National Housing Law Project Housing Law Bulletin

HUD Notice Implements Continuing Resolution
for Multifamily Programs

The January 26 Continuing Resolution required project-based Section 8 tenants to pay a minimum $25 monthly rent, with HUD having discretion to increase the minimum to $50.⁴ Unlike the rules for public housing, the law did not include either ceiling rents or additional discretionary adjustments to income to increase retention of working people in assisted housing.⁵ Federal preferences, along with existing law capping annual rent increases resulting from employment, were repealed for all programs, including project-based Section 8.⁶ These changes are for Fiscal Year 1996 only, unless they are subsequently extended by Congress.

The Continuing Resolution also contained provisions governing the renewal of expiring project-based Section 8 contracts, some of which, unless subsequently amended or modified, will last beyond FY 1996.⁷ These include almost all of those provisions from the vetoed FY 1996 appropriations bill⁸ which essentially require HUD to renew contracts expiring during FY 1996 for one year at current rents where the owner requests a renewal.⁹

HUD's new Notice¹⁰ implements these changes. This article emphasizes the main differences between this Notice and its predecessors.

Minimum Rents

The HUD Notice, H 96-7 (HUD), implements the minimum rent provisions prospectively. Although the minimum rent is to be charged immediately (i.e., post-March 15) for new admissions, current participants are subject to the minimum rent "as soon as practicable," but no later than May 1, 1996. However, any changes in rent must be implemented consistently with the 30-day written notice requirement of the HUD Model Lease.¹¹ The late issuance of this Notice to the field and to owners will threaten many tenants' rights to 30 days' notice prior to the May 1 effective date.

HUD's Notice provides that the total tenant payment (TTP) must be the greatest of 30 percent of adjusted income, the welfare rent or 10 percent of the monthly gross income, or the $25 minimum rent. For project-based Section 8, unlike public housing and Section 8 tenant-based subsidies where PHAs have discretion, HUD has exercised its discretion to set the minimum at $25 and not to impose a further increase up to the $50 statutory limit.¹² HUD's Notice also reiterates that adoption of the minimum rent does not affect the rights of families to utility reimbursements where the allowance exceeds the TTP.¹³

Suspension of Federal Preferences

Effective January 26, 1996, the Continuing Resolution eliminates only the three federal preferences for displaced households, for those paying more than 50 percent of their income for rent, and for those living in substandard housing for FY 1996, effective January 26. HUD's Notice instructs owners that they are not required to eliminate federal preferences, but may do so, except for families that were offered a unit prior to March 15. HUD advises that owners are "free to adopt their own preference systems" (beware of potential for tremendous abuse) or to select applicants in chronological order, but must continue to observe the "no skipping" (to select higher income tenants) and targeting guidelines of Section 16 of the United States Housing Act of 1937,¹⁴ which were not repealed.¹⁵ A written "equitable" plan that guards against discrimination is still required. Despite this Notice's silence, the local preferences and applicable caps (formerly determined by PHAs) are also suspended.

Section 8 Contract Renewals

HUD's Notice first recites the general discretionary authority provided by the continuing resolution to renew expiring contracts for occupied units and subject to the fair market rents (FMRs). It also mentions the discretionary authority (replacing the former duty) given HUD to renew expiring Section 8 Loan Management Set-Aside (LMSA) contracts "to the extent necessary to prevent displacement of low-income families," a permanent change in law unless subsequently revised. It then proceeds to repeat the statutory requirement that HUD renew at the current rent levels all project-based contracts expiring during FY 1996 where the owner so requests. HUD states that this limitation means that owners will get no rent increases after renewal during the one-year term. The Notice includes a standard form renewal contract.

Section 236 Rents

The Continuing Resolution also contained another provision establishing the Section 8 Existing FMR as an additional cap on rents paid by Section 236 tenants whose incomes require them to pay more than the basic rent.¹⁶ Thus, tenants residing in Section 236 units where the FMR is less than the budget-based Section 236 market rent (the former exclusive cap) will see their rents decrease. HUD instructs owners to implement this change as of the next rent period, with no required advance notice to tenants because it does not increase rents.¹⁷

1. Pub. L. No. 104-99, enacted Jan. 26, 1996. See Housing Availability Curtailed by Continuing Resolution: HUD Issues Implementing Guidance, 26 HOUS. L. BULL. 21 (Feb. 1996).
2. HUD Notices PIH 96-6 (HA), "Administrative Provisions of the January 26, 1996, Continuing Resolution Affecting Public and Indian Housing Programs," and PIH 96-7 (HA), "January 26, 1996, Continuing Resolution Statutory Changes Affecting the Administration of the Section 8 Certificate, Voucher and Moderate Rehabilitation Programs" (issued Feb. 13, 1996, expires Sept. 30, 1996).
3. HUD Notice H 96-7 (HUD), "January 26, 1996, Continuing Resolution Statutory Changes Affecting the Administration of Multifamily Assisted Housing Programs" (Mar. 15, 1996).
4. Pub. L. No. 104-99, § 402(a)(3).
5. Compare id. §§ 402(b) and (c) (establishing such provisions for public housing).
6. Id. § 402(d)(2) (Section 8 Existing Housing, including Loan Management Set-Aside), § 402(d)(4) (New Construction and Substantial Rehabilitation), and § 404.
7. Id. § 405.
8. For a description of these provisions from H.R. 2099, see Conference Agreement Defers Fundamental Decisions on Project-Based Section 8, 25 HOUS. L. BULL. 205 (Dec. 1995). The January 26 Continuing Resolution omitted H.R. 2099's "Mark to Market" demonstration program, but this may reappear in the omnibus resolution currently being negotiated.
9. Whereas both the vetoed appropriations bill and the January 26 Continuing Resolution give HUD the discretion to convert all 8,000 expiring Section 8 Moderate Rehabilitation units to vouchers, the "extender" bill (S. 1494, Pub. L. No. 104-120, the Housing Opportunity Program Extension Act of 1996), signed on March 28, gives HUD the discretionary authority to renew expiring Section 8 Moderate Rehabilitation contracts for one year upon owner request. See "President Signs Extender Legislation", elsewhere in this issue.
10. HUD's guidance could be superseded by enactment of any inconsistent provisions in appropriations legislation for the rest of FY 1996, including an omnibus continuing resolution currently under negotiation between Congress and the White House.
11. HUD Notice H 96-7 (HUD), § 2(A)(4), at 3.
12. Id. § 2(A)(2), at 2.
13. Id.
14. 42 U.S.C. § 1437n.
15. HUD Notice H 96-7 (HUD), § 2(B), at 4.
16. Pub. L. No. 104-99, § 405(d).
17. HUD Notice 96-7 (HUD), § 2(D), at 6.