01-999. Revisions to PHA Project-Based Assistance Program; Initial Guidance

AGENCY:

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

ACTION:

Notice.

SUMMARY:

The HUD Appropriations Act for Fiscal Year 2001 amends the existing laws that govern the amount of tenant-based housing choice voucher funding that may be used for project-based assistance. HUD plans to issue a rule revising the project-based program regulations at 24 CFR part 983 in accordance with the new law. However, many of the statutory changes do not involve or require agency discretion on implementation of the new law, and are immediately effective. This notice provides guidance to public housing agencies (PHAs) and other interested members of the public on those provisions that are effective immediately, and identifies statutory changes that require further rulemaking.

FOR FURTHER INFORMATION CONTACT:

Gerald J. Benoit, Office of Public and Indian Housing, Department of Housing and Urban Development, 451 Seventh Street, SW, Room 4210, Washington, DC 20410; telephone [phone] (this is not a toll-free number). Persons with hearing or speech impairments may access these numbers via TTY by calling the Federal Information Relay Service at [phone].

Rod Solomon, Deputy Assistant Secretary for Policy, Program and Legislative Initiatives, Office of Public and Indian Housing, Department of Housing and Urban Development, 451 Seventh Street, SW, Room 4116, Washington, DC 20410; telephone [phone] (this is not a toll-free number).

SUPPLEMENTARY INFORMATION:

Introduction

On October 27, 2000, the President signed into law the Fiscal Year 2001 Departments of Veterans Affairs and Housing and Urban Development and Independent Agencies Appropriations Act (Pub. Law 106-377, 114 Stat. 1441) (“Appropriations Act”). Section 232 of the Appropriations Act substantially revises the provisions of the U.S. Housing Act of 1937 that govern the authority of a PHA to designate a portion of its available tenant-based voucher funds for project-based assistance (see 42 U.S.C. 1473f(o)(13) (as amended by “Section 232” of the Appropriations Act). The Conference Report on the Appropriations Act stated that the statutory changes to the project-based voucher program are intended to make project-basing of voucher assistance more flexible.

Consistent with legislative intent, it is also HUD's objective to make the project-based voucher program more flexible and more workable, and to help PHAs, owners, and eligible families in need of housing take immediate advantage of the new statutory features.

This notice provides information on the requirements of the new law for eligible families, PHAs, owners and other interested members of the public. The notice identifies which elements of the new project-basing law are effective immediately, and states how the law is to be implemented pending issuance of revised program regulations. The notice also identifies elements of the new law that must be implemented by rulemaking.

Section I: Important Changes to the Project-Based Program

The important changes made by section 232 of the Appropriations Act to the project-based program include:

• Existing housing. Prior law granted a PHA authority to project-base a portion of its available tenant-based funding only for (1) newly constructed units, or (2) rehabilitated units. Section 232 provides that a PHA may also use tenant-based funding to attach assistance to existing units.
• Percent limit. Under prior law, the number of units that a PHA could project-base was capped at the number supported by 15 percent of the total funding available to the PHA under its consolidated Annual Contributions Contract (ACC) for tenant-based assistance. The new law raises this cap to 20 percent of the funding available, and consequently to 20 percent of the baseline number of units in the PHA's voucher program. A PHA may now utilize funding for project-basing up to this new percent limit.
• PHA Plan and deconcentration goals. The new law integrates the project-based voucher option with the PHA Plan requirements. A PHA may enter into a housing assistance payments (HAP) contract to provide project-based voucher assistance only if the HAP contract is consistent with the PHA Plan (see 42 U.S.C. 1437c-1, implemented at 24 CFR part 903). Consistency with the PHA Plan means that there are circumstances indicating that project-basing of the units, rather than tenant-basing of the same amount of assistance, is an appropriate option. In addition, project-basing must be consistent with the statutory goals of “deconcentrating poverty and expanding housing and economic opportunities.”
• Partially assisted buildings. The new law places a new cap of 25 percent on the number of dwelling units in any one building that may have project-based voucher assistance. However, the following types of housing are exempt from this cap: project-based dwelling units in single family properties and dwelling units specifically for elderly families, disabled families (as defined in 5 CFR 5.403(b)), or families receiving supportive services.
• Family choice to move with continued assistance. The family choice requirement has two components, a “mobility” component and a “continued assistance” component.
• Mobility. The HAP contract must provide that a family may move out of a project-based unit after 12 months.
• Continued assistance. If a family moves out of its project-based unit at any time after the first year of assisted occupancy, the PHA must offer the family available tenant-based rental assistance, either under the voucher program or under another comparable form of tenant-based assistance as will be defined in HUD regulations. Such alternative tenant-based assistance must be comparable to assistance under the voucher program in terms of income, assistance, rent contribution, affordability and other requirements.
• Contract term. HUD's present regulations only permit a PHA to provide project-based assistance within funding currently available under the ACC. Since voucher funding has recently been provided in one-year increments, PHAs have been permitted to enter into HAP contracts for the same period. Section 232 provides that the HAP contract between the PHA and the owner may be for a term of up to 10 years, although payments under that contract are subject to the future availability of appropriations and future availability of funding under the ACC.
• Extension of contract term. Section 232 revised the former statutory provision on extension of the HAP contract term (former 42 U.S.C. 1437f(o)(13)(B)). The new law provides that the PHA may contract with the owner of a project-based unit to extend the term of the HAP contract for such period as the PHA determines appropriate to achieve long-term affordability of the housing or to expand housing opportunities. All HAP contract extensions, however, must be contingent upon the future availability of appropriated funds.
• Maximum initial gross rent, rent to owner and rent adjustments. The new law provides that the HAP contract shall establish gross rents that do not exceed 110 percent of the established Fair Market Rent (“FMR”), or any HUD-approved “exception payment standard” (i.e., a payment standard amount (for the PHA's tenant-based voucher program) that exceeds 110 percent of the published FMR) for the area where the project is located. In addition, if a unit has been allocated a low-income housing tax credit under the Internal Revenue Code of 1986 at 26 U.S.C. 42, but is not located in a “qualified census tract” under that law, the rent to owner may be established at any level that does not exceed the rent charged for comparable units in the same building that receive the tax credit but do not have additional rental assistance.

The new law provides that a HAP contract between the PHA and an owner must provide for adjustments of rent to owner during the contract term, and the adjusted rents must be reasonable in comparison with rents charged for comparable units in the private, unassisted local market. The statutory maximum rent limits apply both to the establishment of the initial rent to owner (as defined in 24 CFR 982.4) at the beginning of the HAP contract term, and to adjustments of rent to owner during the HAP contract term.

Within the limitations mentioned above, the initial gross rent to owner may differ from payment standard amounts for the PHA's tenant-based voucher program. However, just as in the regular tenant-based program, and in the project-based program under prior law, the initial and adjusted rent to owner must be reasonable in relation to rents charged in the private market for comparable unassisted units (see 42 U.S.C. 1437(f)(o)(10)(A), 24 CFR 982.507, and the “reasonable rent” element of SEMAP, 24 CFR 985.3(b)).

• Tenant selection. Section 232 revises and substantially codifies the tenant selection process for project-based voucher units. The new law states that the PHAs may place applicants referred by owners on the PHA's waiting list in accordance with the PHA's local waiting list policies and selection preferences.

As under the current program regulations, a PHA may not penalize applicants who reject an offer of a project-based unit or who are rejected by the owner of the housing. The PHA must maintain such applicant in the same position on the tenant-based assistance list as if an offer had not been made. In accordance with existing admission requirements, PHAs may establish selection preferences for project-based units that are consistent with the selection preferences in the PHA Plan.

As under the current program regulations, the PHA may elect to establish a separate waiting list for project-based voucher assistance, or to use a single common list for admission to the PHA's tenant-based and project-based assistance programs. If the PHA chooses to maintain a separate waiting list for project-based units, all PHA tenant-based assistance waiting list families who want project-based units must be permitted to place their names on the separate list.

The new law provides that admission to the project-based voucher program is subject to the same statutory income targeting requirement as the tenant-based program (42 U.S.C. 1437n(b)), instead of the individual project income targeting requirement that applies to other Section 8 project-based assistance (42 U.S.C. 1437n(c)(3)). The income targeting requirement provides, in general, that in any PHA fiscal year, at least 75% of the families admitted to a PHA's voucher program (which would include project-based voucher assistance) must be families whose annual income does not exceed 30 percent of median income for the area, as determined by HUD (see HUD definition of “extremely low income families” at 24 CFR 5.603).

• Unit inspection and housing quality standards. Units assisted with tenant-based or project-based voucher assistance must meet or exceed housing quality standards (HQS) established by HUD (42 U.S.C. 1437f(o)(8)). Section 232 states that the same HUD-prescribed HQS standards apply to project-based voucher assistance as apply to tenant-based voucher assistance (42 U.S.C. 1437f(o)(13)(F)).

Before and during the term of assistance, units are inspected for compliance with the HQS. In general, the same statutory PHA inspection requirements apply to project-based voucher assistance as to the tenant-based voucher program (42 U.S.C. 1437f(o)(8) and 1437f(o)(13)(F)). As in the tenant-based voucher program, a PHA must inspect 100 percent of project-based voucher units before entering into the HAP contract, and may only enter into a HAP contract for units that fully comply with the HQS. There is, however, a change in the annual HQS inspection requirements for the project-based voucher program. In the tenant-based program—where each unit is assisted under a separate HAP contract for each individual assisted family—the PHA must inspect each assisted unit annually. The new law provides that in the project-based voucher program, a PHA is not required to inspect each assisted unit in a project annually, thus allowing annual inspection of a representative sample of the project-based voucher units in a project.

• Vacant units. The new law permits a PHA, at its discretion, to continue providing assistance for a unit that becomes vacant (after commencement of assisted occupancy by a family) for up to a maximum of 60 days. Such payments may only be made if the vacancy is not the fault of the owner, and the owner takes “every reasonable action” to minimize the likelihood and extent of vacancies.

Section II. New Statutory Provisions That Are Non-Discretionary and Effective Immediately

This section provides guidance regarding implementation of provisions on project-basing in Section 232 of the Appropriations Act that are immediately effective. Except where this notice specifies otherwise, the present project-based regulations at 24 CFR part 983 continue to apply to newly constructed and substantially rehabilitated housing and now also apply to existing housing. Upon determination of good cause and subject to statutory limitations, HUD may waive any provision of this notice and the applicable project-based regulations in accordance with 5 CFR 5.110. Nothing in this notice affects the rights of owners and participants under existing contracts in HUD's Section 8 project-based certificate program. In the event of changes to this notice in future rulemaking concerning the project-based voucher program, HUD will take into account actions taken in compliance with this notice.

• Authorization to provide project-based vouchers for existing housing. Consistent with the project-based statute before amendment by Section 232, present regulations at 24 CFR part 983 only authorize project-based voucher assistance for newly constructed or rehabilitated units. Section 232 now also authorizes project-based assistance for existing housing. In accordance with the new law, a PHA may now enter HAP contracts that attach project-based voucher assistance to existing housing units that fully meet the housing choice voucher program HQS (see 24 CFR 982.401) but that would not have qualified for project-basing as newly constructed or rehabilitated units.

A housing unit will be considered an “existing unit” for purposes of the project-based voucher program if, at the time of the PHA's written notice of selection of the project for project-based assistance, the units require a maximum expenditure of less than $1,000 per assisted unit (including the unit's prorated share of any work to be accomplished on common areas or systems) to comply with the HQS.

A. Inapplicability of Certain Current Part 983 Regulations to New Commitments of Project-Based Vouchers

24 CFR 983.3 (c) and (d) of the present regulation, which are designed to assure that commitments of project-based assistance do not exceed amounts currently appropriated and available under the ACC, are inapplicable because the new law authorizes PHAs to enter into project-based HAP contracts for up to ten years, subject to the future availability of appropriations. In addition, the maximum percentage limit for project-based assistance has been raised to twenty percent of the baseline number of units in the PHA's voucher program.

24 CFR 983.4, HUD review of PHA plans to attach assistance to units, is inapplicable.

24 CFR 983.9(a) implemented the prior statutory prohibition of project-based assistance for units to be constructed or rehabilitated with U.S. Housing Act funds. This requirement is eliminated in the new law. Consequently section 983.9(a) is no longer applicable.

24 CFR 983.151(b) and (c), on term and renewal of HAP contracts, have been modified as described in this notice. The maximum potential term is now 10 years, subject to the future availability of appropriations and future availability of funding under the PHA's ACC. The PHA will determine the initial HAP contract term. The new law allows PHAs to determine the appropriate period for an extension, whereas previously (within the constraints imposed by available funding under a current ACC), HUD decided whether and for what period to approve renewals of expiring HAP contracts.

24 CFR 983.203(a)(6) is inapplicable, and 983.203(d)(3)'s declaration that a family that moves does not have any right to continued assistance is inapplicable.

B. Inapplicability of Certain Current Regulations to Project-Based Assistance for Housing in Existing Structures

The provisions of the present regulation that restrict assistance to newly constructed or rehabilitated units (see 24 CFR 983.7(b)(1) and (2)) do not apply to project-based voucher assistance for housing in an existing structure in accordance with Section 232 and this notice. In addition, the following regulatory provisions of 24 CFR part 983 do not apply to project-based assistance for housing in an existing structure:

Site and neighborhood standards at § 983.6;

• Rehabilitation requirements at section 983.8;
• Requirements for minimizing displacement because of rehabilitation in section 983.10(a);
• Subpart B—Owner Application Submission to Agreement, except 24 CFR 983.51, which is discussed further below; and
• Subpart C—Agreement and New Construction or Rehabilitation Period, except the provisions of paragraphs 983.103(d) regarding notification of vacancies and 983.104(c) regarding inspection to meet HQS.
• Unit selection policy, advertising, and owner application requirements for existing housing with assistance attached to 25 percent or fewer of the units in a building. For existing housing developments in the project-based voucher program, which have assistance attached to no more than 25 percent of the development's units, the PHA must advertise the availability of the project-based assistance. Such advertisements must meet standards comparable to those in 24 CFR 983.51(b); otherwise, section 983.51 does not apply to these projects.

Specifically, the PHA must advertise in a newspaper of general circulation that the PHA will accept applications for assistance for existing housing projects. The advertisement must be published once a week for three consecutive weeks; specify an application deadline of at least 30 days after the date the advertisement is last published; specify the number of units the PHA estimates that it will be able to assist under the funding the PHA is making available for this purpose; and state that only applications submitted in response to the advertisement will be considered. The PHA advertisement must also state the PHA's selection policies. In all cases, PHAs must maintain documentation of responses to advertisements or competitive proposals received in response to the PHA notice.

For existing housing developments with more than 25 percent project-based units (i.e., at this time, for the elderly and special populations only, since the supportive services exception to the 25% cap is not implemented in this notice), and for newly constructed or rehabilitated units, the PHA must establish policies for public advertisement and competitive selection of units to be assisted with project-based voucher assistance. 24 CFR 983.51 is applicable.

C. 20 Percent Limit

Section 232 requires PHAs that participate in the project-based voucher program to comply with the statutory language that states that “[n]ot more than 20 percent of the funding available for tenant-based assistance under this section that is administered by the [public housing] agency may be attached to structures pursuant to this paragraph” [bracketed material added]. This language supersedes 24 CFR 983.3(b), and is effective immediately. Therefore, the total cumulative number of project-based units, including units previously placed under AHAP or HAP in the PHA's project-based certificate program, may not exceed 20 percent of the baseline number of units in the PHA's voucher program.

D. Consistency With PHA Plan

Until HUD issues further instructions, PHAs submitting PHA Plans that wish to use the project-based voucher program (as revised by Section 232) must include—as a required attachment to the PHA Plan template—a statement of the projected number of project-based units and general locations and how project basing would be consistent with their PHA Plans. If a PHA wishes to use the project-based voucher program before the anticipated approval date of the PHA's next PHA Plan, the PHA may do so by adding the information as an amendment to the PHA Plan and following the regulations and notices for such PHA Plan amendments.

As with all programs that are covered by the PHA Plan, the program must be carried out in conformity with the nondiscrimination requirements specified in the PHA Plan regulations, and must affirmatively further fair housing as required by the PHA Plan regulations.

E. Consistency With the Goals of Deconcentrating Poverty and Expanding Housing and Economic Opportunities

Section 232 requires, in addition to consistency with the PHA Plan, that a contract for project-basing under the voucher program be consistent with the goals of deconcentrating poverty and expanding housing opportunities. Until HUD issues further instructions, HUD will implement the deconcentration of poverty requirements in Section 232 by requiring that all new project-based assistance agreements or HAP contracts be for units in census tracts with poverty rates of less than 20 percent, unless HUD specifically approves an exception.

F. Partially Assisted Building Requirement

A PHA may not enter into an agreement or HAP contract or other binding commitment to provide project-based voucher assistance for more than 25 percent of the units in any one building, except for single-family dwellings and projects for elderly families and disabled families.

HUD is not implementing through this notice the exception for buildings for families receiving supportive services. HUD will address that exception through rulemaking, which will define “supportive services.” In accordance with existing program usage, single family dwellings refer to 1-4 family dwellings.

If the PHA had entered into an agreement for project-based units prior to the effective date of this notice, section 232 provides that such buildings may have the assistance extended or renewed, notwithstanding this section on partially assisted buildings, 42 U.S.C. 1437f(o)(13)(D), as amended by the Appropriations Act.

G. Family Choice to Move With Continued Assistance

The new law provides that assisted families may move from the assisted building, and retain federal housing assistance. For the continued assistance option, Section 232, similar to existing 24 CFR 983.206(d)(2), requires for new HAP contracts that the owner permit the assisted tenants to move from the housing at any time after the family has occupied the dwelling unit with project-based voucher assistance for 12 months.

The law now provides that the PHA must provide the family with housing choice voucher assistance or such other tenant-based rental assistance that is subject to comparable income, assistance, rent contribution, affordability and other requirements. HUD will set the standards as to what may qualify as comparable assistance by regulation, but, for new HAP contracts incorporating this requirement, the PHA must in the interim use voucher assistance available under the ACC to provide tenant-based assistance for the family. If no such assistance is available at the time the family moves, the PHA must give the family priority to receive the next available tenant-based voucher. Vouchers under funding allocations targeted by HUD for special purposes (e.g., family unification, mainstream disabled) are not available for this purpose, since they are required to be used only for the targeted purpose.

H. HAP Contract Term

The new law provides that, for HAP contracts entered after the effective date of the law, a HAP contract between a PHA and an owner of housing under this program may have a duration of up to 10 years (as determined by the PHA), subject to the future availability of sufficient appropriated funds under the PHA's consolidated ACC with HUD.

Upon expiration of the HAP contract term, the new law provides that the PHA may agree with the project-based housing owner to extend the HAP contract for such period as the PHA determines appropriate to expand housing opportunities (as well as an extension to assure long-term affordability of the housing, as provided under prior law). All HAP contract extensions must be contingent upon the future availability of appropriated funds.

I. Rent Limits

The new law provides that the HAP contract shall establish gross rents (rent to owner plus the allowance for tenant-paid utilities) that do not exceed 110 percent of the established Fair Market Rent (“FMR”), or any HUD-approved “exception payment standard” (i.e., a payment standard amount that exceeds 110 percent of the published FMR) for the area where the housing is located.

If a unit has been allocated a low-income housing tax credit under the Internal Revenue Code of 1986 at 26 U.S.C. 42, but is not located in a “qualified census tract” as defined in the law, the rent to owner may be established at any level that does not exceed the rent charged for comparable units in the same building that receive the tax credit but do not have additional rental assistance.

Within the limitations mentioned above, the initial rent to the owner may differ from payment standard amounts in the payment standard schedule adopted for the PHA's tenant-based voucher program. However, just as in the regular tenant-based program and the project-based program under prior law, the initial and adjusted rent to owner must be reasonable in relation to rents charged in the private market for comparable unassisted units (see 42 U.S.C. 1437(f)(o)(10)(A).

J. Rent Adjustments During the Term of the HAP Contract

Section 232 provides that a housing assistance payments contract for project-based voucher assistance shall provide for rent adjustments and that the adjusted rent for any assisted unit shall be reasonable in comparison with rents charged for comparable dwelling units in the private, unassisted local market and may not exceed the maximum rent limits permitted under the statutory limitations summarized above. Determination of whether rent is reasonable in relation to comparable units shall be governed by 24 CFR 983.256.

The annual rent adjustment provisions at 983.254 and the special rent adjustment provisions at 983.255 shall only be applicable if the AHAP with the owner was executed before the effective date of this notice. These annual and special adjustment regulatory provisions do not apply to project-based assistance for existing housing pursuant to this notice, and do not apply if the Agreement for newly constructed or rehabilitated housing was executed on or after the effective date of this notice.

K. Family Share of Rent and Housing Assistance Payment

The housing assistance payment is calculated in accordance with 24 CFR 983.260 as the gross rent minus the total tenant payment. The family share is calculated in accordance with 24 CFR 983.261 by subtracting the amount of the HAP from the gross rent.

L. Tenant Selection

The PHA selection system for project-based units must comply with the requirements specified below, which in most respects (except for the income targeting provision) are a codification of present regulatory and contractual requirements:

• Income targeting. The requirements of 42 U.S.C. 1437n(b) and 24 CFR 982.201(b)(2) govern the selection of eligible families for this program, and generally provide that not less than 75 percent of families admitted annually to the PHA's combined tenant-based and project-based voucher program shall be families whose incomes do not exceed 30 percent of the area median, as determined by HUD.
• Applicants may only be selected from the PHA waiting list.
• A PHA may only maintain a separate project-based waiting list if all PHA tenant-based assistance applicants who seek project-based housing can be placed on this list upon request and without penalty to any other application for assisted housing they may have pending. Subject to its waiting list policies and selection preferences specified in the PHA administrative plan, the PHA may place a family referred by an owner of project-based voucher units on its waiting list.

If a PHA chooses to establish a separate waiting list for project-based assistance, the PHA must give all applicants currently on its waiting list for tenant-based assistance the opportunity to also have their names placed on the waiting list for project-based assistance in accordance with the PHA's established selection policies.

• As in the current project-based program, the PHA must refer families to housing units from the waiting list according to its regular applicant selection policies. If an applicant does not rent a unit with project-based assistance, or the owner turns an applicant down for admission to a project-based unit, the applicant may not be removed from the PHA's tenant-based assistance waiting list for that reason but must maintain its position on the list as though no offer of housing had been made.

Vacant units. A HAP contract must be in a form prescribed by HUD. The PHA may enter into such a contract that agrees to provide vacancy payments up to 60 days after a unit becomes vacant, in an amount not to exceed the rent to the owner as provided by the HAP contract on the day the family vacated.

The PHA may only make such payments for a vacant unit if:

(1) The vacancy was not the owner's fault, and

(2) The PHA and owner take action to minimize the likelihood and length of any vacancy.

Reduction of contract units after vacancy. Except for units for which an AHAP was executed before the effective date of this notice, the new law supersedes 24 CFR 983.152(b) and (c). Instead, the following provisions apply:

If no eligible family rents a vacant unit within 120 days (commencing on the first day of the month when the vacancy occurs), the PHA may terminate its commitment to make any additional housing assistance payments for the unit for the balance of the HAP contract term. The PHA may use the amounts so saved to provide other voucher assistance.

The policy guidance and implementation directives of this notice remain in effect until the new project-based voucher changes in law have been fully implemented through a new regulation. HUD will endeavor to answer any questions PHAs may have that arise that are not anticipated in this notice.

HUD will soon issue a new required tenancy addendum and HAP contract for the project-based voucher program as implemented by this notice.

Dated: January 8, 2001.

Harold Lucas,

Assistant Secretary for Public and Indian Housing.