Streamlining and Implementation of Economic Growth, Regulatory Relief, and Consumer Protection Act Changes to Family Self-Sufficiency (FSS) Program

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 887 and 984

[Docket No. FR-6114-F-03]

RIN 2577-AD09

Streamlining and Implementation of Economic Growth, Regulatory Relief, and Consumer Protection Act Changes to Family Self-Sufficiency (FSS) Program

AGENCY:

Office of the Assistant Secretary for Public and Indian Housing and Office of the Assistant Secretary for Housing—Federal Housing Commissioner, Department of Housing and Urban Development (HUD).

ACTION:

Final rule.

SUMMARY:

This final rule amends HUD's regulations to implement changes to the Family Self-Sufficiency (FSS) program made by the Economic Growth, Regulatory Relief, and Consumer Protection Act (“the Economic Growth Act” or “the Act”). Section 306 of the Act made multiple amendments to the FSS program, including changes to the methodology for determining the size of the FSS program, expanding the definition of eligible families to include tenants of certain privately owned multifamily properties subsidized with Project-Based Rental Assistance (PBRA), updating the FSS Contract of Participation (CoP), reducing burdens on Public Housing Agencies (PHAs) and multifamily assisted housing owners, clarifying escrow account requirements, and updating the FSS Action Plan requirements. After consideration of public comments, this final rule incorporates these changes, responds to public comments, and further revises HUD's FSS regulations to further streamline the program for PHAs, multifamily property owners, and eligible families, including providing that families participating in the Housing Choice Voucher Homeownership Program and all Section 8 programs can participate in the FSS program, revising certain definitions that apply to the program to align with commenters' suggestions, making changes to the CoP provisions, revising the lists of activities for which forfeited escrow funds may be used, and making changes to portability provisions.

DATES:

Effective date:

June 16, 2022.

Compliance date:

Public Housing Authority and Owner compliance with this rule is required no later than November 14, 2022.

FOR FURTHER INFORMATION CONTACT:

For Public and Indian Housing (PIH) FSS contact Anice S. Chenault, Office of Public and Indian Housing, U.S. Department of Housing and Urban Development, 451 7th Street SW, Room 4120, Washington, DC 20410; telephone number 502-618-6163 (this is not a toll-free number); and for Multifamily FSS contact Elizabeth Fernandez, Office of Multifamily Housing Programs, U.S. Department of Housing and Urban Development, 451 7th Street SW, Room 6182, Washington, DC 20410; telephone number 202-402-6763 (this is not a toll-free number). The public is encouraged to email questions to

FSS@hud.gov

or

MF_FSS@hud.gov.

SUPPLEMENTARY INFORMATION:

I. Background

In 1990, section 554 of the Cranston Gonzalez National Affordable Housing Act (Pub. L. 101-625, approved November 28, 1990) amended the United States Housing Act of 1937 by adding a new section 23 (42 U.S.C. 1437u) to create the FSS program. The FSS program requires that PHAs and Indian Housing Authorities

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use Public and Indian Housing assistance and Section 8 Housing assistance rental voucher programs, together with public and private resources, to provide supportive services, case management, and an escrow account to participating families, with the intent to help families achieve economic independence and self-sufficiency. The program's goal is to enable participating low-income families to increase their earned income, achieve economic stability, and reduce or eliminate their need for welfare assistance and rental subsidies. FSS Program Coordinators create plans with participating families to achieve goals and connect them with services that will assist the family in making progress toward economic security. As the family's earnings increase, the difference between the original rent and the increased rent due to increased earned income is credited to an interest-bearing escrow account on the family's behalf. Families that meet program requirements and successfully complete the FSS program receive their accrued FSS escrow funds, plus interest. No regulatory restrictions exist on the use of the escrowed funds. Many families use the funds to help with the purchase of a home, debt reduction, post-secondary education, or to start a new business.

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The Native American Housing Assistance and Self Determination Act of 1996 (25 U.S.C. 4101

et seq.

) (NAHASDA) removed the application of the FSS program to Indian Housing Authorities.

On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Economic Growth Act” or “the Act”) was signed into law (Pub. L. 115-174), and section 306 of title III of the Act, Protections for Veterans, Consumers, and Homeowners, amended the United States Housing Act of 1937 (42 U.S.C. 1437,

et seq.

), FSS program, which required HUD to issue regulations to update its program requirements and provide new provisions for private owners of multifamily assisted housing to set up their own FSS programs. Additional details about the FSS program may be found in the background of the “Streamlining and Implementation of Economic Growth, Regulatory Relief, and Consumer Protection Act Changes to Family Self-Sufficiency (FSS)” at 85 FR 59234 (September 21, 2020).

II. The September 21, 2020, Proposed Rule

On September 21, 2020 (85 FR 59234), HUD published a proposed rule to implement changes required by the Economic Growth Act and streamline the FSS program. The public comment period closed on November 20, 2020, and HUD received 105 public comments. The proposed rule makes changes to the existing FSS regulations at 24 CFR part 984 and adds a new 24 CFR part 887 to address the FSS program for owners of multifamily assisted housing. The proposed rule also updates references to PHAs and owners and clarifies the provisions that would apply to both when operating an FSS program. Owners would be subject to the requirements only if they are operating an FSS program.

The changes include updating the mandatory size of a PHA's required FSS program and available exceptions; updating the definition of eligible families; allowing family members other than the Head of Household for rental assistance purposes to sign the Contract of Participation (CoP) and to meet the employment obligation; amending the definition of supportive services; changing the term of the CoP; amending the requirements pertaining to the management of the escrow account, including the requirements for forfeiture of the escrow funds; and, amending reporting requirements. Also, the Economic Growth Act provided new provisions for private owners of multifamily assisted housing to set up their own FSS program or enter into a Cooperative Agreement with another private owner or PHA to offer an FSS

program to the owner's assisted residents. For more information about the specific proposed changes to conform with the Economic Growth Act see the background of the “Streamlining and Implementation of Economic Growth, Regulatory Relief, and Consumer Protection Act Changes to Family Self-Sufficiency (FSS)” at 85 FR 59234 (September 21, 2020).

HUD also proposed changes, that were not statutorily required, to streamline the program, including removing references to the establishment of mandatory programs; requiring an FSS Program Coordinator as a Program Coordinating Committee (PCC) member; requiring that at least one resident participant from each HUD-assisted program served by FSS is a member of the PCC; revising the amount of time a family must be independent from welfare assistance prior to expiration of the CoP; expanding the definition of “good cause” for a contract extension to include the active pursuit of a goal that will further self-sufficiency, such as a college degree or credit repair program; removing the provision that automatically completes the FSS contract when thirty percent (30%) of the family's adjusted monthly income equals or exceeds the Fair Market Rent (FMR); requiring that nullification would occur when the PHA or owner and participant determine that services integral to an FSS family's advancement towards self-sufficiency are unavailable or when the head of FSS family becomes permanently disabled and unable to work or dies during the period of the contract, with exceptions; differentiating between “determining the FSS escrow amount” and “crediting that FSS escrow amount” to a family's FSS escrow account and requiring that, during the term of the FSS contract, the PHA or owner credits the escrow amount to each Family's FSS escrow account on a monthly basis; revising the provision concerning reduction of amounts due by the FSS family; and revising several provisions concerning FSS families that move with continued housing choice voucher (HCV) assistance from the jurisdiction of one PHA to the jurisdiction of another PHA under portability. HUD also reminded PHAs and owners that they may not establish mandatory goals or requirements for all participants other than the two mandatory goals set in regulation (seek and maintain suitable employment, and be independent from welfare assistance), and that all other goals must be set on an individual basis.

After the publication of the proposed rule, HUD determined that changes to the information collection requirements described in it would be necessary. As a result, on November 15, 2021, at 86 FR 62964, HUD published a supplemental notice of proposed rulemaking re-opening the public comment period on the information collection requirements in the September 21, 2020, proposed rule. HUD received only one comment, which spoke about affordable housing generally and not about FSS or information collection requirements.

III. Changes Made at the Final Rule Stage

In response to public comments, a discussion of which is presented in Section IV, and in further consideration of issues addressed at the proposed rule stage, HUD is publishing this final rule adopting the September 21, 2020, proposed rule as final with the following changes.

A.

Purpose, applicability, and scope.

As part of this final rule, HUD updates the list of public housing and voucher programs through which families can participate in the FSS program in § 984.101. Public commenters noted that the change in the Economic Growth Act provided HUD with further flexibility to allow participants beyond those being funded under 8(o) of the U.S. Housing Act of 1937. After further consideration, HUD amends § 984.101 to provide that families participating in the HCV Homeownership Program under section 8(y) of the U.S. Housing Act of 1937 will also be allowed to participate in the FSS program. Additionally, this final rule includes Moderate Rehabilitation and Moderate Rehabilitation Single Room Occupancy for homeless individuals under 24 CFR part 882 in the list of programs under which families can participate in FSS, as these are also Section 8-assisted housing. The final rule also explicitly identifies Family Unification Program (FUP) assistance under section 8(x) of the 1937 Act as a program under which families can participate in FSS; the proposed rule did not adequately distinguish that FUP is not a section 8(o) program, unlike other special purpose vouchers.

This final rule also clarifies in § 984.101 that participation in the FSS program, or lack thereof, may not be used as cause to terminate rental assistance.

B.

Definitions.

In § 984.103, this final rule maintains the current definition of “effective date of the Contract of Participation” which currently is the first day of the month following the month in which the FSS family and the PHA or owner entered into the Contract of Participation, rather than finalize the proposed rule definition that would have made this the date the parties sign the contract. HUD revises the definition slightly so the effective date will be the first day of the month following the date in which the FSS family and the PHA or owner entered into the Contract of Participation for clarity, but the change is not substantive. HUD is maintaining the current definition because many commenters requested that the CoP continue to conform with other rental assistance processes that operate on a monthly cycle.

Additionally, this final rule revises the definition of “FSS family in good standing” as recommended by some commenters to mean an FSS family that is in compliance with their FSS CoP, has satisfied or is current on any debts owed the PHA or owner, and is in compliance with the regulations regarding participation in the relevant rental assistance program. The definition under the proposed rule provided that an FSS family is in good standing if it is not in eviction proceedings and is otherwise in compliance with any repayment agreement and the FSS CoP and did not include language noting that the family must also be in compliance with regulations for the relevant assistance program. This final rule also expands the definition of “Personal welfare” in § 984.103 to include health, dental, mental health and health insurance services.

C.

Cooperative Agreements.

In response to public comment, this final rule specifies in §§ 887.107 and 984.106 that Cooperative Agreements between PHAs and owners of multifamily properties must include processes for the entities to communicate with each other about changes in their Action Plans to ensure continued coordination between the participating entities in administering their program.

D.

FSS award funds formula.

This final rule removes language in §§ 887.111 and 984.107 of the proposed rule that stated notice of, and changes to, the FSS Award Funds Formula will be published in the

Federal Register

, as the formula will continue to be published in Notices of Funding Opportunities (NOFO).

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HUD believes that adding the publication of the funding formula in the

Federal Register

would duplicate the inclusion of the formula that would also need to be

included in the NOFO. This final rule adds the statutory formula to HUD's regulations in § 984.107 for clarity.

2

HUD currently uses the term Notices of Funding Opportunity or “NOFO” for documents that would previously have been referred to as Notice of Funding Availability or “NOFAs.” This change is based on the terminology used in Office of Management and Budget Management in its Guidance for Grants and Agreements (85 FR 49506, August 13, 2020).

E.

FSS Action Plans.

Section 984.201 of this final rule includes examples of policies over which PHAs/owners have discretion. These may be included in the FSS Action Plan to help HUD determine the soundness of the PHA or owner's FSS program.

F.

FSS appropriated funds.

This final rule revises § 984.302 to clarify that FSS appropriated funds awarded pursuant to this statute may be used by PHAs or owners for eligible FSS costs, including when an owner operates an FSS program through a Cooperative Agreement or on its own. Additionally, to ensure that there is no confusion about funding available to PBRA owners who operate an FSS program, this final rule adds a provision at § 887.113(a), that states that owners may also or alternatively use residual receipts to pay for reasonable FSS program operation costs, including hiring an FSS Program Coordinator or coordinators for their FSS program. This new regulatory text implements statutory language of section 23(l) of the U.S. Housing Act of 1937, as amended by the Economic Growth Act, which states that PBRA owners may access funding from any residual receipt accounts for the property to hire an FSS Program Coordinator(s) for their program.

G.

Contract of Participation.

In § 984.303, which covers the “Contract of Participation,” this final rule makes various changes and revisions. This clarifies that there will only be one CoP per household, and there may be an Individual Training and Services Plan (ITSP) for as many members of the household that wish to participate, which will be incorporated into the CoP. The rule also revises the regulatory text in paragraph (b)(3) to clarify that all considerations allowed for other residents for repayment agreements and other matters shall also be allowed for FSS participants. The rule revises § 984.303(b)(2) to state that being independent from welfare assistance will be a mandatory final goal instead of an interim goal.

Additionally, the rule revises paragraph (b)(4)(iii) to note that the determination of suitable employment will be made with the agreement of the affected participant, so that the affected participant has input into this matter along with the PHA or owner, and expands the regulation to include that the determination will involve consideration of the receipt of other benefits of the participant, to ensure that new employment will not cause the loss of necessary supports, in addition to the skills, education, and job training of that participant. Further, in paragraph (a) this final rule eliminates the requirement from the proposed rule that the family consult with the PHA or owner in designating the head of FSS family, as HUD believes that it is generally in the best interests of assisted households to choose the head of FSS family that is most suitable for their individual household circumstances.

This final rule also revises paragraph (d) to clarify that the determination of good cause for a Contract extension can include circumstances beyond the control of the FSS family that impede the family's ability to complete the CoP obligations and can include any circumstance that the PHA or owner determines warrants an extension, as long as the PHA or owner is consistent in its determinations. Further, this final rule provides in paragraph (k) that while the CoP will be terminated, escrow can be disbursed to the family when services that the PHA or owner and the FSS family have agreed are integral to the FSS family's advancement towards self-sufficiency are unavailable. Under the proposed rule language, only the PHA or owner made that determination.

This final rule revises paragraph (f) to clarify that modifications to the CoP must be in writing and signed by the PHA/owner as well as the head of FSS family. Additionally, this final rule revises paragraph (j) to clarify that only non-HUD funds or non-HUD restricted funds can be used by PHAs and owners to offer supportive services to former FSS families that have left assisted housing.

Lastly, this final rule provides in paragraph (k) that a CoP will be terminated but escrow can be disbursed to the family rather than forfeited, if an FSS family in good standing moves outside the jurisdiction of the PHA for good cause, as determined by the PHA, and continuation of the CoP after the move, or completion of the CoP prior to the move, is not possible.

H.

FSS escrow account.

This final rule removes from § 984.305 language that would permit a PHA or owner to set a policy to either conduct a new re-examination of income before the effective date of the FSS contract, or to use the amounts on the family's last income re-examination when setting a participant's baseline rent. This final rule will instead require the PHA or owner to use the amounts on the most recent rent certification. HUD believes this is more in line with congressional intent.

Additionally, this final rule expands the list of eligible activities for which forfeited escrow funds may be used to include other costs related to achieving obligations outlined in the CoPs of remaining FSS participants and adds to the list of ineligible activities “general administrative costs of the FSS program.” HUD has made this change to eliminate any incentive PHAs may have had not to graduate participating families so as to recapture the forfeited escrow funds and to ensure forfeited funds are used to advance participants' goals and not for the overall implementation of the FSS program.

This final rule does not contain language from the proposed rule that would have provided for escrow disbursement to an estate if the head of the FSS family dies before a CoP is completed, as HUD determined that there is no legal authority for this. However, if the head of the FSS family dies before the CoP is completed, another member of the FSS family may take over the CoP.

This final rule also clarifies how the increase in the family's monthly rent is determined when computing the FSS credit amount for Section 8 Moderate Rehabilitation (Mod Rehab) and PBRA families and that, as is the case with Project-Based Vouchers (PBVs), it is the difference between the baseline monthly rent and the current gross rent.

I.

HCV portability requirement.

Due to the fact that PBVs are allocated to a specific unit, a family with a PBV does not have the right to take that rental assistance and move. Generally, after having a PBV for 12 months, the family may apply for and receive Tenant-Based Rental Assistance (TBRA, also known as a Tenant-Based Voucher) if it is available. The proposed rule did not discuss an FSS family's right to move after transitioning from a PBV to TBRA. In § 984.306, this final rule clarifies that a PBV family that has been enrolled in the FSS program for 12 months, and who exercises its right to transfer from the PBV unit to tenant-based rental assistance in accordance with 24 CFR 983.261, may move outside of the jurisdiction of the initial PHA in accordance with standard portability regulations. The PHA's discretion to allow portability moves for TBRA FSS participants within the 12 months following the effective date of the CoP also applies to PBV families who become Tenant-Based voucher families.

Additionally, this final rule provides that a receiving PHA that is already serving the number of families identified in its FSS Action Plan and determines it does not have the resources to manage the additional FSS contract is not required to enroll a porting family. In such cases, the initial PHA must discuss with the family

options available to the family, such as modification of the FSS contract, termination of the FSS contract and forfeiture of escrow, termination of the contract and the release of escrow if the initial PHA determines there is good cause for the move, or locating a receiving PHA that has the capacity to enroll the family into its FSS program. HUD has made this change after considering public comments and determining that a lack of capacity to serve a ported FSS family would be a reasonable justification for a receiving PHA to deny enrollment of the ported FSS family into its FSS program.

Further, in response to comments, this final rule allows a family that was not an FSS participant at the initial PHA to enroll in a receiving PHA's program when the receiving PHA bills the initial PHA if the initial PHA agrees, and the initial PHA manages an FSS program. Under the proposed rule, if the receiving PHA bills the initial PHA, a family that was not an FSS participant at the initial PHA would not have been able to enroll in the receiving PHA's FSS program.

J.

Basic requirements of FSS (for multifamily FSS programs).

This final rule revises § 887.105 to provide that where a Program Coordinating Committee (PCC) is available, owners can either work with that PCC or create their own, either by themselves, or in conjunction with other owners. This adds flexibility to the language that was in the proposed rule that said owners must work with a PCC when one is available and did not mention an option for such owners to create their own PCCs.

Additionally, under this final rule, multifamily owners are not exempt from the family selection procedures in § 984.203. HUD makes this change from the proposed rule in order to give the owner the option of using certain selection preferences and motivational screening factors and make it easier for an owner to operate an FSS program through a Cooperative Agreement with a PHA that uses selection preferences or motivational screening factors.

K.

Additional grammatical and technical changes.

This final rule makes additional grammatical and technical changes throughout, such as clarifying the usage of the word “jurisdiction” so that it is only used when referring to a PHA's jurisdiction, and not also the community where a PBRA property is located; clarifying that PBRA owners may develop their own FSS Action Plans; including “Head of Household” in the list of definitions defined in part 5 of HUD's regulations; and other minor changes for clarity and conformance.

L.

Delayed compliance date.

This final rule includes a compliance date that provides PHAs and owners with up to six months from the date of publication of this rule to comply with its provisions. HUD encourages PHAs and owners to comply with this new rule's provisions as soon as possible. This means that all FSS Action Plans must be updated by the compliance date. HUD intends to provide guidance on that process and encourages PHAs and Owners to visit the FSS Resources web page at:

https://www.hud.gov/program_offices/public_indian_housing/programs/hcv/fss

and to subscribe to HUD's FSS listserv at

https://public.govdelivery.com/accounts/USHUDPIH/signup/30989.

The requirements in this rule may apply to CoPs that are signed after the effective date of the rule but before the compliance date if the PHA or Owner is in compliance with the new rule. PHAs and Owners may reach an agreement with FSS participants covered by existing CoPs to modify those CoPs on a family-by-family basis, so those contracts are governed by this final rule.

IV. Public Comments

The public comment period for the September 21, 2020, proposed rule closed on November 20, 2020. HUD received and reviewed 105 comments on the proposed rule from a wide variety of interested entities, including: Individuals, public housing agencies, affordable housing organizations, housing associations, community development corporations, and investment companies. This section addresses significant issues raised by the public comments and is organized by the proposed rule section, with summaries of the issues followed by HUD's responses. There were also numerous comments received both in support of and opposition to the proposed rule generally, as well as comments that did not address one specific section of the proposed rule. Those comments are organized into general categories and responded to accordingly. Following are the issues raised by the public comments and HUD's responses.

General Support

Commenters generally supported the proposed rule as beneficial to program participants and to beneficiaries. A commenter supported updating FSS rules so that PHAs do not have to ignore outdated language.

HUD Response:

HUD appreciates this feedback and the time taken to review the proposed rule.

Section 984.101: Purpose, Applicability, Scope

Section 8 Participants Eligibility

A commenter asked HUD to clearly state that all Section 8 participants are eligible to participate in FSS, including those with Non-Elderly Disabled (NED), Veterans Affairs Supportive Housing (VASH), and Mainstream Vouchers. The commenter also asked HUD to provide specific instructions on reporting through the PIH Information Center (PIC) and Voucher Management System (VMS), noting that there is no clear direction on how to assist families on Mainstream 5 and the funds used for escrows need to be backed out and submitted as Housing Assistance Payments (HAP) in the Mainstream 5 VMS line. The commenter said when they asked HUD, they were told Mainstream 5 participants were not eligible to participate in FSS as the funds are from the Section 811 Supportive Housing for Persons with a Disability program.

HUD Response:

As stated in the proposed and this final rule, families assisted under Section 8 voucher programs are eligible to participate in FSS. This includes any applicable special purpose voucher considered rental assistance under section 8(o) or 8(x) of the U.S. Housing Act of 1937 (1937 Act) (such as Family Unification Program (FUP), Foster Youth Initiative (FYI), Veterans Affairs Supportive Housing (VASH), and Mainstream Vouchers). Based on comments received concerning the eligibility of Housing Choice Vouchers (HCV) homeownership families for FSS, HUD has revised the regulatory text to clarify and allow HCV homeownership families to participate in FSS. Additionally, this final rule includes Section 8 Moderate Rehabilitation for low-income families and Moderate Rehabilitation Single Room Occupancy for homeless individuals under 24 CFR part 882 in the list of programs under which families can participate in FSS, as these are also Section 8-assisted housing. For further explanation concerning this change, see the discussion of public comments on § 984.103. As it relates to the reporting concerns raised by a commenter, HUD is in the process of updating VMS to allow PHAs to properly report FSS escrow deposits and forfeitures for Mainstream Voucher participants and will share guidance when it is available.

Non-Participation

Commenters supported HUD's addition of language clarifying that a family's rental assistance shall not be

delayed or terminated by reason of a family electing not to participate in the FSS program because families may, despite best efforts, fail to meet the obligations and objectives of the CoP, which would disincentivize participation. A commenter stated that the non-participation clause was too narrow and suggested HUD should affirmatively state that rental assistance cannot be terminated for non-compliance with the FSS program to avoid ambiguity and conform with the statute.

HUD Response:

This final rule revises § 984.101(d) to be clear that participation in the FSS program, or lack thereof, may not be used as cause to terminate rental assistance. This final rule also revises § 887.101(d) to be clear that assistance under Section 8 Housing assistance payments programs cannot be refused, delayed or terminated because a family chooses not to participate in an FSS program.

Mandatory and Voluntary Programs

A commenter stated HUD should leave the language as is and allow the PHA to decide if they want to keep the program voluntary or make it mandatory.

HUD Response:

As used in the proposed rule and this final rule, the terms “voluntary” and “mandatory” refer to whether PHAs are required to institute an FSS program, not whether residents must participate. All FSS programs must be voluntary for participants.

Section 984.102: Program Objectives

Graduation Timing

A commenter requested that HUD add a provision allowing a client to graduate at time of verification of full-time/suitable employment or at the time the new wages/income from employment is added to the Form HUD-50058 Family Report.

HUD Response:

As explained in § 984.303, the CoP is considered completed and a family's participation in the program is considered concluded when the FSS family has fulfilled all of its obligation under the CoP, on or before the expiration of the Contract term. Section 984.303(b) requires that the head of FSS family under the CoP seek and maintain suitable employment during the term of the contract, but the family may have other obligations under the CoP, as described in § 984.303. Participants may graduate at any time their obligations under the CoP are met. The national average time in the program for graduates is less than four years. HUD notes that the goal of FSS is self-sufficiency; therefore, a participant being hired for their first job may in fact be only at the beginning of what they can achieve while in the FSS program.

Performance Measures

Commenters recommended that HUD allow the public the opportunity to comment on any performance standards. A commenter said any performance standards that will impact new, or renewal funding and incentives should be subject to public comments prior to the effective date. A commenter said that there were issues with HUD's attempt to implement new performance metrics in the past and asked that HUD's scoring system not place excessive weight on increased earned income, which may negatively impact FSS program participants that are enrolled in lengthier training and educational programs compared to participants that focus specifically on employment. A commenter said any weighing of graduation rates and earnings performance should be equal to reflect their equal importance. Other commenters expressed concern that the “Composite Score” methodology does not give credit for programs or participants who enter educational pursuits prior to entering employment. Another commenter recommended that the performance measures and criteria for awarding incentives include an FSS family's successful move to homeownership when graduating.

A commenter stated that HUD received criticism for attempting to implement the performance measurement system and that HUD found inexplicable anomalies between consecutive years of scoring of certain housing authorities. The commenter said that Congress specifically prohibited HUD in an appropriations act from using funding to consider FSS performance measures or scores in determining funding awards. The commenter stated that the system does not account for the diversity of households in educational levels, skills, and employability at enrollment, and that HUD's own contractor recommended that HUD tailor its performance measurement system to fit the stated structure and goals of the program. The commenter suggested HUD devise a system that: Is not implemented retroactively; does not fail to award points to all the educational, employment and supportive services allowed by statute for program participants; does not score performance until FSS contracts are completed; does not penalize non-metropolitan areas who may have a dearth of employment opportunities in their markets; does not penalize PHAs that are voluntarily administering an FSS program with no FSS Program Coordinator funding from HUD; and does not prevent PHAs from administering the FSS program at the local level. The commenter also said HUD lacks authority to determine how participants and PHAs will devise their contracts under FSS, and that if HUD wants to limit pre-employment services and educational/job training, it should seek a statutory change. This commenter asked HUD to remove from the final rule the explicit language related to HUD's proposed measurement system factors—namely graduation from the program, increased earned income, and program participation—since no such language is included in section 306 of the Economic Growth, Regulatory Relief, and Consumer Protection Act.

Two commenters stated the proposed rule is silent about how performance standards would affect coordinator funding awards and said HUD should comply with Congress' directive by specifying that funding for renewed and additional coordinator positions would be subject to performance criteria. One commenter said it would not be fair to provide agencies serving more families than they are required additional points as other programs may be serving families and individuals that may require more time with a coordinator. Another commenter stated the “Composite Score” accurately evaluates the success of the FSS program outcomes, and that when one looks at the outcomes achieved and not the process then it becomes clear what is being evaluated.

A commenter said it has no objection to HUD using a PIC driven “Composite Score” to evaluate its FSS program but asked that HUD provide detailed reporting guidelines on how and when the data is mined from PIC to ensure they are reporting accurately. Another commenter said that the HUD-commissioned MDRC National FSS Evaluation will provide rich information about FSS program operations and that any changes in evaluation measurements should wait until the results of this study are published so that they may inform best practices for performance measurement. One commenter stated a concern that the proposed rule would not give credit to a program for graduating participants who have never received Temporary Assistance for Needy Families (TANF) or whose wages remained steady throughout the five-year FSS contract. The commenter was also concerned that the performance measure did not address the number of program

participants who did not have TANF within the time of their FSS contract.

Another commenter expressed concern about the potential for developing a tool that is not flexible enough to reflect the complicated nature of the participants in the FSS program, the outside forces that directly impact their ability to meet and reach their ITSP goals, and the non-quantifiable impact of services and supports on their long-term economic stability. The commenter opposed the development of a tool that is applied the same way to all programs, if that tool cannot account for the impact of region, participant enrollment characteristics, short- and medium-term economic realities and changing government priorities.

Commenters stated that the proposed rule did not reference Moving to Work (MTW) agencies as being covered by such an evaluation system, but it also did not indicate that MTW agencies will be exempt or subject to different criteria. The commenters said that the scoring criteria in the proposed rule should not apply to MTW agencies without engaging the MTW Collaborative and the individual MTW PHAs in a collaborative process to develop the tool, ensuring that in drafting scoring criteria HUD will consider the unique circumstances of MTW agencies operating alternative FSS programs. A commenter said that the Form HUD-50058/PIC does not allow for accurate reporting for MTW agencies, and if HUD intends to use Form HUD-50058-MTW for FSS performance scoring, HUD must fix the existing technical issues.

HUD Response:

The Proposed Family Self-Sufficiency Performance Measurement System (“Composite Score”) Notice requesting public comment was published on December 12, 2017 (82 FR 58434). The Final Notice was published in the

Federal Register

on November 15, 2018 (83 FR 57493). HUD wishes to note that the Performance Management System, as published, is not structured to include MTW agencies, unfunded FSS programs or PBRA FSS programs. The majority of the comments above commented on the current Performance Measurement System, not the proposed rule.

Section 984.103: Definitions

Baseline Annual Earned Income

A commenter agreed with HUD's proposed definition of “Baseline Annual Earned Income,” stating it aligns with the new Housing Opportunity through Modernization Act (HOTMA) proposal of removing Earned Income Disallowance (EID). One commenter agreed that disregarded income associated with self-sufficiency incentives should no longer be excluded in calculating baseline annual earned income because families who previously could not build escrow could now do so even if they are in a waiver program. Another commenter stated that instructing PHAs and owners to add back any disregard of earned income associated with self-sufficiency initiatives would have a punitive effect and likely deter rather than encourage participation for the persons with disabilities who could most benefit from FSS. This commenter said that just as HUD is proposing greater consistency across the board by allowing FSS families the opportunity to continue participation during the six-month Zero-HAP window rather than automatically graduating families who meet the 30% rule, HUD should maintain consistency across programs by continuing to extend the EID in calculating the baseline income for FSS CoP purposes.

Commenters requested that HUD clarify the definition and asked specifically about the meaning of “disregard of earned income associated with self-sufficiency initiatives.” One commenter asked if it referenced EID, Jobs Plus, or others, and, if so, that HUD provide a citation to the source of these initiatives so PHAs may easily reference them. Another commenter asked HUD to clarify whether the self-sufficiency initiatives HUD is in the process of implementing from the HOTMA would impact the calculation of FSS escrow.

HUD Response:

As explained in the proposed rule's preamble, adding back any disregarded earned income associated with self-sufficiency initiatives at the time that the PHA or owner determines the baseline annual earned income (that is, when the PHA or owner is determining the amount of earned income when the family enrolls in the program), helps ensure that escrow amounts are the result of increases in earned income while the family is in the FSS program. Otherwise, the family's earned income would be lower at baseline resulting in potential for higher escrow credits based on increases in earned income that happened prior to FSS enrollment. It does not mean that this will necessarily result in all families with a disregard not being able to escrow, but rather, that the calculation will more accurately reflect increases in escrow that are the result of increases in earned income while the family is in FSS. Based on this, HUD has determined not to change the proposed regulatory language. Currently, “self-sufficiency initiatives” includes programs that include financial incentives including the Jobs Plus Earned Income Disregard and the standard Earned Income Disregard. HUD's proposed rule implementing sections 102, 103, and 104 of HOTMA (published on September 17, 2019 at 84 FR 48820) would eliminate the standard Earned Income Disregard. Additionally, that proposed rule would change rent calculation, but would not introduce new “self-sufficiency initiatives” (with financial incentives). HUD is not including the name of specific self-sufficiency initiatives in the rule, as we do not wish to limit “self-sufficiency initiatives” to those that exist at present. However, this final rule revises the definition to note that disregarded earned income “or other adjustments associated with self-sufficiency initiatives” may be applied when calculating baseline annual earned income, to account for “self-sufficiency initiatives.” This final rule also clarifies that any disregarded earned income “and other adjustments associated with self-sufficiency initiatives” will be included in calculations of current annual earned income.

Certification/Documentation of Goal Attainment and Completion

A commenter stated the certification standard should be consistent with the HCV program of self-certification, and PHAs should strive to get third-party verification to confirm CoP goals were met. Another commenter recommended that HUD reduce unnecessary administrative burdens on housing providers and demonstrate trust in families by clarifying that self-certification is permissible for documenting: (1) Completion of ITSP Goals; and (2) being independent from cash welfare assistance. This commenter recommended that under § 984.305(c), HUD explicitly state that self-certification of goal completion is sufficient evidence.

One commenter asked that HUD further clarify the certification definition to include a verification hierarchy to track ITSP goals with evidence provided by participants, such as third-party authentic documents, to help keep clear, concise record keeping. This commenter supported self-certification only in situations where third-party verification would be difficult.

HUD Response:

The definition of certification, as written, and 24 CFR 984.305(c)(1) and (2) allows for PHAs and owners to accept self-certification of being independent from welfare assistance from FSS participants and 24 CFR 984.305(c)(4) also gives PHAs and owners the discretion to require third party verification. This final rule notes

that the requirements for the documentation of attainment of ITSP goals will be left to the PHA or owner to determine, and the policy may be included in their FSS Action Plan.

Current Monthly Rent

A commenter recommended that HUD allow the current definition of family rent to remain, to decrease the uncertainty FSS Program Coordinators may have when explaining what family rent is to an FSS participant when determining the escrow calculation.

HUD Response:

HUD declines to accept the commenter's recommendation. The proposed rule does not define “family rent.” The definitions of “baseline monthly rent” and “current monthly rent” were updated in the proposed rule and this final rule to reflect the evolution of rent options and nuances since the original regulations were written. The definition in the current regulation does not encompass the current realities.

Effective Date of the Contract of Participation (CoP) (Question 1)

Several commenters supported the proposed change to the effective date of the CoP. Commenters suggested that this could cause less confusion about the FSS program start date. One commenter supported the change but noted that software changes may need to be implemented to track these new dates. Two commenters supported the change to define this as the day the head of FSS family and PHA or owner execute the CoP. One commenter stated the current definition creates unnecessary delays for families interested in enrolling in the program. A commenter suggested applying this change prospectively rather than retroactively, as that would cause undue confusion for all parties.

Many commenters opposed the proposed change to the CoP effective date. Commenters stated that the change would make recordkeeping and escrow reporting more complicated, creating an administrative burden. Other commenters said it would be harder to track and monitor progress and end dates for FSS program participants. A commenter requested the option of keeping the effective date as the first of the following month.

Several commenters opposed defining the date of the CoP as the date it is executed, stating the CoP should continue to begin the next first of the month from the date of signing the contract.

Other commenters noted that the change would be inconsistent with rent calculations, which are generally effective the first day of the month. One commenter noted that Section 8 actions could affect an FSS program participant's income on the day that the Contract of Participation is signed, or the time directly afterwards.

A commenter said there are some Form HUD-50058 (Family Report) actions that are not processed due to household changes, but Contract rent increases or change of unit due to extenuating circumstances such as fire, flooding, or owner possession of unit, and asked how this would impact the CoP start date.

A commenter stated that because the tenant file comes from the Section 8 population to the FSS program, there have always been issues with actions that are in process by the current occupancy specialist and the FSS reporting timelines. For FSS Program Coordinators that do not process their own actions or in some cases do not even have access to those functions in the HCV software, this must be coordinated with the Occupancy Specialist. In the case of the proposed rule, the FSS enrollment addendum, for example, would be entered for the October 15th enrollment date and the pending action would still need to be deleted and reprocessed to include the FSS progress enrollment, so either way there is additional data entry to be done and clear communication with other staff if one is not processing the actions in the software.

Another commenter suggested an option to keep the effective date of the CoP on the first of the following month after signing to allow for easier tracking and PIC submission purposes.

A commenter said that starting the CoP on the date the contract is executed may pose a challenge if the participant has submitted an interim recertification for a rent decrease that has not yet been processed at the time of enrollment. The commenter asked if a recertification that occurred before the execution of the CoP but processed after the execution of the CoP would count as the first recertification of income for the purpose of the CoP? Would the baseline rent be the last rental amount paid by the family or the next rental payment which would reflect the interim recertification? The commenter stated that it is unclear if a family graduates from the program mid-month as to whether an agency would be required to pro-rate the family's escrow credit for the month or not.

One commenter stated that if the effective date of the contract is changed from the date of signing, this affects the monthly rent roll and landlord payments, which would trigger the system to pro-rate payments that were already issued for that month. A commenter said a new workaround may need to be created to overcome this issue.

HUD Response:

HUD appreciates the comments on the proposal. Many commenters opposed the change and requested that the CoP continue to conform with other rental assistance processes that operate on a monthly cycle. This final rule does not include the provision to change the effective date to the same date as the enrollment date. The CoP effective date will remain the first of the month following execution of the CoP. HUD does not believe that the rent roll or landlord payments should be impacted by the Contract effective date. The new statute and proposed and final regulation state that the CoP will end no later than 5 years after the first

recertification of income

after the execution date of the CoP. Therefore, a change in rent due to “contract rent increases or change of unit due to extenuating circumstances such as fire, flooding, or owner possession of unit” as suggested by a commenter, would not impact the start date or the length of the CoP. HUD notes that while the statute uses the term “recertification,” these regulations use the term “re-examination,” and these two terms have the same meaning in this rule.

Eligible Families

Commenters requested that HUD not limit eligible voucher recipients to “section 8(o)” program participants in the proposed definition of “eligible families” and should replace this with “Housing Choice Voucher program participants, including families with project-based vouchers and homeownership vouchers.” These commenters said that HUD does not explain why the proposed definition excludes these voucher participants. The commenters stated that a HUD Q&A clarifies that families receiving rental assistance through the Family Unification Program, other special purpose vouchers or Tenant Protection Vouchers would still be eligible to participate in FSS.

3

The commenters said the statute does not prohibit these categories of families, and families utilizing the HCV homeownership program still pay income-based rent and could benefit from the additional savings available through the FSS program. These commenters stated HUD would also need to eliminate the

proposed definition of “section 8(o)” and make parallel changes in the definition of “FSS family” and elsewhere in the new regulations. Another commenter advocated that anyone of any income-based program should be eligible for this opportunity because the FSS program's objective is to help people become independent of welfare assistance and work their way up to homeownership.

3

U.S. Department of Housing and Urban Development,

Family Self-Sufficiency Program Proposed Rule Questions & Answers (Q&A), https://www.hud.gov/sites/dfiles/PIH/documents/QA_on_FSS_Proposed%20Rule_-clean.pdf.

A commenter recommended this definition be changed to allow families participating in the HCV homeownership program to have the opportunity to participate in FSS. Another commenter disagreed that those FSS participants who move into homeownership could or should remain on the FSS Program because most of the homeownership programs in their area offer assistance programs in case homeowners face hardship. A commenter recommended that Homeownership participants not be allowed to participate in FSS once they meet their CoP requirements.

A commenter supported the proposed rule change allowing residents at Rental Assistance Demonstration (RAD)-converted properties to participate in the FSS program. Another commenter stated that FSS authorizing documents do not fully support the intentions of the FSS program, especially in RAD-converted properties. The commenter said there is conflicting information regarding the eligibility of former PHA relocated residents within a PHA's FSS Action Plan between the continuum of RAD Notices, the 2020 FSS Renewal Notice of Funding Availability (NOFA), and HUD's proposed rule. The commenter said that the NOFA language seemed punitive to the resident and inconsistent with the program's intentions and asked that HUD consider consistent language to allow continuous resident participation so long as the PHA and post-RAD conversion owner enter into a Cooperative Agreement and that residents be allowed into the program at any time after relocation. The commenter also asked that any new residents to the RAD-converted property also have the option to enroll into FSS and that the NOFA acknowledge these as eligible families.

HUD Response:

As it concerns the eligibility of HCV homeownership families (under section 8(y) of the U.S. Housing Act of 1937) to participate in FSS, HUD has considered the comments received, which are almost unanimously supportive of such participation. HUD has also determined that while section 23 of the 1937 Act prior to the Economic Growth Act amendments prevented an HCV homeownership family from participating in FSS, changes to the definition of eligible families under section 23(c)(1) as amended by the Economic Growth Act mean that participants receiving HCV homeownership assistance may also be included in this definition; the statutory definition of FSS eligible families under the Economic Growth Act includes Section 8 participants broadly rather than being limited to Section 8 rental certificate or rental voucher program participants. HUD revised § 984.101 of this rule accordingly, so that participants of the HCV homeownership option are eligible to participate in FSS. Additionally, HUD revised the definition of Section 8 programs to include multifamily assisted housing; tenant-based and project-based rental assistance under section 8(o) of the 1937 Act; the HCV homeownership option under section 8(y) of the 1937 Act; Family Unification Program (FUP) assistance under section 8(x) of the 1937 Act; and Moderate Rehabilitation for low-income families and Moderate Rehabilitation Single Room Occupancy for homeless individuals under 24 CFR part 882. Tenant-based and project-based rental assistance under section 8(o) of the 1937 Act includes any applicable special purpose voucher considered rental assistance under section 8(o) of the 1937 Act (such as FYI, VASH, and Mainstream Vouchers).

The comment about conflicting information regarding eligibility for residents at RAD-converted properties refers to the FY20 Notice of Funding Availability (NOFA). The FY20 NOFA reflects the eligibility of RAD-affected public housing residents prior to the new statute being implemented. The final rule will allow PBRA residents in RAD-converted properties to be served by PHAs with FSS appropriated funds if the PBRA owner enters into a Cooperative Agreement with the PHA and this will be reflected in future NOFOs following implementation of the final rule.

Family Self-Sufficiency (FSS) Program

A commenter stated that the definition of “FSS program” is established within its own jurisdiction and the language should be left as is because it gives the PHA more flexibility in defining and managing the program.

Commenters noted that the definition referred to “a program established by a PHA or owner within its jurisdiction” but the phrase “within its jurisdiction” has no applicability to owners and could be read to indicate that a PBRA owner is somehow within the jurisdiction of the local PHA, and therefore recommended deleting the phrase “within its jurisdiction” from this definition.

HUD Response:

HUD has clarified its usage of the word “jurisdiction” throughout this rule. In the proposed rule, “jurisdiction” was sometimes used to refer to the community where a PBRA property is located. In this final rule, “jurisdiction” is only used when referring to a PHA's jurisdiction.

Supportive Services

A commenter stated support for HUD's clarification that PHAs are only required to coordinate the availability of supportive services, not actually provide them, but requested that HUD clarify in its definition that PHAs and owners may directly provide supportive services, such as a childcare center or health clinic. Another commenter asked if, because of this provision, PHAs should no longer provide credit and financial services, even though PHAs are supposed to be trained in them in case an FSS participant faces those obstacles. Lastly, a commenter suggested that the final rule provide the flexibility for services to be conducted onsite or virtually, due to the COVID-19 pandemic.

A commenter suggested that HUD keep intact the full list of services as distinctly listed by Congress so as not to minimize the importance of any one specific service by combining it with other services. The commenter stated that the system fails to account for achievement such as obtaining a college degree and favors an approach that moves participants quickly to employment.

A commenter asked HUD to integrate health as part of the necessary conditions that promote and advance self-sufficiency because a health condition often prevents otherwise eligible families from participating in the FSS program. Before paragraph (ix) (Other services) of the definition, the commenter suggested adding the following: “(ix) Health management and empowerment—where available, the coordination with a Community Health Worker (CHW) as may be necessary to improve the health of the FSS participant, so long as the FSS participant consents in writing. The FSS participant may also withdraw consent, in writing, at any time.”

Another commenter questioned whether FSS families could participate in first-time homebuyer programs while they are in the FSS program and what protections would the regulations provide to protect against possible discrimination while transitioning into homeownership.

HUD Response:

PHAs and owners may provide FSS services directly using non-FSS appropriated funding, in accordance with the eligible activities of those funds. The FSS program does not impose any restrictions as to the location or modality of the services.

The definition of Supportive Services in the final rule at § 984.103 includes all services as defined in the statute and adds clarifying language. Both education and employment-related supportive services are included, as in the statute. This final rule expands the definition of “Personal welfare” to include health, dental, mental health, and health insurance services.

FSS families may, and often do, participate in first-time homebuyer programs while they are in the FSS program. Participating in a first-time homebuyer program, receiving housing counseling services, or participating in any form of homebuyer education or advocacy program should have no adverse effect on an FSS family's participation in FSS. Participation in the FSS program would not curtail or impact in any way the protections against discrimination that cover all families.

Section 984.105: Minimum Program Size

Extension of HUD-Approved Exception (Question 2)

A number of commenters supported the proposed change to extend the duration for a HUD-approved exception to five years. A commenter suggested that an annual report should be submitted by the PHAs to HUD concerning the use of the exception. Another commenter stated that the duration of any HUD-approved exception should be left at the PHA's discretion. When a PHA submits the request for an exception, the PHA should provide a good cause for the requested timeframe since FSS participant family profiles vary between PHAs as well as local circumstances.

HUD Response:

HUD appreciates the comments received in response to this question and, will keep the five-year limit on exceptions as stated in the proposed rule. In the interest of consistency in HUD's administration of the FSS program, HUD will not leave the time period of an exception up to each PHA. Under section 23 of the 1937 Act, as amended by the Economic Growth Act, HUD does not have the discretion to grant a permanent exception to the implementation of a Mandatory Program.

Proposed Changes to Minimum Program Size

A commenter opposed the proposed change to the minimum program size. A commenter disagreed with the proposal that when determining the minimum program size, the relevant figure is the total number of Public Housing units plus the total number of HCV units because even within the context of a unified FSS program, the calculation of program size for HCV participants should be calculated independently of the total number of public housing units. This commenter said that this has the potential to negatively impact the Section Eight Management Assessment Program (SEMAP) scores of PHAs that are working to comply with mandatory FSS requirements and whose current SEMAP scores derive from their performance serving HCV program participants. This commenter asked whether this change would impact current FSS obligations or would only apply to future obligations.

A commenter asked for more clarification for PHAs to accurately track their mandatory size. A commenter asked HUD to clarify whether HUD will be providing PHAs with the accurate number of required families to be served as of May 24, 2018, and whether all participants who have graduated since October 21, 1998, still reduce the May 24, 2018, mandatory number. Another commenter requested that the final rule provide additional clarification for FSS programs that reduced their size according to existing regulations because the proposed rule does not make it clear as to whether a program that reduces its program size after May 24, 2018, but before the final rule is implemented will be required to revert their program back to the size it was on May 24, 2018, or maintain its current minimum program size. The commenter recommended that HUD allow the minimum size of an FSS program to be either what it was on May 24, 2018, or the lesser amount if, as allowed by current regulations, a family graduated after May 24, 2018, and the FSS program opted not to refill that spot.

HUD Response:

HUD will calculate each PHA's minimum program size as of May 24, 2018, by calculating the original minimum program size (including public housing and Section 8) and reducing that number by the number of graduations reflected in PIC since October 21, 1998, to date. HUD plans to communicate these through the Field Offices to PHAs and provide additional forthcoming guidance.

Section 984.106: Cooperative Agreements (Question 3)

Several commenters stated that the list of requirements for PHAs entering into a Cooperative Agreement with owners of multifamily properties to voluntarily make an FSS program available to the owner's assisted tenants was comprehensive. One commenter noted that the requirement is being expanded without adequate appropriations to fund the FSS program, which would create an administrative burden for PHAs taking on an additional caseload for eligible families covered under a Cooperative Agreement with owners of multifamily properties. Another commenter opposed the change stating that it makes more sense to have the staff providing direct services to the client track and be knowledgeable about their escrow account, and that having separate hands involved with service coordination and escrow tracking creates an administrative burden on staff. One commenter recommended defining the word “serve” and the statement “FSS funds” to clarify that funds cannot be used for additional service provision like activities or incentives.

HUD Response:

HUD appreciates commenter feedback on the proposed list's comprehensiveness and notes that the preponderance of commenters felt it was comprehensive. HUD notes the concerns raised by a commenter regarding coordination between FSS Program Coordinators and staff who track client escrows when these functions are not performed by the same staff; however, HUD does not feel that such challenges are insurmountable, or should prevent a PHA from choosing to serve PBRA residents via Cooperative Agreement. The PBRA owner is ultimately responsible for managing the Federal funds provided through their PBRA contract, for rent calculation, and for the amounts placed in escrow and distributed to FSS families. The rule requires that the Cooperative Agreement between a PHA and an owner set forth the procedures for the sharing of escrow information between the PHA and the owner. HUD recommends that these procedures include the role of the FSS Program Coordinators. Each PHA may choose whether to enter into a Cooperative Agreement with a multifamily owner, assessing its own capacity to take on new participants by expanding the program or integrating them into their current program size. PBRA residents served by a PHA are already incorporated into the “number of residents served” as part of the NOFO funding process. HUD does not believe

it is necessary to define the words “serve” or “FSS funds” in the rule.

Section 984.107: FSS Award Funds Formula

Incorporation of Formula in the Final Rule

Commenters stated that HUD should incorporate a formula in the final FSS rule addressing how HUD will approach the discretionary authorities provided in 42 U.S.C. 1437u(i), created by the Economic Growth Act. The commenters encouraged HUD to specify in the final rule the other criteria which may be considered in determining eligibility for base or additional awards, which should include factors such as the planned enrollment level for a new or growing program, or the historic enrollment level for an existing program which may be experiencing a temporary dip in enrollment. One commenter stated that this requirement is mandatory, rather than discretionary.

A commenter urged HUD to detail funding formulas in the final rule, as well as address how it will approach other discretionary funding authorities to give housing providers and service coordinators a clear understanding of the funding parameters and allow them to better prepare for the future.

“Base Awards” Threshold and Prorating the Award Amount

Commenters suggested that the Secretary use discretion, under the Economic Growth Act to determine the policy concerning awards for eligible entities serving fewer than 25 participants (the threshold for a “base award”) and suggested that such a policy could include prorating the award amount or allowing such entities to combine programs.

A commenter suggested that HUD should clarify that the first priority encompasses only the renewal of the full costs of the same number of full-time and part-time coordinators as were funded by FSS awards in the prior year, with appropriate adjustments for local staffing costs and for year-to-year cost-of-living increases; and that the second priority encompasses all other funding requests, whether for new coordinators, incremental increases from part-time to full-time coordinators, or for existing coordinators not previously funded with FSS award funding.

Criteria for Determining Additional Awards of FSS Program Coordinator Funding

Commenters urged HUD to address its intended approach to determining awards of “new or incremental coordinator funding” under the second priority and urged HUD to use fair and reasonable “general principles.” The commenter suggested additional funds appropriated by Congress should be used for program expansion and deploying additional service coordinators.

Commenters recommended that HUD commit in the rule to implementing competitive processes that provide fair and reasonable access to funding for both programs operated by PHAs and programs operated by PBRA owners; and a reasonable balance between incremental awards for existing programs and new awards for previously unfunded programs.

HUD Response:

This final rule adds the statutory funding formula in regulation. The new statute codifies the formula that HUD has used in NOFOs (previously called “NOFAs”) for many years. All of the areas that are at HUD's discretion (criteria for funding, policy on award for eligible entities that are serving fewer than 25 participations, amounts available, etc.) in the new statute have been and will continue to be addressed in standard NOFOs. The statute provides that First Priority funding goes to FSS Program Coordinators that qualify as renewals. Beyond that, Second Priority will fund new programs or additional coordinators for renewal grantees. The distribution and priority under the Second Priority will be published in the NOFO each year. HUD has determined that it would be duplicative to publish the funding formula in both the NOFO, which is available to the public on

Grants.gov,

and also in a separate

Federal Register

Notice. Additionally, publishing the formula in a separate

Federal Register

Notice could potentially delay funding awards, and since funding is annual, it is critical that awards be made by December 31 of the year in which it was appropriated. Therefore, this final rule removes language from the proposed rule that provides that HUD will publish a separate notice in the

Federal Register

. Each year, within the bounds of the statute, the implementation of the funding award formula may change slightly to reflect best practices, lessons learned, the needs of the day, etc. All criteria for making awards are shared, in conformance with the HUD Reform Act, with the applicant community via the NOFO.

Incentives for Innovation and High Performance

Commenters said that the final rule should address HUD's implementation of new subsection (i)(6) of 42 U.S.C. 1437u(i), created at section 306(a)(11) of the Economic Growth Act, which authorizes the Secretary to reserve up to 5 percent of FSS appropriated funding for use as “incentives for innovation and high performance.”

Commenters recommended that the authorized incentives for innovation and high performance be incorporated within a competitive funding process for allocation of funding to “second priority” requests for new or incremental coordinator funding. The commenters noted that the “incentive” funding under this section, unlike all other funding authorized in subsection (i), is not specifically restricted to use for FSS Program Coordinators, but is more flexibly defined as “to provide support or to reward” FSS programs; and urged HUD to provide in the final rule that it may employ this authority to provide support to innovative or high-performing FSS programs for costs other than coordinator costs, which could include the costs of IT systems, participant incentives, or other costs. Commenters recommended that HUD support programs to establish innovation, cross-sector partnerships to help strengthen the types and quality of services offered to FSS participants (such as partnerships with employers, workforce and career development programs, colleges, etc.). A commenter encouraged flexibility for program providers and the possibility of incentives that may allow them to pursue innovative efforts, which could complement the service coordinators' work and improve resident outcomes. The commenter suggested that incentive payments permitted under the rules should only be considered after renewals are fully funded.

HUD Response:

HUD appreciates the comments. At the current time, HUD is focused on Priorities One and Two as stated in the Statute. If HUD chooses to avail itself of the option for Incentives for Innovation and High Performance, we will issue a separate notice. However, at this time, HUD is not including it in this final rule.

Section 984.201: Action Plan

A commenter requested that HUD state the exact “slight changes” it is making especially since they are not easily identifiable in section 306 of the Economic Growth Act.

HUD Response:

Compared to the current regulation (24 CFR 984.201), the final rule at § 984.201: (1) Expands requirements for consultation on the FSS Action Plan, as required by section 23, as amended; (2) removes language around FSS Action Plan submission requirements for mandatory programs

(there are no new mandatory programs); (3) adds language to clarify that all voluntary programs are required to have an approved FSS Action Plan, regardless of whether they receive funding (this is not a change, just a clarification); (4) deletes references to outdated programs that no longer exist (

e.g.,

the Job Opportunities and Basic Skills Training Program under part F of title IV of the Social Security Act has been replaced by the Workforce Innovation and Opportunity Act); and (5) removes requirements for policies around “terminating or withholding Section 8 assistance” (as this provision has been removed per other areas of statute). In the final rule, HUD is also adding to § 984.201(d)(13) providing that optional additional information is such other information that would help HUD determine the soundness of the proposed FSS program. Examples of policies that may be included in the FSS Action Plan include:

• Policies related to the modification of goals in the ITSP;

• The circumstances in which an extension of the Contract of Participation may be granted;

• Policies on the interim disbursement of escrow, including limitations on the use of the funds (if any);

• Policies regarding eligible uses of forfeited escrow funds by families in good standing;

• Policies regarding the re-enrollment of previous FSS participants, including graduates and those who exited the program without graduating;

• Policies on requirements for documentation of goal completion;

• Policies on documentation of the household's designation of the “head of FSS family;” and

• Policies for providing an FSS selection preference for porting families (if the PHA elects to offer such a preference).

Section 984.202: Program Coordinating Committees (PCCs)

A commenter said they support the proposal to include service coordinators on PCCs because the committee should have a deep understanding of resident needs, and service coordinators are uniquely skilled at building relationships with residents to understand the complex challenges they may be facing and then swiftly connect them to essential resources. Another commenter agreed that the PCC should include at least one participating FSS family member and an FSS staff coordinator, and stated their agency already includes these individuals as committee members. Another commenter stated it can be difficult to have a resident participant from a FUP voucher holder group as persons housed with a FUP voucher have multiple ongoing challenges and little time for goals not closely related to their own welfare.

HUD Response:

HUD appreciates these comments. The requirement is that one participant per type of rental assistance served in the FSS program must be included in the PCC—Public Housing, Housing Choice Vouchers, and/or Multifamily Housing. It is not required that each type of voucher (FUP, VASH, etc.) be represented.

Section 984.203: FSS Family Selection Procedures

A commenter objected to § 984.203(d)'s use of “motivation” as a factor in screening candidates, as it would reinforce negative and untrue stereotypes about families. Another commenter suggested leaving the current language regarding “motivation” as is to make sure everyone has an opportunity to participate in the program, and the PHA should be able to determine if a participant is motivated.

HUD Response:

The original regulation and proposed rule both allowed a PHA (and owner, in the proposed rule) to screen for motivation as an option. There was no change to the original regulation in the proposed rule and HUD is not changing the final regulation as it relates to motivation as a screening factor in this final rule.

Section 984.302: FSS Funds

Two commenters stated that §  984.302(c) is somewhat ambiguous and urged HUD to revise it so that it explicitly conveys PBRA owners' eligibility to access FSS appropriated funds for independently operated FSS programs, consistent with the statutory language and intent. The commenters suggested either deleting the phrase “including through a Cooperative Agreement in accordance with § 984.106;” or adding at the end of the section a new phrase “or through an independently operated PHA or PBRA FSS program.”

HUD Response:

Subject to funding priorities in section 23(i)(3) and HUD appropriations, HUD may award FSS appropriated funds directly to PBRA owners operating FSS programs independently or in partnership with another PBRA owner. To clarify this, HUD revises § 984.302 to state that FSS appropriated funds may be used by an owner when it operates an FSS program “through a Cooperative Agreement or on its own.” As long as it is permitted in the NOFO, an owner may choose to subcontract awarded funding to another entity such as another owner or a PHA with whom the owner has a Cooperative Agreement. To ensure that there is no confusion about funding available to PBRA owners who operate an FSS program, HUD added a regulatory provision at § 887.113(a) that states that owners may

also

use residual receipts to pay for reasonable FSS program operation costs, including hiring an FSS Program Coordinator(s) for their program.

Section 984.303: Contract of Participation

A commenter said “Seek Employment” should include a requirement for the FSS participant and FSS Program Coordinator to certify that the participant has completed these defined activities, and that any false certification is reason for termination, because in auditing FSS files, this is often an undocumented component.

Another commenter said the new final sentence in § 984.303(b)(3) is confusing and should be rewritten as follows to provide more clarity: “All considerations allowed for other assisted residents for repayment agreements, etc., shall also be allowed for FSS participants.” The commenter also stated § 984.303(i) is mostly repetitive of § 984.303(b)(5). A commenter said that, to make the regulations easier to read, HUD should add the right to a hearing from § 984.303(i) to § 984.303(b)(5) and delete § 984.303(i).

HUD Response:

HUD appreciates the recommendations provided by commenters for regulatory text changes to clarify requirements and streamline the regulations. HUD has revised the regulatory text in § 984.303(b)(3) as suggested by a commenter. HUD has also revised § 984.303(b)(5), which addresses the form and content of the CoP, to cross-reference § 984.303(i), which addresses actions PHAs may take for non-compliance with the CoP, instead of restating the requirements. As it concerns requiring the FSS participant and coordinator to certify that the Family has completed its defined activities and goals, under current requirements, which continue to apply under this rule, PHAs are already responsible for ensuring that the Family complies with the CoP, including the goals and activities defined in the Family's ITSP and the final rule includes an option that the PHA include in its FSS Action Plan the policies on documentation of goal completion.

See

24 CFR 984.201(d)(13).

Allowing Any Adult Member of the FSS Family, and Not Solely the Head of Household for Rental Assistance Purposes, To Execute the CoP (Question 4)

Many commenters agreed with the proposed change. A commenter noted that allowing any adult to be head of FSS family may increase participation at their PHA. Commenters stated this is a positive change for the program that will make it easier to serve families. A commenter noted this would allow access to the FSS program where the head of household is disabled and unable to work.

A number of commenters said that the proposed change needed more revisions. One commenter suggested guidance on the number of adult members in a family that may be eligible to execute a CoP and the number of times a household can participate in the FSS program. Some commenters stated that without clarity, this could cause confusion as to who was the head of the household under various circumstances. Other commenters said there could be confusion when there are disagreements concerning the beneficiary of the escrow account.

One commenter questioned if PHAs would have discretion on the implementation of this new rule. The commenter also questioned if the head of FSS family successfully completes the FSS contract, and the Head of Household for rental assistance purposes is behind on rent or noncompliant with the lease; can the PHA hold the head of FSS family responsible? One commenter requested explicit guidance on how the proposed change would be operationalized, specifically regarding changes in household composition and distribution of escrow. The commenter further stated that the proposed change could put FSS staff in the position of having to arbitrate as to which household member is the primary FSS participant who signs the CoP. A commenter asked if the HCV Head of Household would be required to sign an addendum to the CoP that states they have designated the other adult member as the head of FSS family.

One commenter recommended that any adult family member who expresses interest in joining the FSS program, and is ultimately enrolled first, be considered the head and designated as the individual allowed to execute the contract and requested guidance on when a family fails to designate an adult family member.

A commenter noted the proposed revision seemed to be missing the following: who would receive the disbursement; what would happen if the adult family members left the assisted household; if another adult household member could enroll to participate after the Head of Household enrolled and completed FSS; and if consent from the Head of Household would be required regarding who would be entitled to escrow.

One commenter opposed the proposed change. A commenter was concerned that there could be circumstances in which this might not be advisable, such as when there is a coercive dynamic in a household relationship. Another commenter warned that if the head of FSS family is not the Head of Household, they may not have decision-making power over who gets on the lease and lives in the household, including those who may be receiving cash welfare; and therefore, the ability to graduate may be beyond the head of FSS family's control.

HUD Response:

The change from only the Head of Household for rental assistance purposes being able to sign the CoP to any adult household member being eligible to sign a CoP is statutory. The final rule will reflect a change to clarify that there will be only one CoP per household at any one time. There may be an unlimited number of ITSPs for each Family. The proposed rule stated that the head of FSS family is “as designated by the Family.” The final rule will eliminate “in consultation with the PHA or the owner.” The PHA may make itself available to consult with families on this decision. HUD recognizes that financial disagreements between household members may cause significant distress, and that sometimes such conflicts rise to the level of financial abuse. However, HUD believes that as a general policy, it is in the best interests of assisted households to choose the head of FSS family that is most suitable for their individual household circumstances. While a head of FSS family who is not also the Head of Household for rental assistance purposes will not have control over some decisions, such as to who joins the household, they may still be the best choice to serve as head of FSS family; that choice should be made by the household, informed by their greater knowledge of their own circumstances. FSS Program Coordinators may provide information on resources for people experiencing abuse where appropriate. The PHA or owner may make a policy in the FSS Action Plan regarding documentation of that decision.

The escrow will be disbursed to the head of FSS family. The number of times a family can participate in the FSS program and other policies on re-enrollment have been and will remain policies to be determined at the local level. Please see the Promising Practices Guidebook for more discussion.

4

If the head of FSS family leaves the household, as with any CoP, a determination will be made regarding whether that person is eligible to graduate before they leave. If they do not graduate, as is the case now, another family member may step in as head of FSS family and continue with the CoP. While generally the Head of Household for rental assistance purposes, which may be different than the head of FSS family, would be responsible for debts incurred by the family in connection with the rental assistance program, such debts are subtracted from the escrow balance prior to disbursement of escrow at graduation.

4

U.S. Department of Housing and Urban Development,

Administering an Effective Family Self-Sufficiency Program: A Guidebook Based on Evidence and Promising Practices, https://www.hudexchange.info/resource/5241/administering-an-effective-fss-program-guidebook/.

Time Period That a Family Must Be Independent From Welfare (Questions 5, 6, and X

5

)

5

Note:

This question was labeled as “Question X” in the proposed rule.

Many commenters supported removing the 12-month requirement or changing the requirement to being independent from welfare assistance at the time of their Contract of Participation expiring or graduation instead. These commenters stated: This would lead to better outcomes, allow flexibility for clients finishing school or training; this would assist families dealing with the “benefits cliff” in a more gradual and welcoming manner; this would reduce the need for FSS escrow accounts to be forfeited by participants who would be otherwise eligible to receive any remaining escrow; this would ease the administrative burden for FSS staff; often the end date for being independent from welfare assistance is out of the participants' hands as they usually have transitional benefits after becoming employed; and the current 12-month period has prevented otherwise qualified participants from graduating and leads to artificially forfeiting accumulated escrow for families who are employed but had a period of time on public assistance. Commenters stated that the 12-month requirement was punitive, would needlessly frustrate families' attempt to graduate, and did not incentivize families to graduate. Many commenters supported, for the

same reasons, allowing PHAs to set the requirement at their discretion.

Some commenters did not recommend giving PHAs discretion and requested that HUD keep this uniform to the program, while others supported PHAs having discretion while maintaining a certain maximum.

Some commenters opposed the proposed change and agreed with the 12-month requirement, seeing no issue or undue burden a PHA would experience with the timeframe. The commenters suggested that, given the confirmation requirement, effective organizations should have a data sharing agreement with the appropriate entities to determine the FSS participants' welfare assistance status regardless of the requisite time period. The commenters believed that without a timeline, there could be a lack of motivation for families to gradually become independent from welfare. The commenters stated that a participant must be free from cash assistance over a period to adjust financially to being self-sufficient and the proposed change defeats the purpose of the program. Commenters noted that the CoP can be extended to allow a participant time to become free of assistance, so this is not typically a barrier to successful program completion. The commenters added that if a participant is not free of cash assistance after seven years of participating in the program, they likely are not in a place or time in their life to become self-sufficient. A commenter suggested adding extra resources to help the families reach that 12-month goal, including PHA discretion, and warned that it would also be detrimental to external stakeholders in the long run with the possibility of having to reallocate more funds to the welfare system to continue the programs.

Some commenters supported changing the rule so that welfare independence is only required for the participating member of the family in the FSS program, not the entire household because the participation in TANF or other welfare programs should not reflect the progress and eligibility for graduation of the participating member.

Some commenters said that this should have no impact on TANF requirements. Commenters stated that TANF is not a good indicator of welfare self-sufficiency. One commenter stated that accessing TANF within a specified time should not preclude completion of the program and the emphasis on utilization of TANF is a deficit-based requirement that does little to promote self-sufficiency because families encounter a range of changing life circumstances where they may need to access TANF assistance to sustain their livelihood. Another commenter noted that after moving into the work components of the TANF program, families can continue receiving benefits for up to 24 months and there are instances where the continuation of welfare helps families offset increased costs due to a decrease in other income-based supports.

One commenter stated that some participants decide to not enroll in the program for fear of losing or being denied other benefits. The commenter suggested that the rule clearly state that the savings held in escrow is only contingently available to families and would not be counted as an asset or resource for other state or Federal benefits. A commenter stated that reducing or eliminating the time would allow for families to successfully complete the Contract and collect escrow even if a family member has needed access to TANF in the past 12 months. One commenter stated there is nothing to preclude a family from returning to TANF after graduation from FSS. A few commenters noted that the TANF (Family Investment Program (FIP)) income eligibility guidelines are so low that most working families would not be eligible for TANF benefits.

Some commenters suggested alternative time requirements, because requiring participants to be free from TANF for a full 12 months poses undue hardship for many families and leaves little room for flexibility. Commenters suggested a 3- or 6-month requirement off TANF as a reasonable timeframe that would allow participants to demonstrate stable employment and financial self-sufficiency prior to graduating from the FSS program. They added that requiring participants to maintain stable employment for 3 months rather than abstain from TANF benefits for 3 months would be a better indicator of participants' ability to demonstrate long term self-sufficiency and positive steps toward goal achievement. They urged HUD to consider revising the FSS work requirement in addition to, or in lieu of, the TANF requirement.

One commenter stated that a required time limit off TANF before program end could be beneficial if clients used their time in the program to work on the areas which are hindering them from holding down a successful position that would eliminate the need for TANF. Some commenters said the requirement to be independent from TANF should follow the same requirements as being independent from other welfare, and most participants are aware that TANF is temporary. While another commenter said that requiring participants to be TANF free should be required, and that not receiving welfare assistance is a sign of self-sufficiency and would enhance their independence from government assistance. Another commenter stated that by keeping the 12-month rule, FSS Program Coordinators can work in conjunction with TANF staff to provide transitional services to the participant.

Commenters supported the proposed change and stated that removing the 12-month requirement would decrease incentive for FSS participants from exiting the program permanently. A number of commenters stated that the application of the welfare requirement in FSS will not impact participants' decision to permanently stay off welfare. Another commenter said that removing the 12-month requirement increases FSS family access to escrow account balances that can be used for asset building activities. Two commenters answered “no,” saying that many of their participants are not receiving “cash” welfare assistance anyway.

A commenter stated FSS participants will still be required to be independent from welfare assistance at the time their CoP ends, so the incentive to be independent from welfare assistance remains without a static timeframe. A few commenters said that most participants transition off welfare assistance as they increase their income, so this is a good complement to the FSS Goals. One of these commenters said the PHA's ability to work with an individual to define “suitable” employment will take care of the rare exceptions.

One commenter suggested that HUD reconsider using terms such as “incentive” when describing the decisions a household may make regarding their receipt of welfare assistance or other forms of public assistance because this language reinforces negative and untrue stereotypes about people who receive welfare and/or housing assistance.

HUD Response:

HUD thanks commenters for responses to Questions 5, 6, and X. This final rule maintains the language as it was in the proposed rule, eliminating the requirement to be independent from welfare assistance for 12 months prior to graduation. The requirement will be for the household to be independent from welfare assistance on the day of graduation. The requirement to be independent from welfare assistance in § 984.303(b)(2) will be revised to reflect that it will be a required final goal, as opposed to an interim goal. In addition to the explanation provided in the preamble to

the proposed rule, HUD is attempting to prevent a scenario when, for instance, a participant is unable to graduate because they have met all of their goals with the exception of being independent from welfare assistance for 12 months but is ineligible for an extension on their CoP. With regard to other benefits, the only other entitlement program to which FSS directly relates is TANF and it is a contingency of the HUD program that participants be free from TANF. Until the escrow funds are disbursed, they are the property of the PHA and cannot impact any eligibility of the FSS family for any benefit or entitlement. HUD cannot speak to the impact of the escrow, once disbursed, on other Federal, state, or local programs. The Internal Revenue Service has determined that escrow disbursements do not qualify as income and are not taxable and do not require a Form 1099. See:

https://www.hud.gov/sites/documents/FSSESCROWTAX_IRSOPINION.PDF.

Section 984.303(b)(1)

Two commenters interpreted the change to § 984.303(b)(1) to mean that PHAs and owners would have the discretion to use a CoP in the form of their choosing, and supported this change, as it would enable programs to streamline the CoP, revise it to use more plain and straightforward language, and make it available in other languages besides English. The commenters recommended that HUD require all PHAs and owners to make available and to accept electronic execution of the CoP in whatever form in use. Another commenter said there needs to be some standard parameters on the wording of each Agency's CoP and perhaps each Agency's proposed CoP should be reviewed by their FSS Field Office.

HUD Response:

The CoP form itself (including ITSP) will be revised as part of the Paperwork Reduction Act package that is published with the final rule. PHAs or owners may translate the CoP into any applicable language and may revise the structure of the CoP as long as the information and content included in the CoP is the same as on the HUD form. Along with producing documents in translated formats, PHAs and owners must also provide any other necessary language assistance services to ensure meaningful access for persons with limited English proficiency in compliance with Title VI of the Civil Rights Act. PHAs and owners that provide access to CoP forms in printed format or an electronic format and accept electronic submissions and signatures must ensure that such forms and procedures are language accessible and accessible with respect to the communications needs of persons with disabilities. PHAs and owners must ensure effective communication with individuals with disabilities in accordance with Section 504 of the Rehabilitation Act of 1973 (Section 504) and the Americans with Disabilities Act (ADA), which includes providing the CoP form (including ITSP) in accessible formats. Furthermore, PHAs and owners must provide reasonable accommodations and modifications for individuals with disabilities consistent with applicable Federal nondiscrimination laws.

Section 984.303(b)(2): FSS Family Goals

Commenters agreed with prohibiting the PHA or owner from modifying or adding additional required activities that must be completed by every participant. According to the commenters, one of the fundamental strengths of the FSS program is its flexibility: Each participant can set and make progress toward the particular goals that matter to them and make sense in their particular situation. Commenters said that if a PHA or owner can require other mandatory goals beyond the parameters of the terms and conditions prescribed by HUD, it would serve only to curtail participation and participant success in the program. Another commenter noted that a minimum income limit from wages for FSS graduation would enhance the program. A commenter stated that any household member completing the ITSP goals would accomplish the FSS program's purpose. Another commenter recommended that only completion of ITSP goals by the head of FSS family should be evaluated for purposes of determining completion of graduation requirements including meeting the employment obligation. A commenter stated that this clarification is not new, and that it has been in the NOFA for several years. A commenter suggested that the ITSP should be updated to allow the PHA flexibility to change the format.

HUD Response:

Thank you for your comments on this topic. As stated, this is a continuation of the current policy that does not allow for program-wide graduation requirements/enhancements (beyond the two required by regulation:

I.e.,

to complete the FSS program, the head of the FSS family must seek and maintain employment and the family must be independent of welfare assistance). All ITSP goals for all family members with ITSPs become part of the CoP and must be completed in order for the family to graduate. This final rule revises § 984.303(g) to clarify the requirement that all family members' ITSPs that are part of the CoP must be completed on or before the expiration of the contract term.

Regarding the ITSP format, as stated above regarding the CoP (of which the ITSP is a part), PHAs or owners may translate the ITSP into any applicable language and may revise the structure of the ITSP as long as the information and contents included in the ITSP is the same as on the HUD form. This includes translating into an electronic format and accepting electronic signatures. PHAs and owners must ensure effective communication with individuals with disabilities in accordance with the Section 504 and the ADA, which includes providing the CoP form (including ITSP) in accessible formats.

Section 984.303(b)(4): Employment Obligation

A commenter said the family member who signed the CoP should be employed at the time of Contract termination, and the PHA should also have flexibility to mandate some requirement that would support Self-Sufficiency, such as opening a savings account and saving a reasonable amount that is suitable for the family, such as saving $20 a month.

HUD Response:

Any goals other than the two mandatory goals of being employed and independent from welfare assistance, such as establishing a bank account and contributing to it may be negotiated on a person-by-person basis and may not be mandated for all participants. HUD will not mandate additional requirements, as they may be unnecessary or infeasible for some families.

Section 984.303(b)(4)(iii): Suitable Employment

Two commenters said the “suitable employment” definition gives PHAs and owners too much authority in determining what is suitable and can be applied arbitrarily and without substantiation, leading to unequal rules across and possibly within FSS programs. The commenters recommended that the proposed language be refined such that the FSS participant defines “suitable employment.” The commenters believed goal setting and goal defining should be a mutual effort to include the coordinator's knowledge and expertise in the field, as well as the client's right to self-determination. Another commenter stated an expert in the field should provide the definition after a thorough assessment. A commenter asked if it was possible to include “achieving a local living wage” in

“Determination of Suitable Employment” as there are several sources readily available to determine what a living wage is for communities across the U.S. One commenter suggested that HUD should consider implementing a minimum income for wages similar to the homeownership program.

HUD Response:

The final rule revises paragraph (b)(4)(iii) of the proposed rule to note that the determination of suitable employment will be made “with the agreement of the affected participant,” so that the affected participant has input into this matter along with the PHA or owner, and that the determination will be based on the receipt of other benefits of the participant, in addition to the skills, education, and job training of that participant. When making the determination of “suitable employment” it is critical to be aware of how increased income may affect other benefits such as Social Security Disability, Medicare, Medicaid, etc. which may be in the best interest of the participant to keep rather than increasing income beyond eligibility limits.

Good Cause for a Contract Extension (Question 7)

Several commenters supported expanding the “good cause” definition to include additional circumstances, like a natural disaster, serious illness, or involuntary loss of employment, especially during the COVID-19 pandemic. One commenter recommended that the definition include any other circumstance that the PHA determines is preventing the family from achieving their goal within the five-year timeframe, on a case-by-case basis. Another commenter suggested that the definition include a natural disaster. One commenter questioned how the Health Insurance Portability and Accountability Act (HIPAA) impacted this rule, when “serious illness” would consider an additional circumstance for “good cause.” A commenter questioned how a PHA would verify “involuntary loss of employment” when employers are not required to disclose why an employee was terminated. One commenter noted that the definition concerning “involuntary loss of employment” may need to be revised, as it may not consider circumstances where individuals voluntarily leave employment based on not being able to afford increases in childcare if the FSS participant is not receiving childcare assistance. Another commenter encouraged HUD to clarify and define new circumstances to now be considered “good cause” to extend a family's contract. Another commenter recommended clarifying the definition to include additional circumstances, including active pursuit of a goal that furthers self-sufficiency.

One commenter opposed establishing a definition for “good cause” for a Contract extension, suggesting that individual circumstances should be considered and left to the PHA's discretion. One commenter suggested that reasons for “good cause” should be at the FSS Program Coordinator's discretion because they are familiar with the clients' needs and goals. One commenter suggested adding some language that advises that the two-year extension period is a guideline not an absolute, as every reason for an extension does not require an automatic two-year extension. Another commenter suggested that the FSS participant must have already met at least one goal to qualify for such an extension.

A commenter recommended that HUD codify that declared disasters or emergencies recognized by local, State, or Federal government should qualify as good cause categorically, instead of relying on case-by-case waivers such as the one provided for this section under PIH Notice 2020-13, PH and HCV-6: Family Self-Sufficiency (FSS) Contract of Participation: Contract Extension, dated July 2, 2020.

6

6

U.S. Department of Housing and Urban Development,

PIH Notice 2020-13 (HA), REV-1, https://www.hud.gov/sites/dfiles/OCHCO/documents/2020/13pihn.pdf.

One commenter believed the proposed definition is sufficient, and does not require any further clarification, as the examples provided communicate intent, while allowing the PHA or owner flexibility to assess on a case-by-case basis.

HUD Response:

The final Contract of Participation (CoP) regulations at § 984.303(d) state that “good cause” to extend the CoP is determined on a case-by-case basis by the PHA or owner. HUD declines to define and limit “good cause,” but the final rule expands the examples of “good cause” to include more than circumstances beyond the participant's control, including active pursuit of a current or additional goal that will result in furtherance of self-sufficiency during the period of the extension.

The final rule has also been revised to include that the PHA or owner can grant the extension as long as the PHA or owner is consistent in its determination as to which circumstances warrant an extension. The participant must request an extension, so any information shared by the family in pursuit of that goal will be voluntarily shared. Additionally, unless the PHA or owner employs medical staff, HIPAA does not apply in this situation.

Removal of the Automatic Completion Provision (AKA “30% Rule”) (Question 8)

Several commenters supported removing the automatic completion provision. Commenters noted that removing the automatic completion provision would lead to more consistency between programs and fairness for all participants, and that removing this provision would also be more administratively efficient because PHAs would not have to track automatic completion. One commenter noted that additional time is helpful for the FSS Program Coordinator to work with the FSS family in completing any remaining subgoals and provide additional support for maintaining the employment as well as building confidence with financial literacy so the family can positively manage the additional income. Another commenter stated it doesn't exclude the other way to graduate and provides a clear “look at the math” definition of graduation for cases where a family's graduation is in dispute. Some commenters stated it would allow for true independence from rental assistance when 30% of income fully covers contract rent and the family successfully leaves both the FSS and Section 8 programs.

Commenters asked for clarification on how the proposal would operate when the HAP contract is terminated after the six-month grace period after a family's last housing assistance payment is made if their goals are not met. Commenters expressed concern that the six months was not enough time for families to complete their goals. Commenters recommended that a family graduate automatically at the end of this grace period because the family has reached independence.

A commenter suggested that regulations should be established to prevent the family from reporting losses of income immediately after escrow disbursement to maintain the housing assistance or decrease tenant portion of rent.

Commenters suggested that HUD include a provision that allows for automatic graduation when an FSS participant moves to market rate housing and releases their housing subsidy under positive circumstances.

Two commenters asked HUD to clarify whether families were allowed to

retain the escrow immediately after graduation.

Another commenter asked if the 30% rule is removed, will ongoing Contracts of Participation be grandfathered since the CoP does include the 30% rule as a way to graduate FSS? One commenter asked HUD to elaborate further and asked if the 30% would be replaced by a different percentage.

HUD Response:

Based on the commenters' support for removal of the automatic FSS graduation provision (the 30% rule), HUD will move forward with such removal as proposed. Under HCV and PBV regulations, zero-HAP voucher families (

i.e.,

families for which no HAP payments are made), are automatically terminated from the housing assistance program 180 calendar days after the last HAP payment. Under current FSS requirements, which continue to apply under this rule, once housing assistance is terminated, FSS participation also terminates. However, Zero-HAP families may continue to escrow during this 180-day period if they have not surpassed the Low-Income threshold (80% of Area Median Income (AMI)). Also, the 180-day period gives the family and the FSS Program Coordinator time to review the ITSP and make changes, if necessary, to put the family on a path to graduation prior to the expiration of the 180-days.

Escrow Funds in the Case of Nullification (Question 9)

A number of commenters supported adding the language regarding the handling of escrow funds in the case of nullification. One commenter supported the change and noted that these situations are currently handled through a waiver process which can be time-consuming and administratively burdensome for all parties involved. One commenter questioned whether the nullification would be considered a CoP Completion or Termination for purposes of keying #8 Recertification into PIC, as these are the only two choices that are given when completing a #8 Exit for FSS Participants. Commenters suggested that the proposed rule clarify who the beneficiaries of the escrow account would be when the CoP has been nullified. One commenter noted that FSS Participants in good standing who find themselves disabled and unable to work should be able to receive the funds if there is no household member who could take over the FSS CoP and complete it to receive the family's escrow funds.

A commenter suggested this can be managed in two different ways: the CoP can be terminated and the funds can be passed on to a member in the household who was appointed by the head of FSS family, or the CoP can continue if there is an adult member in the household who can continue and fulfill the CoP, and during the enrollment period the head of FSS family should assign the person whom these funds can go to in case something such as death happens.

Commenters suggested that escrow management should be managed on a case-by-case basis, dependent upon the circumstances for nullification. Another commenter suggested that if the reason for nullification is that the family was considered “not in good standing” due to eviction or non-compliance with the agreement, then the escrow funds should be liquidated and belong to the PHA for funding housing repairs, unpaid rent, support for tenants in good standing, or improvements where needed. Another commenter suggested that if a CoP is nullified the PHA must document and report to HUD its reasonable efforts to discover the availability of these services.

Some commenters said that the language of the escrow distribution should allow an FSS program participant to reject the distribution in such cases where their SSA benefits would be in jeopardy by obtaining such a resource. Another commenter suggested that HUD should add language stating that following such a disbursement, the family member and/or any other household member may not re-enroll in an FSS program at a later date. Two commenters suggested allowing the ITSP or CoP to be amended rather than nullified, such as by allowing an adult member who is able and agrees to take over the CoP.

Other commenters opposed the change. Commenters noted that releasing escrow funds upon nullification of the FSS CoP does not align with the FSS program's goal, and the escrow funds should remain an incentive to achieve self-sufficiency or to use towards achieving self-sufficiency. Other commenters stated that this will create an additional administrative burden to track and pay out monies for participants that have not completed the program regardless of why the CoP was nullified and will require the FSS Program Coordinator to seek out heirs in the case of a deceased single-person family.

One commenter asked how nullifying would affect performance measures. A commenter said that even with this change, HUD should ensure families have the right to be consulted about and appeal adverse determinations by a PHA or owner that unavailable supportive services are integral to the family's success.

HUD Response:

The regulation will be changed in § 984.303 to reflect that the FSS family will be consulted in the determination that services are not available, before the CoP is terminated and FSS escrow is disbursed. HUD notes that this final rule removes the term “nullification” and related references to the CoP being “null and void” from the regulations and instead refers to “terminations with FSS escrow disbursement.” For a contract to be “null” or “void” means it has no legal validity, force, or effect. Contracts are voided in rare circumstances, such as when the contract was entered into under duress or its terms are unconscionable. This does not align with the use of “nullification” in the existing FSS regulations or in the proposed rule. HUD has determined there are situations when a family should receive escrow funds, even when they haven't completed the CoP. The CoP will still be “terminated,” but the family will get escrow funds in those situations. This preamble retains the term “nullification” when discussing public comments, but the term will no longer appear in HUD's FSS regulations.

This final rule does not contain language from the proposed rule that would have provided for escrow disbursement to an estate if the head of FSS family dies before a CoP is completed. Section 23 of the 1937 Act, as amended by the Economic Growth Act, states that amounts in the escrow account may be withdrawn by the participating family after the family ceases to receive income assistance under Federal or State welfare programs, upon successful performance of the obligations of the family under the contract of participation entered into by the family under subsection (d), as determined according to the specific goals and terms included in the contract, and under other circumstances in which the Secretary determines an exception for good cause is warranted. The statute states that escrows may be “withdrawn by the

participating family.”

An estate cannot be considered a “participating family.” Therefore, FSS escrow cannot be disbursed to an estate. There may be situations where there is good cause to disburse escrow to a remaining FSS family member when the head of FSS family dies. While the general rule is that the escrow is only withdrawn if the FSS family completes the CoP, the Economic Growth Act allows HUD to provide exceptions to this general rule when “good cause is warranted.” However, HUD cannot make a blanket finding of “good cause” in all cases when an FSS participant

dies before completing the CoP. There may be instances where good cause is warranted (

e.g.,

when an FSS participant is close to completing the CoP and they die), but not always (

e.g.,

when an FSS participant is a recent enrollee in the program and has not completed much of the CoP). Therefore, this final rule cannot provide for escrow disbursement any time the head of FSS family dies before a CoP is completed. Where good cause for an escrow disbursement to a family member may be warranted when the head of FSS Family dies, HUD will consider waiver requests, as has been the case prior to this rulemaking.

HUD notes that the regulations continue to provide that if the head of FSS family is unable to complete the CoP, and the family wishes, another household member may take over the CoP. The disposition of forfeited escrow funds is addressed later in this document in the discussion about Question 14.

Section 984.303(g), (h), (j), and (k)

Some commenters recommended that HUD require PHAs and owners to offer the heads of FSS families the opportunity to pause participation in the program to deal with family crises and challenges without jeopardizing their escrow. These commenters stated that under the rules of some FSS programs, families may be terminated or denied coordination services for not complying with a required engagement schedule. The commenters said they had heard feedback from FSS participants that it would be helpful to have the option to “pause” their participation in the FSS program, citing reasons, such as health or family crisis, that are similar to why a participant might request an extension of their participation. Under current rules, these types of challenges contribute to increased terminations. These commenters said that suspending expectations for participating in services and accumulation of escrow and extending the CoP end date by the same period of time that the participant pauses their participation, would help to strengthen program participation and graduation rates, and support participants to maximize their escrow accumulation. Another commenter stated this may be a good idea but that allowing pausing would bring up a lot of questions that would need to be addressed and clarified. A commenter recommended HUD modify § 984.303(h)(2) to be consistent with the final portability changes in § 984.306.

HUD Response:

The length of the CoP is statutory. Therefore, HUD has no discretion to extend it. An initial five years (or longer, depending on the timing of the next recertification after effective date), plus a two-year extension should be long enough to cover most family circumstances, even emergencies, and “pauses” in pursuing education and/or employment goals. PHAs and owners also are at liberty to add goals around basic needs and crisis response, if that is what is needed and agreed to by the family. It is the purview of each PHA or owner to set goals regarding “engagement” with each participant. It is up to the PHA or owner to revise those goals as agreed to by the family, to respond to family needs.

As explained later in the discussion of § 984.306, this final rule revises § 984.303(h) and (k), in addition to § 984.306, to provide that if PHAs make a determination that an FSS family in good standing moves outside the jurisdiction of the PHA and continuation of the CoP after the move or completion of the CoP prior to the move is not possible, the CoP may be terminated with FSS escrow disbursement.

Additionally, this final rule revises § 984.303(j) to clarify that only non-HUD funds or non-HUD-restricted funds can be used by PHAs and owners to offer supportive services to former FSS families that have left public housing, Section 8 housing, or other assisted housing. This clarification is dictated by statute. In addition to appropriated FSS funds, PHAs and owners may use, subject to funding restrictions, public housing operating funds, public housing non-rental income, public housing section 18 proceeds, section 8 administrative fees, and PBRA residual receipts to pay for FSS coordinators. However, none of these funding sources can be used to assist families who are not public housing or section 8 participants. Therefore, to the extent a PHA or owner wishes to coordinate services for former FSS families that have left assisted housing, the PHA or owner must do so using only funding sources that are not HUD funds or HUD-restricted funds. If a PHA or owner chooses to provide service coordination to unassisted families, the PHA or owner will need to calculate the FSS coordinator's time spent on such coordination and prorate funding accordingly. Notwithstanding, PHAs or owners may permit former FSS families that have left assisted housing to attend FSS activities or functions (

e.g.,

job fairs) that predominantly serve public housing residents or section 8 participants without proration of funding.

Section 984.304: Amount of Rent Paid by FSS Family and Increases in Family Income

Changes to the Adjusted Income Threshold

Commenters supported the proposed change to the adjusted income threshold because it would allow FSS families to continue to increase their escrow accounts. A commenter stated that participants should be given maximal opportunities to acquire as much escrow as possible during their term in the program.

HUD Response:

HUD thanks commenters for their feedback, and notes that these changes are statutory.

Section 984.305: FSS Escrow Account

Individual Escrow Accounts for Families

A commenter asked whether the intent of the proposed rule was that each participating family will have their own escrow account, because under § 984.305, “each family's escrow account” seems to be contrary to § 983.303 (a)(1): “[t]he PHA shall deposit account funds of all families participating in PHA's FSS program in a single depository account.”

HUD Response:

Escrow for all families will still be deposited in a single depository account, but accounted for separately, as demonstrated by the reference to “each family's escrow account.” This is not a change from the current regulation or practice.

Interim Disbursements

A commenter recommended HUD require all FSS programs to allow interim disbursements, under §  984.305(c)(2)(ii), and to permit PHAs and owners some discretion to determine the frequency and conditions by which an interim disbursement would be permitted, and that participants be entitled to a formal grievance process if their request for an interim disbursement is denied.

A commenter stated that the current economic hardship resulting from the COVID-19 pandemic demonstrated that interim disbursements from an FSS escrow account can be a powerful tool for families. The commenter suggested that in paragraph (c)(2)(ii), HUD should require all FSS programs to allow interim disbursements consistent with the rule rather than leaving this important component of the program to local discretion and make clear that families have hearing rights if a PHA or owner rejects a request for an interim disbursement. Additionally, the

commenter suggested that HUD should take the opportunity to learn from the likely increased use of interim disbursements during the pandemic to add other examples of grounds for families to receive an interim disbursement.

HUD Response:

Participants are entitled to a grievance or hearing per the PHA's or owner's grievance policy as specified in the FSS Action Plan. It is a best practice to allow for interim disbursements, but HUD will not make them mandatory at this time. For further discussion of Interim Disbursements and considerations around making this policy, please see the HUD FSS Promising Practices Guidebook.

7

7

See supra

footnote 3.

Frequency of Depositing Escrow Amounts to a Family's FSS Escrow Account (Question 10)

Many commenters supported the proposed monthly escrow deposits into a family's FSS escrow account, where some are already doing it. Commenters said monthly calculating and crediting of escrow makes it easier to double check the escrow credit worksheet against the escrow deposit, prevent administrative backlog and delays in customer service for providing balance information to clients, and helps to maximize interest and the compounding effect of interest for the benefit of the FSS participant.

One commenter generally opposed monthly escrow deposits, opting for annual deposits. Another commenter said the escrow calculation does not need to be done at every re-examination, and it should be left to the coordinator's discretion as to the frequency of escrow deposits. Another commenter suggested that PHAs should have flexibility in the frequency of depositing escrow to allow for quarterly deposits. A commenter stated that smaller programs may operate sufficiently with greater flexibility in these timelines.

Commenters stated that annual statements should continue to be provided to FSS participants, and balance inquiries can be provided at any time.

A commenter stated that the statement for multi-family properties should be monthly or upon receipt of HUD rent subsidies, because that maximizes cash flow for the owner, in the event HUD rental subsidy payments are delayed.

A commenter suggested the frequency of deposits should be determined based on the client's income at the start of their program.

A commenter stated a family should be able to have limited access to their account, including limits on the amount and times the account is accessed.

HUD Response:

Commenters largely supported the proposal for monthly escrow deposits and explained that this will prevent administrative backlogs and delays in customer service, as well as maximize interest for the FSS participants' benefit. HUD has determined, in consideration of the comments received, to move forward with the change as proposed. As a point of clarification, the PHA is not required to calculate the escrow amount monthly; rather, the escrow amount is re-determined at each re-examination of family income. As explained in the proposed rule's preamble, the requirement to provide an FSS escrow account report to the family, at least annually, has not changed; however, a family may inquire about their FSS escrow balance at any time.

Whether the Family's FSS Escrow Account Should Be Credited for Late Payments (Question 11)

Some commenters agreed with the proposed change that escrow accounts be credited on a monthly basis, and that if there are cases where a tenant owes a landlord or housing authority unpaid rent at the end of a term, these should be subtracted from the escrow at the time of a final escrow payout. One commenter agreed that escrow should be credited for late payments, stating that by crediting the account the program acknowledges the family's efforts to adhere to tenant obligations and is incentivizing follow through with rental payments. A commenter opposed the proposed change, stating a goal of self-sufficiency and stating that crediting late rent payments disincentivizes prompt rent payments and may negatively impact the owner and property operations. The commenter said any rent payments greater than 7 days late should not be credited to incentivize prompt rent payment.

Many commenters opposed the proposed change, stating it would be an administrative burden; that landlords generally do not inform the PHA of late payments; that the person paying rent might not be the person participating in the program; and that it does not align with the obligations of the HCV or FSS program. Commenters also said that policies should be consistent across programs, and that there are other negative consequences for late rent payments. A commenter stated that PHAs would potentially have to deposit escrow credits into FSS escrow accounts at different times every month if some households pay rent on time while others are late. The commenter said money owed by an FSS family to a PHA is already required to be deducted from the family's escrow account at the end of the FSS CoP. Commenters stated that a landlord's best course of action is to enforce their lease with the tenant if the tenant is not in compliance with any part of the lease agreement. A commenter said changing the escrow calculation to mirror re-certs or annual exams for Section 8 may cause additional work for the Housing Specialist, but still may have no bearing on whether a client is paying their rent on time, and that FSS Program Coordinators requesting the client to provide a rent payment history monthly would assist with knowing if rent is paid on time.

Commenters suggested adding language to allow FSS clients to be credited with an escrow deposit, as long as an FSS client pays their rent, even if they are late and they pay late fees.

A commenter suggested that before escrow credit disbursement, the FSS participant family should certify that there is no outstanding balance regarding paying the owner any portion of the rent to owner that is not covered by the PHA housing assistance payment. A commenter said that escrow should not be credited if a tenant does not pay rent for a month from their own funds (for example, if paid by a rental assistance agency), but agreed that upon completion of the FSS CoP any funds owed to the PHA should be deducted from the final escrow disbursement. A commenter suggested that the rule further define the parameters for when late payments would and would not impact escrow credits, as there would likely be late payments outside the participant's control and/or could be considered to have good cause. A commenter said that if an FSS family is not paying their rent on time, a more appropriate approach is referring them to financial counseling, and the PHA's certified Homeownership Counselor or a partner from the PCC committee could provide this supportive service. A commenter suggested that the proposed change should be at the PHA's discretion. The commenter further suggested that the FSS escrow should not be applied to debts owed by the participant, because escrow is received from HAP funds; if escrow is used to compensate for debts owed this reduces the housing assistance payment funding available to unassisted families who have applied for housing. Commenters suggested two payment plans for FSS families that are late on their rent: (a)

The PHA or owner could work together with the family on a payment plan where the family pays the rent in small increments throughout the month; and (b) a payment plan is aligned with the days the paycheck is received.

A commenter stated that, if this provision were implemented, HUD would need to consider cases where partial rent is paid and whether that would result in a partial escrow credit or in cases where rent was paid on time but not credited to the individual's account in a timely manner. The commenter said this provision would be particularly problematic in PBRA FSS programs because escrow credits are billed to HUD one month prior to rent being due; therefore, the housing provider is already in receipt of the escrow funds before rent is even due, which could result in additional retroactive adjustments and opens the door to even further potential errors in maintaining accurate escrow balances, which is already challenging enough for FSS programs to do.

HUD Response:

HUD appreciates the comments received on this issue and has determined, in consideration of such comments, not to implement a policy to stop escrow credits when the family is late in paying rent. HUD agrees with commenters that such a policy would be administratively burdensome, particularly for voucher families where the PHA is generally not the landlord and may not readily know that the family is late in paying rent, and because it would result in the PHA having to pause and resume escrow deposits for such families during the Contract term. Additionally, the rule already requires the family's FSS escrow balance to be reduced at the time of graduation by amounts owned by the FSS family for rent, or other amounts, that were due under the housing assistance program.

In response to the commenter who said ceasing escrow credits when a family is late in paying rent is a good policy because crediting late rent payments disincentives prompt rent payments, HUD appreciates this perspective. However, besides the reasons described above for not instituting this policy, HUD agrees with commenters that a more effective approach for the FSS program would be to refer such families to the supports needed to ensure that rent payments are made on time and have landlords use other mechanisms already available to them to enforce the lease.

Conducting a New Income Recertification (Question 12)

A commenter sought clarification regarding the income recertification because the FY19 NOFA removed this requirement, and it is still removed on the FY20 NOFA but is still on the current FSS CoP form. The commenter was concerned that there be consistency across the board for all program participants. Another commenter agreed with removing the 120-day requirement, as it would be less of an administrative burden.

A commenter supported decisions made at the local level in favor of local objectives and conditions. In general, the commenter noted this would not appear to be a significant issue since increases in income must be reported by households (unless the agency has a policy that states otherwise), and agencies must conduct a re-examination of income if the household has a decrease in income (unless the agency has a policy that states otherwise).

A commenter opposed the proposed change, stating it would be an administrative burden and potentially create a barrier for a family to accrue escrow, and noted that since HUD has decided to waive the 120-day requirement to ease barriers to enrollment in the program, it would be counter-productive to allow discretion.

Some commenters suggested that multifamily owners should have the same discretion as PHAs regarding this issue. Another commenter said that this change should be available across the board to all families participating in the HCV program. A commenter suggested eliminating the 120-day recertification requirement, using its MTW waiver flexibility, and believed this change strengthened the program, both administratively by eliminating the requirement of a recertification, and programmatically for the participants, by streamlining the process and creating a straight line from interest to enrollment.

Commenters suggested that the final rule remove PHA or owner discretion in deciding whether to conduct a new income examination prior to the execution of a CoP because such discretion, if exercised, would limit a household's potential to optimize the accrual of escrow and effectively reinstate the 120-day rule which was eliminated in the FY19 FSS Program Renewal NOFA. These commenters stated the pandemic crisis has further demonstrated the importance of HUD maintaining its commitment to “ease barriers to participation” by stating plainly in the regulation, without the housing provider's discretion, that the income and rents amounts to be used in the CoP shall be taken from the amounts on the last certification, re-examination, or interim determination in effect at the time the family enrolls in the FSS Program. The commenters said they saw significant delays for families who wanted to enroll but could not because they needed to complete an additional re-examination before enrollment. A commenter said that this requirement also creates an additional administrative burden on housing providers. Additionally, commenters said this rule makes it so that people need to re-certify even if they do not have a change in income, and sometimes housing authorities do not allow for a recertification if there was no income change.

A commenter supported HUD's proposal to lift the requirement that a PHA or owner must perform a recertification for a resident to enroll in the FSS program if it has been greater than 120 days since the resident's most recent recertification and permit the administrators of FSS programs to determine whether to use the resident's most recent annual recertification or whether to perform an additional recertification as more effective and efficient.

According to a commenter, the final rule should ensure tenants have the right to request an interim income recertification or full re-examination at the time of enrollment if their income has decreased since the last recertification.

A commenter suggested that the proposed rule should include language requiring PHAs or owners to conduct a re-examination if the family requests it based on a loss of income since the last re-examination and should make it clear that a new or recent interim rent adjustment may be relied on to determine baseline earned income.

HUD Response:

Upon reviewing the Joint Explanatory Statement for FY21 Appropriations, HUD interprets the language to indicate that a policy requiring a recertification immediately prior to FSS enrollment is not consistent with Congressional intent. Thus, the regulation will be revised to require the PHA or owner, when setting a participant's baseline rent, to use the amounts on the most recent rent certification (with no discretion to do otherwise.) All standard rent certification regulations must be followed, including honoring a resident's request for a recertification due to loss of income, if that is a standard option.

Escrow Calculation (Question 13)

Several commenters supported the proposed streamlined escrow calculation, stating that removing the difference in the calculation of escrow between very low-income and low-income families should provide a degree of simplification that can be enhanced by other proposed changes in the calculation.

Commenters supported the proposed escrow calculation worksheet because they said it would be more user friendly. A commenter said the proposed change is easier, but in doing a case study against the current worksheet, the calculated outcomes are not coming up the same.

Some commenters opposed the proposed change, stating that it further complicates escrow calculations.

A commenter stated the Multifamily FSS Escrow Credit Worksheet still has escrow deducted if the family is over the very-low-income limit, and that this deduction was to be eliminated with the proposed rule. The commenter opposed the proposed change, stating that eliminating this for only HCV/PH and not PBRA is not an equitable representation of the families on the programs that are designed to mirror one another. Additionally, the commenter stated that this deduction is taken away from the maximum escrow amount versus the “preliminary escrow credit,” which amounts to a double penalty for increasing earned income.

A commenter suggested adding the line item from the 50058s to the spreadsheet to ease input and auditing. A commenter stated that the proposed rule provides a slightly streamlined escrow calculation, but requires users to calculate a monthly escrow cap and to obtain data to determine if the family's adjusted monthly income exceeds 80% of AMI. In addition, the commenter said that the proposed rule effectively continues to limit escrow to lower income families and provides a monthly cap, further limiting escrow potential. The commenter suggested a more streamlined escrow calculation process, where all escrow calculations are done the same way for all participants, eliminating the low-income check. The commenter stated that this would make it easier to explain to tenants and staff alike and has the benefit of offering all FSS participants the same access to escrow.

Some commenters opposed the escrow cap where the family's adjusted monthly income exceeds 80% of AMI.

A commenter suggested that the final rule contemplate the growth of wages earned specifically by the head of FSS family. Another commenter suggested the calculation should be based on the difference between the baseline and current 30% of monthly earned income, as that is the true reflection of the participants' growth in a work incentive program. A commenter suggested that the escrow calculation software should have a drop down for payment standards for the jurisdiction for which the participant resides, as many FSS Program Coordinators do not conduct recertifications. A commenter suggested a slight modification to the formula for the escrow credit worksheet, since on some calculations, under “Calculation of Escrow” do not round up to the nearest dollar, including the final escrow credit.

Commenters stated the FSS escrow worksheet appears to work well for some of the more challenging escrow calculation situations, but that it would need to include reference to the line item for Form 50059 and identify which lines wouldn't apply to multifamily. The commenters said it is not clear whether there is a separate escrow credit worksheet for multifamily using the proposed guidelines. The commenters suggested that the line number of Form 50058 or Form 50059 accordingly be referenced for all items entered in the escrow sheet, to reduce confusion and allow the calculation to be better automated by software. The commenters said that currently, the instructions for (8) and (11), 80% AMI and Applicable Payment Standard (for HCV families), suggest that the number be collected from an external link. The commenters further stated that if this number does not appear on Form 50058, the commenters recommended identifying another standard place from the recertification process where this number can be found to not require an external search.

HUD Response:

After consideration of comments received concerning the proposed escrow calculation, HUD determined not to make changes to the proposed requirements. Without specific details concerning how some commenters found that the proposed calculation further complicated escrow calculations, HUD is unable to determine which areas of the calculation could be revised or improved. As a reminder, parts of the proposed changes were based on statutory changes (such as a very low-income family's escrow no longer capped) and the formula now incorporates other programmatic considerations not previously contemplated in the regulation (such as capping escrow for zero-HAP HCV families at the lower of the gross rent or payment standard and capping escrow for zero-HAP PBV, Mod Rehab, or Mod Rehab SRO families at the difference between the baseline monthly rent and current gross rent).

Regarding opposition to the escrow cap where the family's adjusted monthly income exceeds 80% of AMI, HUD has no discretion to modify this statutory requirement, which has been in place since the FSS program's enactment. Regarding the suggestion that the calculation should be based on the difference between the baseline and current 30% of monthly earned income, the statute requires an increase in the amount of rent paid by the family (not just an increase in earned income); therefore, HUD has no authority to change this part of the calculation. As to commenters' technical suggestions concerning the escrow calculation worksheet (

i.e.,

adding the line item from Form 50058s to the spreadsheet to ease input and auditing; rounding up to the nearest dollar; and incorporating the payment standard and 80% of AMI into the escrow calculation worksheet). HUD will consider the feasibility of these suggestions as it finalizes the escrow worksheet.

Definition of “Good Standing” and List of Eligible Activities for Forfeited Escrow Funds (Question 14)

Good Standing

A commenter supported establishing the definition of “good standing” in the regulations and not leaving it to an individual PHA or owner's discretion because the definition of good standing can vary significantly on a subjective basis, even within the same program, and is confusing and frustrating for participants. This commenter said that under these new regulations, the head of FSS family who signs the CoP may not be the Head of Household for rental assistance purposes and therefore may not be able to control compliance with a repayment agreement since it is the Head of Household for rental assistance purposes who enters into a repayment agreement. A commenter stated the language should be left as is and the PHA should be allowed to continue to define good standing.

Commenters opposed the proposed definition of “good standing” for unfairly penalizing families who are in current eviction proceedings. These commenters said it could exclude families facing eviction without cause. These commenters stated that some landlords initiate eviction proceedings as a means of terminating leases of voucher holders without cause. These commenters said HUD does not define

the phrase “eviction proceedings,” which is inherently unclear. These commenters stated that a family's compliance with FSS and HUD program requirements would not be affected simply by the landlord's initiation of an eviction action. Commenters also stated it would be unduly burdensome to PHAs and owners to have to determine whether pending eviction proceedings are likely to affect a family's standing in the FSS program.

Some commenters suggested that the final rule should clearly define “good standing” as families who: Are in compliance with their FSS CoP; have either satisfied or are current on any debts owed the PHA; and are in compliance with the PHA's regulations regarding participation in the HCV program, including rent and restitution payments. A commenter suggested adding language to the definition, to read: “FSS family in good standing means, for purposes of this part, an FSS family that is not in current eviction proceedings or have open lease violations that may lead to eviction if left uncured and is otherwise in compliance with any repayment agreement and the FSS CoP.” Commenters suggested “good standing” should also include participants who have documented progress towards their goals or self-sufficiency, such as communication with the FSS, coordinator, paystubs for work, class schedule if working on post-secondary education, etc. Only participants who are in “good standing' should benefit from forfeited escrow for eligible activities. A commenter suggested that the definition of “good standing” should simply be any family who has not been found to be in non-compliance with FSS requirements. A commenter suggested that “good standing” should mean any FSS that is not in the termination process.

HUD Response

: As recommended by commenters, this final rule defines “good standing” as an FSS family that is in compliance with their FSS CoP; has either satisfied or are current on any debts owed the PHA or owner; and is in compliance with the regulations regarding participation in the relevant rental assistance program, including rent payments.

Eligible Activities

Commenters supported the proposal to allow forfeited escrow funds to be used for FSS participants in good standing. Commenters also supported the proposed rule's definition of “eligible activities.” Commenters said the proposed definition would enable Coordinators and participants to access resources to address significant barriers families face in achieving their goals.

Commenters suggested that the proposed rule should add items to the eligible activities list for which forfeited escrow may be used. Commenters made the following suggestions: Childcare and citizenship costs; a catch-all that would allow PHAs to determine “other eligible activities,” potentially in consultation with the Secretary; staff training; educational expenses for FSS participants in good standing; items or expenses needed for self-sufficiency advancement; hosting job fairs; employment driven activities; mock interviews; counseling agencies; bus passes; obtaining or renewing state identification cards and driver's licenses; unpaid rent expenses; needed repairs or updates; food or clothing vouchers; families within the program that demonstrate the most need; gardening or recreational programs for their tenants; gas to go to a job interview; cost of interview clothing; homeownership bonus; scholarship funds; emergency funds; source for interim disbursement funds for participants who don't have escrow accrued; stipends for participants who are part of the PCC or Client Advisory Board (CAB); conferences expenses for FSS Program Coordinators; emergency medical co-pays; emergency transportation; a grant fund resource to assist participants with meeting their goals; and meaningful graduation ceremonies.

A commenter suggested using the list of allowable uses of interim escrow disbursements as a model for allowable use of forfeited funds to help program participants. Commenters stated that this is especially important now, within the context of the COVID-19 pandemic and subsequent barriers to access digital technology, which is essential to take classes and work from home or at an off-site location.

A commenter recommended that HUD explore adding incentives like gift cards or bonus escrow earnings for participants in good standing who complete big achievements (example: Graduating with a degree, paying off large debts, etc.). Another commenter suggested that for a participant to access incentives or activities funded by forfeited escrow funds, they would be required to have an existing goal or create a new goal related to the use of funding.

Commenters suggested that the proposed rule also include a list of ineligible activities and provide discretion to PHAs regarding eligible activities. Specifically, some commenters suggested that the proposed rule state that funds cannot be used for general administrative costs of PHAs or owners.

A commenter suggested that forfeited escrow should go to good standing participants who need the money for a good cause and the FSS Programs, such as: laptops or books for participants pursuing an education; car repairs for participants who need a vehicle for employment purposes; registration fees for education purposes or short-term certifications.

A commenter suggested that housing providers have a clear definition of how these funds will be used up front, perhaps in the Action Plan, to avoid subjective or discriminatory disbursement of these funds. A commenter warned that allowable activities must be equally available for all FSS participants in a given program and should not be allowed to be used as a resource for individual participants, but instead should be equally available to people consistent with the purposes of the FSS program.

A commenter also suggested that the final rule should include as safe harbor allowances: educational programs and workshops for participants, and down payment assistance for families who graduate and choose to exit subsidized housing.

A commenter stated escrow funds are HAP funds and any funds that are forfeited should be returned to HAP funds to benefit all HCV participants and applicants.

A commenter stated that the bookkeeping process for these funds must be carefully developed because PHAs do not have accounts in place to separate escrow funds assigned to participants from forfeited FSS escrow funds and asked how PHAs would account for FSS forfeitures on the balance sheet.

A commenter stated that when FSS escrows are forfeited, in the case of a Cooperative Agreement, the funds should go to the FSS administering entity (PHA or owner) and that administering entity is responsible to utilize the funds as defined as allowable uses.

HUD Response:

This final rule adds “and other costs related to achieving obligations outlined in the Contract of Participation” to eligible activities, and “general administrative costs of the FSS program” to ineligible activities. HUD revised this final rule (1) to eliminate any incentive PHAs may have had not to graduate participating families so as to recapture the forfeited escrow funds and (2) to ensure forfeited funds are used to advance participants' goals and not for the overall implementation of

the FSS program. Additionally, consistent with Section 23(e)(3) of the 1937 Act, as amended by the Economic Growth Act, HUD revises the final rule to clarify that forfeited escrow accounts must be used for the benefit of FSS participants, and not for the FSS program more broadly.

Section 984.306: HCV Portability Requirements

Proposed Changes to HCV Portability Requirements (Question 15)

Several commenters supported the proposed changes to the porting requirements. A commenter opposed HUD making changes regarding portability because these provisions are not addressed in the act, and the title of the proposed rule does not mention revisions to existing regulations. A commenter recommended HUD be consistent with current program regulations and require denying portability moves use existing provisions outlined under PIH Notice 2016-09, Section (6),

Denying Family Requests

to Move, and Section (7)

Denying Family Requests to Move—Insufficient Funding.

8

8

U.S. Department of Housing and Urban Development,

Notice PIH 2016-09 (HA), https://www.hud.gov/sites/documents/16-09PIHN.PDF.

HUD Response:

While the Economic Growth Act does not specifically address portability in the FSS context, HUD exercised its authority to issue regulations to amend and clarify the existing FSS portability regulatory provisions. This regulatory section addresses portability provisions as they are applicable to the FSS program specifically and are not meant to replace portability requirements that are applicable to all HCV families (whether or not they are also participating in the FSS program). HCV portability requirements, as established in regulation at 24 CFR part 982, subpart H, and clarified in PIH Notice 2016-09, continue to apply.

HUD also took the opportunity to clarify the intersection between the family right to move from the PBV unit with continued tenant-based rental assistance (in accordance with 24 CFR 983.261) and the FSS portability requirements. While portability requirements do not apply to the PBV program, if the PBV family exercises its right to move with continued tenant-based rental assistance and is offered a tenant-based voucher, portability provisions apply. This final rule clarifies that a PBV family who has been enrolled in the FSS program for 12 months, and who exercises its right to move from the PBV unit with continued tenant-based rental assistance, may move outside of the jurisdiction of the initial PHA in accordance with portability requirements. Additionally, the PHA's discretion to allow portability moves within the 12 months following the effective date of the CoP also applies to such PBV families.

Porting of FSS Family Where Both PHAs Have FSS Programs

Commenters diverged regarding whether the receiving PHA should be required to absorb the family into its FSS program. Several commenters specifically supported encouraging or requiring the receiving PHA to absorb the porting FSS family into the receiving FSS Program, which would ease administrative burdens. Commenters suggested that receiving PHAs should be required to absorb the family if the initial PHA vouched for the family. Commenters specifically noted the burden of management of an escrow account, and the inability of most software programs to account for a family that is not in the system for rent calculation purposes, as a reason that the receiving PHA should be required to administer the escrow. Commenters stated it is especially burdensome when PHAs, especially small PHAs, must continue providing participating families with FSS assistance when the family may be two or more hours away. A commenter said that the receiving PHA would receive the credit when a family graduates even though the initial PHA did all the work. A commenter objected that it is not clear what the process is for sending and receiving escrow funds for families that port and are absorbed.

Other commenters opposed requiring the receiving PHA to enroll families that port and preferred it be left to the discretion of the receiving PHA. Commenters stated that the involved PHAs, who must work together in the portability procedure, should come to an agreement at their discretion. Commenters also asked what would happen if the receiving PHA is at full FSS capacity, especially for agencies with only a part-time position. A commenter suggested that receiving PHAs (RHAs) should be required to enroll the FSS family into their FSS program only if the initial PHA (IHA) “vouches” for the family.

Some commenters opposed the continuation of FSS at all when a family ports. A commenter urged HUD to allow nullification where the PHA does not or cannot absorb the voucher. This commenter noted that absorptions are not determined based on FSS determinations but on the receiving PHA's financial condition and the family size of the voucher. Another commenter stated that the goal should be to graduate families before porting if possible.

HUD Response:

Some commenters stated that it should be left to the discretion of the receiving PHA (RHA) whether to enroll the ported FSS family into its FSS program. Other commenters were supportive of requiring RHAs to enroll FSS families into their FSS program HUD considered these comments and determined that lack of capacity to serve the ported FSS family (because the RHA is already serving the number of FSS families identified in its FSS Action Plan) would be a reasonable justification for a RHA to deny enrollment of the ported FSS family into its FSS program. Therefore, while the RHA would generally be required to enroll the ported FSS family into its FSS program, the RHA has discretion to make determinations concerning the family's enrollment if it lacks the capacity to manage the FSS contract. In such cases, the initial PHA (IHA) must inform the family of the potential impacts and options available to the family, as described in the regulatory text.

As to the suggestion that RHAs should be required to enroll the FSS family into their FSS program only if the IHA “vouches” for the family, the rule already provides that the RHA is required to enroll the FSS family into its FSS program only if the FSS family is in good standing. The final rule defines good standing as an FSS family that is in compliance with their FSS CoP; has either satisfied or are current on any debts owed the PHA; and is in compliance with the regulations regarding participation in the relevant rental assistance program, including rent payments.

In response to comments about the burden of managing an escrow account, HUD notes that in cases where the RHA is absorbing the FSS family into its HCV program, the RHA would be the one managing the escrow account and all escrow balances are transferred by the IHA to the RHA. The commenters' concern would only apply where the RHA is billing the IHA for the ported family. HUD considered these comments and determined that transferring the responsibility of managing the escrow account to the RHA may add another level of complexity to the process. The IHA's annual contributions contract (ACC) funds the escrow account in a portability billing scenario, an

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