HUD Publishes HOTMA HCV and PBV Proposed Rule

Rule Proposed Regulatory Reform

On October 8, 2020, HUD published a proposed rule titled: “Housing Opportunity Through Modernization Act of 2016 – Housing Choice Voucher (HCV) and Project-Based Voucher Implementation; Additional Streamlining Changes” in the Federal Register. This rule largely does three things: codifies previously implemented parts of the Housing Opportunity Through Modernization Act of 2016 (HOTMA), proposes to implement certain HCV and Project-Based Voucher (PBV) provisions of HOTMA, and proposes regulatory reforms unrelated to HOTMA. Comments to the proposed rule are due December 7, 2020.

The proposed rule is lengthy and complicated. HUD expects HAs, members of the public, and other interested parties to review more than 60 pages containing dozens of regulatory changes and more than 40 detailed questions in 60 days. That it took the Department more than four years to produce this document should be a clear sign that, particularly in the midst of a devastating pandemic and abnormal operating environment, 60 days is grossly insufficient to produce cogent, thorough, and useful comments.

Administrative Plan

The proposed rule contains a host of additional policies that must be contained in agencies’ administrative plans. Some of the requirements are HOTMA-related, including many related to the PBV program. Others simply restate or seek to clarify current requirements and many are new requirements unrelated to HOTMA.

Some policies the proposed rule would mandate be outlined in the administrative plans include:

• Policies concerning foster children and live-in aids, including the policies by which the HA will determine if occupancy of such individuals is allowed.
• If the HA applies a variety of payment standards across an FMR area, the HA must include how those areas and corresponding amounts are determined.
• HAs must detail interim income redetermination policies and procedures.
• HAs must detail their policies related to new HQS mandates, discussed below.
• Whether families can submit more than one Request for Tenancy Approval at a time.

Housing Quality Standards (HQS)

Two of HOTMA’s HQS provisions were made effective with previous guidance from HUD. These allowed an HA to begin assistance payments on a unit that failed an HQS inspection due to non-life-threatening deficiencies or pursuant to an alternative inspection. The proposed rule updates HQS regulations to incorporate those policies. The proposed rule also begins the rule making process for several other HQS HOTMA provisions: withholding HAP while repairs are made, abating HAP and terminating the HAP contract for HQS noncompliance, and relocating families residing in units for which the HAP contract is terminated due to HQS noncompliance. Additionally, the proposed rule adds verification methods that an HA may use to confirm HQS deficiencies have been rectified.

Withholding HAP: HAs will have the discretion to withhold assistance payments from the time the owner is notified in writing of the deficiencies that caused the inspection failure until the necessary repairs are made. If the repairs are made within the “cure period” then assistance payments must resume retroactive to the date payments ceased.

Abating HAP: If the owner does not make the required repairs in the allotted amount of time, the HA must abate HAP until one of the following: (1) the unit meets HQS (the owner has sixty days unless the HA allows for a longer period of time), (2) the HA terminates the HAP contract, or (3) the tenant terminates the tenancy. If the unit meets HQS within the time period prescribed by the HA, assistance payments can recommence from that point forward; retroactive payments are not allowed. If the unit is not brought into compliance, the family must have at least 90 days to lease a new unit. Tenants unable to lease a unit within the time period allowed by the HA must be offered the first appropriately sized public housing unit if the HA operates public housing. Lastly, the HA may offer relocation assistance to include security deposits and moving expenses, utilizing up to two months of the withheld and abated assistance payments. HUD is determining that this assistance is an eligible HAP expense and would be included in the HA’s renewal funding eligibility calculation. There is no discussion on what reporting the HA will have to engage in to document these expenses.

The proposed rule is lengthy and complicated. HUD expects HAs, the public, and other interested parties to review more than 60 pages containing dozens of regulatory changes and more than 40 detailed questions in 60 days.

Largely, the proposed regulations for HQS Enforcement follow the statute closely. All program stakeholders should appreciate the Department did not add unnecessary complications to this process. However, there do appear to be some gaps in the statute that are reflected in the proposed regulation. Tenants have the right to terminate their tenancy and move from the unit once it goes into abatement, however that language is unclear in both the statute and regulation. The proposed regulation indicates that if the tenant terminates tenancy, the HAP contract terminates either on the effective date of the tenancy termination or when the family leaves the unit. However, it is not stated who decides which one of those dates of termination apply, how long the family can remain in the unit after terminating tenancy, or how the lease could complicate this action.

The required preference for a public housing unit is complicated and neither HUD nor Congress have fully fleshed out the mechanics of this requirement. The HOTMA statute states that an HA “shall, at the option of the family, provide such family a preference for occupancy in a dwelling unit of public housing that is owned or operated by the agency that first becomes available for occupancy” following the expiration of the voucher. HOTMA does not deal with the current statutory requirements on preferences for public housing nor does it consider the existing public housing regulations which require that preferences be included in the PHA Plan and ACOP. The proposed regulation does not address that preferences are not guarantees and are subject to the HA’s ranking system. Unfortunately, HUD provides no discussion of these important issues in the summary of the proposed rule.

Additional HQS Proposed Regulations

• Owners must be notified within 24 hours or 15 days for life-threatening and non-life-threatening deficiencies, respectively, observed during special/complaint inspections pursuant to the current 24 CFR 982.405(g).
• For HAs utilizing the alternative inspection option, HQS inspections must occur within 30 days of receiving the Request for Tenancy Approval.
• Currently, HAs that implemented the flexibility to approve tenancy for units that fail HQS inspections for non-life-threatening deficiencies must adopt HUD’s list of life-threatening deficiencies. This proposed rule would require all HAs to adopt that list, in addition to any conditions identified by the HA in its administrative plan.
• HAs may establish methods to verify HQS deficiencies have been repaired other than conducting in-person inspections.

Utility Allowances

• Several changes are proposed to the regulations for utility allowances in HCV program, including PBV projects.
• The requirement to submit an HA’s utility allowance schedule to the Field Office is eliminated.
• HAs may adopt an area-wide utility allowance schedule for units in projects that meet certain energy efficiency standards.
• HAs may calculate utility allowance payments based on the actual fee charged to the tenant by the property owner if the fee is lower than the utility allowance.
• HAs may seek Field Office approval to establish site-specific utility allowance schedules.

Project-Based Vouchers

A significant bulk of the proposed rule is dedicated to the PBV program, codifying previously implemented statutory changes and new ones alike. Some of those changes are described below.

• Cap on PBV Assistance: HOTMA provides exceptions to the program-wide and project-specific caps on PBV assistance an HA provide for projects in geographic areas where vouchers are “difficult to use.” HUD proposes to define this threshold as a ZIP code area where either the rental vacancy rate is under four percent or 90 percent of the SAFMR is greater than 110 percent of the metropolitan FMR. HUD is seeking feedback on that proposed definition.
• Existing Housing: HUD proposes to change the definition of existing housing from a unit that substantially complies with HQS to “a unit that has HQS deficiencies that require only minor repairs to correct,” and further explains that repairs that can be completed in 48 hours would meet this benchmark.
• Exception to Competitive Selection: HUD proposes to allow an HA to noncompetitively PBV assistance to a former public housing development over which it does not have any ownership interest. This would only be allowed if the HA is administering PBV assistance as replacement housing as part of a public housing repositioning action on behalf of the HA which owns the development but does not have an HCV program.
• Waiting List: HOTMA allows PBV owners to maintain site-based waiting lists. The proposed rule would delineate roles and responsibility of the HA and owners when such lists are utilized. HAs will have the discretion to determine which owners can maintain waiting lists and for which projects. Owners administering site-based waiting lists must submit tenant selection plans to the HA for approval and incorporation into the HA’s administrative plan. HAs will determine if the owner will determine the family’s initial eligibility and whether the family qualifies for preferences, however, the HA will be responsible for conducting any informal reviews and making final program eligibility determinations. HAs would be responsible to ensure any owner-maintained waiting list is managed in compliance with all program requirements. HUD is not proposed changes to current HA discretion regarding the organization of the PBV waiting list.
• HAP Contract Amendments: HOTMA allows the addition of units to a PBV HAP contract anytime during the contract term without complying with competitive selection procedures. HUD proposes to require HAs to include the circumstances under which an HA would consider adding units to a PBV HAP contract in its administrative plan.

This article provides only a portion of the changes this expansive rule proposes. Importantly, this notice does not complete HUD’s required rulemaking pursuant to HOTMA. HOTMA allows HAs to establish a Capital Fund replacement reserve and HUD has yet to put forward guidance to enable HAs to take advantage of this important provision, all the more critical given the grave underfunding of capital needs. PHADA will continue to evaluate this rule and HOTMA’s overall implementation, and update the membership with additional analysis and information as needed.