[Federal Register Volume 77, Number 105 (Thursday, May 31, 2012)]
[Rules and Regulations]
[Pages 32015-32018]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-13198]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 985

[Docket No. FR-5532-F-02]
RIN 2577-AC76


Revision to the Section 8 Management Assessment Program Lease-Up 
Indicator

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

ACTION: Final rule.

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SUMMARY: This final rule amends HUD's regulations for the Section 8 
Management Assessment program (SEMAP), by revising the process by which 
HUD measures and verifies performance under the SEMAP lease-up 
indicator. Specifically, HUD amends the existing regulation to reflect 
that assessment of a public housing agency's (PHA) leasing indicator 
will be based on a calendar year cycle, rather than a fiscal year 
cycle, which would increase administrative efficiencies for PHAs. This 
rule also clarifies that units assisted under the voucher homeownership 
option or occupied under a project-based housing assistance payments 
(HAP) contract are included in the assessment of PHA units leased.

DATES: Effective: July 2, 2012.

FOR FURTHER INFORMATION CONTACT: Laure Rawson, Director, Housing 
Voucher Management and Operations Division, Office of Public Housing 
and Voucher Programs, Office of Public and Indian Housing, Department 
of Housing and Urban Development, 451 7th Street SW., Room 4216, 
Washington, DC 20410, telephone number 202-402-2425.

SUPPLEMENTARY INFORMATION:

I. Background--Proposed Rule

    On September 23, 2011, HUD published in the Federal Register a 
proposed rule, at 76 FR 59069, that proposed to revise the process by 
which HUD measures and verifies performance under the SEMAP lease-up 
indicator. HUD initiated that proposal to align the SEMAP lease-up 
indicator with the process for measuring voucher management system 
leasing and cost data, which by statute must be done on a calendar year 
cycle.
    As provided in the preamble to the proposed rule, the Consolidated 
Appropriations Act, 2005 (Pub. L. 108-447, 118 Stat. 2809, approved 
December 8, 2004) addressed the subject of voucher management system 
leasing and cost data. The 2005 Consolidated Appropriations Act stated, 
in relevant part, that ``the Secretary for the calendar year 2005 
funding cycle shall renew such contracts for each public housing agency 
based on verified Voucher Management System (VMS) leasing and cost 
data.'' (See 118 Stat. 3295.) Following enactment of the 2005 
Consolidated Appropriations Act, the Office of Public and Indian 
Housing (PIH) issued PIH Notice 2005-1, which provides that ``PHAs will 
receive monthly disbursements from HUD on the basis of the PHA's 
calculated calendar year budget.'' Since 2005, consistent with the 2005 
appropriations act and the implementing notice, and consistent with 
subsequent appropriations acts, HUD has provided PHAs with renewal 
funding for their Housing Choice Voucher (HCV) program on a calendar 
year basis. At the beginning of each calendar year, PHAs are notified 
of their funding amounts for the calendar year, and they plan their 
voucher issuance and leasing according to that funding cycle.
    As the preamble to the proposed rule further noted, in contrast to 
the process for measuring VMS leasing and cost data, the SEMAP lease-up 
indicator continues to measure a PHA's lease-up rate on a fiscal year 
basis. The use of a calendar year for renewal funding, while using a 
fiscal year system for SEMAP measurements, has resulted in increased 
complexity for PHAs administering the HCV program and programmatic 
inefficiency. To eliminate such complexity, and reduce inefficiency in 
the HCV program resulting from two processes based on different periods 
of measurement, HUD, through the September 23, 2011, rule, proposed to 
amend the SEMAP regulations to provide for the SEMAP lease-up indicator 
to be measured based on a calendar year funding cycle, rather than the 
existing fiscal year cycle. The September 23, 2011, rule also proposed 
to clarify that units assisted under the voucher homeownership option 
or occupied under a project-based voucher (PBV) housing assistance 
payments (HAP) contract are included in the assessment of PHA units 
leased. These homeownership units and project-based voucher units have 
always been included in the assessment, but this is not explicit in 
current regulations.

II. Public Comments on Proposed Rule

    At the close of public comment period on October 24, 2011, HUD 
received five public comments. The commenters consisted of two 
individuals, two PHAs and an independent nonprofit institute. With the 
exception of one of the PHAs, the commenters supported the changes 
proposed by the September 23, 2011, rule. The two individual commenters 
expressed their support for the rule without proposing any additional 
changes, with one of the commenters stating that the change was long 
overdue. The other two commenters supporting the rule proposed 
additional changes, and the PHA that did not favor the change appears 
to have misunderstood some of the program requirements.
    In response to public comment, HUD revised the proposed rule at 
this final rule stage, to clarify what allocated budget authority 
includes. With the exception of this change, no further changes were 
made. The following addresses the comments raised by the latter three 
commenters.
    Comment: The Proposed Change Will Not Increase Efficiency. One of 
the PHA commenters stated that it is not clear how HUD's proposed 
regulatory change to the SEMAP lease-up indicator would be beneficial 
to PHAs, since the financial settlement is due at the end of the PHA's 
fiscal year. The commenter stated that the proposed rule missed the 
connection between fiscal year end and utilization. The commenter 
stated that, as a PHA, it has to track HCVs and funding on a fiscal 
year basis because it cannot over-utilize unit months at fiscal year 
end, since it would not be paid by HUD for those months. The commenter 
stated that by changing this indicator, the PHA will now have to 
perform double tracking at fiscal year-end for fiscal year-end 
settlement, and at calendar year-end for SEMAP, which is actually more 
work, and that all other SEMAP measures would be tracked on a fiscal 
year basis, creating more complexity and confusion. The commenter 
stated that the only way this change would be beneficial is if HUD 
moved the year end settlement for PHAs from fiscal year to calendar 
year end and moved all the SEMAP indicators to calendar year.
    HUD Response: HUD has not required year-end settlement statements 
from PHAs ever since the issuance of PIH Notice 2006-3 (section 5), 
which rescinded the requirement to submit form HUD-52681, because the 
relevant information was being captured in the

[[Page 32016]]

VMS and Financial Assessment Sub-system.\1\ This rescission applied to 
PHAs with fiscal years ending on or after December 31, 2004. In regard 
to overutilization, all HUD appropriations acts including and since 
2005 have prohibited PHAs from using their renewal funding to support a 
total number of unit months that exceeds the agency's authorized level 
of units under contract. Notice PIH 2005-1 \2\ and subsequent funding 
implementation notices have clarified that over-leasing applies to a 
calendar year and not a PHA's fiscal year. The Department sees no need 
to move the measurement period for other SEMAP indicators to a calendar 
year. They will continue to be assessed by fiscal year to coincide with 
the current SEMAP cycle.
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    \1\ See http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_8980.pdf.
    \2\ See http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_9075.pdf.
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    Comment: PBV Units Should Not Be the Only Units Not Counted as 
Leased for SEMAP Evaluation. The other PHA commenter expressed 
appreciation for the rule's attempt to clarify the treatment of voucher 
homeownership units and PBV units in the lease-up indicator, but 
disagreed that only PBV units that are leased-up should be counted as 
leased for purposes of SEMAP evaluation. The commenter stated that a 
PHA has a contractual commitment to provide subsidies to those specific 
units in one or many PBV projects. The commenter recommended that PHAs 
have the option to include as ``unit-months-leased'' all PBV units that 
are under an Agreement to Enter into Housing Assistance Payment (AHAP) 
contract or HAP contract, whether occupied or not. The commenter stated 
that HUD has paid administrative fees for PBV units under contract (as 
reported in VMS) which, the commenter states, also supports counting 
them as leased in the SEMAP indicator. The commenter further stated 
that when a PHA's HCV utilization rate is high, the PHA should 
``reserve'' HCVs so that they will be available when a project under an 
AHAP is completed and is ready to lease up, and that similarly, a 
project that is under a HAP contract represents a commitment by the PHA 
of that many HCVs, so the PHA may need to hold turnover HCVs so they 
will be available to assist new PBV residents as they qualify and move 
in. The commenter stated that in both of these situations, the PHA 
should not be penalized under SEMAP as ``underutilized,'' and all of 
the HCVs committed under the AHAP or HAP should be counted as leased-
up, at the PHA's option.
    This commenter also stated that HUD should also continue to make 
allowance for HCVs reserved for AHAP and HAP contacts when calculating 
renewal funding. The commenter stated that it recognizes that not all 
HCVs under an AHAP or HAP should be counted as leased for purposes of 
determining overutilization. HCVs are over-leased when a PHA has more 
``unit-months leased'' over the course of a calendar year than the 
authorized number of ``unit-months available.'' The commenter stated 
that for that calculation, HUD should continue to count only those PBV 
units that are actually leased up, and then allow the PHA to exclude 
units with ``zero-HAP'' or fully abated rent. The commenter concluded 
by stating that SEMAP does not penalize a PHA for HCV overutilization, 
and the commenter supports continuing that approach.
    HUD Response: The purpose of this rule is to change the leasing 
period from the PHA's fiscal year to the calendar year. The 
identification of which units are included in the SEMAP leasing 
indicator was clarified in the proposed rule, not changed. It is not 
the purpose of this rule to change the type of HCV units included or 
excluded in the indicator. HUD intends to issue another proposed rule 
that will more comprehensively address the utilization indicator, as 
well as other SEMAP indicators. HUD will consider these comments in the 
development of that proposed rule.
    Comment: Clarify Whether HCVs Award for Special Programs Are 
Included in the SEMAP Lease-Up Indicator. The same PHA recommended that 
HUD further clarify SEMAP by stating whether HCVs awarded for special 
programs are or are not included in the lease-up indicator. The 
commenter stated that many of those programs (most of which were 
created after SEMAP began) have separate procedures or requirements 
that reduce the PHA's control over utilization, such as requiring 
referrals or services from other agencies. The commenter stated that 
SEMAP should not penalize the PHA if underutilization in those special 
programs reduces overall utilization. The commenter stated that it 
administers the following types of HCVs: Regular tenant-based HCVs; 
HCVs that the PHA has approved for PBV use (about 10 percent of its HCV 
allocation), disability HCVs (formerly Mainstream), HUD-Veterans 
Administration Supportive Housing (VASH) HCVs, and Family Unification 
Program (FUP) HCVs. The commenter requested that HUD advise if these 
HCVs are to be included in the SEMAP lease-up indicator. The commenter 
stated that subsidies for Section 8 Moderate Rehabilitation Single Room 
Occupancy (Mod Rehab SRO) units should not be evaluated under SEMAP, 
since these units are funded and operated separately from the other 
Section 8 programs.
    HUD Response: The only special purpose HCVs that are excluded from 
the SEMAP leasing indicator are HUD-VASH HCVs. This exclusion was 
recorded in the Section 8 Housing Choice Vouchers: Revised 
Implementation of the of the HUD-VA Supportive Housing Program 
published in the Federal Register on March 23, 2012, at 77 FR 17086. No 
other special purpose HCVs have been excluded from the leasing 
indicator. Again, it is not the purpose of this rule to change the type 
of HCV units that are included or excluded in the indicator. However, 
when the broader SEMAP rule is developed, these comments will be 
considered. No Moderate Rehabilitation program units are included in 
any indicator under SEMAP.
    Comment: Clarify Only New Increments of HCVs in the Assessed 
Calendar Year Are Exempt from Lease-up Measure. The nonprofit institute 
commenter stated that under the existing regulations, PHAs are 
effectively granted a 12-month grace period to lease new HCV 
increments. The commenter stated that the proposed rule intends to 
change this blanket 12-month grace period to a variable period and that 
PHAs would not be held accountable for leasing new HCVs for the 
remainder of the calendar year in which they are issued. The commenter 
stated that in exempting units from the baseline, the proposed rule did 
not clearly distinguish between renewal funding and ongoing units, on 
the one hand, and new increments. The commenter suggested that to 
clearly achieve this purpose, the final rule should modify the last 
sentence of proposed Sec.  985.3(n)(1), by inserting the word 
``initially'' in the first clause as follows: ``Units and funding 
initially contracted under an ACC during the assessed calendar year * * 
* are not included in the baseline number of voucher units.''
    The commenter, in further support of this suggested change, stated 
that the proposed rule strikes a better balance than current policy in 
that it acknowledges both that the leasing-up of new increments may be 
delayed for reasons beyond the PHA's control and that the great 
majority of new HCVs require far less than 12 months to lease

[[Page 32017]]

up. The commenter further stated that the proposed SEMAP lease-up 
indicator appears to count all leased HCVs in the numerator, including 
those from new increments, while excluding those increments from the 
denominator during the grace period, thereby artificially raising the 
utilization rate for affected agencies. The commenter stated that 
shortening the grace period would reduce the effect of this bias, and 
is also more consistent with HUD's renewal funding policy in recent 
years that assumes that all tenant protection HCVs can be leased within 
90 days of award. The commenter stated that while PHAs receiving new 
increments in the last quarter of the calendar year would in effect be 
held to a more demanding standard under the proposed rule, the impact 
on leasing performance is likely to be small and justified by the 
simplicity of a clear calendar year-based measure.
    The commenter further states that for some types of new HCV awards 
made near the end of the calendar year, it may be desirable to allow a 
longer period for initial leasing than allowed under the proposed rule, 
and that this may be particularly true when PHAs are required to 
coordinate with service providers before issuing the new HCVs to 
special populations, such as in the case of VASH or FUP HCVs. The 
commenter offered that rushing the leasing of such HCVs may be short-
sighted, and undermine the goal of promoting ongoing partnerships 
between PHAs and service-providing agencies.
    The commenter concluded with the recommendation that the final rule 
allow HUD to exempt, on a case-by-case basis, particular HCV increments 
from the baseline for an additional calendar year when a longer period 
for initial leasing would advance the goals of the award.
    HUD Response: The Department did not intend, through this rule, to 
change the period of time that new units are excluded from the 
utilization calculation. Accordingly, this language is clarified in the 
final rule. As pointed out by the commenter, to exclude the units just 
for the calendar year in which they were awarded causes units to be 
excluded for variable periods depending on the month they are awarded, 
and such exclusion would unfairly penalize PHAs that receive new 
allocations late in the assessed year. The Department appreciates the 
commenter's concerns that a 12-month period may be too long of a period 
for PHAs to be given to utilize new HCVs. These comments will be 
considered in the broader SEMAP rule that is currently under 
development. The Department will also consider the comments regarding 
the potential need for longer leasing time for HCVs that serve special 
populations or rely on third-party referrals, as well as granting 
extensions to certain increments on a case-by-case basis if doing so 
would advance the goals of the award.
    Comment: Exempt Litigation HCV Units and Funding on a Temporary, 
not Permanent, Basis from the Lease-Up Measure. The nonprofit institute 
commenter suggested another change to be made at the final rule stage. 
The commenter stated that the proposed rule is somewhat ambiguous but 
appears to exempt units and funding obligated as part of litigation 
from the baseline number of HCVs permanently, and not just in the 
calendar year of initial issuance. The commenter stated that it is 
important to provide flexibility in the treatment of litigation HCVs, 
because past experience has shown that litigation-related HCV awards 
can take several years to be fully leased, due to litigation-imposed 
restrictions on the uses of the HCVs. The commenter stated that a 
permanent exemption is unnecessary to address this concern, and reduces 
the incentive to lease these HCVs once barriers have been overcome.
    The commenter recommended that HUD provide temporary exclusions 
from PHAs' HCV baseline, on a case-by-case basis, for litigation HCVs.
    HUD Response: While these comments are appreciated, the subject of 
this rulemaking is only the period of assessment for the leasing 
indicator. However, HUD will consider these comments in the development 
of the broader SEMAP rule.
    Comment: Determination of Funds ``Allocated'' Should Include 
Certain Renewal Funding. The independent nonprofit institute commenter 
stated that a determination of funds ``allocated'' should include 
renewal funding for which PHAs are eligible, after proration, but that 
is not provided due to an offset of excess reserves (net restricted 
assets). The commenter stated that in 2008 and 2009, Congress directed 
HUD to offset renewal funding due PHAs under the prescribed renewal 
formula by excess unspent funds from prior years. (HUD requires PHAs to 
hold such reserves in a ``net restricted assets'' account.) The 
commenter stated that there is a high likelihood that HUD will be 
required or would opt to use similar policies in 2012 and future years, 
and that the premise of such an offset policy is that PHAs will in fact 
use the offset funds to support HCVs during the calendar year. The 
commenter stated that to align the measure of lease-up performance with 
Congressional intent, it is essential that funds offset are included in 
the determination of ``allocated budget authority'' that may be used as 
the denominator in the rating measure.
    The commenter recommended that the final rule either should define 
``allocated budget authority'' to include funds offset in determining 
the calendar year renewal allocation, or should add language regarding 
the inclusion of offset funds in the denominator of the measure.
    HUD Response: HUD agrees that, for purposes of SEMAP, it is 
important to clarify what is considered in ``allocated budget 
authority.'' Therefore, the final rule has been revised to clarify what 
allocated budget authority includes.
    Comment: Allow Credit for HCV Set-Aside for Project-Basing. The 
nonprofit institute commenter recommended that HUD give PHAs credit for 
HCVs set-aside for project-basing. The commenter stated that PHAs that 
commit to project-base HCVs in properties that are not immediately 
available for occupancy may have to reserve all or a portion of the 
promised HCVs and funding in order not to exceed the authorized HCV cap 
or available funds when the units become available. The commenter 
stated that whether a PHA has to ``shelve'' HCVs to meet project-basing 
commitments depends on the number of PBVs committed in relation to the 
size of the PHA's portfolio, its turnover rate, and other factors. The 
commenter stated that appropriations acts in recent years have 
recognized this reality by requiring HUD to adjust renewal funding 
allocations for PHAs that have not used a portion of their HCVs to meet 
project-basing commitments.
    The commenter recommended that the measure of performance for the 
SEMAP lease-up indicator also should recognize this limited exception, 
to balance the vital policy of encouraging PHAs to serve the maximum 
number of families possible with the policy goals of encouraging mixed-
income and supportive housing developments.
    HUD Response: See HUD's response to the second comment.

III. Findings and Certifications

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements, unless the agency certifies that the rule will not have a 
significant economic impact on a substantial

[[Page 32018]]

number of small entities. At the proposed rule stage, HUD certified 
that the proposed regulations would not have a significant economic 
impact on a substantial number of entities, and that assessment is not 
changed by this final rule. This rule is directed to increasing 
administrative efficiencies for PHAs, by aligning the cycle for renewal 
funding with the cycle for SEMAP measurements. This rule would also 
provide clarification for PHAs regarding units included in this 
measure.

Environmental Impact

    This rule does not direct, provide for assistance or loan and 
mortgage insurance for, or otherwise govern or regulate real property 
acquisition, disposition, leasing, rehabilitation, alteration, 
demolition or new construction, or establish, revise, or provide for 
standards for construction or construction materials, manufactured 
housing, or occupancy. This rule is limited to the means by which PHAs 
lease-up rates are measured. Accordingly, under 24 CFR 50.19(c)(1), 
this rule is 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.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (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 rule does not 
impose any federal mandates on any state, local, or tribal government, 
or on the private sector, within the meaning of UMRA.

List of Subjects in 24 CFR Part 985

    Grant programs--housing and community development, Housing, Rent 
subsidies, Reporting and recordkeeping requirements.

    Accordingly, for the reasons stated in the preamble, HUD amends 24 
CFR part 985 as follows:

PART 985--SECTION 8 MANAGEMENT ASSESSMENT PROGRAM (SEMAP)

0
1. The authority citation for part 985 continues to read as follows:

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


0
2. Revise Sec.  985.3(n) as follows:


Sec.  985.3  Indicators, HUD verification methods, and ratings.

* * * * *
    (n) Lease-up. The provisions of this paragraph (n) apply to the 
first SEMAP certification due after July 2, 2012.
    (1) The indicator: This indicator shows whether the PHA enters into 
HAP contracts for the number of the PHA's baseline voucher units (units 
that are contracted under a Consolidated ACC) for the calendar year 
that ends on or before the PHA's fiscal year or whether the PHA has 
expended its allocated budget authority for the same calendar year. 
Allocated budget authority will be based upon the PHA's eligibility, 
which includes budget authority obligated for the calendar year and any 
portion of HAP reserves attributable to the budget authority that was 
offset from reserves during the calendar year. Litigation units and 
funding will be excluded from this indicator, and new increments will 
be excluded for 12 months from the effective date of the increment on 
the Consolidated ACC. Units assisted under the voucher homeownership 
option and units occupied under a project-based HAP contract are 
included in the measurement of this indicator.
    (2) HUD verification method: This method is based on the percent of 
units leased under a tenant-based or project-based HAP contract or 
occupied by homeowners under the voucher homeownership option during 
the calendar year that ends on or before the assessed PHA's fiscal 
year, or the percent of allocated budget authority expended during the 
calendar year that ends on or before the assessed PHA's fiscal year. 
The percent of units leased is determined by taking unit months leased 
under a HAP contract and unit months occupied by homeowners under the 
voucher homeownership option, as shown in HUD systems for the calendar 
year that ends on or before the assessed PHA fiscal year, and dividing 
that number by the number of unit months available for leasing based on 
the number of baseline units available at the beginning of the calendar 
year.
    (3) Rating: (i) The percent of units leased or occupied by 
homeowners under the voucher homeownership option, or the percent of 
allocated budget authority expended during the calendar year that ends 
on or before the assessed PHA fiscal year was 98 percent or more. (20 
points.)
    (ii) The percent of units leased or occupied by homeowners under 
the voucher homeownership option, or the percent of allocated budget 
authority expended during the calendar year that ends on or before the 
assessed PHA fiscal year was 95 to 97 percent. (15 points.)
    (iii) The percent of units leased or occupied by homeowners under 
the voucher homeownership option, or the percent of allocated budget 
authority expended during the calendar year that ends on or before the 
assessed PHA fiscal year was less than 95 percent. (0 points.)
* * * * *

    Dated: May 23, 2012.
Sandra B. Henriquez,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 2012-13198 Filed 5-30-12; 8:45 am]
BILLING CODE 4210-67-P