NMA Blog

On July 26, 2018, HUD published Housing Opportunity Through Modernization Act of 2016: Final Implementation of Public Housing Income Limits in the Federal Register, which placed an income limitation on public housing tenancy. The rule requires that after a family’s income has exceeded 120 percent of area median income (AMI), or a different limitation established by the Secretary based on local housing costs, for two consecutive years, the PHA must either:

• Terminate the family’s tenancy within 6 months of the second income determination; or
• Charge the family a rent equal to the greater of the:
• Applicable fair market rent
• Amount of monthly subsidy for the unit, including amounts from the operating and capital fund

For annual or interim recertifications performed on or after the applicable date of the notice (September 24, 2018), the PHA must determine whether the family’s income exceeds the applicable HUD-published over-income limit. If so, the PHA must document the family’s file. If, 12 consecutive months from the annual or interim recertification, the family’s income continues to exceed the over-income limit, the PHA must notify the family in writing that their income has exceeded the over-income limit for one year, and that if the family’s income continues to exceed the over-income limit for the next 12 consecutive months, the family will be subject to the PHA’s over-income policies. The PHA may not exempt any public housing families from the over-income limitation.

If the family’s income continues to exceed the over-income limit for another 12 consecutive months, the family will either experience an increase in rent or be subject to termination after 6 months, depending on PHA policy. HUD will issue a notice detailing how these new rent policies will be implemented.

Note, the time period is two consecutive years. If the family’s income is reduced below the over-income limit at any time, these policies no longer apply. If the family subsequently experiences an increase that again causes their income to be at or above the over-income limit, the 2-year period starts over.

This notice does not apply to PHAs operating fewer than 250 public housing units that are renting to families with income exceeding the over-income limit, if the PHA is renting to those families because no income-eligible families are on the PHA’s waiting list.

Important things to note from the notice include:

• HUD will publish the over-income limits. The PHA does not have to calculate them.
• PHAs must complete changes to the PHA Plan (if applicable) and the ACOP no later than six months from the effective date of the notice.
• The PHA will need to develop a tracking system for over-income families to monitor the one and two-year time periods.
• Increases in the over-income limit may cause a previously over-income family to be under the over-income limit.
• Over-income policies apply to both annual and interim recertifications.

HUD will issue additional guidance on the following:

• The calculation of a unit’s monthly subsidy
• Whether utility allowances apply to the calculation of rent under these options
• The requirement to report the number of over-income families and the number of families on the waiting list
• How PHAs are supposed to track over-income families
• How to notify families

Today in the Federal Register, HUD’s Office of Public and Indian Housing (PIH) published a notice titled “Housing Opportunity Through Modernization Act of 2016: Final Implementation of Public Housing Income Limit.” The 5-page notice’s “applicable date” is September 24, 2018.

As explained in the notice, the Housing Opportunity Through Modernization Act of 2016 (HOTMA) imposes an income limit on public housing residents. The law applies to families whose income has exceeded 120 percent of the area median income (AMI) for two consecutive years. PHAs must either terminate the tenancies of such families within six months of the second income determination or must charge the family a monthly rent equal to the greater of (1) the applicable fair market rent, or (2) the amount of monthly subsidy for the unit including amounts from the operating and capital fund, as determined by regulations.

For purposes of the notice, the income limit established by HOTMA will be referred to as the ‘‘over-income limit.’’ HUD may adjust the applicable percentage of AMI above or below 120 percent based on housing costs in the PHA’s jurisdiction.

Highlights of the notice include:

• The over-income limit does not apply to PHAs operating fewer than 250 public housing units that are renting to families with income exceeding the over-income limit, if the PHAs are renting to those families because there are no income-eligible families on the PHA’s waiting list.
• Each PHA must submit a report annually to HUD about the number of families residing in public housing with incomes exceeding the over-income limit and the number of families on the waiting lists for admission to public housing projects. Such reports must be publicly available.
• The existing regulation at 24 Code of Federal Regulations 960.261, which authorizes discretionary termination of tenancies of families whose incomes exceed the applicable income limits for admission to the program, remains in effect.
• HUD intends to provide guidance on how to notify families, track over-income families, and report into HUD systems.

PHAs must revise their admissions and continued occupancy policies (ACOPs) to comply with today’s notice. Revisions to the PHA’s annual plan may be required if implementation of the rule constitutes a significant amendment. Policies must include the imposition of an over-income limit in the program, all instances of when the two-year timeframe begins, and notification requirements. Policy and plan revisions must be completed no later than six months after the effective date of the notice (by March 24, 2019).

Finally, the notice describes implementation steps as follows:

• When the PHA becomes aware, through an annual reexamination or an interim reexamination for an increase in income, that a family’s income exceeds the applicable income limit, the PHA must document that the family exceeds the threshold to compare with the family’s income a year later.
• If, one year after the initial determination by the PHA that a family’s income exceeds the over-income limit, the family’s income continues to exceed the over-income limit, the PHA must provide written notification to the family that their income has exceeded the over-income limit for one year, and that if the family’s income continues to exceed the over-income limit for the next 12 consecutive months, the family will be subject to either a higher rent or termination of tenancy based on the PHA’s policies.
• If, however, a PHA discovers through an annual or interim reexamination that a previously over-income family has income that is now below the over-income limit, the family is no longer subject to these provisions. The family is entitled to a new two-year grace period if the family’s income once again exceeds the over-income limit.

Today’s notice does not address the following issues, which will be covered in subsequent notices:

• PHA determination of the amount of monthly subsidy for a unit
• The requirement to submit an annual report on the number of over-income families and the number of families on the public housing waiting lists

Questions may be directed to HUD program analyst Todd Thomas or to HOTMAquestions@hud.gov.

Section 3 of the Housing and Urban Development Act of 1968 requires recipients of HUD funding to create job training, employment, and contract opportunities for low- and very low-income individuals. When you think of HUD funding, it's probably subsidized housing that comes to mind. However, HUD also provides financial assistance to community centers, libraries, parks, and local road improvement, among other things.

The intent of Section 3 is to provide these opportunities to the "greatest extent feasible," as outlined in 24 CFR 135.30. This means that other procurement considerations are subordinate to Section 3 goals, and that cost considerations are insufficient grounds for awarding contracts to firms that are not Section 3-compliant.

• Part I: Why does it matter?
• Part II: Is my PHA subject to Section 3?
• Part III: What are my PHA's responsibilities?
• Part IV: Can you recommend some Section 3 best practices?

Why does it matter?

One word: FHEO. The Office of Fair Housing and Equal Opportunity (FHEO) is monitoring Section 3 compliance, and that means it's high on HUD's radar. HUD, FHEO, and the Department of Justice (DOJ) have all stated recently that Section 3 will be a priority for enforcement. PHAs, cities, counties, and even states have been put under voluntary compliance agreements (VCAs) for not adequately implementing Section 3 requirements.

FHEO has also invited businesses and low-income persons to learn more about Section 3 by contacting an FHEO representative at their local HUD field office. Section 3 residents, businesses, or a representative of either may file a complaint if they believe that a violation of Section 3 requirements has occurred where a HUD-funded project is planned or underway. Complaints will be investigated; a complaint that cannot be resolved voluntarily may result in an administrative hearing.

Who are Section 3 residents?

Section 3 residents include not just public housing residents, but also YouthBuild participants and low- and very low-income persons. Low and very low-income household limits are determined annually by HUD. These limits are typically established at 80 percent and 50 percent of the median income for each locality by household size or the number of people residing in the house. (You can find them online here.) Housing choice voucher (HCV) families are not automatically considered Section 3 residents, but can qualify on the basis of income.

Who receives Section 3 priority?

For training and development, priority is given to persons in public and assisted housing, persons in the area where the HUD funding is provided, and homeless persons.

Priority is also given to participants in HUD's YouthBuild programs. In a recent letter posted to the Section 3 website, HUD and the Department of Labor (DOL) announced a partnership in support of YouthBuild, which provides employment and training opportunities for disadvantaged or at-risk youth. The goal of the partnership is to increase apprenticeship opportunities by connecting Section 3-covered contractors and YouthBuild graduates. According to the letter, contractors that sponsor YouthBuild graduates will increase the competitiveness of their proposals when bidding on HUD-funded construction projects. YouthBuild administrators are prepared to market the availability of training opportunities to local Section 3-eligible residents, particularly those residing in public housing.

For contracting, businesses that meet the definition of a Section 3 business concern receive priority.

What is a Section 3 business concern?

A Section 3 business concern is defined as a business that:

• Is owned (51 percent or more) by Section 3 residents; or
• Employs Section 3 residents as at least 30 percent of its full-time, permanent staff; or
• Provides evidence of a commitment to subcontract to Section 3 business concerns for 25 percent or more of the awarded contract

In Part II, we'll discuss which PHAs are subject to Section 3 and provide some important Section 3 definitions and examples.

NMA senior associate Cara Gillette trains, consults, and provides technical assistance nationwide in fair housing, public housing management, hearings, economic self-sufficiency, and governing boards. Prior to joining NMA, she administered public housing and Section 8 waiting lists, served as hearing officer, managed public housing, and oversaw resident economic development programs at the San Diego Housing Commission. She has previously written for the NMA blog on how to work with sequestration in the public housing program.

Looking for further guidance? We can bring our Procurement and Section 3 seminar to your PHA. Email sales@nanmckay.com for more information about our affordable onsite training options.

Trainer and consultant Samantha Pratter has been a part of the NMA team since 2008. As NMA’s writing supervisor, Samantha oversees publications from concept and creation through the ongoing revision process, including NMA Master Books, model policies, course books, and handbooks. She recently wrote for the NMA blog about the key differences between the project-based voucher (PBV) program and the (HCV) housing choice voucher program.

As NMA's professional development manager, Sheryl Putnam spearheaded the development of our new Blended Occupancy Management and Fundamentals of Low-Income Housing Tax Credit (LIHTC) Management certification seminars. Prior to joining Nan McKay and Associates in 2011, she managed the compliance department for a state housing finance agency, providing compliance oversight activities for the LIHTC, PBRA, and HOME programs. Sheryl will be presenting several sessions at the 2014 NMA and GoSection8 Housing Conference, including this one and How to Avoid Noncompliance: Blended Occupancy.

Ensuring Compliance and Maximizing Financial Resources

How to Avoid Noncompliance: Low-Income Housing Tax Credits (LIHTC) and Hot Topics from IRS Newsletters
Presenters, Sheryl Putnam and Samantha Pratter

The LIHTC Newsletter, which the Internal Revenue Service (IRS) has been publishing since 2000, is an excellent resource for addressing many issues owners face and also provides a valuable forum for networking, sharing information about IRC 42, and communicating guidance. This session will focus on some of the important topics covered in recent newsletters, including information on CHG 4 to the HUD Handbook 4350.3, the exception for married students under the student rule, using new income limits, first-year certifications, reporting noncompliance with utility allowance requirements, treating buildings as part of a multiple building project, and the available unit rule.

Our free one-on-one consulting sessions at the second annual NMA and GoSection8 Housing Conference in Chicago are filling up fast! Sheryl's already fully booked, but Samantha and other industry experts are still available, so sign up now and save your seat. Register online or email sales@nanmckay.com for more information.

NMA professional development manager Sheryl Putnam will be presenting a session on blended occupancy at this year’s NMA Housing Conference

As NMA's professional development manager, Sheryl Putnam spearheaded the development of our new Blended Occupancy Management and Fundamentals of Low-Income Housing Tax Credit (LIHTC) Management certification seminars. Prior to joining Nan McKay and Associates in 2011, she managed the compliance department for a state housing finance agency, providing compliance oversight activities for the LIHTC, PBRA, and HOME programs. Sheryl recently wrote a series for the NMA blog about blended occupancy projects and will be presenting the following session at the 2014 NMA and GoSection8 Housing Conference.

Ensuring Compliance and Maximizing Financial Resources

How to Avoid Noncompliance: Blended Occupancy
Presenter, Sheryl Putnam

Managing housing developments with multiple funding sources can be complicated. Requirements from multiple oversight agencies need to be satisfied, and there's an overall lack of guidance on how to operate blended developments, since each monitoring agency audits for compliance with its own program requirements. Because penalties for noncompliance can be severe, this session will explore some of the most complicated compliance areas, including:

• Applying income limits and income targeting requirements
• Applying correct rent limits/restrictions
• Understanding and applying the LIHTC and Section 8 student rules
• Differences in income and asset calculation and verification
• Applying utility allowances correctly

Sheryl and other industry experts will be available for limited free one-hour consulting sessions at the 2014 NMA and GoSection8 Housing Conference. Registered participants can sign up on a first-come, first-served basis starting July 14. Register online or email sales@nanmckay.com for more information.