National Housing Law Project Housing Law Bulletin

In 1993, HUD began a process of combining the rules for the certificate and voucher programs into one set of regulations. The idea was to make the two programs as similar as possible, except for the few differences that are attributable to differences in the statutes.¹ At the same time, Congress was considering proposals to merge the two statutory provisions into a single program, as it is still doing now. The first installment of the combined rules was published for effect in July 1994, as part of HUD's rewriting of its rules on tenant and participant selection for the public housing and certificate and voucher programs.² It covered only preferences and other admissions issues. Then in 1995, HUD issued the second installment that covered all the rest of the issues except for the rent and subsidy calculation rules.³ They were held back, because they covered the areas where the two statutes were most significantly different. HUD hoped that Congress would complete its merger of the statutes and allow HUD to issue an identical set of rules for what are now certificates and vouchers.

That did not happen, however, so HUD has now decided to issue the last installment of the combined rules. It primarily covers the calculation of rents and subsidies in the certificate, voucher and project-based certificate programs. The new regulations also move to Part 982 the rules on the use of certificates and vouchers in shared housing, manufactured housing, single-room occupancy units (SROs) and other special types of housing, and make many technical corrections to Parts 982 and 983.⁴

Rent Limits on Eligible Units

One of the significant problems with the certificate and voucher programs for some families is finding places to rent under the program. Part of that problem is that units that rent for more than the Fair Market Rents (FMRs) are ineligible for the certificate program. With the voucher program, a related, de facto maximum rent exists, because the government has a maximum limit on the subsidy and landlords with higher rent units will not rent to voucher holders if their share of the rent, after considering the subsidy, is too high a portion of their income. These regulations have several new rules that regulate or influence how expensive units can be and still be rented under the programs.

For the certificate program, there are two significant changes and one less major change. One relates to the system for allowing exceptions to the normal FMR limits, known as exception rents. The second implements the statutory provision allowing tenants to pay more and to rent units over the FMR, called "over-FMR tenancies." The less major change relates to the rent reasonableness test.

Exception rents. On exception rents there is a major regression from the currently popular policy of granting PHAs ever widening discretion to decide how to implement federal housing programs. The regulations take away from PHAs much of the authority they previously had to set exception rents and to approve units for the certificate program that rent for more than the FMR. The reason for the shift, apparently, is concern over money. The more the PHAs allow the landlords to collect, the more the federal government's subsidy per unit is, and OMB does not like that.

Before these rules, PHAs on their own could approve units for the certificate program that had rents up to 10 percent above the FMR, as long as they did not approve such rents for more than 20 percent of the units in their program. With HUD approval they could approve such exception rents for even larger portions of their inventory. In addition, in these cases, HUD could allow PHAs to approve units with rents up to 120 percent of the FMR:

• When the unique needs of a family meant they could not rent a place for less;

• When there were particular sizes or types of units in a specific neighborhood that could not be rented for less; and

• When there were special circumstances warranting higher rents in a particular county, municipality or similar locality.⁵

Under the new rules the PHA discretion to act on its own will be almost eliminated. Only in situations where approval of a unit with rent higher than the FMR is necessary to enable a person with a disability to participate in the program may the PHA act without HUD approval. In those cases, the exception rent may be up to 120 percent of the FMR, and the PHA is obliged to grant it as a reasonable accommodation to the certificate holder.⁶ No longer will the PHA be able to claim it has discretion not to approve an exception rent if it is needed as a reasonable accommodation. Nor will it be necessary to get HUD's approval in those cases, either to go above 110 percent of the FMR or to go beyond the former-20-percent-of-inventory limit on the PHA's authority to approve exception rents. However, except for cases of people with disabilities, PHAs on their own will not be able to approve any exception rents.

With the new regulations, HUD has seized control of all exception rents. It will be allowed to approve exception rents, up to 120 percent of the FMR, for particular areas within an FMR area where the rents are higher than usual. Those exception rent areas cannot be larger than half of the FMR area. HUD may approve such exception rent areas only if they are needed to help people find housing outside high-poverty areas or if certificate holders encounter difficulty finding units within the normal 60- or 120-day search time. The amount of the exception rent can be calculated by either of two formulas. One, it can be set at the 40th percentile of rents in the exception rent area, just as FMRs themselves are determined. A PHA that wants an exception rent set at the 40th percentile of rents for the area must provide the same kind of data on rents in that area as it would provide if it were challenging proposed FMRs as being inadequate. The alternative is for HUD to set the exception rent at the relationship to the present FMR as the rents in the area at the time of the last census bore to the rents in the entire FMR area at that time. Thus in a particular metropolitan-wide FMR area, if the median rent in one suburb at the time of the last census was 120 percent of the median rent in the entire metropolitan ares, the exception rent for that suburb could be set at 120 percent of the current FMR.⁷

If HUD does not approve exception rents for particular areas, certificate holders who cannot find units within the FMR will not be able to use their certificates. PHAs will not be able to use their former power to approve a unit up to 110 percent of the FMR. In the regulations, HUD provides that the decision whether to approve an exception rent is "[a]t HUD's sole discretion."⁸

Over-FMR tenancies. There is one way out for some certificate holders caught in a situation where they cannot find a unit within the FMR or within the exception rent for a particular area. They may invoke the statutory provision that allows some certificate holders to rent units over the FMR and pay the extra rent from their own pocket, like a voucher holder.⁹ The new regulations call that an over-FMR tenancy.¹⁰ The PHA may use that option only for 10 percent of its units, because the statute limits the over-FMR rentals to 10 percent of its incremental certificates. The HUD regulations define incremental certificates as all units the PHA has under budget except for any certificates it received for families previously residing in a project-based Section 8 development.¹¹

The regulations grant the PHA the option to decide whether to allow over-FMR tenancies, withholding from the tenant any right to use her certificate in a unit that rents for more than the FMR or applicable exception rent. The only restriction on PHA discretion would be in cases where the certificate holder has a disability, and renting an over-FMR unit is necessary as a reasonable accommodation.¹² Whether and when the PHA will approve over-FMR tenancies must be spelled out in the PHA's administrative plan.¹³ In contrast, the governing statute provides that a family may pay rent that exceeds the normal 30-percent-of-adjusted-income limit if it wants to and if the rent is reasonable for the unit and affordable by the family.¹⁴ It contains no language granting the PHA discretion not to allow any over-FMR tenancies in its program. Thus, this part of the regulations is at least arguably invalid.

Before approving an over-FMR tenancy, the PHA will have to determine that the rent is both reasonable for the unit, given its market value, and affordable by the family, given its financial circumstances. If the PHA concludes that the family cannot afford the rent, it will not approve the leasing of the units with the certificate.¹⁵

Rent reasonableness. The rent reasonableness test — which applies to regular certificate tenancies, over-FMR tenancies and voucher tenancies — has been modified somewhat in these regulations.¹⁶ In the certificate program, the PHA has always been prohibited from approving a unit if it could not certify that the rent was reasonable and that the landlord was not charging less for a comparable unassisted unit.¹⁷ The new regulations require the PHA to make that determination not only at the initial approval of the unit, but also whenever the landlord wants a rent increase and whenever the FMRs drop by more than 5 percent during the year. In addition, the regulations require the landlord to certify that he is not charging less for comparable unassisted units on the premises and to provide the PHA information on his other rents if the PHA asks for it.¹⁸

For the voucher program, the new regulations are like the current ones concerning the eligibility of units with rents above the FMR or payment standard.¹⁹ Unlike the certificate program, units are not ineligible merely because their rents exceed the FMR. In addition, unlike the over FMR tenancies in the certificate program, for vouchers the PHA has no authority to reject a unit because the rent is more than it believes the family can afford. However, as with the certificate program, the PHA must still determine whether the rent for a voucher unit is reasonable. If it is not, the PHA must reject the unit unless the landlord agrees to reduce the rent. In addition, if the family asks for help, the PHA must help the family negotiate for a lower rent.²⁰

How Much Will the Subsidy Be and How Much Will the Tenant Have to Pay?

If a unit is eligible, the next question is how much the tenant will have to pay. That, in turn, is a product of the amount of the subsidy and whether the landlord will be allowed to charge more than the payment standard or FMR for the unit.

Certificates. For the regular certificate program, the answer is fairly simple. The landlord is not allowed to charge more than the FMR or an applicable exception rent, or a reasonable rent for the unit if that is less than the FMR or exception rent.²¹ The subsidy is the difference between what the landlord is allowed to charge and the tenant's share.²² The tenant's share is the highest of (1) 30 percent of the family's adjusted income, (2) 10 percent of its gross income, (3) the welfare rent, if applicable, and (4) whatever the PHA has set as the minimum rent, which now cannot exceed $50.²³

Vouchers. In the voucher program, what the tenant will have to pay and how much the subsidy will be are more complicated questions. First, because the landlord is allowed to charge more than the payment standard and the tenant pays the excess, the setting of the payment standard will influence how much the tenant pays. With two exceptions, these regulations are the same as the previous regulations on setting the payment standard. The PHA must set the payment standard at or beneath the FMR for the area, but not less than 80 percent of the FMR. If there is an exception rent in effect in an area, the payment standard must not be more than that exception rent.²⁴ The maximum limit in that situation is the same as the previous regulations treated locality-wide exception rents approved by HUD. If the FMR is reduced, and the payment standard would exceed the new FMR, it must be reduced to no more than the new FMR.²⁵

However, unlike the new regulations, the previous regulations had set the floor for the payment standard in exception rent localities at 80 percent of the FMR. The new regulations set the floor at 80 percent of the exception rent level.²⁶ In addition, if the FMR is increased and the payment standard would be less than 80 percent of the new FMR or the applicable exception rent, the PHA must raise the payment standard to the 80-percent level, unless it receives permission from HUD not to do so.²⁷

These slightly tighter limits of the minimum levels of the payment standards should be helpful to tenants who have trouble finding units renting at or under the payment standard. Because the payment standard has to be adjusted upwards when the FMR is increased and may not be less than 80 percent of the exception rent in exception rent areas, the subsidies for the units will be higher and the tenant's full out-of-pocket share lower than they would be under the previous regulations.

The other factor that influences how much a voucher tenant pays is how much the landlord is allowed to charge. Under the previous regulations, PHAs had discretion to determine whether a voucher landlord's rents were reasonable and to refuse to approve the leasing of unit if the rents were not.²⁸ These new regulations tighten up on that function. Now with the voucher program, as previously with the certificate program, the PHA must determine that the rent the landlord is charging is reasonable, must refuse to approve the lease if it is not, and must help the family negotiate for a lower rent if the tenant asks for help.²⁹ Those changes may also protect some voucher tenants from paying more for their housing than they otherwise would have had to pay.

Over-FMR tenancies. For certificate tenants in over-FMR tenancies, the situation is much like the voucher program. Their landlords may charge more than the FMR or exception rent and the tenants have to pay the excess. As with the vouchers, the PHA has to determine that the landlord's rent is reasonable for the unit and must help the tenant negotiate for a lower rent if the tenant asks.³⁰ Unlike the voucher program, however, the PHA has no discretion in setting the payment standard for over-FMR certificate tenancies. The payment standard must equal the FMR or the exception rent, if there is one, for the area.³¹ As a result, HUD's subsidies will be picking up more of the rent in these over-FMR tenancies and the tenant's share will be less than under the voucher program.

Other Changes

Beyond these new provisions on calculating rents and subsidy levels, the regulations make several other changes. They include language implementing the minimum rent provisions in recent appropriations acts, additional provisions on utility allowances, more explicit rules on extra charges, new rules on certification and recertification of income, rent provisions for project-based certificates, and some rules relating to the Moderate Rehabilitation program and other special types of housing that were moved from other regulatory sections.

Minimum rents. For the first time, HUD has included in its regulations provisions that implement the temporary minimum rent provisions contained in the recent appropriations acts. Those provisions require certificate and voucher tenants to pay at least a minimum rent, set by their PHA at no more than $50. The regulations accommodate those temporary measures by providing that the subsidy may not exceed the difference between the minimum rent required by law and the gross rent.³² The language does not change the way minimum rents have been implemented by notices in the past.

Utility allowances and other extra charges. These regulations spell out in much more detail how the utility allowances are to be calculated for the certificate and voucher programs and what they cover.³³ Unlike the public housing utility allowance regulations,³⁴ these require the PHA to include the costs of air-conditioning if the majority of the units in the market provide air conditioning or wiring for tenant-installed air conditioners. They indicate that the allowances must cover tenant-supplied ranges and refrigerators and other tenant-paid services, such as trash collection, as well as normal utilities.³⁵ They also authorize the PHA to pay any utility reimbursement directly to the utility company, without securing the tenant's permission, as the previous rule had provided.³⁶

Other parts of the regulations now explicitly provide that the owner may not charge extra for services or items that are customarily included in rent in the locality or for which he does not charge other tenants in the premises. They also prohibit the landlord from evicting tenants for nonpayment of charges for meals and other supportive services or for including such charges in the rent.³⁷

Certification and recertification of income. In addition to making a cross-reference to the department-wide provisions on certification and recertification in 24 C.F.R. Part 5, these regulations explicitly state that the PHA must secure third-party verifications of all the information used to calculate the tenant's income, unless it is not available.³⁸ These regulations also are more specific than HUD has ever been in the past that the PHA must conduct an interim recertification when the tenant asks for one. The regulations allow the PHA a reasonable time to conduct the requested recertification and leave it up to the PHA to select the recertification's effective date.³⁹

Moderate Rehabilitation and other special housing. Because this regulation repealed much of Subparts A and B of 24 C.F.R. Part 882 — some of which had been incorporated by reference in the Section 8 Moderate Rehabilitation program regulations — new provisions were moved or added to the Moderate Rehabilitation regulations at 24 C.F.R. Part 882, Subparts D and E. For similar reasons, regulations regarding special uses of certificates and vouchers in shared housing, SROs, manufactured housing, Congregate housing, group homes and co-ops were moved to 24 C.F.R. Part 982, Subpart M, and revised. Finally, rent provisions were added to the regulations for the project-based certificate program at 24 C.F.R. Part 983.

The regulations may be found at http://www.access. gpo.gov/su_docs/ or http://www.hudclips.org/cgi/index.cgi; or Handsnet/LegalServices/SubstantiveLaw/Housing.

¹  58 Fed. Reg. 11,292 (Feb. 24, 1993).
²  24 C.F.R. Part 982, Subpart E; 59 Fed. Reg. 36,662 (July 18, 1994).
³  24 C.F.R. Part 982; 60 Fed. Reg. 34,660 (July 3, 1995).
⁴  24 C.F.R. Parts 5, 8, 882, 982 and 983; 63 Fed. Reg. 23,825 (Apr. 30, 1998) (hereinafter, references to these new regulations will be to section numbers only).
⁵  Former 24 C.F.R. § 882.106(a) (1998).
⁶  Sections 8.28(a)(5) and 982.504(b)(2).
⁷  Section 982.504(b)(1).
⁸  Id.
⁹  42 U.S.C.A. § 1437f(c)(3)(B) (West 1994).
¹⁰  24 C.F.R. § 982.4(b) (over-FMR tenancy).
¹¹  Section 982.506(b)(1).
¹²  Section 982.506(a).
¹³  Section 982.54(d)(16).
¹⁴  42 U.S.C.A. § 1437f(c)(3)(B) (West 1994).
¹⁵  Section 982.506(b)(2).
¹⁶  Section 982.503.
¹⁷  Former 24 C.F.R. § 882.106(b) (1998).
¹⁸  Section 982.503.
¹⁹  Compare § 982.505(b) with former 24 C.F.R. §§ 887.351 and 887.353 (1998).
²⁰  Section 982.503.
²¹  Sections 982.503 and 982.508.
²²  Section 982.507.
²³  24 C.F.R. § 5.613 (1998).
²⁴  Section 982.505(b).
²⁵  Section 982.505(b)(1)(ii)(A).
²⁶  Former 24 C.F.R. § 887.351(b)(2) (1998).
²⁷  Section 982.505(b)(1)(ii)(B).
²⁸  Former 24 C.F.R. § 887.209(b)(3) (1995).
²⁹  Sections 982.502 and 982.503.
³⁰  Sections 982.502 and 982.503.
³¹  Section 982.505(c)(1).
³²  Sections 982.505(b)(2) and (c)(2) and 982.507.
³³   Section 982.517.
³⁴  24 C.F.R. § 965.505(e) (1998).
³⁵  Section 982.517(a).
³⁶  Section 982.514.
³⁷  Section 982.513.
³⁸  Section 982.516(a)(2).
³⁹  Sections 982.516(b)-(d).