Exception Payment Standard to Offset Increase in Utility Costs in the Housing Choice Voucher Program

AGENCY:

Office of the Assistant Secretary for Public and Indian Housing, HUD.

ACTION:

Interim rule.

SUMMARY:

Currently, increased energy costs in some parts of the country have had an adverse impact on the ability of applicants and participants in the Housing Choice Voucher program to either lease a unit while paying no more than 40 percent of their income for rent, or, once having leased a unit, to continue to pay both rent and the higher utility costs. Therefore, HUD is temporarily approving higher exception payment standard amounts for certain PHAs that have adopted a new utility allowance schedule after October 1, 2000 of between 110% and 120% of the Fair Market Rents (FMRs) without requiring the Public Housing Agency (PHA) to seek HUD approval, in order to mitigate the adverse impact of increased energy costs. HUD will calculate these exception payment standards using new rental data (reflected in proposed FMRs for FY 2002 published at 66 FR 23770 (May 9, 2001)) with the result that in areas where energy costs have increased substantially the exception payment standard amount will be between 110% and 120% of current FMRs. These exception payment standards are published in the Federal Register as appendix A immediately following this rule. HUD is also permitting these exception payment standard amounts to be used at interim reexaminations of families until September 30, 2001.

The provisions of this interim rule apply only for the balance of the federal fiscal year ending September 30, 2001. The proposed fair market rents for FY 2002 published at 66 FR 23770 (May 9, 2001) reflect the increased cost of utilities.

DATES:

Comment Due Date: August 6, 2001.

Effective Date: This Interim Rule is effective July 6, 2001.

ADDRESSES:

Interested persons are invited to submit comments regarding this rule to the Rules Docket Clerk, Office of General Counsel, Room 10276, Department of Housing and Urban Development, 451 Seventh Street, SW, Washington, DC 20410-0500. Communications should refer to the above docket number and title. Facsimile (FAX) comments are not acceptable. A copy of each communication submitted will be available for public inspection and copying between 7:30 a.m. and 5:30 p.m. weekdays at the above address.

FOR FURTHER INFORMATION CONTACT:

Gerald J. Benoit, Office of Public and Indian Housing, Department of Housing and Urban Development, 451 Seventh Street, SW, Room 4210, Washington, DC 20410; telephone (202) 708-0477 (this is not a toll-free number). Persons with hearing or speech impairments may access these numbers via TTY by calling the Federal Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

Background

Section 8 of the United Housing Act of 1937 (the Act)(42 U.S.C.1437f) authorizes housing assistance to assist lower income families in obtaining decent, safe, and sanitary housing. The amount of the housing assistance payment in the housing choice voucher program is limited by the payment standard amounts adopted by the PHA based on the HUD published FMR for designated areas of the country. The FMR for an area is the amount that would be needed to pay gross rent (shelter plus all utilities except telephone) for privately owned rental housing.

The payment standard amount is the maximum subsidy amount available to pay for rent and family-furnished utilities. Families searching for housing may fail to find units that meet the housing quality standards for the program because the cost of rent plus family-furnished utilities for many of these units, particularly in a tight rental market, exceeds the current payment standard amounts that do not reflect the higher cost of energy since publication of the FY 2001 FMRs (see 65 FR 57658, September 25, 2000). Also, an increasing number of families are having difficulty finding standard quality units without paying more than 40 percent of their adjusted income for rent at initial occupancy, which is precluded by law. Also, current participants are affected because they have to pay more out-of-pocket for rent and family-furnished utilities. As a result, some families have rent burdens that exceed 50 percent of their income.

I. Use of Payment Standard Amounts

HUD has determined that it is appropriate to take special steps to permit PHAs to increase payment standard amounts to reflect the recent significant increases in utility expenses for natural gas and petroleum. The rule allows PHAs to establish exception payment standard amounts calculated using updated data on the costs of rents and utilities (which are reflected in proposed FMRs for FY 2002 published at 66 FR 23770 (May 9, 2001).) This increase in the exception payment standard amounts is necessary to prevent any hardship on families who are currently searching for housing but who, because of increased utility costs, are unable to find units for which the gross rent (including the cost of all utilities) falls within current established PHA payment standard amounts that are limited to 110 percent of the published fair market rent.

Appendix A, published in the Federal Register immediately following this rule, lists the HUD approved maximum exception payment standard amounts for each unit size in each fair market rent area. These are the maximum HUD approved exception payment standard amounts, and are capped at 120 percent of the 40th percentile rent under 24 CFR 888.113. Some housing authorities have set their payment standards based on 50th percentile rents under 65 FR 58870 (October 2, 2000) in order to deconcentrate areas of poverty and promote residential choice. Those PHAs may use either the appendix A amounts or 110% of their FMRs as the exception payment standard amounts. The use of the exception payment standard amounts on appendix A is only approved for those PHAs that have adopted a new utility allowance schedule after October 1, 2000.

Permission for PHAs to establish new maximum payment standard amounts without HUD approval will continue in effect only until HUD publishes new fair market rents for effect on or about October 1, 2001. If HUD has approved the PHA adoption of exception payment standard amounts that are higher than the maximum exception payment standard amounts published by HUD in appendix A of this interim rule, HUD approval to use those higher maximum payment standard amounts will continue in effect. The PHA's establishment of the revised payment standard amounts may not result in rents higher than 120% of current FMRs without HUD approval under the procedures in 24 CFR 982.503(c)(3).

This interim rule gives a PHA the flexibility to adjust the payment standard amounts on its payment standard schedule up to the maximum HUD-approved exception payment standard amounts in appendix A to increase the amount of a participant's subsidy to cover the increased cost of utilities. A PHA should review its utility allowance schedule to determine if there has been a recent increase in utility costs of 10 percent or more in the cost of utilities and that increase is reflected in the utility allowance schedule adopted by the PHA after September 30, 2000. For a PHA to establish these exception payment standards it is not sufficient that the cost of any one utility increased by more than 10 percent. Instead, the PHA must determine that the total cost of all utilities for a typical two-bedroom unit has increased by more than 10 percent based on the difference between the new utility allowance schedule and the previous schedule.

PHAs should review their current payment standard amounts to determine if they are adequate to meet the increased cost of utilities in the community based on average consumption rates. If the payment standard amounts are not adequate to meet the increased utility costs, the PHA should increase the payment standard by an appropriate amount up to the maximum exception payment standard amount permitted by this interim rule and appendix A.

II. Methodology and Source of Data

HUD's standard methodology for incorporating changes in utility costs into FMRs relies on the most current CPI data on annual changes in residential utility costs. Annual rather than point-to-point monthly comparisons (e.g., July 1999 to July 2000) are used because monthly utility price indices are volatile and often not reflective of the annualized cost of utilities.

In developing the proposed FMRs for FY 2002, HUD has determined that the methodology using CPI data does not adequately capture the unusual increases in natural gas prices that occurred at the end of calendar year 2000. This methodology captures a 17 percent increase in natural gas prices from 1999 to 2000, but December 1999 to December 2000 prices increased by an average of 37 percent and Department of Energy projections for 2002 are very similar to the December 2000 prices. For purposes of estimating FY 2002 FMRs, the Department has therefore modified the natural gas inflation component to use December-to-December costs when available, and to use second half to second half of the year figures for CPI areas where December 2000 data were not available. This is a one-time change made to respond to unusual circumstances; HUD expects to return to the CPI-based methodology next year.

III. Rule Change

In addition to publishing the maximum exception payment standard amounts in appendix A, this rule revises the existing program regulations at 24 CFR 982.503(b)(2) and (c)(2), and 982.505(c)(4) to allow the PHA to adopt these exception payment standard amounts when calculating a family's housing assistance at the next annual reexamination or any interim reexamination conducted as a result of a family request for relief based on a significant increase in utility costs. This modification to allow use of these exception payment standard amounts at interim reexamination applies only through September 30, 2001, when it expires.

IV. Findings and Certifications

Justification for Interim Rulemaking

In general, the Department publishes a rule for public comment before issuing a rule for effect, in accordance with its own regulations on rulemaking, 24 CFR part 10. However, part 10 does provide for exceptions from that general rule. One of these exceptions is where public comment is “impracticable, unnecessary, or contrary to the public interest.” In this case, delaying the effective date for public comment would be contrary to the public interest. The nation is experiencing a significant increase in the cost of utilities, especially natural gas and petroleum. Due to the increased utility costs in some areas, families in the housing choice voucher program are having current difficulty finding affordable housing or, if already housed, they are having difficulty paying for utilities. At this time, HUD has available current FMR data which, while not yet in effect, if used as a basis to calculate exception payments, would allow HUD to approve exception payment standards above current FMRs within its existing regulatory authority. This step should be taken as quickly as possible to alleviate hardship in areas where there has been an unexpected sharp increase in utility costs. The comments received within the 60-day comment period will be considered during development of final FMRs for publication on October 1, 2001.

Regulatory Flexibility Act

The Secretary, in accordance with the Regulatory Flexibility Act (5 U.S.C. 605(b)), has reviewed and approved this interim rule, and in so doing certifies that this rule will not have a significant economic impact on a substantial number of small entities. This rule permits Housing Authorities to use an exception payment standard based on new data, essentially allowing them to approve payment standards of up to 120% of FMR without HUD approval for the purpose of accommodating increased utility costs in certain areas.

Environmental Impact

This rule and appendix A involve establishment of rate or cost determinations and related external administrative requirements and procedures which do not constitute a development decision that affects the physical condition of specific project areas or building sites. Accordingly, under 24 CFR 50.19(c)(6), this rule and appendix A are categorically excluded from environmental review under the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

Executive Order 13132, Federalism

Executive Order 13132 (entitled “Federalism”) prohibits, to the extent practicable and permitted by law, an agency from promulgating a regulation that has federalism implications and either imposes substantial direct compliance costs on State and local governments and is not required by statute, or preempts State law, unless the relevant requirements of section 6 of the Executive Order are met. This rule does not have federalism implications and does not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive Order.

Executive Order 12866

The Office of Management and Budget (OMB) reviewed this interim rule under Executive Order 12866, Regulatory Planning and Review. OMB determined that this interim rule is a “significant regulatory action,” as defined in section 3(f) of the Order, (but not economically significant, as provided in section 3(f)(1) of the Order). Calculations by HUD show that the impact of the new exception payment standards will be slight, an increase of four dollars per month for the average voucher holder. Increases in energy costs generally translate to low percentage increases in rent costs; for example, a 50% increase in natural gas prices would increase FMRs by only 1%. This is because natural gas comprises only 27% of utility costs and utility costs average only 8-15% of total rent costs in metropolitan areas. With approximately 1.5 million voucher holders, the cost through September of 2001 (when new FMRs will go into effect) will be significantly less than the threshold provided in section 3(f)(1) of the Order. For these reasons, HUD concludes that the rule is not economically significant within the meaning of the Order.

Any changes made to this interim rule subsequent to its submission to OMB are identified in the docket file, which is available for public inspection in the office of the Department's Rules Docket Clerk, Room 10276, 451 Seventh Street, SW, Washington, DC 20410-0500.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4; approved March 22, 1995) (UMRA) establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments, and on the private sector. This interim rule does not impose any Federal mandates on any State, local, or tribal governments, or on the private sector, within the meaning of the UMRA.

Catalog of Federal Domestic Assistance.

The Catalog of Federal Domestic Assistance number applicable to the program affected by this rule is 14.871.

List of Subjects in 24 CFR Part 982

• Grant programs—housing and community development
• Housing
• Low- and moderate-income housing
• Rent subsidies
• Reporting and recordkeeping requirements

For the reasons stated in the preamble, HUD amends 24 CFR part 982 as follows:

PART 982—SECTION 8 TENANT BASED ASSISTANCE: HOUSING CHOICE VOUCHER PROGRAM

1. The authority citation for 24 CFR part 982 continues to read as follows:

Authority: 42 U.S.C. 1437f and 3535(d).

2. Amend 24 CFR 982.503 as follows:

a. Revise the first sentence of paragraph (b)(2);

b. Add a second sentence to paragraph (c)(2)(i); and

c. Add a new paragraph (c)(2)(iii).

The additions and revisions read as follows:

3. Amend 24 CFR 982.505 by revising paragraph (c)(4) to read as follows:

Note:

The following appendix will not appear in the Code of Federal Regulations.