National Housing Law Project Housing Law Bulletin

• a desire to close the worst public housing projects;
• a desire to assist higher income people or people who are viewed as being responsible;
• a fear that federal housing subsidies would dry up and leave public housing agencies with inadequate income to operate their buildings;
• a desire to pass on a greater portion of housing costs to the tenants and reduce the government's subsidy per family;
• a view that extensive statutes and regulations do not produce desired performance by PHAs and assisted landlords; and
• a view that PHAs should have more discretion in deciding how to operate their housing programs, and that HUD should have less control.

The following discussion analyzes many of the highlights of the new act. Because some of the new provisions are effective immediately and others do not become effective until October 1, 1999, the footnotes indicate the effective dates of particular provisions.

1. Who Will Get Public Housing and Vouchers?

a. Permanent Repeal of Federal Preferences

From 1988 until 1996, federal law required that varying percentages of new housing assistance each year be made available to people who were homeless, who lived in substandard housing, who were facing involuntary displacement or who were paying more than 50 percent of their income for housing.² Those requirements, known as the federal preferences, were aimed at ensuring that a major portion of the federal housing assistance be made available to applicants with the greatest housing need. Never popular with PHAs and subsidized landlords, the federal preferences were temporarily suspended in appropriations acts for fiscal years 1996 onward.³ This new legislation permanently repeals all the statutes that created federal preferences for public housing, certificates and vouchers, Section 8 project-based assistance and Rent Supplement projects.⁴ At the same time it terminates the appropriations act provisions that had temporarily suspended the federal preferences, except for one provision that made federal preferences inapplicable to Section 8 New Construction, Substantial Rehabilitation and Section 202 projects. That provision is made permanent by this new legislation.

In addition to permanently repealing the regular federal preferences, the bill also deletes the statutory provision that had granted single individuals who are elderly, disabled or involuntarily displaced a preference over other single individuals.⁵ With that change, PHAs will be free to treat all single applicants the same, though it is doubtful that many will, given the higher concern about people who are elderly, who have disabilities or who are being displaced.

In place of the original federal preferences and the temporary suspensions, the new act authorizes PHAs to establish local preferences for public housing and for tenant-based assistance. They must be based upon local housing needs and priorities determined by the PHA. The PHA may consider any generally accepted data sources and, apparently, must consider any information made available in public comments on its public housing plan and on the local Comprehensive Housing Affordability Strategy (CHAS).⁶ In addition, because preference policies must be included in the PHA's plan when it is developed and the plan must be consistent with the local CHAS, the preferences must be consistent with the CHAS. The preferences should also be in accordance with the requirement that the PHA's plan state the means by which the PHA will address the housing needs of low- and very low-income families, to the maximum extent practicable.⁷

With regard to Section 8 certificates (for as long as they are around) and Section 8 Moderate Rehabilitation, the new act authorizes PHAs to establish local preferences that are consistent with the PHA's plan.⁸ Thus, they still must reflect needs stated in the plan, to the maximum extent practicable, and be consistent with the local CHAS.

The repeal of the federal preference also eliminated the retention preference provision that allowed Section 8 applicants to retain their place on the Section 8 waiting list if they accepted a public housing unit while they were waiting.⁹ However, Congress did not repeal the companion provision that prohibits a PHA from penalizing residents of public housing when establishing preferences for Section 8 assistance.¹⁰ Thus, in establishing any new preferences for vouchers or the remaining certificates, PHAs will have to treat public housing residents equally with other applicants.

b. Reservation of Units for Applicants with Incomes Below 30 Percent of Median

As an alternative to the federal preferences and other provisions, the new act has adopted income targeting as a way to guarantee poor people some share of federal housing assistance. The rules generally require that a certain percentage of tenants who are accepted into the public housing and Section 8 programs each year have incomes beneath 30 percent of the area median. The percentages vary from program to program and the details are described below.

i. Vouchers. For the voucher program, and for certificates until they are phased out, the governing percentage is 75. That is, each PHA must make sure that 75 percent of the new households that it assists each year under these tenant-based programs have household incomes beneath 30 percent of the area median. In areas where there are unusually high or low incomes, HUD may establish a figure below or above 30 percent.¹¹ In the past, HUD has used that authority to lower the 80- percent-of-median-income eligibility limit for Section 8 in very high-income areas by limiting that figure to the national median income, which is currently approximately $44,000. Whether HUD will use a similar device to adjust the 30 percent of median income in those high-income areas is unknown at this stage. HUD's insistence that 75 percent of vouchers be targeted to poor people may mean that HUD will appropriately reduce the 30-percent-of-median-income figures in high-income areas. If a PHA can secure HUD's approval, it can reduce the 75-percent requirement.¹² Again, one can hope that HUD's concern about poor people will keep it from approving such deviations.

Although 30 percent of median comes out near the poverty level in many places, there is a large gap between 30 percent of most area median incomes and welfare grant levels in most states. The 30-percent figures cluster around $12,000 to $16,000 annually for a family of three, while the median welfare grant nationwide is $4,550 per year for a three-person household. Unfortunately, the legislation includes no provision prohibiting a PHA from skipping over applicants on the waiting list with lower incomes to take those with higher incomes. Thus a PHA could meet its 75-percent quota by providing certificates and vouchers mainly to applicants with incomes above $11,000 per year, leaving most full- and part-time minimum wage workers and welfare recipients out in the cold. In fact, the act repeals a provision in current law that prohibited such manipulation of the waiting list.¹³

ii. Public housing. For public housing the target is radically lower. The beginning point is that PHAs must rent 40 percent of turnover and new units (two out of every five units) to applicants who have incomes at or beneath 30 percent of the area median income.¹⁴ In other words, the other three out of every five units may be rented to people who are not poor.

In high-income areas, where even the 30-percent figure comes out well above the poverty level, HUD is not explicitly authorized for public housing, unlike tenant-based assistance, to reduce the target income to a more appropriate level.¹⁵ Thus, for a family of four, 30 percent of median income will be $16,700 in Baltimore, $18,000 in Boston, $17,900 in Chicago, $16,700 in Denver, $17,700 in Hartford, $14,900 in Los Angeles, $19,410 in Newark, $15,900 in Philadelphia, $15,300 in St. Louis, $20,600 in San Francisco, $17,700 in Seattle, and $21,700 in Washington, D.C.

But the rules do not stop there. As with tenant-based assistance, PHAs may lower the 40-percent target for good cause, if they can secure HUD's approval.¹⁶ In addition, under the fungibility provisions, they can in effect lower the 40-percent target even further. Those provisions allow the PHA to deduct one applicant from the number of accepted public housing applicants who must have incomes beneath 30 percent of median income for each applicant awarded a voucher above the 75-percent tenant-based assistance target. For example, a PHA might issue 1,000 certificates a year, producing a certificate target of 750 per year, and might rent 1,000 public housing turnover units per year, producing a public housing target of 400 per year. If it awarded vouchers to 850 applicants with incomes beneath 30 percent of the area median, it could reduce its public housing target to 300 units, 30 percent of its 1,000 turnover units.¹⁷ Seven out of 10 of the public housing units it rents could go to households that are not poor.

Congress did anticipate the possibility that a PHA might award so many vouchers to applicants below 30 percent of median income that it would not have to admit any poor people to public housing. To prevent that from happening, the legislation places three limits on fungibility. First, notwithstanding fungibility, at least 30 percent of the public housing units a PHA makes available each year must be rented to applicants with incomes beneath 30 percent of the median. That sets an absolute floor at 30 percent. Second, not more than 10 percent of the vouchers awarded each year may count toward fungibility. Thus if a PHA awards fewer vouchers each year than the number of public housing units it rents, its public housing target will end up being above the 30-percent floor. Third, the number of poor families awarded tenant-based assistance that count toward fungibility may not exceed the number of applicants with incomes above 30 percent of income who move into public housing located in poor neighborhoods, i.e., census tracts with more than 30 percent of the households living in poverty. A PHA may use fungibility only to the extent it can convince moderate-income applicants to move into poor census tracts.¹⁸

Whatever a particular PHA's quota for applicants beneath 30 percent of median income ends up being, there will also be the problem of the PHA's favoring applicants at the top of that range. As is true in the case of vouchers, there is the concern that PHAs may fill their quotas with applicants with incomes in the $11,000-and-up range, leaving the poorest applicants out in the cold. For the public housing program, as for the voucher program, this new legislation repeals the anti-skipping provision that had been added in 1988.¹⁹ There is also another concern with public housing, i.e., that a PHA may meet its quota for poor people by renting extra units in the elderly projects to poor people and reducing the number of poor people it lets into its family projects. Many PHAs have as many or more units for the elderly as for families. Nationwide there are about 565,000 public housing households headed by people who are elderly or have disabilities and only 535,000 public housing families with children. To the extent that a PHA rents 50, 60 or 70 percent of its housing for the elderly and people with disabilities to applicants with incomes beneath 30 percent of the median income for their size households, it will be required to rent even fewer of its units in the family projects to poor people.

One could say that lifting the federal requirements that public housing serve poor people will not have much impact in practice because moderate-income people will not move into public housing projects for families. That, of course, is true in many situations. However, HUD and the PHAs are in the middle of the campaign to transform public housing. Much of that transformation involves demolishing the larger, deteriorated projects for families and rebuilding new, mixed-income developments on the sites, as well as some new scattered-site public housing. In very many cases, those new developments will be attractive to moderate-income applicants. They will be indistinguishable from private market housing and the negative influence of the old projects will be gone. With most of the federal controls eliminated and the many loopholes allowed for what remains, poor people will receive very little if any of the transformed public housing.

Again, Congress added some provisions in response to HUD's concern about concentration of poverty and racial segregation in public housing projects that may mitigate the possibility that transformed public housing will be kept out of the reach of poor people. First, there is a provision that had been in the House bill from the beginning that prohibits PHAs from meeting their quotas for poor applicants by concentrating very low-income applicants in particular projects.²⁰ That might be construed to prohibit PHAs from minimizing the number of poor applicants allowed into new projects or family projects generally. Second, there is a requirement that each PHA submit an admission policy to HUD, as part of its public housing plan, that will provide for the deconcentration of poverty by encouraging higher income applicants to move into lower income projects and allow for the admission of lower income applicants at higher income projects.²¹

That latter provision is complex and may turn out to be controversial. Congress included a clause providing that the mandate for deconcentration cannot be construed to require specific racial or income quotas for any project.²² It also indicated that the authorized mechanism for encouraging higher income applicants to move into projects predominantly occupied by lower income families is to offer them incentives. Applicants who reject the incentives cannot be penalized by the PHA and the system must be administered in a fashion that allows site-based waiting lists to operate.²³ Unlike the current centralized waiting list system, higher income applicants who reject units in projects they do not like will not be sent to the bottom of the waiting list. However, the PHA can skip over them on the waiting list to find other higher income applicants who will move into the lower income project. It also appears that PHAs will be able to skip over lower income applicants on the waiting list to get to later applying higher income applicants who are willing to move to lower income projects.²⁴

To enable more applicants with lower income to move into projects predominantly occupied by higher income tenants, the statute makes no mention of incentives. Instead, it allows the PHAs to "provide" for such admissions in its policies.²⁵ Again, it is possible that PHAs are barred from penalizing lower income applicants for rejecting that option, although the drafting is less clear on that point. If such a prohibition were to be inferred, the statute is clear that the PHA is not barred from skipping over lower income applicants who choose not to move into higher income projects in order to find others on the waiting list who are willing to do so.²⁶ What is not clear is whether a PHA is required or even allowed to skip over higher income applicants to higher income projects in order to reach any or all lower income applicants who also want to move into such a project.

These provisions on deconcentration apparently replace the previous provisions requiring economic mix in public housing. The act repeals a provision added in 1974 that required each PHA to establish tenant selection criteria that would ensure, to the maximum extent feasible, that each project would include families with a broad range of incomes and avoid concentrations of families with low incomes and serious social problems.²⁷ It includes a new provision allowing, but not requiring, a PHA to use income-mix criteria for the selection of tenants.²⁸ But then it goes on, in the section discussed above which was added during the Conference, to require each PHA to submit for HUD's approval admissions policies designed to provide for income-mixing. Thus the discretion to use income-mix criteria apparently does not include the choice not to use income-mix policies.

iii. Site-based waiting lists. Another factor that will influence the balance between moderate-income and poor applicants who move into public housing will be site-based waiting lists. In the 1960s, HUD and its predecessors established a centralized waiting list requirement to attack racial steering and other PHA policies that lead to racially segregated public housing projects. Under that system applicants were all put on one waiting list and when their names reached the top they had to take either the next available unit or one of the next three. If they did not, they would be sent to the bottom of the list. The purpose was to keep white applicants from staying on the top of the waiting list until a unit opened up in a development that was predominantly or exclusively white.

Centralized waiting lists with the one or three refusal allowances have made it difficult to attract higher income applicants to public housing. Because units open up most often in the least desirable projects, higher income applicants would often get sent to the bottom of the waiting list before a unit would open up in the more desirable projects into which they would be willing to move. Two recent developments had made some inroads into the centralized waiting list system. HOPE VI projects have been allowed to use waiting lists that are separate from the PHA's central list. That enables them to attract higher income applicants to the replacement housing developed with HOPE VI funds. Second, HUD published a notice allowing PHAs to use site-based waiting lists in certain, fairly narrowly circumscribed situations.²⁹

This new legislation authorizes PHAs to use site-based waiting lists for public housing in many more situations. The provision will allow PHAs to set up systems that not only allow applicants to designate the site or sites to which they want to apply but also to require applicants to go to the site to make the application. There are only two restrictions. The systems must not violate any civil rights laws, and every applicant must be fully informed about all options that are available in selecting the place they will live.³⁰

iv. Project-based Section 8. The legislation establishes targeting rules for Section 8 projects as well. It begins by restating the current law that limits the eligibility of applicants with incomes above 50 percent of median income to 25 percent of the pre-1981 units and 15 percent of the post-1981 units, nationwide. Then it requires, on a project-by-project basis, that 40 percent of the units rented each year be made available to applicants with incomes below 40 percent of median income.³¹ Although the target is the same as for public housing — 40 percent — for project-based Section 8 there is an anti-skipping provision. Owners are prohibited from deviating from the waiting list order to select applicants who have higher incomes. That was intended to prevent owners from continually leaving the poorest applicants on the waiting list. However, the impact of that protection will be severely diluted by an accompanying clause that allows owners to grant preferences to applicants who are employed. Such a preference would appear to at the least allow owners to skip over welfare recipients to get to other applicants with higher incomes who have income from employment. It would not allow them to skip over minimum-wage workers.

This 40-percent target and the anti-skipping requirement apply to PHA-administered programs, including Section 8 Moderate Rehabilitation projects and project-based certificate projects. Because these rules are different from the rules for public housing concerning anti-skipping and from the rules for certificates and vouchers on the target percentage, PHAs will have to be careful to apply them correctly.

c. Screening

i. Ineligibility of people evicted for criminal and drug-related activity. In 1990, Congress had made applicants who had previously been evicted from public or Section 8 housing because of drug-related activity ineligible for a preference for admission to public housing or for certificates for three years. Exceptions were built in for people who had completed a satisfactory rehabilitation program and for innocent family members.³² In 1996, Congress took that one step further and made such applicants ineligible for public housing or Section 8 housing for three years after their eviction, with roughly the same exceptions.³³

This new legislation makes additional changes to those provisions. First, it repeals the 1990 provisions that denied preferences for public housing and certificates for people evicted because of drug-related activity.³⁴ Second it expands the coverage of the ineligibility provision in two ways. First, families that have been evicted from federally assisted housing other than public housing or Section 8 are made ineligible. Now people evicted from Sections 202, 811, 221(d)(3), 236 and 514 and 515 projects will be barred.³⁵ Second, applicants to those kind of projects, in addition to applicants for public housing and Section 8, will be denied eligibility if they have been evicted for drug-related activity during the previous three years.

One beneficial aspect of this provision is that Congress rejected a provision that had been in both H.R. 2 and S. 462 making tenants evicted for other, non-drug-related reasons ineligible for all federally assisted housing for a reasonable period of time to be defined by the PHA or the owner.³⁶ HUD had previously proposed regulations that would have established such a bar administratively without any authorizing legislation.³⁷ Now that Congress has rejected that approach, HUD should not be able to finalize its proposed regulations on this point.

ii. People who have engaged in criminal activity. The act adds a new provision explicitly indicating when a PHA or owner of federally assisted housing may deny an application because of the previous criminal activity of the applicant or another household member. The prior criminal activity must have been violent, drug-related or activity that would adversely affect other tenants' or employees' rights to peaceful enjoyment of the premises. It must have occurred within a reasonable time of the potential admission decision. If the application is rejected, at the end of that reasonable time period the owner or PHA may require the applicant to ensure that he or the other household member have not engaged in criminal activity in the interim.³⁸

iii. Access to criminal records. In 1996, Congress had granted PHAs access to federal, state and local criminal records, with some limitations, for purposes of screening applicants and evicting tenants.³⁹ This new legislation authorizes PHAs to require applicants for public housing or tenant-based assistance to sign releases allowing the PHA to secure their criminal records.⁴⁰

It also expands access to criminal records to owners of project-based Section 8 housing, but not to other federally assisted landlords. Because Congress was reluctant to allow private owners direct access to the criminal records, it has set up a scheme under which the private owners ask PHAs to secure the records and then determine whether the applicant should be rejected or the tenant evicted. The PHA may not turn the records over to the private owner, but in eviction cases the PHA may disclose the records to the extent necessary. The PHA may charge the owner reasonable fees for performing that service.⁴¹

The new legislation also includes provisions regarding confidentiality of the records and penalties for improper disclosure that were deleted from the 1996 legislation near the end of its legislative process. Those protections include not only criminal penalties, but also the right of an injured party to bring an action in federal court against the PHA for damages, with an award of attorney's fees.⁴²

iv. Applicants who use drugs or abuse alcohol. As with other provisions relating to people who use illegal drugs or abuse alcohol, the new legislation expands the coverage of the 1996 amendments limiting their eligibility for public housing and certificates and vouchers.⁴³ Now owners of all federally assisted housing — which means project-based Section 8 and Sections 202, 811, 221(d)(3), 236 and 514 and 515 projects — will be required to establish standards for denying eligibility to people who use illegal drugs or abuse alcohol.⁴⁴ The PHAs and owners are authorized to consider whether the applicant is participating in or has successfully completed a drug or alcohol rehabilitation program or has otherwise been rehabilitated and is not currently using illegal drugs or alcohol.

In addition, another section of the new statute provides that no one may establish eligibility as a person with disabilities solely on the basis of his or her alcohol or drug dependence.⁴⁵ That provision should operate only in those cases where being a person with a disability is a condition of eligibility for a particular development, such as a Section 202 project for people with disabilities. It would not be relevant for admission to public housing generally or to the voucher program. Because the statutory language covers only "eligibility for low-income housing," it should not even be relevant when being a person with a disability is a grounds for a preference or priority on a waiting list.

v. Access to information from drug-treatment programs. As part of the effort to keep users of illegal drugs out of public housing, the act includes a provision originally proposed in a more extreme version by Senator Grams of Minnesota. It authorizes PHAs to require applicants for public housing to sign releases that allow the PHA to receive information from a drug-treatment facility solely about whether the applicant is currently using a controlled substance illegally.⁴⁶ The provision is effective immediately, even without issuance of HUD regulations.⁴⁷ In requesting this information, the PHA must act within the limits of the Public Health Service Act.⁴⁸ The PHA may not ask for any other information such as current or prior treatment records. The information received must be maintained confidentially, be used only for screening purposes, and must be destroyed within five days after the applicant is admitted or in a timely manner if the applicant is rejected. The consent to the release of information must automatically terminate after the PHA has made its admission decision. To prevent discrimination against particular applicants, the PHA may demand the release only if it demands one from all applicants. It may request the information from the treatment facility only if it asks for such information about all applicants or all applicants who have criminal arrest or conviction records or all applicants whose prior tenancy references indicate destruction of property, violence or interference with other tenants' peaceful enjoyment. However, if a PHA does not require releases from any applicants, it may not be held liable for damages for its failure to do so.

vi. Ineligibility of registered sex offenders. At Senator D'Amato's urging, the legislation includes a new provision absolutely prohibiting PHAs and other federally assisted landlords from admitting any household that includes a registered sex offender. It does not, however, authorize eviction of current tenants who fit into that category. To determine whether an applicant is a registered offender, the PHA, for itself and for private owners who ask, must make background checks on all applicants. The state and local registration agencies must provide the information to the PHAs. If the PHA secures the information for a private owner, the PHA may not give the owner the information but must do the screening itself. Adversely affected applicants are granted an opportunity to dispute the accuracy and relevance of the information the PHA has secured.⁴⁹

vii. Eligibility of non-citizens. Between September 30, 1996, and now, PHAs have been allowed to opt out of compliance with the laws that make certain immigrants ineligible for public housing and certificates and vouchers.⁵⁰ This new legislation now changes the law on that point. PHAs will no longer be able to opt out of those restrictions entirely, but they will be able to admit new applicants before determining whether they have the acceptable immigration status.⁵¹ The statute also indicates that this amendment becomes effective and applies upon enactment. Although the statute is not specific on this issue, one may assume that people who were admitted by a PHA that had opted out will be grandfathered as tenants who were in place when the original statute went into effect.

d. Eligibility of Pets

All tenants of public housing will be granted the right to have one or more pets, as long as their owners meet reasonable conditions established by the PHA. Those conditions may include a fee, labeled nominal, to cover extra costs and a pet deposit to cover extraordinary costs, restrictions on the number and types of pets, and limits based upon the type of building. These pet ownership rights are in addition to the rights already enjoyed by tenants in buildings for the elderly or people with disabilities.⁵²

2. What Will Public Housing and Voucher Rents Be?

a. Rent Choice in Public Housing

In what one hopes will turn out to be a symbolic victory for opponents of the Brooke Amendment and, in fact, a return to the true, pre-1981 Brooke Amendment, the new act has adopted the rent choice system for public housing tenants, although not for Section 8 tenants. Under this system each PHA will have to establish flat rents for each of its units, based upon the rental value of the units and designed not to discourage employed tenants from staying in public housing.⁵³ There is a presumption that flat rents that are equal to or less than operating costs will be low enough, but PHAs cannot be compelled to set flat rents at the operating cost level or some percentage of operating costs. The idea behind the flat rent provision is that it will prevent PHAs from charging tenants rents above the market value of the units — under the 30-percent-of-income formula or otherwise — and thus not drive higher income tenants out of public housing.

Each year, the PHA must allow each family to choose for the coming year whether to pay the flat rent or a Brooke Amendment rent, i.e., one that is not more than either 30 percent of adjusted income, 10 percent of gross income or the welfare shelter allowance.⁵⁴ If the flat rents are less than the income-based rents, the tenants will choose the flat rents; if the income-based rents are less, the tenants will choose those rents. To protect tenants who suffer income losses after choosing the flat rent, a provision is included requiring the PHA to immediately switch the family to income-based rents upon determining that the family is unable to pay the flat rent because of financial hardship. Financial hardship is defined to include:

• income decreases because of changed circumstances;
• loss or reduction of employment;
• death in the family;
• reduction in or loss of income or other assistance;
• increase in expenses for medical costs, child care, transportation, education or similar items; and
• any other situations determined by the PHA.⁵⁵

First, residents will be protected from being coerced into making a choice of rents which is adverse to their interests. Second, in the case of financial hardship, residents are granted the right to an immediate change to the Brooke Amendment rent, which caps rent at no greater than thirty percent of income.⁵⁶

To reduce the number of people who fall through the cracks because of administrative errors, the HUD regulations must make clear that the tenants' right to switch is automatic and immediate.

Unfortunately, the statute does not require or even allow mid-year switches for people who have chosen the Brooke Amendment rents and then get a job or a raise which brings their rent above the flat rent. In those cases, the PHA could avoid the anomaly of charging such tenants more than the flat rent for the rest of the year by not requiring interim reporting of income increases. Alternatively, the statute allows the PHA to build a ceiling rent into its income-based rent system.⁵⁷ If the PHA did that and set the ceiling rent at the flat rent, the tenant's rent would stop increasing when it hit the ceiling. Otherwise, tenants who select income-based rents may be deprived of the protection of flat rents until their next annual recertification.

There is also a question of how the flat rents will interact with the Operating Fund. Historically, PHAs that have chosen ceiling rents have been entitled to increased operating subsidies to offset any loss of rental income that those ceiling rents produced. The bill extends that protection to PHAs that have ceiling rents during transition to the Operating Fund.⁵⁸ Once the Operating Fund becomes operational, there is no statutory guarantee that operating subsidies will cover any loss of revenue caused by the use of flat rents. However, because the statute mandates flat rents, it would seem to follow that the operating subsidy formula would have to consider the impact they may have on rental income. On the other hand, there is nothing in the new statute to prevent a PHA from setting the flat rents unusually low and unfairly tapping the Operating Fund to subsidize its excessively low rental income. Previous law guarded against that possibility by requiring that the total rents collected by the PHA equal at least 20 percent of the total income of all the tenants. The new act, however, repealed that provision.⁵⁹

b. Delay of Rent Increases When Public Housing and Section 8 Tenants Secure New Jobs

Under the current law that was enacted in 1990, public housing tenants who participate in governmental employment training programs and then secure new jobs are entitled to an 18-month delay in the rent increase that they would otherwise face because of their new or increased earned income.⁶⁰ This new legislation will improve that law in several respects. First, it may be expanded to cover Section 8 tenants as well as public housing tenants. That will mean not only certificate and voucher program participants but also tenants in project-based Section 8 buildings. However, Congress will have to provide coverage for Section 8 tenants in appropriations acts for this change to be effective.⁶¹ Second, the categories of tenants who are covered will be expanded beyond those who have participated in a governmental training program. The new statute will also cover people who either have been previously unemployed for at least a year or have received welfare within the previous six months or are currently receiving it. In addition, the requirement that the training program be governmental has been eliminated. Third, the period of the initial delay will be reduced to one year from the beginning of the job, and the PHA may increase the rent by no more than 50 percent during the second year.⁶²

The expanded statute does not go into effect until October 1, 1999. In the interim, the current law that the new statute repeals will remain in effect until October 1, 1999, for those families covered by it.⁶³ Implementation of that statutory provision has been frustratingly slow, as our previous reports have indicated.⁶⁴ At the least, it is fortunate that Congress devised a transition system that will provide no justification for further slowing down implementation of the 1990 statute.

As an alternative to delaying the rent increase entirely, the new statute also allows the tenant to pay the increase and ask the PHA to hold to amount of the increase in a savings account for the family. If the tenant asks, the PHA has to set up the savings account for the tenant. The tenant will be able to withdraw the funds to buy a home, to move out of public or assisted housing, to pay education costs or to pay any other expenses that promote self-sufficiency that the PHA approves. The act does not explain who sets up the account for project-based Section 8 tenants, because it refers only to PHAs, but one can assume that HUD's regulations will have the Section 8 landlords handling the accounts.⁶⁵ This section also does not become effective until October 1, 1999.

To the extent that a PHA loses rental income from implementation of these provisions that mandate delay of the rent increase or its deposit in a savings account, the reduction will be compensated by increased operating subsidy from HUD. Until the new rules for the Operating Fund are established, the PHAs' operating subsidies will be governed by the current rules under which these mandatory rent increase delays are taken into account. Once the new rules are established, the statute specifically prescribes that the rent reductions resulting from the savings account deposits may be considered by HUD.⁶⁶ Although the statutory term is "may," it seems unlikely that HUD would disregard that specific congressional concern.

c. Other Disregards for Public Housing Tenants' Earned Income, Work-Related Expenses and Other Items

Again making permanent provisions that have been included in appropriations acts since 1996, this legislation allows PHAs to create their own adjustments to income for public housing tenants who have earned income or work-related expenses. The types of adjustments allowed include excessive travel expenses, within limits, and many varieties of earned income disregards. In addition, the PHAs are granted a catch-all power to exclude "[s]uch other amounts for other purposes, as the public housing agency may establish."⁶⁷ That latter power appears to allow the PHA to create separate adjustments for items that are not related to employment. The previous appropriations acts did not allow such broad discretion.⁶⁸

The power to adopt these optional adjustments becomes effective on October 1, 1999. In the interim, PHAs retain the power first authorized by the 1996 Balanced Budget Downpayment Act I to adopt optional earned income deductions.⁶⁹

These optional income deductions also raise the question whether PHAs that use them will receive increased operating subsidies if they lead to decreased rental income or whether they will lose operating subsidies if they succeed and tenants' rents rise, despite the additional deductions. Under current the rules, the PHAs bear the risk that these deductions will not produce increased rental income eventually.⁷⁰ Their operating subsidies are not increased because of any initial loss of rental income and they are not reduced if tenants eventually pay more rent because they get jobs at significantly higher wage levels. On this point, the new statutory rules are complex. During the transition until the new Operating Fund formulas are established, if the PHA has established or decides to establish optional adjustments under the appropriations act provision, HUD cannot consider either losses or gains in rental income resulting from those optional disregards.⁷¹ Once the new optional-adjustments-to-income provision from this statute and the formulas for the Operating Fund go into effect, another rule begins to operate. That is a new statutory section that provides that the operating fund formula must provide an incentive to PHAs to facilitate tenants' increasing their earned income and that PHAs shall benefit from the increases in rental income.⁷² To explain the meaning of that phrase, Senator Mack stated during floor consideration of the bill that PHAs:

will "benefit" from increases in rental income due to increases in earned income by families in occupancy. The extent of this benefit will be determined in the negotiated rulemaking on the Operating Fund formula.⁷³

d. Ceiling Rents

Another device that has been used to attract and keep public housing tenants who are employed is ceiling rents. Ceiling rents cap tenants' rents at a certain level no matter how much their incomes increase. They prevent the 30-percent-of-income formula from forcing tenants' rents so high that they exceed the market value of the units and drive employed tenants out of public housing. During the one-year transition to the rent choice system with its flat rents, the new legislation retains the current law that allows PHAs to set their own ceiling rents at not less than the costs of operation. For that same period it also creates another option of ceiling rents of not less than 75 percent of operating costs in family projects and not less than total operating costs in projects for the elderly or people with disabilities.⁷⁴ In either of these cases, if the PHA loses rental income because of ceiling rents, HUD will have to increase the operating subsidies to offset that rent loss.⁷⁵

After the new Operating Fund and the rent choice system go into effect, PHAs will still be allowed to keep their old ceiling rents if they wish to.⁷⁶ However, they will have to let the tenants chose either those ceiling rents, the new flat rents or income-based rents. Since the flat rents have fewer restrictions on their calculation than the old ceiling rents, they are likely to be either equal to or less than the former ceiling rents. Thus tenants would always chose the flat rent over the ceiling rent. As a result, it seems that there would be no incentive for a PHA to retain any old ceiling rents after it institutes the flat rent system.

e. Rent Reductions for Tenants Whose Welfare Grants Have Been Cut

Finally responding to a request Secretary Cuomo made in early 1997, Congress has provided that public housing tenants and certificate and voucher participants who have their welfare payments reduced because of noncompliance with work requirements will not be entitled to have their rents reduced because of the income loss.⁷⁷ The statute also prohibits rent reductions for tenants who lose income because of welfare fraud, but that change had already been made by the 1996 Welfare Act.⁷⁸ Public housing leases and vouchers must be amended to include these provisions.⁷⁹ Until those lease changes are made, the new rules should not be enforceable against the tenants.

This new rule on welfare sanctions does not apply to other HUD programs, including project-based Section 8 assistance and Section's 236 and Rent Supplements. Nor can it be applied against any particular tenant until the welfare department informs the PHA in writing that the loss of income was imposed as a sanction for noncompliance with a work requirement and the tenant has been heard at a grievance hearing.⁸⁰ If the loss of welfare arises from the exhaustion of lifetime time limits on eligibility or despite the fact that a tenant has complied with the welfare requirements but has not been able to find employment, the tenant's rent must be reduced.⁸¹ In those situations, if the tenant cannot pay the minimum rent because of inadequate income, the minimum rent must also be waived.⁸²

f. Minimum Rents

The new statute makes permanent the minimum rent provisions that were first introduced in the 1996 Balanced Budget Downpayment I Act.⁸³ As is true under current law, under this statute, each PHA may require each public housing tenant and each voucher and certificate participant to pay up to $50 for rent and utilities, regardless what percentage of their income that sum might constitute. HUD will decide what the minimum rents will have to be for the Section 8 projects, again up to a maximum of $50. This statute, however, does include some mandatory hardship exceptions that were not included in the current law and that must be granted immediately. They include being unable to pay the minimum rent because of a loss of governmental assistance, including loss because of an immigrant's status as a lawfully admitted permanent resident, and facing eviction as a result of the minimum rent.⁸⁴

Despite the language requiring that the hardship exemption be granted immediately, there is another provision allowing a PHA or HUD to defer the exemption for 90 days if it reasonably determines that the hardship is temporary. The tenant may not be evicted during the 90 days and, if it is later determined that the hardship is not temporary, the exemption must be granted retroactively.⁸⁵ This provision is effective immediately, so any tenant facing eviction now for failure to pay the minimum rent should request a hardship exemption and raise this as a defense right away.

3. How Will Evictions and Subsidy Terminations Be Handled?

a. The Good Cause Protection

The conferees dropped a provision that would have limited public housing tenants' protections against evictions without cause.⁸⁶ Another provision requiring public housing leases to run for 12-month intervals was included to provide a mechanism for enforcing the community work requirement which is described below. The PHA may refuse to renew the lease at the end of the 12 months if the tenant has not complied with that requirement, but in all other cases the renewal is automatic.⁸⁷

There had also been a similar provision in both bills limiting project-based Section 8 tenants' good cause protection to the term of the lease.⁸⁸ Those provisions were also dropped in the conference on the final bill. In addition, Section 8 project-based housing is added to the definition of multifamily housing project in Section 202 of the 1978 Housing Act. As a result, such housing will be subject to that section's requirement that leases for tenants in multifamily housing projects prohibit evictions without good cause.⁸⁹

For the voucher program the news is not so good. The bill amends the voucher legislation to limit tenants' good cause protection to the term of the lease.⁹⁰ In that respect it makes permanent two provisions that have been included in the appropriations acts since 1996 allowing certificate landlords to evict at the end of a lease without good cause.⁹¹ The new provision goes one step beyond the current law. It allows PHAs to approve voucher leases of less than one year, if shorter terms are a prevailing market practice and if they will increase the housing opportunities for the tenant.⁹² Thus, in those cases, a PHA might approve 30-day leases for voucher tenants and they would be subject to eviction on 30 days' notice without cause, just like any private tenant whose landlord does not receive federal housing subsidies.

There may be an issue regarding the timing of these amendments. The provisions in the 1996 appropriations acts limiting the good cause protection for certificate holders to the term of the lease were made permanent by this legislation.⁹³ That provision, however, does not govern the voucher program. The permanent changes to the voucher program do not go into effect until HUD issues interim regulations making them effective.⁹⁴ Until those interim regulations are issued, there is no effective statutory authority to nullify the regulations at 24 C.F.R. § 982.309(b) which require automatic renewal of voucher leases when their terms expire.

b. The Public Housing Eviction Procedures

For the most part, Congress left the grievance procedure untouched, rejecting provisions in H.R. 2 that would have limited tenants' rights to have a grievance hearing before they are evicted.⁹⁵ However, the bill does add more categories of cases that may be excluded from the grievance procedure. Until now only cases involving threats to other tenants or employees or drug-related criminal activity could be excluded from the grievance process. The new bill adds cases involving violent criminal activity or activity that results in a felony conviction.⁹⁶ In practice that may not be too significant because most violent activity and many crimes that result in felony convictions would be covered by the threat to health and safety exclusion. In addition, in most cases PHAs may not want to wait until the criminal proceedings are completed and result in a felony conviction.

The changes regarding notice periods for evictions may be more significant. Now PHAs have to give a 14-day notice in nonpayment cases, a reasonable notice in cases involving health and safety threats, and 30-day notices in all other cases.⁹⁷ The act changes those periods in two ways. First, the cases in which a reasonable notice, instead of a 30-day notice, can be used have been expanded to cover threats to other tenants residing in the immediate vicinity of the project and criminal activity cases. Second, the 30-day notice that is required in all other cases may be a shorter period if state law provides for one. In many states, that will be a major change because the notice periods for evictions based upon lease violations are in the three-to-five-day range. Fortunately, the act retains the 14-day notice period for nonpayment of rent.⁹⁸

c. Evictions for Criminal and Drug-Related Activity

In addition to the procedural changes relating to criminal activity, the new legislation expands the coverage of a provision added by the 1996 Extension Act that requires the use of leases that allow the eviction of tenants whom the owner or PHA determines are illegally using drugs or whose use of drugs or abuse of alcohol interferes with the other tenants' rights to peaceful enjoyment of the premises. That requirement will now also apply to project-based Section 8, and Sections 202, 811, 221(d)(3), 236 and 514 and 515 projects.⁹⁹ If the tenant is participating in or has successfully completed a drug or alcohol rehabilitation program, or has otherwise been rehabilitated and is not currently using illegal drugs or alcohol, the PHA or owner may consider that fact. For the public housing program, the legislation also requires public housing leases to contain clauses making illegal drug use and alcohol abuse, and furnishing false information about rehabilitation from drug use or alcohol abuse, grounds for eviction.¹⁰⁰

4. When May Public Housing Projects Be Demolished   or Sold?

The demolition or sale of public housing is of great concern for several reasons. HUD is in the middle of its campaign to have 100,000 public housing units around the country demolished. In many localities there are strong pressures to have public housing demolished or sold because it is considered to be damaging to the surrounding neighborhood or the land is sought after for some other uses. Most tenants who are displaced from public housing cannot afford any housing on the private market and many are forced to move to places where they do not want to live. If units that are demolished or sold are not replaced or replaced by units targeted primarily to higher income families, poor people on the waiting list will be left with nowhere to live. In many respects, this new legislation will just make demolition and sales easier to complete and will dilute the protection that displaced tenants have against the hardships of relocation.

a. Demolitions and Sales Under Section 18

The first authority for demolishing or selling public housing resides in Section 18 of the United States Housing Act. The new bill makes several amendments to Section 18, both substantive and procedural.

i. The grounds. Up until now, a public housing project could not be demolished entirely unless it was obsolete and unusable for housing purposes and no reasonable program of modifications was feasible to restore it to useful life.¹⁰¹ That provision was understood to make demolition of a project in its entirety a last-resort action. The new legislation modifies the test. Now the project must be obsolete and there must be no cost-effective program of modifications to return the project to useful life. That change regarding the grounds for demolition is significantly less drastic than the provisions that had been included in H.R. 2.¹⁰² However, by introducing the cost- effectiveness mantra, the new legislation will open up considerations about how expensive rehabilitation of the project might be, not only in comparison to alternatives such as vouchers but also in absolute terms.

The grounds are also modified with regard to sales. One of the grounds for selling a project has been that the sale will allow the acquisition, development or rehabilitation of other properties that can be more efficiently operated as low-income housing projects and that will preserve the total amount of low-income housing stock in the community.¹⁰³ This new legislation retains that grounds for sales, but eliminates the requirement that the alternative housing not result in less low-income housing than the current inventory. It also changes the language to eliminate the requirement that the alternative housing be low-income housing projects.¹⁰⁴

  ii. The procedures

  (a) Consultation with tenants. Current law requires the PHA to demonstrate that it developed the application for HUD approval of a demolition or disposition in consultation with affected tenants and tenant councils.¹⁰⁵ This new act retains that requirement and makes it even more clear that the PHA must consult not only with the affected tenant council but with other tenants at the project.¹⁰⁶ Thus, if the tenant council happens to be in the pocket of the PHA, the PHA cannot get away with just dealing with that council. In addition, the PHA must consult with the Resident Advisory Board that is established to assist the PHA in developing its public housing plan.¹⁰⁷

  (b) Tenants' opportunity to purchase. Under current law, tenant councils must be given an opportunity to purchase any development that is slated for demolition or sale.¹⁰⁸ Under the new act, that requirement will apply only in sales situations. If a PHA decides to demolish a project, it will not have to offer it first to the tenants' council.¹⁰⁹

  (c) Consultation with city officials and consistency with the ConPlan. Prior law also required the PHA to secure a certification from the local government that the demolition or sale was consistent with the Housing Assistance Plan.¹¹⁰ That provision is not included in the rewritten Section 18. Instead there merely is a requirement that the PHA consult with the local government.¹¹¹ However, because the demolition plan must be included in the PHA's plan, and the PHA's plan must be consistent with the local ConPlan, and the local government must certify that it is consistent, there still is a requirement of local government certification of consistency.¹¹²

  (d) Approval by HUD. HUD's role in this process has been altered. The PHA still has to apply to HUD for authorization to demolish or sell the project. But HUD no longer is required to determine that the grounds for demolition or sale are present and that all the other requirements have been met. Instead, HUD must approve the application as long as the PHA certifies that the statutory grounds are present and that it has complied with the other requirements. HUD may disapprove of the application only if it determines that any of the PHA's certifications are clearly inconsistent with information or data it has or has requested.¹¹³

This curtailed role for HUD is not as limited as it might have been. Under H.R. 2, HUD's approval role was made a part of the process for approving the PHA's annual plan, and under S. 462 HUD was given only 60 days to decide whether to disapprove a demolition or sale application.

iii. Relocation protections for displaced tenants. Perhaps the most unfair provision in this new statute is the one that takes away from public housing tenants the protections of the Uniform Relocation Act.¹¹⁴ That statute was enacted in 1970 in response to the hardships of displacement caused primarily by the urban renewal and federal highway programs. It includes provisions guaranteeing displaced people a right to decent, safe and sanitary relocation housing and financial assistance if that housing is more expensive than the homes from which they are force to move. One of the main purposes of the Act was to ensure that all people who are displaced by federal action are treated equally. Prior to that time there had been a hodgepodge of relocation requirements under which some people were treated much worse than others, depending who the displacing officials were.

Now public housing tenants being displaced because their PHA has secured HUD's authorization under Section 18 to demolish or sell their buildings will no longer be covered by the Uniform Relocation Act.¹¹⁵ Instead, they will get only the protections written into Section 18 itself. They fall short of the URA standards in several respects. Perhaps the most important is that displaced tenants will no longer be guaranteed that their replacement housing will not be more expensive for them than the homes from which they are being displaced. Only if they are moved to other public housing will Section 18 guarantee that they will not have to pay more rent.¹¹⁶ If they are given vouchers, and their replacement landlord charges more than the payment standard, they will have to pay a higher rent. The PHA will not have to offset that higher rent for 42 months as it would have if the exception from the URA had not been included.

The other major change on relocation is the repeal of the provision that had guaranteed displaced tenants replacement housing of their choice to the maximum extent practicable. That provision had been added to Section 18 in 1995, when the one-for-one replacement requirement was suspended.¹¹⁷ It had also been included in H.R. 2,¹¹⁸ but when the conferees finished with the bill it was nowhere to be found. Tenants displaced from public housing end up with neither the protection of the URA nor the right to replacement housing of their choice.

There are some relocation protections in the new Section 18 intended to serve as an alternative to the URA, as much as possible.¹¹⁹ To keep this injustice from becoming any worse than it already is, the HUD regulations must strengthen them.

iv. One-for-one replacement. Previously, the law had required that each public housing unit that was demolished or sold be replaced on a one-for-one basis.¹²⁰ That requirement was suspended in 1995 on a temporary basis, and the suspension had been extended each year thereafter.¹²¹ The rewritten Section 18 does not contain a one-for-one replacement requirement.¹²²

v. De facto demolition. One provision in Section 18 that is not expressly included in the new version had been significant in the development of the de facto demolition doctrine. That doctrine is the one under which PHAs that neglect projects to such a extent that they become uninhabitable are liable for that conduct just as much as if they had deliberately decided to demolish a project without meeting the statutory demolition requirements. The doctrine originated in a dissenting opinion in a case from Washington, D.C., claiming that the PHA was in effect unlawfully demolishing a project.¹²³ When the court dismissed the case on the grounds that the statute did not clearly grant affected tenants a right to sue if a PHA demolished a project without securing HUD's approval, Congress added a subsection (d) to Section 18, specifying that a PHA may take no steps to demolish or sell a project without complying with the statute and securing HUD's approval.¹²⁴

The new version of Section 18 no longer contains that subsection (d). However, it does contain an exception to the old subsection (d) that was originally added in 1995. That exception allows a PHA to consolidate vacancies in a project if doing so will benefit the tenants.¹²⁵ Since the new Section 18 still sets out the requirements for demolition and sale and still requires HUD approval, and since it contains the exception allowing consolidation of occupancy, one can infer that a PHA cannot take any steps toward demolition, other than consolidation of occupancy, without complying with the statute and securing HUD's approval first.

b. Demolitions and Sales Under HOPE VI

Much of the current demolition of public housing is being financed under the HOPE VI program which funds the revitalization of severely distressed public housing projects, as well as their demolition. This appropriations act continues the generous funding of the HOPE VI program, in fact raising it to $625 million dollars from $550 million last year. The authorizing statute also includes new language on HOPE VI that may become the governing language for the HOPE VI program. In contrast, up until now, HUD has been authorized to run HOPE VI with whatever combination of provisions in the authorizing statute and the appropriations acts it chose.

One important part of the new authorizing statute is that demolitions pursuant to HOPE VI are not covered by Section 18, although sales are still covered by Section 18. If tenants are displaced by HOPE VI-funded demolitions, they will still be protected by the URA, because Section 18's URA exemption will be inapplicable to their demolition.

c. Mandatory Vouchering Out

The new legislation makes two major changes in the requirements that PHAs identify projects that have to be "vouchered out." The vouchering out requirement was originally enacted as Section 202 of the 1996 HUD appropriations act.¹²⁶ It required PHAs to assess all projects that had more than 300 units and a vacancy rate exceeding 10 percent to determine whether the costs of providing vouchers to the remaining tenants would be less than the costs of modernizing the project and operating it at full occupancy. If so, PHAs were then given the option of developing a plan to revitalize the project, if that could be done for less than the cost of providing vouchers to an equivalent number of tenants. If not, the buildings would have to be removed from the PHA's inventory and Annual Contributions Contract, vouchers or other public housing units would have to be provided to the remaining tenants. The public housing modernization funding attributable to the project could be converted to Section 8 assistance.

Under this new legislation the test for identifying buildings for assessment has been modified. The 300-unit and 10-percent-vacancy floors have been eliminated. Now all projects must be assessed for vouchering out if they are found by the PHA to be distressed under guidelines issued by HUD. If a PHA refuses or fails to make that determination, HUD may make the determination for the PHA. Once the projects are identified as distressed, they must be vouchered out if they cannot be made viable over the long term or if their cost of modernization and operation over their remaining useful life is greater than the cost of providing vouchers to the current tenants for the same period of time.¹²⁷

The elimination of the 300-unit and 10-percent-vacancy-rate thresholds brings a much larger number of public housing projects into the mandatory vouchering-out universe. The requirement that they be determined to be distressed by the PHA will cut down on the number of projects considerably, especially in situations where the PHA does not want to voucher out a project. Although HUD is given the power to override the PHA's failure to classify a project as distressed, it seems unlikely that the new, understaffed HUD will do so, in the absence of some political pressure.

If a project is identified for assessment, it appears that it will be the rare project that survives. The new statute requires vouchering out in either of two situations. The first category are projects that cannot be made viable over the long term through reasonable measures. The second are projects that can be made viable but which will still cost more in terms of modernization and operating expenses than vouchers for the remaining families. Because the comparison is between the public housing costs of serving tenants in a fully occupied building and the costs of vouchers for a lesser number of families, i.e., the current residents, it will be a rare case in which the cost of housing more families in public housing will be less than the cost of assisting fewer families with vouchers.

It is possible that that reading of the statute is not what Congress intended. The statute does say that vouchering out is required only for projects "that meet all of the following requirements."¹²⁸ The third requirement is the paragraph containing the alternative tests of viability or being more expensive than vouchers for the current tenants. However, that third paragraph states its tests in the alternative, using an "or" instead of the "and"that was in the bills that went to conference. Possibly the reference to all of the tests overrides the use of an "or" instead of an "and." If not, most projects that reach the assessment stage will have to be vouchered out.

It is also possible that a PHA will end up with more funds for vouchers for each unit converted under the new statute. Under Section 202, all that HUD could transfer to the PHA's voucher contract was the modernization money attributable to the project.¹²⁹ With the new statute, HUD has the discretion to transfer to the voucher account not only capital funds but also operating funds attributable to the project.¹³⁰ Those extra funds could transform what now is something less than true conversion of public housing to vouchers into something that in fact provides vouchers for the same number of families that would have been served by the public housing money. However, there is also the possibility that HUD will not exercise the discretion so generously and merely provide vouchers for the families being displaced.

Tenants who are displaced will receive certain relocation protections that are not spelled out in the original vouchering-out statute. They are the same as the ones itemized in the new version of Section 18 governing ordinary demolition and sales of public housing. They include:

• notice 90 days prior to the displacement date;
• an offer of a comparable replacement unit:
• that meets HQS; and that may include:
• a voucher if the family is moved to a real unit with the voucher;
• project-based assistance; or
• occupancy in public housing at a rent comparable to the original unit;
• any necessary counseling; and
• actual and reasonable relocation expenses.¹³¹

Beyond that, tenants displaced by the demolition of a building as part of a vouchering-out process should also be protected by the Uniform Relocation Act. The URA ordinary applies to people displaced by demolition activities that receive federal financial assistance. However, ordinary public housing demolitions under Section 18 are not covered by the URA any longer, because the new act amends Section 18 to provide that the URA does not apply to activities under Section 18. However, the new mandatory vouchering-out statute specifically provides that Section 18 does not apply to the vouchering out of a building.¹³³ Since Section 18 does not apply, Section 18's URA exemption also does not apply. Displaced households should be eligible for URA protection.

Projects that have already been identified for an assessment of whether they must be covered under Section 202's vouchering-out requirement, or which have been identified for conversion, will be governed by Section 202, not the new law. That means that the test for whether they must be converted will be more flexible, allowing revitalization even if its cost exceeds the cost of vouchers for current tenants.¹³⁴ It also means that any tenants being displaced from those buildings as a result of conversion will get the relocation protections in Section 202 and the URA, instead of those in the new bill. Those relocation protections include relocation housing of the tenant's choice, to the maximum extent practicable.¹³⁵

d. Voluntary Vouchering Out

In addition to mandatory vouchering out, Congress added authority for PHAs to voucher out projects voluntarily in certain situations. Under the new law, each PHA must assess each of its projects within the next three years to determine whether it is convertible, although HUD may grant a waiver of the details of the assessment standards for particular PHAs. The PHA may convert a project only if doing so:

• will be less expensive than keeping the project in operation;
• will primarily benefit the tenants, the PHA and the community; and
• will not adversely affect the availability of affordable housing in the community.

Before converting a project under this voluntary vouchering-out provision, the PHA must develop the conversion plan with significant participation by the tenants of the project and in consultation with the local government. The conversion plan must also be part of the PHA's annual public housing plan. The PHA also may not proceed with the plan if HUD has disapproved it. The statute limits to three the grounds on which HUD can disapprove a plan, i.e., if the plan is plainly inconsistent with the assessment; if HUD has information that contradicts the assessment; or if the plan otherwise fails to meet the statute's requirements.

Tenants who are displaced as a result of a voluntary conversion under this new statute are entitled to the same relocation protections as tenants who are displaced by a mandatory conversion. Those protections are itemized above. It is also possible that tenants displaced by the voluntary vouchering out and demolition of their building are protected by the URA, as are tenants displaced by mandatory vouchering out and demolition. The uncertainty arises because the voluntary vouchering-out statute does not include a provision specifying that Section 18 does not apply to actions taken under it. On the other hand, the statute does not state that Section 18 does apply. If it does not, Section 18's URA exemption would not apply either.

It is also not clear whether the operating and capital funds attributable to a converted project will still flow to the PHA to be used for vouchers. The statute does state that, with HUD's approval, the funds used to provide tenant-based assistance are to be added to the PHA's Section 8 Annual Contributions Contract. It also states that the PHA may convert a project to vouchers, which may mean that the funds for the project also are converted to funds for vouchers.¹³⁷ Nonetheless, the formulas for the capital and operating funds do not specifically mention considering units that have been converted to vouchers,¹³⁸ nor does the voluntary vouchering-out statute specifically mention transferring operating and capital funding to the voucher account, as does the mandatory vouchering-out statute.

e. Mortgaging Public Housing Properties

Traditionally, PHAs have not been able to use their developments as security for money borrowed to develop or renovate the projects. The financing for public housing was either long-term bonds, repayment of which was guaranteed by an annual contributions contract from the federal government or, more recently, capital grants from HUD. That avoided any of the problems that arise with the private, HUD-assisted projects in which lenders foreclose and take projects out of the low-income housing inventory.

This new legislation will allow PHAs to mortgage their projects on any terms and conditions that HUD allows. HUD may consider the uses the PHA will make of the borrowed money and the ability of the PHA to make the mortgage payments. The statute is clear that HUD's authorizing a PHA to mortgage its property under this provision does not oblige the federal government to pay the mortgage should the PHA default.¹³⁹

The more difficult situations will arise, however, if the PHA defaults and the lender seeks to foreclose on the property. Then, unless HUD has been much more careful in drafting the mandatory clauses for the mortgages than it was with the Section 236 and 221(d)(3) mortgages, there will be the possibility of the lender's wiping out all the capital the federal government has invested in the public housing projects without any recourse for the government or the tenants. The new act recites that public housing represents an $90 billion dollar federal government investment. Unless HUD is careful, it will be putting that investment unnecessarily at risk.

5. How Will Public Housing Be Funded?

In reaction to the outcry about how many separate programs HUD operates, the complexity of federal funding and the need for greater local flexibility, the bill claims to create two block grants for funding public housing, the Capital Fund and the Operating Fund.¹⁴⁰ Stripped of all the rhetoric, however, the new funding system is not much different from the old one. There are still separate authorizations for the Drug Elimination program, the Tenant Opportunity Program (TOP), and HOPE VI — the only significant public housing funding programs beyond the basic operating subsidy, development and modernization programs. The Capital Fund does combine the former development program with the former modernization program, but given the absence of funding since 1995 for construction of new public housing, the combination can hardly be hailed as a step toward streamlining government. The Operating Fund replaces the operating subsidy program, but does not reduce the number of programs operated by HUD. Nonetheless, there are some changes in the details that may prove to be significant.

a. The Operating Fund

The Operating Fund may be used for the same purposes that the operating subsidies could be used. They include management, maintenance, security, services, tenant participation in management and policy making, insurance, utilities, and administering the community work requirement.¹⁴¹ The authority to spend operating funds for tenant participation in policy making should be of importance to tenant organizations that wish to have a greater say in how their developments are run, without having to take on the burdens of full-scale tenant management.

One change from the current operating subsidy system is the authority to use operating funds to pay off debt on financing for the development or rehabilitation of public housing. The use of funds for that purpose is explicitly made subject to conditions that HUD may impose. Assuming that HUD's conditions are not so strict that they make this use financially infeasible, operating subsidies can become a stream of income to support private financing for the development of public housing, not unlike the Section 8 New Construction and Substantial Rehabilitation programs. The only thing that seems to be missing is federal mortgage insurance for the financing.

A major consequence of the Operating Fund provisions is that HUD will have to go through a new process to set rules for splitting up among the different PHAs whatever Congress appropriates for the fund. The statute contains directions regarding the factors to be considered in developing the formula for allocating the funds.¹⁴² Many of the factors are the same as the factors that guide the current Performance Funding System.¹⁴³ There is added concern for funding programs designed to promote the economic self-sufficiency of tenants and some new rules on the treatment of earned income disregards which were discussed above. The ultimate rules for dividing up the Operating Fund have to be developed through negotiated rulemaking, but the statute does not state who should be at the table in addition to HUD and the PHAs who, one can assume, will be there.

The more significant change may be the elimination of the language requiring HUD to embody the statutory provisions on operating subsidies into an annual contributions contract guaranteeing their payment, subject to the availability of funds.¹⁴⁴ Although that contractual guarantee was conditioned upon Congress having appropriated sufficient funds, it became the backbone of the assurance that PHAs were entitled to enough operating subsidies from HUD to cover the gap between their tenants' rent payments and their costs of operation, as long as they managed their projects well. It gave rise to HUD's obligation to explain in its budget each year the amount of operating subsidies needed to fully fund the Performance Funding System and to ask for that amount. It was the basis for the political criticisms of Congress and HUD in years when the Performance Funding System was not fully funded.

Under the new legislation, there is still a formula for determining how much PHAs will be provided from the Operating Fund,¹⁴⁵ and that formula still can take into account the costs of operating a prototype well-managed public housing project.¹⁴⁶ But there is no longer any statutory language guaranteeing that the needed payments will be made, however conditionally. Maybe that statutory deletion will not be significant. On the other hand, it may lead to an approach under which Congress simply puts some money into the Operating Fund and HUD's formula equitably divides it up among the PHAs, but nothing compels HUD to ask for 100 percent of what is needed or Congress to appropriate that amount.

The statute has been amended to explicitly require PHAs to maintain their properties well. HUD is to establish housing quality standards for public housing that are consistent with the Section 8 Housing Quality Standards, to the maximum extent practicable.¹⁴⁷ It appears that HUD may allow a PHA to be governed by a local housing code as long as it meets or exceeds the standards set by the HUD housing quality standards for public housing. Each year the PHA has to inspect each project — but possibly not each unit in each project — to determine whether it is incompliance. The results must be kept and made available for the Inspector General and the PHA's auditor.¹⁴⁸ No doubt there will be fights about whether the tenants and the tenant organizations will also be able to get access to those results.

b. The Capital Fund

The Capital Fund is the successor to the Modernization program, with the option of using the money for development and acquisition of new public housing added on.¹⁴⁹ The eligible uses are development, including development of mixed-finance projects, modernization, vacancy reduction, addressing deferred maintenance, replacement of obsolete systems, code compliance, demolition and replacement housing, relocation, capital expenditures for increased security and for tenant empowerment and self-sufficiency programs, homeownership activities and management improvements. Those are essentially the same as the Modernization program, with the addition of new development which had already begun to creep into the Modernization program in the past few years.¹⁵⁰ In addition, all PHAs will be allowed to use 20 percent of their capital funds as operating subsidies, and small PHAs with fewer than 250 units will be able to use as much of their capital funds for operating purposes, and vice versa, as they wish.

Congress has authorized the appropriation of $3 billion for the Capital Fund in Fiscal Year 1999 and whatever is needed for the following four fiscal years. HUD is to develop a formula for distributing the capital funds among the PHAs, considering the number of units each PHA has, their need for modernization and for demolition and replacement, construction costs, security needs, and exemplary performance. This formula is also to be developed through negotiated rulemaking.¹⁵¹

There are some limits on the use of funds for the development of new public housing, especially new public housing that would increase the overall inventory of public housing. Until the Capital Fund comes into operation, PHAs will still receive regular Comprehensive Grant and Comprehensive Improvement Assistance Program (CIAP) funds under Section 14 and will be free to use them for modernization and development of replacement housing.¹⁵² Once the formulas for the Capital Fund have been established, as long as a PHA's inventory does not rise above the number of units it has on October 1, 1999, it may use the Capital Fund to build or acquire new projects and the Operating Fund to subsidize their operation.¹⁵³ If a PHA wants to develop additional public housing that would increase its inventory above its October 1, 1999, level, it has only two choices. The first is to get along without any increase in its allocation from the Operating Fund, which may be feasible if it rents to higher income tenants or gets operating subsidies from the state or local government.¹⁵⁴ The second is to develop a mixed-finance project and demonstrate that its cost over its expected life is less than the cost of vouchers over the same time period, presumably for the same number of tenants.¹⁵⁵

The statute does retain the use restrictions that are in current law. Projects that are modernized with Capital Fund grants must be operated as public housing for 20 years, and those newly developed with these funds must remain public housing for 40 years.¹⁵⁶ In addition, if a project receiving either kind of capital funding also receives operating funds, it cannot be sold by the PHA for ten years after the last receipt of operating funds without complying with the statute's disposition requirements.¹⁵⁷

6. What Rights Will Public Housing Tenants Have to Participate in the Administration of Their Developments?

a. Tenant Membership on PHA Boards

For the first time, federal law will require that PHA boards include at least one tenant representative. However, the tenant representative may be a voucher participant instead of a public housing resident, and the person need not be elected by the tenants unless the PHA's plan, which the PHA board itself establishes, requires an election.¹⁵⁸ The House bill had required that the tenant representative be a public housing tenant and be elected.¹⁵⁹ There are also exceptions for PHAs with boards that state law requires to have full-time, paid members, like the New York City Housing Authority, and smaller PHAs where no tenants express interest after being asked. The current law nullifying state laws that exclude public housing tenants from board membership has been extended to protect Section 8 tenants as well.¹⁶⁰

b. The Resident Advisory Board

Another major change in the federal requirements concerning tenant participation is the Resident Advisory Board requirement. Under it, PHAs will have to allow Resident Advisory Boards to assist them in developing the five-year and annual plans. When the Resident Advisory Board makes a recommendation, the PHA will have to consider it and include the recommendation and the PHA's action upon it in its plan submitted to HUD. When the PHA considers whether to make any changes after the public hearing, it must consult with the Resident Advisory Board. If the PHA does not comply with these requirements, the Resident Advisory Board may complain to HUD, and HUD may send the plan back to the PHA for compliance before HUD approves the plan.¹⁶¹

The Resident Advisory Board is required to be representative of the tenants assisted by the PHA, presumably both public housing tenants and voucher participants, and to adequately represent their interests. If there are already tenant councils or tenant organizations that adequately represent the PHA's tenants interests and that are able to assist in development of the PHA's plan, HUD may allow the PHA not to establish a separate Resident Advisory Board.¹⁶²

c. Public Participation During Development of the PHA Plan

In addition to the involvement of the Resident Advisory Board, the statute also requires the PHA to hold a public hearing on its plan. The PHA has to give 45 days' advance notice of the hearing to the public. It also has to allow the public to inspect the proposed plan at the PHA's headquarters and to inspect all the information it has that is relevant to the plan. When adopting the final plan, it must consider any recommendations made by the public.¹⁶³

This public participation requirement provides two additional groups of people an opportunity to influence the PHA's eventual decisions. One is any tenants or voucher participants whose views may be different from those presented by the Resident Advisory Board. The second is potential applicants whose interests may diverge from present tenants and participants on some issues.

d. Funding for Tenant Organizations

The new statute includes several sources of funding for tenants organizations. First, one of the eligible uses of operating funds is covering the costs of tenant management and tenant participation in management and policy making.¹⁶⁴ Thus PHAs may transfer operating subsidies to tenant organizations, as they are required to do under 24 C.F.R. § 964.150, if funds are appropriated. Second, the Capital Fund may be used for capital expenditures to improve tenant participation, such as establishing a tenant council's office or a meeting room.¹⁶⁵ Third, the new statute authorizes HUD to provide grants to tenant councils and other tenant organizations so they can secure technical assistance and training.¹⁶⁶ Finally, the statute retains the current TOP program, authorizing HUD to make grants to tenant organizations for, among other things, tenant participation activities. The statute, however, does require that the 25 percent of the TOP grant be matched by other funds or in-kind contributions.¹⁶⁷

e. The Right to Participate

In addition to participation in the development of the PHA's plan, the statute requires tenant participation at several other key points. They include obligations of the PHAs to consult with tenants before deciding to demolish or sell a project and before adopting a plan to voluntarily voucher out a project or to remove a project under the mandatory vouchering-out requirement.¹⁶⁸ For the HOPE VI program, resident involvement in the development of the revitalization plan must be one of the selection criteria for funding.¹⁶⁹ The public housing management assessment program must also measure the extent to which the PHA provides tenants opportunities to be involved in the administration of their housing.¹⁷⁰

When tenant organizations are dissatisfied with the PHA's management performance, they may vote to petition HUD to transfer the management to another management entity.¹⁷¹ In addition, before a local government submits a plan to HUD to take over a PHA's housing funds under the Home Rule option, it must provide for citizen participation in development of the plan and consider the views of current and prospective tenants who would be affected.¹⁷²

f. The Preservation of Part 964

In one part of the statute, apparently included at the insistence of Senator D'Amato, there is a provision specifying that no part of the statute may be construed as repealing the HUD regulations at 24 C.F.R. Part 964 which establish the rules for tenant organizations to be recognized and to participate in the management of their projects.¹⁷³ The provision is entitled "Protection of Certain Regulations." Possibly the Congress was just being careful to keep this or a future HUD from removing those regulations under the guise that Congress had compelled it to do so. The only legislative history of that provision is Senator D'Amato's statement on the floor, as it was added at the last minute.¹⁷⁴

7. How Will The Community Work Requirement Operate?

a. The Requirement

As part of its wave of concern about personal responsibility, Congress is requiring adult public housing tenants, but not Section 8 participants, to contribute eight hours per month of community service to the community in which they reside, unless they meet one of the exceptions.¹⁷⁵ The exceptions may swallow the rule. The community service rule does not apply to:

• People participating in a financial or household management, job training, employment counseling, basic skills training, education, workfare, work placement, or apprenticeship program for at least eight hours a month;

• elderly people;
• people who are blind or have another disability and are not able to contribute;
• caretakers of people who are blind or have other disabilities;
• people who are employed or who are engaged in work activities as defined by the Temporary Assistance to Needy Families (TANF) program; or
• people who are exempt from or complying with the work requirements of the state's TANF or other welfare program.¹⁷⁶

If a tenant is not exempted, then 30 days before his or her annual lease expires the PHA will have determine whether he or she has complied with the rule. If the tenant has not complied, the PHA must offer the tenant a new lease for 12 months, accompanied by an agreement on the tenant's part to make up the missing hours. If the tenant rejects that offer, the PHA must evict the tenant, after he or she exhausts the grievance process.¹⁷⁸

8. Will the PHA Planning Process Provide   Opportunities for Tenants to Improve the   Administration of Their Housing?

a. The Planning Requirement

In a departure from the past, the new statute requires each PHA to develop a plan for its operations.¹⁷⁹ The plan will take two forms: a five-year plan and an annual plan. The first five- year plan has to be submitted to HUD by October 1, 1999, or the beginning of the PHA's first fiscal year that begins after that date. Thereafter, five-year plans have to be submitted every five years.

The five-year plan is fairly simple. It has only to include a statement of the PHA's mission to serve the needs of low- and very low-income families in its jurisdiction and of the goals and objectives that will enable it to serve those needs.¹⁸⁰

The statute is more specific about the annual plans that PHAs must submit to HUD. The first one is also due on October 1, 1999, or the beginning of the PHA's first fiscal year that begins thereafter. Each year thereafter, the PHA must update that plan or submit an entirely new one.¹⁸¹ The plan must be consistent with the applicable Comprehensive Housing Affordability Strategy (CHAS) or Consolidated Plan (ConPlan), and the local government must certify to that fact. Further, the plan must actually explain how its contents are consistent with the CHAS.¹⁸²

b. Issues That Must Be Covered

The statute sets out a series of items that the plan must cover, although the details about those items are much less specific than they were in H.R. 2.¹⁸³ The plan must state the housing needs of low- and very low-income families in its jurisdiction, including the elderly and people with disabilities, and by what means the PHA intends to use to address those needs, to the maximum extent practicable. It must state its eligibility and admissions policies, including its waiting list and deconcentration policies. The rent policies must be stated, including the policies for treating income decreases caused by loss of welfare payments. The maintenance and management rules and policies must also be included, including the grievance procedures.

There must be a plan for the capital improvements that are necessary to sustain the PHA's projects. If the PHA will apply for permission to demolish or dispose of any project under Section 18, the project must be described and a timetable included. If the PHA has designated or plans to designate any project as elderly only or only for people with disabilities, that project must be described. If the PHA is required to or plans to voucher out any project, that project must be described and analyzed, and the amount of money that will be converted to vouchers must be stated. The PHA must also describe any public housing buildings it plans to convert to homeownership and any plans it has to use vouchers for homeownership. The plan must describe its programs for providing services to tenants and for promoting their economic self-sufficiency, as well as how the PHA will comply with the community work requirement. There also must be a plan that is developed and implemented in cooperation with the local police department to ensure the safety of public housing tenants. A pet policy must be included. The PHA must also certify that it will comply with the federal civil rights laws and affirmatively further fair housing. The latest annual audit must be attached. Finally, there must be a statement of the PHA's long-term plans for operation, rehabilitation and disposition of its projects.

Once the plan has been approved by HUD, the PHA must operate its programs in accordance with the policies and other rules that are stated in the plan. Thus, the plan is not merely a piece of paper to be submitted to HUD each year and ignored during the rest of the year. If the PHA ignores the plan, tenants are authorized to complain to HUD and HUD is empowered to take appropriate corrective action to secure compliance.¹⁸⁴

c. The Crucial Points to Influence

Quite clearly, the list of items that must be included in the plan is long and comprehensive. In addition, because many of the federal rules that previously guaranteed tenants' rights have been repealed or diluted, the formulation of the PHA's plan provides an opportunity, possibly the only opportunity, to secure policies that retain rights for the tenants. Becoming involved in the PHA plan's development and the updating of its annual plan takes on added importance as the federal rules disappear.

For applicants, the crucial focus should be on the admission policies, including the establishment of any local preferences, the use of site-based waiting lists, the general rules governing the waiting list, the eligibility and screening criteria, and the procedural protections for rejected applicants. In dealing with these policies, it will also be important that the housing needs of people in the PHA's jurisdiction be accurately stated and that the admissions policies be responsive to those needs. In addition, the requirement that the plan be consistent with the local ConPlan may provide added leverage to ensure an accurate needs statement and fair admissions policies.

Public housing tenants will be concerned about the rent policies, especially how the flat rents for public housing will be set, what the procedures will be for switching from flat rents to Brooke Amendment rents, what optional adjustments to income the PHA will adopt, and how the PHA will handle interim reporting of increases in income. Voucher tenants will be concerned about some of those issues as well as where the payment standards for vouchers will be set. The requirements that the PHA state its long-term plans and specifically describe any projects it plans to demolish, sell, voucher out or convert to homeownership should give tenants an early warning of upcoming threats to their housing.

d. The Role of the Resident Advisory Board and Other     Tenant Organizations

Each PHA has to consult with a resident advisory board in developing its plan, which should increase the tenants' opportunities to influence the PHA's policies.¹⁸⁵ The Resident Advisory Board's members must adequately reflect and represent the tenants assisted by the PHA, including Section 8 tenants as well as public housing tenants. If there are already resident councils or other tenant organizations that adequately represent the interests of the PHA's tenants, the PHA does not have to establish a new Resident Advisory Board.¹⁸⁶ However, that exemption leaves open the question how the interests of Section 8 tenants are going to be represented in the process. The PHA has to consider the recommendations made by the Resident Advisory Board, include a copy of them with the plan, and explain how they were addressed.¹⁸⁷

Beyond the role of the Resident Advisory Board, tenants will also have an opportunity to influence PHA policies because the PHA is required to hold a public hearing at a location convenient to the tenants to invite comments on the plan. At least 45 days before that hearing, the PHA has to make the proposed plan and all information relevant to it available for inspection at the PHA's main office. The PHA has to consider the public comments and decide whether to make any changes in consultation with the Resident Advisory Board. If the PHA does not consult with the Resident Advisory Board in developing the plan, HUD may withhold approval of the plan until the PHA goes back and consults with the Resident Advisory Board.¹⁸⁸

e. HUD Review and Enforcement in Court

The PHA has to submit the plan to HUD and HUD has to determine whether the plan covers all the items required to be covered, is consistent with the information that HUD has, including data from the local ConPlan, and is not inconsistent with any applicable law. If HUD does not notify the PHA within 75 days after the plan is submitted that it cannot be approved, stating the reasons for the disapproval, the plan is deemed to have been approved by HUD. However, HUD's failure to act does not preclude judicial review of the plan under the Administrative Procedure Act or 42 U.S.C. § 1983.¹⁸⁹

9. How Will The Merger of Certificates and Vouchers   Be Handled?

a. The Repeal of the Certificate Program

The new legislation does not authorize the appropriation of any more funds for the Section 8 certificate program.¹⁹⁰ In addition, it authorizes HUD to convert previously authorized money for certificates into vouchers.¹⁹¹ How to handle the conversion is pretty much left up to HUD. HUD's discretion includes retention of the certificate provisions for any certificate funds obligated to a PHA before October 1, 1999.¹⁹²

b. The New Voucher Provisions

In addition to phasing out the certificate program, Congress has rewritten the voucher statute and made some significant changes in the process. The changes in the voucher statute do not go into effect immediately. Instead, HUD is directed to issue interim regulations to implement the changes and then issue final regulations by October 21, 1999. In preparing the final regulations, HUD is directed to seek recommendations from PHAs, landlords, program participants and legal services organizations on tenant screening, leases and timely payments.

i. How much will tenants have to pay? The major difference between the certificate program and the voucher program relates to how much of the landlord's rent the tenant pays and how much the government pays. With certificates, except for the recently authorized over Fair Market Rate (FMR) tenancies, the landlords cannot charge more than the FMR or an exception rent, and the subsidy covers all of the gap between what the landlord charges and 30 percent of the tenant's adjusted income. With vouchers, the PHA sets a payment standard, the subsidy covers the difference between that payment standard and 30 percent of the tenant's income, and the tenant pays the landlord all the rest of the rent, even if it exceeds 30 percent of the tenant's income.¹⁹³

The new legislation is much more detailed than previous law regarding the establishment of the payment standards. The PHAs will still set the standards, but they cannot exceed by more than 10 percent the Fair Market Rents which HUD will still set, nor can they be lower than 90 percent of the FMR.¹⁹⁴ HUD is also supposed to monitor the effects of each PHA's payment standard, to protect against the possibility that participants will be paying excessive portions of their income for rent because the payment standard is too low. If a significant percentage of the participants is paying more than 30 percent of adjusted income for rent, HUD is empowered to require the PHA to modify the standard. HUD may also approve payment standards that are higher than 110 percent of the FMR, should payment standards set at that level still produce excessive rent payment burdens.¹⁹⁵

There is also a question about how payment standards will relate to exception rents. Exception rents are used in the certificate program and are based upon a statutory provision allowing HUD to approve rents that are up to 120 percent above the FMR.¹⁹⁶ HUD recently changed its regulations on them.¹⁹⁷ The change allows HUD to approve exception rents up to 120 percent of the normal FMR for particular areas within an FMR area if they are needed to enable people to move outside high poverty areas or if people are having trouble using certificates. The regulations also specify that PHAs' payment standards may not be more than the exception rent or less than 80 percent of it.

The new legislation does not repeal the exception rent statute, but by its own terms it is not applicable to the voucher program. The question is how HUD will go about ensuring that payment standards in neighborhoods that needed exception rents continue to be high enough to allow voucher holders to find units there. Will HUD exercise its authority to approve higher payment standards as a mechanism to allow payment standards as high as the current exception rents in those areas? Will HUD develop some other mechanism to prevent PHAs from using payment standards in those areas which are less than 90 percent of the exception rents?

Even when the payment standard is high enough so that the there will be an adequate government subsidy, there will still be problems for tenants. To guard against landlords who charge more to voucher holders because they have vouchers, the statute requires PHAs to refuse to approve leases if the rents are not reasonable, i.e., are higher than the market for comparable units. PHAs are also required to help the tenants negotiate a lower rent if the tenants ask for help. Finally, if the rent would make the tenant pay more than 40 percent of adjusted income for rent, the PHA cannot approve the lease.¹⁹⁸

The new law eliminates the shopping incentive that was intended to encourage tenants to find a unit renting for less than the payment standard. Previously, the voucher payment was set at the difference between the payment standard and 30 percent of the tenant's adjusted income.¹⁹⁹ If the landlord's rent were less than the payment standard, the tenant, in
effect, was allowed to pocket the difference between the payment standard and the landlord's rent. The new statute does not allow that any more, because the voucher payment will be tied to the landlord's rent, not tothe payment standard, if the rent is less than the payment standard.²⁰⁰ Thus, the tenant will have to pay the full 30 percent of income and there will be nothing for the tenant to pocket.

The elimination of this shopping incentive now makes the utility allowance more relevant to the voucher program. Originally, a utility allowance was relevant only if the voucher tenant was required to pay 10 percent of his or her gross income for rent, which rarely happened. In those cases, tenants were allowed to count their utility payments toward the 10-percent minimum, up to the utility allowance. When minimum rents were introduced in 1996, voucher tenants were also allowed to count their utility payments toward that minimum rent as well. Now, in situations where the landlord charges less than the payment standard but the tenant pays some utilities, the voucher payment will be the difference between 30 percent of the tenant's adjusted income and the landlord's rent plus the utility allowance.²⁰¹ That will keep the payments those tenants make for rent and utilities within 30 percent of their income, as long as the landlord's rent and the utility allowance do not exceed the payment standard. If they do, the tenant will pay the excess out of pocket, in addition to the 30 percent of adjusted income.

ii. Eligible participants. Eligibility for vouchers previously was limited to very low-income families, i.e., families with incomes below 50 percent of the area median income, with a few limited exceptions.²⁰² The new act allows PHAs to expand eligibility to include any low-income families, i.e., families with incomes up to 80 percent of median income.²⁰³ The PHA has to set the eligibility criteria for applicants with incomes over the 50 percent of the area-median-income limit. Under the targeting provisions described above, no more than 25 percent of vouchers issued each year by a PHA could go to such applicants.

Congress has also created an entitlement to voucher assistance for some witnesses to crime in public and assisted housing and for public housing tenants who are victims of violent crimes.²⁰⁴ The act requires HUD to set aside whatever sums are necessary from the voucher appropriation to provide vouchers for relocating witnesses upon the request of law enforcement officials. Such a program already is in operation pursuant to earlier appropriations acts. With regard to the new category of public housing tenants who are victims of violent crime, HUD must set aside whatever sums are necessary to relocate them. The only eligibility requirement is that they must have reported the crime to the police. PHAs are required to notify their tenants of the availability of these vouchers.

iii. Screening of tenants. In the original certificate and voucher programs, screening of tenants was the landlord's responsibility and PHAs were not to reject applicants on the ground that they would be bad tenants. In 1990, HUD created the first exception to that principle by allowing PHAs to reject applicants who were involved in drug-related criminal activities.²⁰⁵ In 1995, HUD opened the door wider, by allowing PHAs to reject applicants who had been evicted from public housing or certificate- or voucher-supported housing.²⁰⁶ Last year, HUD proposed to modify that latter principle by mandating that PHAs reject such applicants.²⁰⁷

The new statute appears to validate the current regulations by authorizing PHAs to screen voucher applicants in accordance with HUD-established requirements. At the same time, by giving the PHAs discretion whether to screen applicants, Congress appears to have nullified HUD's attempt to make rejection of certain applicants mandatory.²⁰⁸

iv. Screening of landlords. The statute also appears to validate HUD's regulations authorizing PHAs to reject certain categories of landlords from whom tenants may wish to rent.²⁰⁹ Those regulations authorize PHAs to reject landlords in certain situations and mandate that PHAs reject landlords who have been debarred and, if HUD so directs, landlords who have violated the Fair Housing Act. The new statute adds an additional ground for PHAs' rejection of landlords, i.e., their failure to evict tenants for criminal or threatening activity. Doing so is discretionary with the PHA.²¹⁰

Another provision makes housing ineligible for the voucher program if doing so would violate a deed restriction that applies to any housing consisting of fewer than five units. That provision would not operate, however, in situations where making such housing ineligible for the voucher program would constitute a violation of the Fair Housing Act.²¹¹ One can assume that there are not too many one-to-four-unit properties that are currently subject to deed restrictions barring Section 8, but such restrictions may blossom in the future.

v. Landlord discrimination against voucher holders. Continuing and expanding upon actions taken in recent appropriations bills, Congress has granted more landlords the power to discriminate against certificate and voucher holders. The first step was to permanently repeal the provision that had barred landlords with one Section 8 contract from rejecting a certificate or voucher holder on that ground alone.²¹² This year, however, Congress went further and repealed a 1987 statute that had prohibited landlords participating in other HUD subsidy programs from discriminating against certificate and voucher holders.²¹³ The covered landlords were Section 221(d)(3), Section 236, Section 202 and Rent Supplement landlords. Possibly Congress was just streamlining the federal legislation by eliminating a provision that duplicated an earlier statute prohibiting such landlords from interfering with their tenants' efforts to secure additional rent subsidies.²¹⁴

vi. Portability. Tenants' rights to use their vouchers in areas other than the area of the PHA that issues them have been modified in several respects, effective October 1, 1999. The limits on statutory portability — moving within the same state or contiguous metropolitan statistical areas — have been lifted.²¹⁵ That brings the statute into conformity with the broader portability rights established by HUD in its regulations. However, if a family wants to move to an area where no PHA is operating the program, it will not be allowed to do so.²¹⁶ Previously, in such situations, the law required the original PHA to administer the voucher in areas where no other PHA was operating.²¹⁷

The next change relates to the 12-month delay of a voucher holder's right to use the voucher in another jurisdiction. Under current law, voucher holders who did not live in the jurisdiction of a PHA when they applied for a voucher were required to use their voucher for 12 months in the PHA's area before they could move elsewhere.²¹⁸ The amendments make that waiting period discretionary with the PHA and authorize HUD to prescribe mandatory exceptions for particular cases when PHAs do impose waiting periods.²¹⁹

The statute creates another category of people who are ineligible for portability, i.e., tenants who have moved out of their assisted home in violation of their lease.²²⁰ In most situations like that, the PHA is not likely even to give the family a new voucher to use within its own jurisdiction, because serious breaches of a lease are grounds for withholding a voucher from a family that wants to move.²²¹

Finally, Congress has given HUD authority to simplify the procedures for compensating PHAs when tenants move from one PHA to another. HUD is authorized to hold back some of the voucher appropriations to compensate the PHAs. It may use that money either to provide funding to the PHA to which the tenant moves or to replace the voucher funding of the PHA from which the tenant leaves.²²² That should eliminate the need for billing, which PHAs have complained about.

vii. Housing Quality Standards. In 1994, the Multi-Housing Council began to complain about the Section 8 Housing Quality Standards and how PHAs were handling inspections of Section 8 properties.²²³ The new legislation responds to those complaints in part, but not very forcefully. It allows PHAs to establish their own housing quality standards or use local codes, but those standards must equal or exceed the HUD HQS, so that will not lessen the landlord's burden. There is some language authorizing HUD to allow a PHA to use a lesser standard, but only if the reduced standard will not adversely affect the health or safety of the tenants.²²⁴ Since HUD's regulations already authorize it to approve variations from its acceptability criteria based upon local codes,²²⁵ this statutory change will probably not have much effect in practice.

On another point, the new statute may produce some beneficial change. One of the problems that landlords complained about and which adversely affects prospective tenants is delay by PHAs in inspecting units for which tenants are applying. If the PHA is too slow, the voucher holder loses the unit to other applicants. The new act requires PHAs with fewer than 1,250 vouchers to complete their inspections within 15 days, and larger PHAs to do so within a reasonable time. HUD is also required to issue guidelines and performance standards for PHAs to meet in carrying out their inspection responsibilities.²²⁶ If guidelines and performance standards in fact produce more results than federal statutes and regulations, maybe PHAs' inspections will be carried out more efficiently and effectively.

viii. Use of vouchers for homeownership. Congress has also made several changes to the program authorizing the use of tenant-based assistance for homeownership.²²⁷ That option was created by the 1992 Housing Act, but HUD considered it was not feasible because of certain statutory barriers. The major changes are that the statute eliminates the recapture provision, restrictions on the source of the downpayment, the requirement that buyers be participating in the family self-sufficiency program. and the disqualification of people participating in other federal homeownership programs, such as the Rural Housing Services' Section 502 program, the HOPE II program and the HOME program.²²⁸

This new act clarifies that vouchers may be used to assist families buying a co-op apartment or buying a home under a lease purchase agreement. Although it retains the requirement that at least one family member must be employed and that the family's income must be twice the payment standard, it allows a family's welfare payments to be included to meet the latter standard if the head of the household is elderly or has a disability. It also modifies the calculation of the voucher payment to key it to the lesser of the payment standard or the family's homeownership expenses, instead of to the Fair Market Rent.²²⁹

10. What Will Be the Impact of the Home Rule    Flexible Grant?

In response to advocacy by those who believe that local governments, not PHAs or HUD, know best how to run housing programs, Congress created the Home Rule Flexible Grant Demonstration program.²³⁰ The program will allow 100 municipalities or other local governments to contract with HUD for the funds that would normally go to the PHAs in their areas and to run their own housing programs for up to five years. The funds covered would be public housing operating funds, public housing modernization and capital funds, and certificate and voucher funding. The locality's housing program could have one or all of three specified purposes — providing housing assistance and services for people making the transition to work, providing permanent housing as a solution to homelessness, or increasing homeownership opportunities for people with incomes at or beneath 80 percent of the median. The locality could also use the funds for any other type of low-income housing programs it selects.

There will be some limitations on the locality. The funds will have to be used under the same terms and conditions that would have applied to the funds had they gone to the PHA. However, the locality will be allowed to mix the public housing funds with the Section 8 funds and use the combined funds under the rules for ei