National Housing Law Project Housing Law Bulletin

Housing Authorities Encouraged to Create
Optional Earned Income Exclusion

The draft interim rule would amend HUD regulations that establish the criteria for determining annual income for the purpose of rent setting.² The provision adds an elective exclusion to the regulation defining income that is designed to promote policies to encourage a broad range of resident incomes and expand the number of working families in public housing.

Permissive earned income adjustments are authorized in the Balanced Budget Downpayment Act, I (also known as the Continuing Resolution) if HUD does not incur additional operating subsidy obligations as a result of their implementation.³ The interim rule mechanism is adopted in order to made departmental policy on this issue permanent in light of the pending expiration of the Continuing Resolution at the end of the fiscal year (September 30). Without this action, public housing authorities (PHAs) already implementing optional earned income exclusions would be forced to alter such policies pending subsequent legislative action. HUD justifies omission of notice and comment rulemaking "because such delay would be contrary to the public interest and unnecessary."⁴

Prior HUD approval is not a prerequisite to the adoption of optional PHA exclusions, although presumably an official resolution of the PHA governing board would be required to change its policies.⁵

Examples of optional income exclusions include temporary or permanent exclusion of all or part of a family's earned income or that of persons other than primary earners, including persons joining the family. The PHA could graduate the adjustment by excluding less earned income over time. Uncompensated work-related expenses such as equipment, clothing, and medical insurance costs could be excluded, as well as alimony or child support.

Consistent with the Continuing Resolution requirements, the interim rule makes clear that rental income lost as a result of implementation of any optional exclusion will not be offset by corresponding increases in operating subsidy. Thus, as a practical matter, it remains to be seen how widespread the exclusions will be adopted.

1. United States Department of Housing and Urban Development, Office of the Assistant Secretary for Public and Indian Housing, Draft Interim Rule, 24 C.F.R. Parts 913 and 950, Docket No. FR-4080-I-01, RIN 2577-AB66, "Optional Earned Income Exclusions."
2. Under current law, the Secretary is authorized prescribe the criteria for determining income. 42 U.S.C.A. § 1437a(b)(4) (West 1994); 24 C.F.R. Part 913.106 (1995).
3. Pub. L. No. 104-99, tit. IV, Housing and Urban Development, § 402(c)(3), 110 Stat. 26 (Jan. 26, 1996), 142 CONG. REC. H883, H887 (Jan. 25, 1996).
4. See supra note 1, p. 7. Notice and comment rulemaking procedures may be omitted "if the Department determines in a particular case or class of cases that notice and public procedure are impracticable, unnecessary or contrary to the public interest." 24 C.F.R. Part 10.1.
5. Supra note 1, p. 12.