National Housing Law Project Housing Law Bulletin

HUD-Proposed Housing Certificate Fund
Would Significantly Alter
the Current Tenant-Based Programs

HUD has made available in bill form¹ proposed legislation that would substantially change certain elements of its tenant-based programs while retaining other basic aspects. One program under HUD's proposed bill, the Housing Certificate Fund (HCF),² would dramatically alter key tenant protections regarding evictions, subsidy termination and preferences. The rent that tenants would pay and the amount of the subsidy would track the current rules for the Section 8 voucher program. Aspects of the proposed new program have been designed to enhance mobility. The following discusses the proposed changes in greater detail.

Proposed Changes

Adjusted income

Traditionally HUD has defined adjusted income and set tenants' rent as a percentage of that adjusted income. HUD is proposing to retain the current federal definition of adjusted income.³ The exclusions from income are those that are currently in effect. HUD is not advocating increasing the adjustments to the levels approved in the 1990 Housing Act⁴ (but which were never implemented because of a lack of appropriations). Also there is no provision for deductions from income for working families.⁵

HUD proposes that there be a $480 deduction for each household member under 18, or older if the person has a disability or is a full-time student. There is also a $400 deduction for elderly or disabled household members. Medical and disability assistance expenses may continue to be deducted for any elderly or disabled family member. Childcare expenses would be deducted to the extent childcare enables a family member to work or further her education.

PHAs would also be given the discretion to make other adjustments to the definition of adjusted income,⁶ but these further adjustments would be limited because a PHA would be required to assist at least 90 percent of the eligible households HUD expects to be assisted.⁷ Hence, for example, if a PHA is given funds that HUD determines should assist 100 families, then the PHA must define adjusted family income so as to assist, at a minimum, 90 families. HUD also proposes that tenant income would continue to be reviewed annually.

Eligibility and preferences

Families would be eligible for the Housing Certificate Fund program if their household income does not exceed 50 percent of the area median. If the family is participating in an HCF homeownership program, income eligibility increases to 60 percent of area median income. For most jurisdictions, this increase is necessary to make homeownership feasible. Additionally, families would be eligible for HCF assistance if their incomes exceeded these percentages, if they had continuously resided in public or assisted housing, and if their rent exceeded the amount that would be paid if the rent-income ratios applied.⁸

The definition of a disabled household would continue to include individuals with AIDS or an AIDS-related syndrome.⁹

In selecting applicants for the HCF program, a PHA would be limited to using only two preferences.¹⁰ For up to 50 percent of the total number of households admitted, a preference may be granted to the working poor; households with urgent needs may also be preferred for up to the remaining 50 percent. However, at least 10 percent of the families selected each year must be on a first-come, first-served basis. This latter category ensures that no eligible family is categorically precluded from participating in the program. Also, under certain circumstances, up to 10 percent of the admissions may be set aside for special groups, such as graduates of transitional housing and participants in welfare-to-work programs.¹¹ By so limiting the types of preferences, HUD states that "residency preferences, which have had the effect of limiting access to assistance for needy families, would no longer be permitted."¹²

Rent

HUD would continue to set the Fair Market Rent.¹³ PHAs would be allowed to set a payment standard that is at least 80 percent, but not more than 120 percent, of the FMR. HUD may require a PHA to submit the proposed payment standard for approval. The PHAs' flexibility to set the payment standard is further constrained because only 10 percent of assisted tenants assisted would be permitted to pay more than 35 percent of their household's gross monthly income for housing.¹⁴ The purpose of this restriction is to prevent the PHA from providing shallow subsidies to a greater number of families, subsidies that would be insufficient to provide decent housing at affordable levels.¹⁵ However, because PHAs would be measured on the basis of meeting this 80-to-120-percent requirement, this provision may be twisted so as to encourage PHAs to deny assistance to families or to refuse to approve a unit that a family has selected because the rent is too high and/or the household's income so low that the total amount paid by the family for rent would exceed 35 percent of its gross income.

The amount of the tenant subsidy would be set in a manner similar to the existing voucher program. Rent that a landlord charges would be permitted to exceed the payment standard. If so, the subsidy would be the difference between the payment standard and the greater of 30 percent of adjusted income, 10 percent of monthly income, or the housing portion of the welfare grant if the housing portion is adjusted in accordance with actual housing costs.¹⁶ If the total rent, including a reasonable amount for utilities, did not exceed the payment standard, then the tenant subsidy would be the amount by which the total rent exceeded the higher of the above listed percentages of family income or the welfare rent standard.

As with the current voucher program, a landlord would not be entitled to vacancy payments after the month the tenant vacates the unit.¹⁷ For every unit there would be the general standard that rents must be reasonable,¹⁸ which means that the PHA would have the authority to reject a unit chosen by a tenant if the rent is too high and/or to assist the tenant in negotiating a lower rent.

Tenant and applicant rights

As with the current tenant-based programs, HUD proposes that owners under the HCF program would screen and select all tenants.¹⁹ Leases would be for a minimum of one year and should contain other terms and conditions specified by HUD.²⁰

Landlords would no longer have to establish good cause for eviction, and the 90-day notice for a lease termination for business reasons would also be eliminated.²¹ Landlords would be able to evict in accordance with state law. Thus. in practically all states, an HCF tenant could be evicted after the first year on a 30-day notice (or less in some states) for no reason.²² HUD's proposal also specifies that an owner would be able to terminate tenancies for any criminal activity that threatened the health, safety, or right to peaceful enjoyment of the premises by other residents or by persons residing in the immediate vicinity of the premises, or for any drug-related criminal activity on or near such premises engaged in by a tenant, member of the household or guest or any other person under the household's control.²³ The only exception to this new eviction standard would be for tenants living in units converted from public housing. Those tenants would retain the right not to be evicted except for good cause.

Mobility

Mobility is facilitated in the HCF program and would not only be permitted but PHAs rewarded for encouraging it. With limited exceptions, tenants would be permitted to use their subsidies anywhere in the United States where the program is being administered.²⁴ HUD may also require a PHA to use its funds to assist families with children to rent units in low-poverty areas.²⁵

PHAs that participate in metropolitan-wide mobility programs might have greater flexibility to design special programs.²⁶ A PHA's performance would be measured by the extent to which families were able to move to low-poverty areas and the PHA participated in metropolitan-wide strategies to enhance housing mobility and choice.²⁷ HUD would create a bonus pool of appropriated budget authority to be allocated to those PHAs that meet and exceed these and other performance requirements.²⁸ In addition, an increased administrative fee may be given to a PHA that is located in an area of concentrated poverty to cover the cost of providing additional landlord outreach and for household search assistance to increase housing opportunities in low-poverty areas. The additional fee would be to cover the additional cost.²⁹

Nondiscrimination against certificate holders

The proposed legislation would eliminate the current Section 8 program "take-one-take-all" requirement that prevents Section 8 certificate landlords who had accepted their first certificate holder from discriminating against subsequent certificate holders based upon their status as a certificate holders.³⁰ But the proposed legislation would continue to prohibit such discrimination by owners of multifamily housing who had received federal assistance (other than Section 8 certificates or vouchers) in the past two years. The categories of federally assisted projects that may not engage in discrimination based upon an applicant's status as a certificate holder are greater under the ACPA than those currently required under a combination of statutory mandates.³¹ HUD proposes to prevent discrimination in projects that received, within two years prior to the effective date of the legislation, project-based assistance under the United State Housing Act of 1937, which includes both Section 8 and public housing, CDBG funds, mortgage insurance under the National Housing Act or the Federal Housing Corporation Charter Act, tax credit and any other programs designated by the Secretary. Although the types of housing covered by the nondiscrimination language would be increased, each owner would be required to prevent the discrimination only for a reasonable number of the units, which HUD defines to be 20 percent.³² Thus, while this provision may work to enhance some income mix in some projects, it may in fact also deny tenant access to other units that traditionally served the lowest income households, as in the case of McKinney Act units or units in projects with some project-based Section 8 units.

Housing quality standards

Community service requirements

Each adult member of a participating family would be obligated to perform eight hours per month of community service, although elderly, disabled and employed residents may be exempted from this requirement.³⁴

Denial or termination of assistance

Termination from the HCF program would be mandatory if the landlord evicts a participating family for one or more serious lease violations. This proposal is a dramatic reversal of current rules that preclude a PHA from terminating a subsidy solely on the basis of an eviction.³⁵ This change would mean that many participants could arbitrarily lose their subsidy. For example, a landlord could evict for nonpayment of rent, a serious lease violation, and the family could face the loss of subsidy despite the fact that the nonpayment was due, for example, to the PHA's failure to readjust rent due to a change in family income or a late or lost welfare check. The proposed legislation also proposes to codify a current regulatory provision³⁶ providing that a family may be terminated for other program violations such as fraud or failure to provide the information necessary for the annual income review.³⁷

Administrative fees

HUD would no longer base administrative fees upon the Fair Market Rent established for the area. It could increase the fees in metropolitan statistical areas with concentrated poverty or in recognition of activities, such as landlord outreach and housing search assistance, that increase housing opportunities for eligible households.³⁸

Homeownership

The legislation proposes to permit HCF certificates to be used for homeownership. Homeownership would be encouraged by expanding the income eligibility for families participating in a homeownership program³⁹ and making the promotion of homeownership a criteria for measuring a PHA's performance.⁴⁰ Significantly, the more restrictive language regarding family eligibility for the homeownership program contained in the present Section 8 legislation has been eliminated.⁴¹ Instead, the details of the program's structure are left up to HUD.

Use of the certificate program for project-based housing

For PHAs that can demonstrate (1) that there is a shortage of affordable housing in their jurisdiction, (2) that they are a high performer, and (3) that they are participating in a metropolitan-wide mobility strategy program, HUD would shift up to 15 percent of their allocation for certificates to project-based assistance in accordance with the Affordable Housing Fund program.⁴²

PHA performance requirements and measures

PHAs would be evaluated by HUD based upon meeting minimum performance requirements. The performance standards set forth in the proposed legislation include determinations that (1) tenants are not paying too much for rent, (2) the PHA is providing an adequate subsidy to the participants, (3) rents are reasonable, (4) the PHA makes adequate eligibility determinations, (5) rent calculations are correct, (6) the units are decent, and (7) there is compliance with the civil rights laws.⁴³

PHAs would also be evaluated on the basis of achieving excellence and progress toward performance measures or federal program objectives, including the extent to which families are achieving economic independence and moving to homeownership. The enhancement of mobility strategies, such as the extent to which participating families are able to move to low-poverty areas and the extent to which the PHA participated in metropolitan-wide strategies to enhance mobility, are also included among the evaluation criteria. Finally, there is the goal of meeting the needs identified in the Consolidated Plan, and credit would be given for PHAs consistently exceeding performance requirements.⁴⁴

HUD would also have the authority to penalize PHAs that consistently fail to perform. It would be able to transfer the administration of the program to another administrator or require that the PHA pay for program mistakes out of its administrative fees.

Waiver of program requirements

HUD proposes that any statutory or regulatory requirement of the program be waived if the PHA can otherwise meet the HCF program's performance requirements.⁴⁵

Authorization of Appropriations

HUD proposes to authorize almost $7.7 billion for the new HCF program for Fiscal Year 1996.⁴⁶ This amount is to cover the conversion of both the current Section 8 tenant-based programs and those Section 8 project-based contracts that would expire or terminate in the next fiscal year. The HUD-proposed legislation anticipates a set-aside of incremental funds for technical assistance, of which $35 million would be earmarked for eligible resident management corporations and tenant councils in public housing units converted to the HCF program.⁴⁷ It appears that the $35 million would be available to continue some programs similar to those funded under the current Tenant Opportunity Program (TOP). However, due to budget constraints, there is a great amount of uncertainty over whether there will be incremental funding for the HCF. If there is none, it appears that there will be no set-aside for any technical assistance.

HCF program monies would be allocated for Native Americans, for federally assisted multifamily units based on the number of contracts that will expire, be amended or renewed, and for PHAs for a certificate-like program.⁴⁸ For federally assisted multifamily units, funds available in the HCF program would be used to amend Section 8 contracts, amend or renew Section 202 and Section 811 contracts, and to provide certificates to families residing in units with terminated or expired Section 8 project-based contracts.⁴⁹ Funds allocated to PHAs for the certificate program would be based upon need, as determined from the census. Some PHAs could see increases in their allocation. Up to 15 percent of the amount attributed to turnover within any PHA's program may be reallocated by HUD to localities underfunded in the past and to compensate PHAs for families that have moved to other jurisdictions.⁵⁰ HUD would also create a bonus pool of 15 percent of the amounts allocated for incremental units to reward PHAs that have performed well, taking into account the need for housing assistance. With the current budget crunch, it is highly unlikely that there will be any money for incremental units and therefore any flexibility to create the bonus pool.

In sum, even if one could assume the bill's ultimate adoption, any positive aspects in the HCF program are likely to be overshadowed by budget constraints and the loss of rights and opportunities for program participants.

1. American Community Partnerships Act (May 1995).
2. Id., Subtitle D, Housing Certificate Fund.
3. 42 U.S.C.A. § 1437a(b)(4) (West Supp. 1994).
4. Cranston-Gonzalez National Affordable Housing Act of 1990, Pub. L. No. 101-625, § 573(c)(1), 104 Stat. 4199 (1990).
5. Compare 42 U.S.C.A. §§ 1437a(b)(5)(E), 1437a(c)(3) and 12,714 (West Supp. 1994) (these statutory provisions created deductions from income for certain tenants with earned income).
6. American Community Partnerships Act, supra note 1, § 183(1)(E).
7. Id. § 192(b)(2).
8. Id. § 183(5)(A).
9. Id. § 4(d).
10. Id. § 187.
11. Id. § 187(b).
12. HUD, American Community Partnerships Act, Section by Section Explanation and Justification (hereinafter ACPA Justification) (May 1995) at 79.
13. American Community Partnerships Act, supra note 1, § 184(a).
14. Id. § 192(b)(1).
15. Id. § 192(b)(2).
16. Id. § 184(b).
17. Id. § 184(c).
18. Id. § 192(b)(4).
19. Id. § 186(1).
20. Id. § 186(2).
21. Id. § 186(3)(A); compare with 42 U.S.C.A. §§ 1437f(d)(1)(B)(ii) (requiring good cause) and 1437f(c)(9) (requiring 90-day notice) (West 1994).
22. In its section-by-section summary of the proposed legislation, the only examples that HUD mentions to justify an eviction are for cause, such as nonpayment of rent or other charges, not caring for the unit, interfering with others or failing to comply with reasonable rules and requirements. See ACPA Justification, supra note 12, at 81.
23. American Community Partnerships Act, supra note 1, § 186(3)(C).
24. Id. § 185(a). The proposed HUD legislation limits mobility for certain public housing residents, for 10 percent of the admissions that may be targeted to developments for families selected from the special purposed waiting list and for those PHAs that are targeting HCF subsidies for use in ares of low poverty concentration. See §§ 184(d), 185(b) and 187(b).
25. Id. § 185(b).
26. PHAs that are high performers and who participate in a metropolitan-wide mobility program would be permitted to set aside up to a total of 10 percent of its certificates for households in special categories such as graduates of transitional housing, participants in a homeownership program or participants who agree initially to reside in housing rehabilitated with money made available pursuant to the Affordable Housing Fund.
27. American Community Partnerships Act (May 1995), §§ 192(b)(4) and (5).
28. Id. § 182(e).
29. ACPA Justification, supra note 12, at 84.
30. 42 U.S.C.A. § 1437f(t) (West Supp. 1994).
31. Compare the following statutory provisions that prevented discrimination based upon the certificate holder's status as a certificate holder. 12 U.S.C.A. § 1701z-12 (formerly HUD-owned projects that have been sold); 42 U.S.C.A. § 1437f (note, "Nondiscrimination Against Section 8 Certificate Holders and Voucher Holders) (certain Section 8 project-based units) and § 1437o (note, Rental Rehabilitation and Development Grants), subsections (c)(2)(G) and (d)(9)(D) (rental rehabilitation program); 26 U.S.C.A. § 42(h)(6)(B)(iv) (tax credit program) (West Supp. 1995).
32. American Community Partnerships Act, supra note 1, § 187(c); see also ACPA Justification, supra note 12, at 81, which states that 20 percent would be considered reasonable.
33. American Community Partnerships Act, supra note 1, § 187(d).
34. Id. § 187(h).
35. 49 Fed. Reg. 12,215, 12,217 (Mar. 29, 1984).
36. 24 C.F.R. §§ 882.118 and 882.210 (1994).
37. Id. § 188.
38. American Community Partnerships Act, supra note 1, § 182(f).
39. Id. § 183(5)(A)(i).
40. Id. § 192(c).
41. 42 U.S.C.A. § 1437f(y) (West Supp. 1994).
42. American Community Partnerships Act, supra note 1, § 191.
43. Id. §§ 192(b)(1) and (2).
44. Id. §§ 192(c)(4) and (5).
45. Id. § 193.
46. American Community Partnerships Act, supra note 1, § 182(a).
47. Id. § 182(b).
48. Id. § 182(c).
49. Id. § 181(g).
50. Id. § 182(d).