for this HOTMA provision in the FR Implementation Notice by not proposing it in this rule. The purpose of the cost test was to ensure that the PHA was truly engaged in an initiative to improve the public housing project or site and not simply avoiding following the competitive selection process by undertaking minor repairs at the project. However, by its very nature, a PBV new construction project is replacing the public housing project, which fulfills the HOTMA requirement that the PHA is engaged in an initiative to improve, develop, or replace the public housing project or site. Likewise, if the project will be assisted through PBV for rehabilitated housing, the rehabilitation that is undertaken in order to attach the PBV assistance to the project constitutes an initiative to improve the project.

In addition, HUD is also proposing, at § 983.51(c)(2), to allow a PHA that is engaged in an initiative to improve, develop, or replace a public housing property or site to attach PBV assistance to an existing, newly constructed, or rehabilitated structure without following a competitive process in cases where the PHA has no ownership interest or control over the site but where the PHA is administering the PBV assistance because the public housing project in question is owned by another PHA that does not administer the HCV program. The public housing project must either still be in the public housing inventory or removed from the public housing inventory through any available legal removal tool within 5 years of the proposal selection date. In addition, the PBV assistance must have been specifically identified as the replacement housing for the impacted public housing residents as part of the public housing demolition/disposition application, voluntary conversion application, or any other application process submitted to and approved by HUD to remove the public housing project from the public housing inventory. HUD believes under these limited circumstances the administering PHA should be able to attach the PBV assistance to the public housing project without following a competitive process since the conversion of the project to PBV assistance was part of the overall plan approved by HUD to reposition the project and preserve it as affordable housing for the public housing residents and the community.

HUD is proposing several non-HOTMA related clarifications to this section. HUD would add a reference to the required PHA inspections that must occur prior to the proposal selection that are covered elsewhere in the regulation since those requirements are a key component of the proposal selection process (§ 983.51(e)). HUD is also proposing to define the proposal selection date (§ 983.51(g)). For projects selected through a request for proposals or based on a previous competition, the proposal selection date would be the date on which the PHA provides written notice to the party that submitted the selected proposal. For former public housing projects selected without a competitive process, the date of proposal selection would be the date of the PHA's board resolution approving the project-basing of assistance at the specific project. This change is intended to ensure that the date of selection is consistently applied in relation to a project's eligibility for selection based on a previous competition or without regard to a competitive process. Finally, the proposed rule would add a new paragraph (k), which serves as a reminder that a PHA may not commit project-based assistance to a project if the owner or any principal or interested party is debarred, suspended, subject to a limited denial of participation, or otherwise excluded under 2 CFR part 2424 or is listed on the U.S. General Services Administration list of parties excluded from Federal procurement programs.

Question 15:

Are there other situations that should be exempt from competitive selection requirements? For example, should HUD also exempt the placement of project-based vouchers that are used to replace previously federally assisted or rent-restricted properties from competitive selection requirements?

21. Prohibition of Assistance for Ineligible Units (§ 983.52)

HUD would redesignate § 983.53, Prohibition of assistance for ineligible units, as § 983.52. HUD is proposing to delete the current § 983.52, Housing Type, cover the definition of existing housing in § 983.4, and incorporate the provisions currently found at § 983.52(a)(1) and (2) into the newly designated § 983.52(d). HUD would also revise § 983.52(d) in this proposed rule to conform with the proposed implementation of the PHA option to undertake PBV development without an Agreement under § 983.155 that is discussed later in this preamble.

22. Prohibition of Assistance for Units in Subsidized Housing (§ 983.53)

HUD would redesignate § 983.54, Prohibition of assistance for units in subsidized housing, as § 983.53. There are no proposed changes to the current text.

23. Cap on Number of PBV Units in Each Project (§ 983.54)

HOTMA made significant changes to the PBV project cap (also known as the income-mixing requirement) that determines how many units in a particular project may be PBV assisted. These HOTMA changes were implemented by the FR Implementation Notice. HUD is proposing to modify the PBV regulation (most notably at §§ 983.54 and 983.262) to conform to all of these statutory changes as implemented in the FR notice.

In this proposed rule, HUD would redesignate § 983.56, Cap on number of PBV units in each project, as § 983.54 and revise § 983.54 to codify the following HOTMA requirements:

Under HOTMA, the project cap is whichever number is greater: 25 units or 25 percent of units (assisted or unassisted) in the project. This means that a project with 25 or fewer units may be fully assisted with project-based vouchers, provided all other PBV requirements are met.

HOTMA also makes changes to the exceptions to the project cap. Prior to HOTMA, dwelling units specifically made available to elderly families, disabled families, and families receiving supportive services were excepted from the project cap. HOTMA retains the exception for elderly families, modifies the exception for families receiving supportive services so that families must simply be “eligible for” supportive services, and eliminates the exception for disabled families, while grandfathering in the exception for projects that were under a PBV HAP contract prior to April 18, 2017. HOTMA also excluded certain categories of units from the project cap entirely (these are referred to in the proposed regulation as units excepted from the program cap and project cap and discussed at § 983.59 below). HOTMA also allowed a higher (40 percent) project cap in two scenarios:

Where the project is in a Census tract with a poverty rate of 20 percent or less, and where the project is in an area where vouchers are difficult to use. As stated previously, the definition of “areas where vouchers are difficult to use” has been added to § 983.4.

Public comments in response to the January 18, 2017, notice were mostly in the context of the supportive services exception. Several commenters stated that failure to complete a Family Self-Sufficiency (FSS) contract should not result in termination and eviction of the family. HUD addressed this comment in the July 14, 2017, technical corrections notice, explaining that current FSS requirements do not allow termination from the housing assistance program for failure to complete the FSS contract of participation. Accordingly, in this rule HUD also proposes to remove the provision at § 983.257(b), which permitted lease termination by the owner where a family failed to complete its FSS contract without good cause. As is the case under the FR Implementation Notice, the proposed rule would also clarify that a PHA that administers an FSS program may use FSS as part of its supportive services package in meeting the project cap supportive services exception. However, the PHA may not rely solely on FSS in meeting the exception. A PHA could, however, make the supportive services used in connection with the FSS program available to non-FSS PBV families at the project.

Other commenters proposed that HUD should not require supportive services to be made available to all families in a project, but that the services should be made available just to those units designated as supportive housing units. HUD is unable to implement such a change through regulation because it would be in conflict with the current statutory language.

The proposed rule would also clarify, as stated in the January 18, 2017, notice, that HAP contracts in effect prior to April 18, 2017, remain obligated by the terms of those HAP contracts with respect to the requirements that apply to the number and type of excepted units in a project, unless the owner and the PHA mutually agree to change those requirements. HUD has also taken this opportunity to propose to specify that the PHA has discretion to determine whether to except units and the number of units to be excepted (see § 983.54(d)). The proposed rule would remove the reference to combining exception categories in a project. This is because while a PHA may offer both the elderly and the supportive services exception categories at a project, the supportive services exception requires that the supportive services be available to all PBV-assisted families at the project, making such combination provision irrelevant.

The proposed rule would revise § 983.262, When occupancy may exceed the project cap, to codify the HOTMA changes regarding the project cap. Because these changes are so closely related to the proposed revisions to § 983.54, they are described in detail both here and later in the preamble discussion at § 983.262. In § 983.262(b), the proposed rule would clarify that while a PHA may establish criteria for occupancy of particular units in ensuring that excepted units are occupied by a family who qualifies for the exception, families who will occupy excepted units must be selected through an admissions preference. Section 983.262(c) would set forth the requirements for the supportive services exception to apply. The unit would be excepted if any member of the family is eligible for one or more of the supportive services, even if the family chooses not to participate in the services. Also, if any member of the family successfully completes the supportive services, the unit would continue to be excepted for as long as any member of the family resides in the unit. The unit would only lose its excepted status if no member of the family successfully completed the supportive services and the entire family becomes ineligible during the tenancy for all supportive services that are made available to the residents of the project.

The proposed § 983.262(c) would provide that a family may not be terminated from the program or evicted from the unit when the unit loses its excepted status. Under this proposed rule, the § 983.262(d) (formerly (e)) requirements concerning wrong-sized units would be revised to remove the reference to disabled family members since, under HOTMA, there is no longer an exception to the income mixing requirement for disabled families. The current regulatory provisions continue to apply under the proposed rule to excepted elderly units in cases where the elderly family member no longer resides in the unit but the PHA allows the remaining family members to remain in the unit. The proposed regulation (in § 983.262(f)) also addresses the options available to the PHA when an excepted unit loses its excepted status.

Question 16.

Does the proposed rule sufficiently address the project cap requirements in relation to a unit losing its excepted status?

Question 17.

Should other options not considered by the proposed rule be available to the PHA when a unit loses its excepted status?

Question 18.

Does the regulation clearly convey how FSS may be used in meeting the supportive services exception?

24. Site Selection Standards (§ 983.55)

HUD would redesignate § 983.57, Site selection standards, as § 983.55. There are no changes to the regulatory text.

25. Environmental Review (§ 983.56)

HUD would redesignate § 983.58, Environmental review, as § 983.56. HUD is proposing to revise the environmental review requirements for existing housing in accordance with section 106(a)(8) of HOTMA. Section 106(a)(8) of HOTMA amended section 8(o)(13)(M)(ii) of the 1937 Act, which addresses environmental reviews for existing PBV projects. The provision in the 1937 Act was originally added by section 2835 of the Housing and Economic Recovery Act (HERA),

and read as follows:

Public Law 110-289, approved July 30, 2008.

A public housing agency shall not be required to undertake any environmental review before entering into a housing assistance payments contract under this paragraph for an existing structure, except to the extent such a review is otherwise required by law or regulation.

However, as HUD explained in the November 24, 2008,

Federal Register

notice implementing HERA changes, the original statutory provision was problematic in that it exempted PHAs, which do not undertake environmental reviews, instead of responsible entities or HUD, which do the reviews. In addition, environmental reviews are always conducted as a result of a statutory or regulatory requirement. The notice concluded that the HERA provision did not eliminate any environmental reviews.

See

82 FR 5458.

HOTMA addressed the second of these two problems, by requiring reviews when the review is required by law or regulation “relating to funding other than housing assistance payments.”

Therefore, any

environmental reviews required just because of the provision of HAP would no longer be required. However, the language of HOTMA still left in place the part of the 1937 Act that exempted PHAs instead of responsible entities. A basic canon of statutory construction is that a statutory provision should be read so as to give every word meaning.

Accordingly, despite the continued presence of the word “PHA”, HUD is seeking to give effect to the apparent intent of Congress expressed in HOTMA. While it is the responsible entity that actually undertakes the environmental review, HUD believes that Congress referred to PHAs in the provision because they are responsible for ensuring that the required review has been conducted before undertaking a project or activity. Thus, rather than rendering the statutory provision (and the subsequent amendment in HOTMA) a nullity, the reference to PHAs emphasizes that it is these entities that will be held accountable by HUD for compliance with the environmental review requirements prior to undertaking an activity.

Section 106(a)(1) of HOTMA also changed the word “structure” to “project” throughout paragraph 8(o)(13) of the 1937 Act. Consequently section 8(o)(13)(M)(ii) as amended by HOTMA reads “(ii) Environmental review.—A public housing agency shall not be required to undertake any environmental review before entering into a housing assistance payments contract under this paragraph for an existing project, except to the extent such a review is otherwise required by law or regulation relating to funding other than housing assistance payments.”

See Alaska Department of Environmental Conservation

EPA,

providing that a statute should be construed so that, “if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant” (540 U.S. 461, 489 n.13 (2004)).

In endeavoring to give full effect to the words of section 8(o)(13)(M)(ii) of the 1937 Act, HUD is also cognizant that the statute provides only a partial exemption to environmental reviews. Specifically, the applicability of the provision would be limited to “existing projects.” Environmental reviews would continue to be applicable to PBV rehabilitation and new construction projects. The limited scope of the proposed exemption from environmental reviews reflects Congress's continuing emphasis on the importance of Federal assistance being used in an environmentally sound manner. For example, statutory provisions authorizing HUD to waive, or establish alternate, statutory requirements explicitly exclude environmental, labor, and fair housing statutory requirements.

See, e.g.,

the Rental Assistance Demonstration (RAD) Program in the Consolidated and Further Continuing Appropriations Act, 2012 (Pub. L. 112-55, approved Dec. 23, 2011); and appropriations for the Community Development Block Grant Disaster Recovery programs in Public Laws 115-23 (approved April 13, 2017) and 115-72 (approved October 16, 2017).

Another generally accepted principle of statutory construction is that the words of statutory provisions should be read so as to avoid results inconsistent with expressed congressional intent.

A superficial reading of the statutory provision would exempt all existing projects where PBV assistance is being added from environmental review and only require that newly constructed and rehabilitated housing comply with environmental requirements, even if such existing project had never had an environmental review performed. Such a reading appears to be in contravention of Congress's oft-repeated intent that housing assisted with site-based rental assistance comply with Federal environmental review requirements. To avoid what HUD believes is this unintended consequence, this rule proposes to allow an exemption from further environmental review if an existing housing project has ever undergone an earlier environmental review pursuant to receiving any form of federal assistance. In other words, if a project that meets the definition of “existing housing” as defined in the PBV regulations for program purposes has not previously undergone a federal environmental review because it did not receive federal assistance, then the project would not be exempt from an environmental review. HUD believes this reading strikes the appropriate balance between granting PHAs relief from the burden of duplicative environmental reviews while ensuring that all HUD assistance complies with Federal environmental standards.

See Church of the Holy Trinity

United States,

143 U.S. 457 (1892).

Question 19.

HUD recognizes that properties that were previously Federally assisted and conducted their environmental reviews long ago may not be able to access documentation proving the review was conducted. How should HUD ensure that a review was conducted for those properties? Should HUD revise the requirement so that any existing PBV project that was formerly federally assisted and would have been subject to a federal environmental review (and an environmental review is not otherwise required by law or regulation related to funding other than PBV housing assistance) would qualify for the exception regardless of whether any environmental review documentation is available?

Question 20.

How administratively burdensome will it be for owners to demonstrate that an environmental review was conducted for the project in the past? Is such information readily available to a project owner, even if the environmental review may have been conducted many years ago?

Question 21.

Should the final rule establish a time limit for accepting environmental reviews conducted for previously Federally assisted properties? For example, if the environmental review for such a property was conducted 25 years ago, should HUD require that a new review be conducted? If such a limit is appropriate, what should the time limit be?

Question 22.

HUD's legal reading of section 8(o)(13)(M)(ii)—upon which the proposed implementation of the PBV existing housing exception from environmental review requirements is based—is that the intent of the statute is not to except all existing PBV projects from environmental reviews but rather to balance the PBV existing exception against Congress's intent that HUD-assisted housing comply with Federal environmental review requirements. Are there alternative approaches to striking this balance that would be preferable to HUD's proposed implementation of the environmental review exception for PBV existing projects? For example, project-based vouchers may be attached to existing projects with non-Federal affordable housing financing. HUD is interested in what non-Federal financing and financial closing also include review of contamination screening, floodplain management, flood insurance map reviews, or other environmental risk mitigation requirements. Are there site suitability reviews that occur in the non-Federal assistance context that would address HUD's concerns that PBV assistance is not attached to buildings or sites that pose potential risks to the residents' health and safety or the viability of the project?

26. PHA-Owned Units (§ 983.57)

HUD would redesignate § 983.59, PHA-owned units, as § 983.57. The redesignated § 983.57 governs the selection of PHA-owned units and the role of independent entities in operating such units in the PBV program. Most of the changes in this section are intended to improve readability. However, § 983.57(b)(1) would specify that, in addition to determining the rent to the owner, the independent entity must determine OCAF adjustments. This is a new responsibility for the independent entity, resulting from the HOTMA provision that allows for rent adjustments under the PBV program using an OCAF established by the Secretary and published in the

Federal Register

. HUD is proposing to implement the OCAF option in this rule at § 983.302(b)(2); please see the related discussion on the OCAF rent adjustment option later in this preamble.

Additionally, in § 983.57(b)(4), HUD is proposing that, when PHAs carry out development or rehabilitation of PBV PHA-owned units, the PHA must submit evidence to the independent entity that the work has met applicable requirements. HUD believes the determination that the development or rehabilitation of the PHA-owned PBV project has met the applicable requirements should be added to the responsibilities of the independent entity. The PHA, as the owner of the PBV project, has a conflict in making that PHA determination for the HAP contract to be executed.

27. PHA Determination Prior to Selection (§ 983.58)

Under the current regulation at § 983.6(d), a PHA must submit information to HUD prior to issuing a request for proposals or otherwise selecting a project for an award of PBVs. The intent of the requirement is to assure that PHAs determine whether any new selection will push them above the statutory cap on project-basing. Taken as a whole, HOTMA significantly complicates this calculation through the number of different ways a cap may be expanded or may not apply to a unit. In this proposed rule, HUD would eliminate the requirement at § 983.6(d) and establish a new § 983.58 that states all the scenarios under which a PHA must perform calculations prior to project-basing additional units of assistance. Under the proposed § 983.58, the PHA would determine, in accordance with the program limit requirements at § 983.6, if it is able to project-base additional vouchers before it issues a request for proposals or makes a selection based on a previous competition, attaches assistance without competition in accordance with the proposed requirements of § 983.51(c) of this rule, or when it amends a current HAP contract to add units in accordance with § 983.207(b).

28. Units Excepted From Program Cap and Project Cap (§ 983.59)

HOTMA excepts certain types of units from both the program cap and the project cap. These are units that were previously subject to certain federal rent restrictions or that were receiving another type of long-term housing subsidy provided by HUD. HUD implemented the exception for these units as part of the FR Implementation Notice. Because the lists for both exceptions are the same, HUD proposes to establish a new § 983.59, which would list the types of units that are covered by the exceptions in §§ 983.6 (program cap) and 983.54 (project cap). Also, in response to comments received on the January 18, 2017, notice, HUD has included two additional types of units in the list of units “previously subject to federally required rent restrictions” that were not included in the list of excepted units implemented under the FR Implementation Notice: (1) Units financed with Low-Income Housing Tax Credits (26 U.S.C. 42) and (2) units subsidized with Section 515 Rural Rental Housing Loans (42 U.S.C. 1485). In addition to listing the covered units, the proposed rule would codify the existing FR Implementation Notice requirement that the unit must have received one of the covered forms of HUD assistance or been subject to one of the covered federally required rent restrictions in the 5 years prior to the date of the request for proposals or the date of selection (without competition or a selection based on a prior competition).

As was provided under the FR Implementation Notice, HUD is also proposing to exclude HUD-VASH vouchers specifically designated by HUD for project-based assistance from the PBV program limits and project caps. The proposed rule would also clarify that PBV units under the Rental Assistance Demonstration (RAD) are not subject to the program limitation or project caps.

Finally, the proposed rule would address the issue of when newly constructed units developed under the PBV program may be excluded from the program limitation and project cap because they are replacing units that meet the criteria of excepted units because the units were formerly subject to federal rent restrictions or were receiving HUD assistance. As is the case under the FR Implementation Notice, the newly constructed unit would have to be located on the same site as the unit it is replacing; however, expansion or modification to the prior project's site boundaries is acceptable under certain conditions. In addition, the primary purpose of the newly constructed units would be required to replace the previous federally assisted or rent-restricted eligible units. The PHA would be able to demonstrate compliance with this requirement by giving former residents of the original project a selection preference that provides the residents with the right of first occupancy at the PBV new construction project, or, prior to the demolition of the original project, identifying the PBV new construction project as replacement housing as part of a documented plan for the redevelopment of the site.

While HOTMA significantly expands the potential number of vouchers that may be project-based through this broad exception policy, PHAs considering increasing their use of project-basing are cautioned that all other PBV requirements apply to these formerly federally assisted or rent-restricted excepted units, including that a family occupying the PBV unit still has the right to move with tenant-based assistance after 12 months of occupancy. Section 8(o)(13)(E) of the 1937 Act (42 U.S.C. 1437f) provides that a PHA must provide HCV tenant-based assistance or comparable tenant-based assistance to a family that seeks to exercise this right. If such assistance is not immediately available, then the PHA must provide the family with priority to receive the next voucher (or other tenant-based assistance) that becomes available. PHAs with large percentages of PBV units as a result of these exceptions may find it increasingly challenging to reach families on the tenant-based waiting list, as families moving under the statutory mobility requirements of the PBV program have priority over waiting list families for the next available voucher.

Question 23.

HUD recognizes that PBV assistance can be an effective tool to preserve affordable project-based housing units in a community. However, HUD is concerned about the unintended consequences that over-use of this broad and unlimited exception authority may have in terms of the PHA's ability to meet its obligations to provide families with tenant-based vouchers when they wish to exercise their statutory right to move from the PBV unit with tenant-based assistance. Since these families are given priority for the next available voucher, this concern also has significant implications for families on the tenant-based waiting list and the PHA's ability to address the local needs and priorities of their communities through the reissuance of turnover vouchers. HUD seeks comment on this issue. For example, should PHAs that wish to project-base vouchers over a certain number threshold be required to analyze the impact on the availability of vouchers and demonstrate that they will still have sufficient tenant-based vouchers (or other voucher assistance) available within a reasonable period of time for eligible PBV families that wish to move? What other approaches should be considered to address this concern? Is there a specific threshold in terms of the overall percentage of vouchers that are project-based where the PHA and/or HUD should focus on the potential impact on the availability of tenant-based assistance to provide PBV

families with a meaningful opportunity to move with tenant-based assistance?

29. Housing Quality Standards (§ 983.101)

HUD is proposing to make a conforming change to § 983.101(e) as part of the changes to implement the HOTMA provision that permits the PHA to enter into a PBV HAP contract with an owner that is under construction or recently has been constructed whether or not the PHA and owner sign an Agreement (see preamble discussion below at § 983.155). This change would remove the requirement that any additional requirements for quality, architecture, or design of PBV housing establish by the PHA must be specified in the Agreement (since there is no Agreement if the PHA opts not to require the Agreement).

30. Inspecting Units (§ 983.103)

As discussed previously in this preamble, HOTMA made significant changes to the inspection requirements for both HCV tenant-based and project-based assistance. Please see the description of all the HOTMA section 101 changes to the unit inspection requirements in § 982.305. HUD is proposing to change § 983.103 to codify the PBV-related inspection requirements previously implemented under the FR Implementation Notice, as well as proposing new requirements to implement the HOTMA HQS enforcement and family relocation provisions that were not covered by the notice.

This proposed rule would revise § 983.103 to codify the initial inspection options (NLT and alternative inspections) that were implemented under the FR Implementation Notice. However, HUD proposes in this rule to limit the use of the NLT and alternative inspection options to existing housing. Regarding the NLT deficiencies initial inspection option, HUD's view is that the provision of PBV assistance for new construction or rehabilitation is intended to increase the supply of affordable housing that is decent, safe, and sanitary. HUD's expectation, therefore, is that newly constructed or rehabilitated units will fully meet Housing Quality Standards (

i.e.,

such units will have no HQS deficiencies).

With respect to the use of an alternative inspection option for the initial HQS inspection, HUD cannot identify a scenario under which a PHA could realistically rely on an alternative inspection completed prior to the rehabilitation. The unit, by virtue of the rehabilitation, is no longer in the same condition as it was at the time of the alternative inspection. Furthermore, if the rehabilitation was done improperly, then the unit may have unsafe conditions that did not exist at the time of the alternate inspection. As for newly constructed units, the alternative inspection provision does not appear to be a viable option, because, prior to construction, the units did not exist.

Similar to the proposed change for HCV tenant-based assistance in § 982.406, HUD is proposing to change the time frame by which the PHA must conduct its own inspection of the unit for existing PBV housing under the initial HQS inspection alternative inspection. For both tenant-based and project-based units under this proposed rule, the PHA would be required to conduct HQS inspections on all the assisted units within 30 days of the project selection date, as opposed to the 15-day standard established under the FR Implementation Notice.

HUD also proposes clarifying changes to § 983.103 to expressly provide the timeframes within which the PHA must conduct an inspection when notified of a potential life-threatening or non-life-threatening deficiency in a PBV unit. If the family or a government official notifies the PHA of a potentially life-threatening deficiency, the PHA would have to inspect the unit within 24 hours and notify the owner if the life-threatening deficiency is confirmed. If the reported condition is non-life-threatening, the PHA would have to inspect the unit, and provide the owner notification if the deficiency is confirmed, within 15 days. The rule further proposes that the owner may provide photographic evidence or other reliable evidence to the PHA in order for the PHA to verify that a defect has been corrected.

In addition to codifying the HOTMA initial inspection options for PBV, § 982.103 would be revised for clarity regarding the inspection of units prior to proposal selection (§ 983.103(a)) and HAP contract execution (§ 983.103(b)). These clarifying changes would also include revising the text to incorporate the proposed new definition for PBV existing housing, which is discussed in subsection 13 of the section-by-section summary.

The current regulation requires the independent entity to provide a copy of the inspection report for a PHA-owned PBV unit to the PHA and to the HUD field office. To reduce administrative burden, HUD proposes to remove the requirement that the report be provided to the HUD field office, instead proposing to require that the independent entity or PHA must provide the report to the field office upon request.

Question 24.

HUD requests comment on the use of the NLT and alternative inspection options for PBV new construction and rehabilitation. Are there circumstances where it would be acceptable for a newly constructed or rehabilitated PBV unit to fail to meet HQS once the construction or rehabilitation was completed, making the NLT a reasonable option for PHAs? Are there circumstances where the alternative inspection option can fulfill the initial HQS inspection requirements for PBV rehabilitation or new construction?

31. Applicability (§ 983.151)

HUD is proposing to substantially restructure Subpart D (§§ 983.151 through 983.157). HUD solicits comment on the reorganization of this subpart, which is intended to provide clarity regarding the applicability of development requirements. Section 983.151 would be revised to better express Subpart D's purpose, which is to set forth the requirements related to development activity under the PBV program, including those requirements related to development activities undertaken on units that are under HAP contract (discussed below at § 983.157).

32. Nature of Development Activity (§ 983.152)

A new § 983.152 would explain which sections and requirements of Subpart D are applicable to an owner undertaking development activity for the purpose of either placing a project under a HAP contract (newly constructed and rehabilitated housing) or, in the case of a partially assisted project (

e.g.,

a project that includes both PBV-assisted and unassisted units), in order to add additional units in the project to the PBV HAP contract. (A new § 983.157 would cover when development activity may be undertaken for units assisted under a HAP contract and what requirements apply.) All the development requirements under § 983.153 would apply to development activity undertaken to place newly constructed or rehabilitated housing under a HAP contract. For development activity undertaken to add previously unassisted units in the project to a HAP contract, the development requirements related to equal employment opportunity, accessibility, and broadband infrastructure would apply, as applicable.

33. Development Requirements (§ 983.153)

In this rule HUD is proposing to re-designate § 983.154, Conduct of Development Work, as § 983.153, and re-title the section “Development Requirements.” HUD believes that consolidating the development requirements in one section of the regulations will provide greater clarity and ease of understanding to PHAs and owners.

The development requirements described in this section would include subsidy layering reviews (see the related discussion at § 983.12), labor standards (please see the discussion regarding Davis-Bacon requirements in this preamble at § 983.210), equal opportunity (section 3 of the Housing and Urban Development Act of 1968 (12 U.S.C. 1701u), and the implementing regulations at 24 CFR part 135), equal employment opportunity, accessibility, broadband eligibility, and eligibility to participate in federal programs and activities. These requirements are the same requirements that are currently applicable to development activities carried out for newly constructed and rehabilitated housing.

34. Development Agreement (§ 983.154)

This section would cover the existing requirements for the Agreement in terms of the timing of the execution of the Agreement and the required contents, which are found in the current regulations at § 983.152, and implement a new HOTMA provision under which the PHA may choose not to execute an Agreement. HOTMA creates new discretionary authority for a PHA to enter into a PBV HAP contract with an owner for housing that is under construction or recently has been constructed whether or not the PHA and owner sign an Agreement to Enter into a HAP contract (Agreement). The law provides that, even when an Agreement is not used, an owner must be able to demonstrate “compliance with applicable requirements prior to execution of the housing assistance payments contract.” HUD interprets this language to mean that a PHA must affirm, for any work done after proposal submission and prior to proposal selection, that the owner has complied with all such requirements. Once the PHA has affirmed that any work done from the point of proposal submission complies with all such requirements, the two parties may enter into an Agreement—or not. Under either scenario, all work completed from the point of proposal submission forward would have to be developed and completed in compliance with the applicable requirements.

35. Completion of Work (§ 983.155)

HUD is proposing to revise the section, Completion of Work, to conform to the change that the PHA may enter into the PBV HAP contract without first entering into an Agreement. In addition, HUD is proposing that the PHA shall determine the form and manner by which the owner must submit evidence and certify to the PHA that the development activity was completed and all such work was completed in accordance with the applicable requirements, rather than regulation specifying those requirements.

36. PHA Acceptance of Completed Units (§ 983.156)

HUD is proposing to revise this section to conform to the change that the PHA may enter into the PBV HAP contract without first entering into an Agreement.

37. Development Activity on Units Under a HAP Contract (§ 983.157)

HUD is proposing to add a new section to cover development requirements should the owner undertake development activity on units under HAP contract. HUD recognizes that, given that PBV HAP contracts may be in effect for twenty years or longer, owners may need over the course of the contract to undertake work that meets the definition of development activity. In addition, standards need to be established to prevent the circumvention of development requirements where units are placed under a HAP contract as existing housing even though the owner intends to undertake significant development activity on the assisted units shortly thereafter.

HUD proposes to permit development activity on units currently under HAP contract if the owner is approved to do so by the PHA. However, except in extraordinary circumstances (such as repairs necessitated due to a fire or natural disaster), this would normally occur within the first five years from the effective date of the HAP contract. The owner's request would have to include a description of the proposed development activity and the length of time, if any, that it is anticipated that some or all the assisted units will not meet HQS as a result of the development activity. The owner's request would be required to include a description of how the families will be rehoused during the period that their unit does not comply with Housing Quality Standards because of the development activity. Housing assistance payments would not be made during the time the units are not in compliance with the Housing Quality Standards during the development activity.

The proposed rule would provide that the development requirements for equal employment opportunity, accessibility standards, and broadband infrastructure apply, as applicable. The other development requirements under § 983.153, the Development agreement requirements at § 983.154, and the PHA acceptance of unit requirements at § 983.156 would not apply.

Question 25:

HUD is specifically seeking comment on the time period proposed within which development work would not be permitted except in extraordinary circumstances. Is five years within the first five years from the effective date of the HAP contract a reasonable time frame? The intent of establishing such a timeframe is to prevent the circumvention of PBV requirements that apply for PBV rehabilitation projects but not existing housing (

e.g.,

environmental reviews in certain circumstances, subsidy layering reviews, Davis Bacon, etc.) but not to preclude post-HAP execution work that would improve the quality of the housing for the assisted families or to protect the longer-term health and continued viability of the project. Are there alternative time-frames or other approaches that would better balance and address these two concerns? Are there reasonable, routine reasons why an owner may need to or choose to perform development activity within the first five years of the effective date of the HAP contract (please provide examples)?

Question 26:

Given that owners of properties under PBV contract will periodically need to undertake development to modernize and rehabilitate properties, has HUD laid out reasonable guidelines for undertaking development activity on units under a HAP contract?

38. HAP Contract Information (§ 983.203)

HUD is proposing to revise § 983.203, HAP contract information, so that the current reference to units that exceed the normally applicable project cap in paragraph (h) accurately reflect the new HOTMA exceptions. Unrelated to HOTMA, the section has proposed revisions to expressly state the features described in the HAP contract provided to comply with program accessibility requirements include those related to the Fair Housing Act and the Americans

with Disabilities Act, as applicable, in addition to section 504 of the Rehabilitation Act. Finally, HUD proposes to require that the PBV HAP contract specify whether the PHA has elected not to reduce rents below the initial rent to owner. The current regulations at § 983.302(c)(2) provide that if the PHA has elected, within the HAP contract, to not reduce rents below the initial rent to owner, the rent to owner may not be reduced below the initial rent except in certain circumstances. However, the current regulation lacks a corresponding provision in § 983.203, which covers HAP contract information. The proposed change would better align the two sections with respect to this HAP contract provision.

39. When HAP Contract Is Executed (§ 983.204)

As previously discussed, the proposed rule would address how the PHA executes the HAP contract for a PHA-owned unit for both tenant-based units (§ 982.451(c)) and project-based units (§ 983.204(d)). Please see the earlier discussion at § 983.451(c).

HUD has not provided a HUD-prescribed certification option for the Agreement to Enter into a HAP Contract (Agreement) for PHA-owned units, as it has for the HAP contract. While a PHA may not enter into an Agreement with itself for a PHA-owned unit where the PHA (not a separate legal entity) is the owner, the PHA has the option to not require the Agreement for PBV new construction and rehabilitated projects. The PHA could either create a separate legal entity to execute the Agreement as well as the HAP contract as the owner, or could use its discretion to not require the Agreement. (The PHA as the owner could still decide to voluntarily meet the Davis-Bacon wage requirements if it wanted to do so, regardless of the fact the Davis-Bacon wage requirements are not applicable if the PHA does not require the use of the Agreement. See related discussion concerning the Davis-Bacon requirements at § 983.210.)

HUD is also proposing to conform § 983.204 to address proposed changes related to initial inspections discussed in detail elsewhere in this preamble. HUD is proposing to revise the existing language in § 983.204(a) and (b) to reflect that for PBV existing housing, the PHA may use the initial inspection NLT and alternative inspection options. The language would reflect that the PHA must determine that the applicable pre-HAP contract HQS requirements have been met, rather than specifying requirements that may not be applicable if the PHA implemented and applied either initial inspection option to the PBV existing project.

Likewise, HUD is proposing to revise § 983.204(c) to remove the references to the Agreement for newly constructed or rehabilitated housing in describing the determinations the PHA must make before executing the PBV HAP contract, since elsewhere in this rule HUD is proposing to implement the option under which the PHA may choose not to execute the Agreement for PBV new construction and rehabilitation.

40. Term of HAP Contract (§ 983.205)

HUD implemented section 106(a)(4) of HOTMA, which extends from 15 to 20 years the term of an initial PBV HAP contract or contract extension, in the FR Implementation Notice. In codifying this provision in the PBV regulations, HUD proposes to restructure the underlying regulation in § 983.205 to clarify the differences between the initial PBV HAP contract term, the extension of the initial contract term, and subsequent extensions, as suggested in comments on the January 18, 2017, Notice.

In addition to the HOTMA changes related to the initial term and extensions, HUD is also proposing to move the current regulatory provisions at § 983.205(c) and § 983.210(d), which discuss HAP contract terminations, to § 983.206. This proposed change would consolidate all provisions related to contract terminations under § 983.206.

Question 27:

With respect to the prohibition against extending a contract beyond 40 years until 24 months prior to the expiration of the HAP contract (§ 983.205(b)(3)(i)), are there circumstances under which HUD should permit a contract extension prior to that period in order to facilitate needed financing? If so, what period of time would be reasonable for the PHA to determine that such an extension is appropriate to continue providing affordable housing for low-income families or to expand housing opportunities?

41. Contract Termination or Expiration and Statutory Notice Requirements (§ 983.206)

Section 983.206 currently covers the statutory owner notice requirements to the families and the PHA regarding the termination of the contract. In this proposed rule, HUD is proposing to expand the section to cover two new HOTMA requirements related to the termination of contracts, both of which were previously implemented under the FR Implementation Notice. In addition, HUD is proposing to move a couple of provisions currently found in § 983.205 to § 983.206 to better align the 24 CFR part 983 regulations.

HOTMA requires that the PBV HAP contract must provide that, upon termination or expiration of a PBV HAP contract without extension, each assisted family may elect to remain in the same project with tenant-based assistance, if its unit complies with HUD's Housing Quality Standards, the PHA determines or has determined that the rent for the unit is reasonable, and the family pays its required share of the rent and the amount, if any, by which the unit rent (including the amount allowed for tenant-based utilities) exceeds the applicable payment standard. In other words, the family receives the voucher that was previously used to assist the family under the PBV contract and may choose to use the voucher to stay at the project with continued rental assistance if certain conditions are met.

In this proposed rule, at § 983.206(b), HUD would codify these requirements and further specify that this provision applies unless the termination or expiration without extension occurs as a result of a determination of insufficient funding, as described below. If the PHA is terminating the contract because of insufficient funding, the PHA would not have funding to provide the families with tenant-based vouchers for them to elect to either stay or move from the project. The proposed rule would also provide that an owner may not terminate the tenancy of the family that elects to remain at the project with the tenant-based assistance except as the result of a serious or repeated lease violations, or other good cause under § 982.310. (Under § 982.310, the owner may not terminate the tenancy for “other good cause” during the initial lease term, unless the owner is terminating the tenancy because of something the family did or failed to do.)

Question 28.

Should the family have the ability to remain in the same unit and not just the same project?

HOTMA also provides that, in the event of insufficient appropriated funding, payments due under HCV or PBV HAP contracts must be made if the PHA is able to implement cost-saving measures that make it possible for the PHA to avoid terminating an existing HAP contract. As of the publication date of this proposed rule, cost-saving measures are governed by Notice PIH 2011-28.

In § 983.206(c) of this proposed rule, HUD would codify that the PHA may terminate a PBV HAP contract only after it determines that it lacks sufficient funding to continue housing assistance

payments for all voucher units currently under a HAP contract and has taken appropriate cost-saving measures, as applicable. In addition, HUD would have to determine that the PHA lacks sufficient funding. HUD proposes as well that a PHA must describe in its Administrative Plan the factors it will take into consideration when determining which HAP contracts to terminate first (

e.g.,

prioritizing protecting PBV HAP contracts over tenant-based HAP contracts or prioritizing protecting contracts that serve vulnerable families or individuals over other contracts when determining which contracts shall be terminated due to insufficient funding). See the related discussion on changes proposed for the PHA HCV administrative plan at § 982.54.

Section 983.206(d) would provide that the owner may terminate the contract when the amount of rent to owner for any contract unit is reduced in accordance with the rent adjustment requirements of § 983.302 below the amount of the initial rent to owner, and the assisted families residing in the assisted units will be offered tenant-based assistance. This provision is currently found in § 983.205(d). HUD is proposing to include a reference that the family may remain in the project with the tenant-based assistance in accordance with the new HOTMA provision. HUD is also proposing to add a sentence that expressly provides that the requirement that the owner provide at least one-year owner notice of the termination of the HAP contract is not applicable to this situation.

42. HAP Contract Amendments (To Add or Substitute Contract Units) (§ 983.207)

The current regulation establishes a three-year window following the execution date of a PBV HAP contract during which units may be added to the contract without a request for proposals. HOTMA eliminates this window, allowing units to be added at any time during the term of a PBV HAP contract, which HUD implemented through the FR Implementation Notice. Section 983.207 of this proposed rule would incorporate the HOTMA change, including specifying that the PHA may not add units if doing so would push the agency out of compliance with the program limitation at § 983.6 or the project cap at § 983.54, and the units must comply with the requirements of the PBV HAP contract (

e.g.,

rents must be reasonable, etc.). In implementing this provision, HUD is also proposing in § 983.10 to require that a PHA describe in its Administrative Plan the circumstances under which it will consider amending a PBV HAP contract to substitute or add contract units and how those circumstances support the goals of the PBV program. The rule would further clarify that units added to the HAP contract following the execution of the HAP contract must be units that existed and were part of the project when the HAP contract was executed.

HUD is also proposing related changes to two other sections of the 983 regulations, specifically that if the owner undertakes development activity in order to add previously unassisted units to the HAP contract, then certain development requirements may apply (see §§ 983.152 and 983.153). Please see previous preamble discussion related to those sections.

43. Condition of Contract Units (§ 983.208)

HUD is proposing similar changes to § 983.208 to implement these same HOTMA HQS enforcement and tenant relocation provisions for the PBV program that were discussed earlier in this preamble under § 982.404 for the tenant-based program.

The proposed rule would expand § 983.208(b) to make the change that the unit is not in compliance with HQS not only if the PHA, but also if an inspector authorized by the State or unit of local government, determines upon inspection of the unit that the unit fails to comply with HQS, the PHA or inspector notifies the owner in writing of the failure, and the defects are not corrected within the new statutorily mandated time-frames. Additionally, § 983.208(b) would include a new paragraph implementing the HOTMA standard for HQS deficiencies that are caused by any member or guest of the household, whereby the PHA may waive the owner's responsibility to remedy the violation and require the family to do so. Section 983.208(c) would be revised in similar fashion to § 982.404 to cover when the PHA may withhold payments and when the PHA must abate the payment and remove a unit from the PBV HAP contract due to HQS deficiencies.

HUD is proposing to allow the PHA to choose to abate payments for the entire PBV HAP contract rather than just the individual unit due to the unit's noncompliance with the HQS. Likewise, the PHA would be permitted to choose to terminate the entire PBV HAP contract, rather than simply removing the unit from the HAP contract, due to noncompliance with HQS, which is consistent with current program requirements. Finally, the same provisions related to the relocation of the family that were discussed in detail in the preamble section on § 982.404 would be added to § 983.208. This proposed change would apply the HOTMA protections to PBV families forced to relocate due to the owner's failure to correct the HQS deficiency, including the PHA's option to use up to 2 months of withheld or abated HAP for costs directly associated with relocating to a new unit, including security deposits or reasonable moving costs.

As explained earlier in the preamble discussion on § 982.404, these HOTMA provisions are set forth in section 8(o)(8)(G) of the United States Housing Act of 1937.

The law provides that these provisions shall apply “to any dwelling unit for which a housing assistance payments contract is entered into or renewed after the date of the effectiveness of the regulations implementing subparagraph (G).” For tenant-based HAP contracts, HUD is interpreting a contract that is “renewed” to mean a HAP contract that has continued beyond the end of the initial lease term. For PBV, HUD is interpreting a contract that is “renewed” to be a contract that has been extended beyond the initial term of the contract. For contracts that were not entered into or renewed after the effective date of the regulations, §§ 982.404 and 983.208 in effect as of the date before the effective date of the final rule will remain in effect.

Unlike tenant-based HAP contracts, the transition period between when a HAP contract executed before the effective date and the final rule and its actual renewal may be quite lengthy in the PBV program. HUD understands that this adds complexity to the administration of PBV HAP contracts, particularly for PHAs that may be administering multiple PBV HAP contracts, some of which will be covered by the newly revised § 983.208 while others remain under the regulation as it stood prior to the effective date of the final rule. The applicability of subparagraph (G) is statutory, and as a result HUD may not conform all PBV HAP contracts to the new enforcement standards and tenant protections under that subparagraph through this rulemaking.

44. Owner Certification (§ 983.210)—Davis Bacon, Other Conforming Changes

HUD proposes to remove § 983.210(j), which provides that by execution of the HAP contract, the owner certifies that at such execution and at all times during the term of the HAP contract, that repair work on project selected as an existing project that is performed after HAP

execution within such post execution period as specified by HUD may constitute development activity, and if determined to be development activity, the repair work undertaken shall be completed in compliance with Davis-Bacon wage requirements.

Section 12 of the 1937 Act mandates the use of Davis-Bacon wage rates in the “development” of low-income housing projects, including projects under section 8 of the 1937 Act, with nine or more assisted units where there is an agreement for use of Section 8 program funds before the construction or rehabilitation begins.

In this proposed rule, HUD is proposing to return to its requirements prior to a final rule, published June 25, 2014, at 79 FR 36146, regarding Davis-Bacon applicability and PBV. Specifically, the proposal would apply Davis-Bacon wage rates in the PBV program to “rehabilitated” and “newly constructed” housing where an Agreement covering nine or more assisted units is entered into between the PHA and the owner. Within this context, under the proposal, PBV “existing housing” would not be covered by Davis-Bacon. This approach long pre-dates the PBV program. Predecessor Section 8 project-based assistance programs conditioned applicability of Davis-Bacon on execution of an Agreement prior to rehabilitation or construction. In contrast, HUD programs that applied to “existing housing” did not require an “Agreement,” and Davis-Bacon wage rates did not apply.

The 2014 final rule substantially redefined the meaning of “agreement” for Davis-Bacon purposes and provided for application of Davis-Bacon to PBV “existing housing” under certain conditions. In particular, HUD revised the cross-reference to labor standards in 24 CFR 983.4 to remove the reference to labor standards “applicable to an Agreement” covering nine or more assisted units and substitute a reference to labor standards “applicable to development (including rehabilitation) of a project comprising” nine or more assisted units. HUD stated that this language “clarifies that Davis-Bacon requirements may apply to existing housing (which is not subject to the agreement) when the nature of any work planned to be performed prior to HAP contract execution or after HAP contract execution, within such post-execution period as may be specified by HUD, constitutes development of the project.” Subsequent guidance from HUD specified that “work that constitutes remodeling that alters the nature or type of housing units in a PBV project, reconstruction, or a substantial improvement in the quality or kind of original equipment and materials” conducted within 18 months after the effective date of the HAP contract counted as “development” and was therefore subject to Davis-Bacon wage requirements.

Applicability of Davis-Bacon Labor Requirements to Projects Selected as Existing Housing Under the Section 8 Project-Based Voucher Program—Guidance, published March 9, 2015 at 80 FR 12511.

The implication of this is that under the 2014 final rule, HUD may require Davis-Bacon wages both: (i) Where the rehabilitation occurs

prior

to the owner entering into a HAP contract or any agreement for subsequent Section 8 use; and (ii) where the rehabilitation occurs within 18 months after the effective date of the HAP contract, regardless of whether the receipt of the assistance is conditioned upon the completion of the rehabilitation.

After careful consideration of the differing views on this subject, HUD has concluded that the pre-2014 PBV requirements, rather than the requirements contained in the June 25, 2014, final rule, are more consistent with the express terms of section 12 of the 1937 Act. In the first instance, where rehabilitation occurs prior to the execution of a HAP contract or any agreement for subsequent Section 8 use, the statutory requirement that there be “an agreement for such [Section 8] use

before

the construction or rehabilitation is commenced” cannot be satisfied under the 2014 final rule. In the second instance, the sole focus on temporal proximity of the rehabilitation to the assistance agreement allows HUD to require Davis-Bacon even in those instances where the agreement for assistance is not conditioned upon the completion of the rehabilitation. This is inconsistent with the intent of section 12 and is inconsistent with the otherwise longstanding HUD practice of allowing owners of existing housing to engage in rehabilitation of Section 8-assisted housing without triggering Davis-Bacon wage requirements. In addition, the application of Davis-Bacon wage rates to federally supported housing is a large federal regulatory cost on housing production.

HUD acknowledges that the broad, open-ended definition of “existing housing” in 24 CFR 983.3 has proven insufficient to ensure that PHAs properly classify PBV housing types and contributed to some of the Davis-Bacon issues that the June 25, 2014, final rule attempted to address. In order to remedy this problem, HUD has proposed a much more specific and tighter definition of “existing housing,” which is discussed in subsection 13 of this preamble.

In addition, the amendment made by section 106(a)(4) of HOTMA, discussed in subsection 34 of this preamble, may significantly impact Davis-Bacon coverage. This provision amends section 8(o)(13)(F) of the 1937 Act to allow a PHA to enter into a HAP contract for housing to be rehabilitated or newly constructed whether or not the PHA has entered into an Agreement, provided that the owner demonstrates compliance with “applicable requirements” prior to execution of the HAP contract. Thus, HOTMA allows rehabilitation or new construction to occur in the absence of an Agreement. In these cases, under HUD's proposal to construe the reference to “an agreement for such [Section 8] use” in section 12 of the 1937 Act to refer exclusively to an Agreement, Davis-Bacon would not apply. In this rule, HUD is proposing to provide the PHA with discretion to decide whether to require the Agreement (per § 983.155(e)). HUD recognizes that permitting the PHA to exclude all rehabilitation and new construction PBV projects from Davis-Bacon requirements by not requiring use of the Agreement may be viewed as an unintended consequence of HOTMA's elimination of the need for an Agreement.

Question 29.

Should the PHA have the flexibility to exclude rehabilitation or new construction of PBV projects from Davis-Bacon coverage? Given the language in HOTMA that does not require an Agreement, should HUD still require Davis-Bacon coverage for new construction and rehabilitation through an alternate document?

HUD is also proposing a conforming change to § 983.210(c) to

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