[Federal Register Volume 82, Number 11 (Wednesday, January 18, 2017)]
[Proposed Rules]
[Pages 5458-5473]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00911]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 982 and 983

[Docket No. FR-5976-N-03]


Housing Opportunity Through Modernization Act of 2016: 
Implementation of Various Section 8 Voucher Provisions

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

ACTION: Implementation and request for comment.

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SUMMARY: On July 29, 2016, President Obama signed into law the Housing 
Opportunity Through Modernization Act of 2016 (HOTMA). Several of the 
statutory amendments made by HOTMA affect the Project-Based Voucher 
(PBV) program or the Housing Choice Voucher (HCV) program. HOTMA also 
gave HUD the authority to implement many of those changes by notice, 
and those statutory changes are not effective until HUD issues that 
notice. This document serves as the implementation notice for several 
of the provisions of HOTMA that impact the HCV and PBV programs, and 
seeks additional public input on both the implementing requirements in 
this document and future changes to these programs.

DATES: Effective date: April 18, 2017.
    Comment due date: March 20, 2017.

ADDRESSES: Interested persons are invited to submit comments regarding 
this document. All communications must refer to the above docket number 
and title. There are two methods for submitting public comments.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically. Electronic submission of comments allows the 
commenter maximum time to prepare and submit a comment, ensures timely 
receipt by HUD, and enables HUD to make comments immediately available 
to the public. Comments submitted electronically through the 
www.regulations.gov Web site can be viewed by other commenters and 
interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.
    No Facsimile Comments. Facsimile (fax) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m., weekdays, at 
the above address. Due to security measures at the HUD Headquarters 
building, an advance appointment to review the public comments must be 
scheduled by calling the Regulations Division at 202-708-3055 (this is 
not a toll-free number). Individuals with speech or hearing impairments 
may access this number via TTY by calling the Federal Relay Service at 
800-877-8339 (this is a toll-free number). Copies of all comments 
submitted are available for inspection and downloading at 
www.regulations.gov.

[[Page 5459]]


FOR FURTHER INFORMATION CONTACT: Please direct all questions about this 
notice to [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    On July 29, 2016, President Obama signed HOTMA into law (Public Law 
114-201, 130 Stat. 782). HOTMA made numerous changes to statutes that 
govern HUD programs, including section 8 of the United States Housing 
Act of 1937 (1937 Act) (42 U.S.C. 1437f). HUD issued a notice on 
October 24, 2016, at 81 FR 73030, announcing to the public which of the 
statutory changes made by HOTMA could be implemented immediately, and 
which required further guidance from HUD before owners, public housing 
agencies (PHAs), or other grantees may use the new statutory 
provisions.
    This document implements new statutory provisions regarding certain 
inspection requirements for both HCV tenant-based and PBV assistance 
(found in Sec.  101(a)(1) of HOTMA), the definition of PHA-owned 
housing (Sec.  105 of HOTMA), and changes to the PBV program at large 
(Sec.  106 of HOTMA) by providing the additional information needed for 
PHAs and owners to use those provisions. The document also implements 
and provides guidance on the statutory change to the HCV housing 
assistance payment (HAP) calculation for families who own manufactured 
housing and are renting the manufactured home space (Sec.  112 of 
HOTMA).
    While this document makes the provisions below effective, HUD seeks 
further public comment on the implementation of these provisions. Below 
each section describing the implementation of a statutory provision, 
HUD has included specific questions for public comment. All comments 
must be submitted using the two methods detailed above.

II. Implementation Information

A. Inspections of Dwelling Units (HOTMA Sec.  101(a)(1))

    Section 101(a)(1) of HOTMA adds a modified subparagraph (A) to 
section 8(o)(8) of the 1937 Act (42 U.S.C. 1437f(o)(8)). The amended 
subparagraph continues the requirement of inspections of dwelling units 
assisted under section 8(o) of the 1937 Act to determine that the units 
meet housing quality standards (HQS) prior to the PHA making a housing 
assistance payment. However, new language provides an exception to this 
requirement, allowing the PHA to approve the assisted tenancy and 
commence housing assistance payments if the unit fails the inspection 
but only has non-life-threatening HQS deficiencies. If a PHA makes 
payments under that exception, the PHA must withhold any assistance 
payments if the non-life-threatening deficiencies are not remedied 
within no more than 30 days of the PHA notifying the owner of the unit, 
in writing, of the unit's failure to comply with HQS.
    In addition, new language authorizes occupancy of a unit prior to 
the inspection being completed if the unit had, in the previous 24 
months, passed an alternative inspection method under section 
8(o)(8)(E). The PHA must inspect the unit within 15 days of receiving 
the Request for Tenancy Approval. Once the unit passes the HQS, the PHA 
may make assistance payments retroactively, dating back to the 
beginning of the assisted lease term, which is the effective date of 
the HAP contract. Per 24 CFR 982.309(b), the term of the HAP contract 
begins on the first day of the lease term and ends on the last day of 
the lease term.
    This document does not implement other provisions in section 101(a) 
of HOTMA.
1. Occupancy Prior to Meeting HQS (Sec.  8(o)(8)(A)(ii) of 1937 Act)
    As a result of the HOTMA amendments to Section 8(o)(8)(A)(ii) of 
the 1937 Act, PHAs may choose to approve an assisted tenancy, execute 
the HAP contract, and begin making housing assistance payments on a 
unit that fails the initial HQS inspection, provided the unit's failure 
to meet HQS is the result only of non-life-threatening conditions, as 
such conditions are defined by HUD. In exercising this administrative 
flexibility under Sec.  8(o)(8)(A)(ii), PHAs must comply with the 
definitions and requirements in this section, in addition to those 
provided in HUD regulations and requirements. If the PHA exercises this 
authority, this document overrides the requirement at 982.305(a)(2) and 
(b)(i) that the PHA has determined that the unit meets HQS before 
approval of the tenancy and beginning of the initial lease term. (The 
PHA must still conduct the HQS inspection prior to approval of the 
tenancy and the beginning of the initial lease term in accordance with 
those regulations.)
A. HUD Definition of Non-Life-Threatening and Life-Threatening 
Conditions
    For the purposes of implementing Sec.  8(o)(8)(A)(ii), HUD is 
defining a non-life-threatening condition as any condition that would 
fail to meet the housing quality standards under 24 CFR 982.401 and is 
not a life-threatening condition. Further, for the purposes of this 
implementation notice, HUD is defining life-threatening conditions as 
follows:
    (1) Gas (natural or liquid petroleum) leak or fumes. A life-
threatening condition under this standard is one of the following: (a) 
A fuel storage vessel, fluid line, valve, or connection that supplies 
fuel to a HVAC unit is leaking; or (b) a strong gas odor detected with 
potential for explosion or fire, or that results in health risk if 
inhaled.
    (2) Electrical hazards that could result in shock or fire. A life-
threatening condition under this standard is one of the following: (a) 
A light fixture is readily accessible, is not securely mounted to the 
ceiling or wall, and electrical connections or wires are exposed; (b) a 
light fixture is hanging by its wires; (c) a light fixture has a 
missing or broken bulb, and the open socket is readily accessible to 
the tenant during the day to day use of the unit; (d) a receptacle 
(outlet) or switch is missing or broken and electrical connections or 
wires are exposed; (e) a receptacle (outlet) or switch has a missing or 
damaged cover plate and electrical connections or wires are exposed; 
(f) an open circuit breaker position is not appropriately blanked off 
in a panel board, main panel board, or other electrical box that 
contains circuit breakers or fuses; (g) a cover is missing from any 
electrical device box, panel box, switch gear box, control panel, etc., 
and there are exposed electrical connections; (h) any nicks, abrasions, 
or fraying of the insulation that expose conducting wire; (i) exposed 
bare wires or electrical connections; (j) any condition that results in 
openings in electrical panels or electrical control device enclosures; 
(k) water leaking or ponding near any electrical device; or (l) any 
condition that poses a serious risk of electrocution or fire and poses 
an immediate life-threatening condition.
    (3) Inoperable or missing smoke detector. A life-threatening 
condition under this standard is one of the following: (a) the smoke 
detector is missing; or (b) the smoke detector does not function as it 
should.
    (4) Interior air quality. A life-threatening condition under this 
standard is one of the following: (a) the carbon monoxide detector is 
missing; or (b) the carbon monoxide detector does not function as it 
should.
    (5) Gas/oil fired water heater or heating, ventilation, or cooling 
system with missing, damaged, improper, or misaligned chimney or 
venting. A life-

[[Page 5460]]

threatening condition under this standard is one of the following: (a) 
The chimney or venting system on a fuel fired water heater is 
misaligned, negatively pitched, or damaged, which may cause improper or 
dangerous venting of gases; (b) a gas dryer vent is missing, damaged, 
or is visually determined to be inoperable, or the dryer exhaust is not 
vented to the outside; (c) a fuel fired space heater is not properly 
vented or lacks available combustion air; (d) a non-vented space heater 
is present; (e) safety devices on a fuel fired space heater are missing 
or damaged; or (f) the chimney or venting system on a fuel fired 
heating, ventilation, or cooling system is misaligned, negatively 
pitched, or damaged which may cause improper or dangerous venting of 
gases.
    (6) Lack of alternative means of exit in case of fire or blocked 
egress. A life-threatening condition under this standard is one of the 
following: (a) Any of the components that affect the function of the 
fire escape are missing or damaged; (b) stored items or other barriers 
restrict or prevent the use of the fire escape in the event of an 
emergency; or (c) the building's emergency exit is blocked or impeded, 
thus limiting the ability of occupants to exit in a fire or other 
emergency.
    (7) Other interior hazards. A life-threatening condition under this 
standard is a fire extinguisher (where required) that is missing, 
damaged, discharged, overcharged, or expired.
    (8) Deteriorated paint, as defined by 24 CFR 35.110, in a unit 
built before 1978 that is to be occupied by a family with a child under 
6 years of age. This is a life-threatening condition only for the 
purpose of a condition that would prevent a family from moving into the 
unit. All lead hazard reduction requirements in 24 CFR part 35, 
including the timeline for lead hazard reduction procedures, still 
apply.
    (9) Any other condition subsequently identified by HUD as life 
threatening in a notice published in the Federal Register. HUD will 
notify PHAs if such changes are made.
    (10) Any other condition identified by the administering PHA as 
life-threatening in the PHA's administrative plan prior to this notice 
taking effect.
B. Administrative Plans
    Before implementing Sec.  8(o)(8)(A)(ii), PHAs must amend their HCV 
administrative plans to include HUD's definition of non-life-
threatening conditions as any conditions that would fail to meet the 
housing quality standards under 24 CFR 982.401 and do not meet the 
definition of life-threatening provided in this notice. The PHA's HCV 
administrative plan must list the specific life-threatening conditions 
that will be identified through the PHA's inspections, including the 
life-threatening conditions listed in Section 1.A. above and any other 
conditions that the PHA identified in its HCV administrative plan as 
life-threatening prior to this notice taking effect.
    The PHA must also specify in its administrative plan how it will 
apply the flexibility provided by Sec.  8(o)(8)(A)(ii) to its HCV and/
or PBV program. The PHA may opt to apply the policy to all the PHA's 
initial inspections or to a portion of the PHA's initial inspections. 
The PHA's administrative plan must specify the circumstances under 
which the PHA will enter into a HAP contract for a unit that fails the 
initial HQS inspection as a result only of non-life-threatening 
conditions and the circumstances under which a PHA will require the 
unit to meet all HQS standards before entering into the HAP contract.
    The changes to the PHA's HCV administrative plan to define non-
life-threatening conditions and to specify how the policy will be 
applied across its portfolio of units may constitute significant 
amendments to the PHA's PHA plan, in which case a PHA must follow its 
PHA plan amendment and public notice requirements before implementing 
Sec.  8(o)(8)(A)(ii).
C. Application of Life-Threatening Definition to aAl Inspections
    A PHA that chooses to implement Sec.  8(o)(8)(A)(ii) must apply the 
list of life-threatening conditions identified in its HCV 
administrative plan to all HQS inspections that the PHA conducts, not 
just the initial inspections. In other words, PHAs that adopt Sec.  
8(o)(8)(A)(ii) must amend their HCV administrative plans to include 
HUD's definition of life-threatening conditions, as well as any 
additional life-threatening conditions included in the PHA's HCV 
administrative plan that were already defined in the PHA's HCV 
administrative plan prior to this notice taking effect, and must use 
those definitions in its ongoing HQS inspections and HQS enforcement 
activities as well as its initial inspections. The PHA must use the new 
definition of life-threatening deficiencies across all of its HQS 
inspections even if the PHA chooses to apply Sec.  8(o)(8)(A)(ii) only 
to a portion of its initial inspections. The only exception to this 
uniformity requirement is the presence of deteriorated paint in units 
built before 1978 to be occupied by a family with a child under the age 
of 6. The presence of such hazards during the initial HQS inspection 
means a PHA may not approve the tenancy, execute the HAP contract and 
make assistance payments until lead hazard reduction is complete. 
However, in the case where the deficiency is identified for a unit 
under HAP contract during a regular or interim HQS inspection, lead 
hazard reduction need not be completed within 24 hours. Instead, PHAs 
and owners must follow the requirements in 24 CFR part 35.
D. Documenting the Absence of Life-Threatening Conditions
    A PHA that chooses to implement Sec.  8(o)(8)(A)(ii) must ensure 
that the unit does not have any life-threatening deficiencies before 
the PHA approves the assisted tenancy and executes the HAP contract. 
The PHA must document that the unit passes all inspection items that 
relate to any life-threatening deficiencies identified in the PHA's HCV 
administrative plan (including those on HUD's list of life-threatening 
deficiencies). HUD will provide guidance for PHAs on how to incorporate 
HUD's definition of life-threatening conditions into its regular HQS 
procedures for purposes of implementing Sec.  8(o)(8)(A)(ii).
E. Notification of Owners and Tenants
    PHAs that adopt Sec.  8(o)(8)(A)(ii) must notify owners and 
families, as applicable, of the new procedures and timelines for 
assistance payments. If the initial inspection on the unit identifies 
one or more non-life-threatening deficiencies, the PHA must provide the 
family a list of the deficiencies and offer the family the opportunity 
to decline to enter into the assisted lease without losing the voucher. 
The PHA must also notify the family that if the owner fails to correct 
the non-life-threatening deficiencies within the PHA-specified time 
period, the PHA will terminate the HAP contract, which in turn 
terminates the assisted lease, and the family will have to move to 
another unit in order to receive voucher assistance.
F. Housing Assistance Payments
    PHAs that adopt Sec.  8(o)(8)(A)(ii) may, with the agreement of the 
family, approve the assisted tenancy, execute the HAP contract, and 
make housing assistance payments for a unit that fails the initial HQS 
inspection only as a result of non-life-threatening conditions as 
defined above. If the non-life-threatening conditions are not corrected 
within 30 days of the PHA notifying the owner of the unit, in writing, 
of the unit's failure to comply with HQS, the

[[Page 5461]]

PHA must withhold any further assistance payments until those 
conditions are addressed and the unit is in compliance with the housing 
quality standards. After the 30-day correction period has passed and 
the PHA begins withholding payments, the PHA may establish a policy 
regarding the maximum amount of time it will withhold payments before 
abating payments or terminating the HAP contract for owner non-
compliance with HQS. Once the unit is in compliance, the PHA may use 
any payments withheld to make payments for the period during which 
payments were withheld.
    The PHA will follow its administrative policy on when to issue a 
new voucher to the family and when to terminate the HAP contract for 
owner non-compliance with HQS. HUD expects PHAs to require prompt 
correction of HQS deficiencies to minimize the amount of time a family 
could be living in a unit that is not HQS compliant. There may be some 
cases where repairs cannot be made immediately. However, under no 
circumstances may the HAP contract continue beyond 180 days of the 
effective date of the HAP contract if unit is not in compliance with 
HQS.
    If the PHA adopts this administrative policy, 24 CFR 982.305(a) and 
(b) remain in effect, with the exception that the PHA is required to 
inspect the unit and determine that there are no life-threatening 
deficiencies (rather than determining the unit satisfies the HQS) 
before the approval of the assisted tenancy and the beginning of the 
assisted lease term.
G. Notification of HUD
    PHAs that plan to adopt Sec.  8(o)(8)(A)(ii) must notify HUD of 
their intention to do so. The notification must be provided at least 30 
days before the new policy is implemented and must be sent by email to 
[email protected]. This notification allows HUD to track the usage of 
this provision as authorized by this notice for the purpose of making 
adjustments to the PHA's scoring under HUD's Section Eight Management 
Assessment Program (SEMAP) as needed.
H. Section Eight Management Assessment Program (SEMAP)
    SEMAP Indicator 11, Pre-Contract HQS Inspection, scores the PHA 
based on the percentage of units that pass the HQS inspection before 
the beginning of the assisted lease and HAP contract. This indicator is 
inconsistent with Sec.  8(o)(8)(A)(ii), assuming a PHA utilizes the new 
statutory flexibility. Therefore, HUD will issue specific guidance on 
how SEMAP Indicator 11 will be modified to ensure that PHAs that adopt 
Sec.  8(o)(8)(A)(ii) will be scored based on the new statutory 
standard. Until further guidance is provided, PHAs should continue to 
report as usual in PIC (that is, the date the PHA enters into PIC for 
when the unit passes HQS inspection is the date that the unit is found 
to have no HQS deficiencies, including no non-life-threatening 
deficiencies).
Questions for Comment
    1. Is HUD's definition of non-life-threatening conditions as any 
condition that does not meet HUD's definition of life-threatening 
appropriate? If not, is there an alternate definition HUD should use?
    2. HUD's list of life-threatening conditions is based on the 
definition currently being used by the UPCS-V demonstration. Are there 
other sources that HUD should consider for this list?
    3. Is establishing 180 days as the maximum time the PHA may 
withhold or abate payments before terminating the HAP contract for the 
owner's failure to make the repairs the appropriate time frame? Should 
this time period be shorter or longer?
    4. How should HUD modify SEMAP Indicator 11 for PHAs that elect to 
implement Sec.  8(o)(8)(A)(ii)?
    5. Are there any other discretionary factors that PHAs should 
consider in implementing Sec.  8(o)(8)(A)(ii)?
2. Alternative Inspections (Sec.  8(o)(8)(A)(iii) of 1937 Act)
    The new Sec.  8(o)(8)(A)(iii) of the 1937 Act authorizes occupancy 
of a unit prior to the PHA's inspection being completed if the property 
has, in the previous 24 months, passed an alternative inspection method 
that qualifies as an alternative inspection method pursuant to Sec.  
8(o)(8)(E). In this case, a PHA may also make assistance payments 
retroactively, dating back to the effective date of the HAP contract 
and assisted lease term, once the unit has been inspected and found to 
meet HQS standards. In exercising this administrative flexibility under 
Sec.  8(o)(8)(A)(iii), PHAs must comply with the definitions and 
requirements in this section, in addition to those provided in HUD 
regulations and requirements. If a PHA exercises this authority, this 
document overrides the regulatory requirement at 24 CFR 982.305(a)(2) 
and (b)(1)(i) that the PHA inspect the unit and determine it meets HQS 
prior to approving the tenancy and the beginning of the assisted lease 
term. The requirements of this document also overrides Sec. Sec.  
982.305(b)(2) and 982.305(c)(1) and (3).
A. Eligible Alternative Inspection Methods
    In order to qualify as an alternative inspection method for Sec.  
8(o)(8)(A)(iii), the inspection method must meet the same requirements 
for the use of alternative inspections under 24 CFR 982.406. 
Specifically:
    (1) The PHA must be able to obtain the results of the alternative 
inspection.
    (2) If the alternative inspection employs sampling, the PHA may 
rely on such alternative method only if the HCV or PBV unit was 
included in the population of units forming the basis of the sample. 
For example, if a 100-unit property includes 20 units that are occupied 
by HCV-assisted families or are under a PBV contract, then those 20 
units must be included in the universe of units from which the sample 
was pulled. This does not mean that the 20 units had to be included in 
the actual sample of units that were inspected under the alternative 
inspection, but that these units were included in the universe of 
potential units from which the sample was drawn.
    (3) A PHA may rely upon inspections of housing assisted under the 
HOME Investment Partnerships (HOME) program or housing financed using 
Low-Income Housing Tax Credits (LIHTCs), or inspections performed by 
HUD, without prior HUD approval. However, before employing this 
alternative method the PHA must amend its HCV administrative plan and 
notify HUD as described below.
    (4) If the PHA wishes to rely on an alternative inspection method 
other than that used for HOME, LIHTC, or inspections performed by HUD, 
the PHA must, prior to amending its HCV administrative plan, submit to 
HUD's Real Estate Assessment Center (REAC) a copy of the inspection 
method it wishes to use, along with its analysis of the inspection 
method that shows that the method ``provides the same or greater 
protection to occupants of dwelling units'' as would HQS. A PHA may not 
rely upon such alternative inspection method unless and until REAC has 
reviewed and approved use of the method and the PHA has amended its HCV 
administrative plan and notified HUD as described below. A PHA that 
uses such alternative inspection method must monitor changes to the 
standards and requirements applicable to such method. If any change is 
made to the alternative inspection method, the PHA must submit to REAC 
a copy of the revised standards and requirements, along with a revised 
comparison to

[[Page 5462]]

HQS. If the PHA or REAC determines that the revision would cause the 
alternative inspection to no longer meet or exceed HQS, then the PHA 
may no longer rely upon the alternative inspection method for Sec.  
8(o)(8)(A)(iii).
B. Administrative Plans
    The PHA must identify the alternative inspection method(s) being 
used in its HCV administrative plan, making clear the specific 
properties or types of properties for which the inspection method(s) 
will be employed. This change may be a significant amendment to the PHA 
Plan, in which case a PHA must follow its PHA Plan amendment and public 
notice requirements before using the alternative inspection method.
C. Authorization of Occupancy
    Section 8(o)(8)(A)(iii) states that the PHA may ``authorize 
occupancy'' before the PHA completes its inspection if the property 
passed the alternative inspection. The PHA authorizes occupancy in 
response to a Request for Tenancy Approval (RFTA) received from the 
family. Upon receiving the RFTA, a PHA that elects to use this 
provision determines whether the property in which the unit is located 
received an inspection within the previous 24 months that qualifies as 
an alternative inspection and the unit meets any additional 
requirements established in the PHA administrative plan. If the 
property has passed the alternative inspection within the past 24 
months, the PHA may approve the assisted tenancy before the PHA 
conducts the initial HQS inspection. If the PHA chooses to approve the 
assisted tenancy prior to conducting the HQS inspection, the PHA enters 
into the HAP contract with the owner and the owner and family enter 
into the lease agreement and HUD prescribed tenancy addendum before the 
PHA's HQS inspection takes place. The PHA must conduct the HQS 
inspection within 15 days of receiving the RFTA (as described below) 
and after it has executed the HAP contract.
    In the case where the PHA exercises its authority under Sec.  
8(o)(8)(A)(iii), the PHA must execute the HAP contract with the owner 
before the PHA's inspection takes place. The PHA must execute the HAP 
contract with the owner on or before the beginning of the lease term, 
not within 60 days of the beginning of the lease term as provided in 24 
CFR 982.305(c). Since the family will have moved into the unit before 
the PHA does the initial inspection, the PHA must have a contractual 
relationship with the owner at the time of the inspection so that the 
PHA can take enforcement action if the unit does not pass HQS and the 
owner does not make the necessary repairs within the required 
timeframes.
D. Timing of the PHA Inspection
    Section 8(o)(8)(A)(iii) allows the PHA to authorize occupancy 
before the PHA's inspection is completed. It does not eliminate the 
requirement under Sec.  8(o)(8)(A)(i) for the PHA (or designated 
entity) to conduct the initial inspection. Under the current program 
regulations at 24 CFR 982.305(b)(2), a PHA with up to 1,250 budgeted 
units in its tenant-based program must complete the initial inspection 
within 15 days of receiving the RFTA, and a PHA with more than 1,250 
budgeted units in its tenant-based program must complete the initial 
inspection within a reasonable time after the PHA receives the RFTA. 
All PHAs that implement Section 8(o)(8)(A)(iii) must complete the 
initial inspection within 15 days of receiving the RFTA for units 
located in properties that have met the requirements of an eligible 
alternative inspection in the past 24 months. The 15-day standard 
applies to all units for which the PHA employs Sec.  8(o)(8)(A)(iii), 
regardless of the size of the PHA's tenant-based program.
E. Housing Assistance Payments
    The PHA must conduct the initial HQS inspection within 15 days of 
receiving the RFTA. If the unit passes the PHA's inspection, the PHA 
may make HAPs retroactively to the effective date of the HAP contract 
and the start of the assisted lease term. If the unit does not pass the 
PHA's inspection, and if the PHA has not adopted Sec.  8(o)(8)(A)(ii) 
regarding the correction of non-life-threatening deficiencies, the PHA 
may not make housing assistance payments until the HQS deficiencies 
have been corrected. The PHA must notify the owner in writing of the 
defects and take enforcement action against the owner if any life-
threatening defect (as identified in the PHA's HCV administrative plan) 
is not corrected within 24 hours or any other defect is not corrected 
within 30 calendar days or any PHA-approved extension. If the PHA has 
adopted Sec.  8(o)(8)(A)(ii) and the unit has only non-life-threatening 
deficiencies, the PHA may make housing assistance payments according to 
the procedures specified in Section A.1. above.
    In deciding whether to implement Section 8(o)(8)(A)(ii), HUD 
recommends that PHAs carefully consider the complications that could 
arise if a PHA enters into a HAP contract with an owner on the basis of 
an alternative inspection but then identifies HQS deficiencies in its 
initial inspection. The family may be living with these deficiencies 
during the correction period and may ultimately have to move if the 
owner is not willing to make the corrections. The PHA will follow its 
administrative policy on when to issue a new voucher to the family and 
when to terminate the HAP contract for owner non-compliance with HQS. 
HUD expects PHAs to require prompt correction of HQS deficiencies to 
minimize the amount of time a family could be living in a unit that is 
not HQS compliant. There may be some cases where repairs cannot be made 
immediately. However, under no circumstances will the HAP contract 
continue beyond 180 days of the effective date of the HAP contract if 
unit is not in compliance with HQS.
F. Notification of Owners and Tenants
    PHAs that adopt Sec.  8(o)(8)(A)(iii) must notify owners and 
families, as applicable, of the new procedures and timelines for 
assistance payments. When authorizing a family to move into a unit 
prior to the PHA's inspection, the PHA must advise the family of the 
PHA's list of life-threatening deficiencies so that the family can look 
for such items in the unit and notify the PHA immediately if such 
deficiencies are found or decline to enter into the lease with the 
owner.
G. Notification of HUD
    PHAs that plan to adopt Sec.  8(o)(8)(A)(iii) must notify HUD of 
their intention to do so. The notification must be provided at least 30 
days before the new policy is implemented and must be sent by email to 
[email protected]. This allows HUD to track the usage of this provision 
as authorized by this notice for the purpose of making adjustments to 
the PHA's scoring under HUD's Section Eight Management Assessment 
Program (SEMAP) as needed.
H. Section Eight Management Assessment Program (SEMAP)
    SEMAP Indicator 11, Pre-Contract HQS Inspection, scores the PHA 
based on the percentage of units that pass the HQS inspection before 
the beginning of the assisted lease and HAP contract. This indicator is 
inconsistent with Sec.  8(o)(8)(A)(iii), assuming a PHA utilizes the 
new statutory flexibility. Therefore, HUD will issue specific guidance 
on how SEMAP Indicator 11 will be modified to ensure that PHAs that 
adopt Sec.  8(o)(8)(A)(iii) will be scored based on the new statutory 
standard.

[[Page 5463]]

Question for Comment
    How should HUD modify SEMAP Indicator 11 for PHAs that elect to 
implement Sec.  8(o)(8)(A)(iii)?
B. Units Owned by a PHA (HOTMA Sec.  105)
    HOTMA amends section 8(o) of the 1937 Act to provide a statutory 
definition of units owned by a PHA, overriding HUD's current definition 
at 24 CFR 983.3 for the PBV program and as a PHA-owned unit is 
described at 24 CFR 982.352. A unit is now ``owned by a public housing 
agency'' only if the unit is in a project that is one of the following 
categories:
    (1) Owned by a PHA.
    (2) Owned by an entity wholly controlled by the PHA.
    (3) Owned by a limited liability company or limited partnership in 
which the PHA (or an entity wholly controlled by the PHA) holds a 
controlling interest in the managing member or general partner. A 
``controlling interest'' is--
    (A) holding 50 percent or more of the stock of any corporation;
    (B) having the power to appoint 50 percent or more of the members 
of the board of directors of a non-stock corporation (such as a non-
profit corporation);
    (C) where 50 percent or more of the members of the board of 
directors of any corporation also serve as directors, officers or 
employees of the PHA;
    (D) holding 50 percent or more of all managing member interests in 
an LLC;
    (E) holding 50 percent or more of all general partner interests in 
a partnership; or
    (F) equivalent levels of control in other organizational 
structures.
    Units in which PHAs have a different ownership interest are no 
longer considered to be owned by the PHA.
    In order to be considered a ``PHA-owned'' unit as described above, 
the PHA must have ownership interest in the building itself, not simply 
the land beneath the building.
    For units that were previously considered to be PHA-owned but are 
no longer PHA-owned due to this definitional change, the PHA must 
obtain an opinion from its legal counsel that the project in question 
falls outside the statutory definition. The PHA must keep the opinion 
in the PHA's files. Until such time that the opinion letter is 
obtained, the PBV project remains PHA-owned for purposes of program 
requirements and HUD monitoring. If an ownership structure changes in 
the future that removes a project from the definition of PHA-owned, the 
PHA must obtain and keep the same sort of opinion letter. If an 
ownership structure changes in a manner that would cause a PBV project 
to be classified as PHA-owned (e.g., PHA ownership interest is 
increased to an amount greater than 50 percent), the PHA must identify, 
in writing, within 30 days of the change in ownership, the proposed 
independent entity that will perform all of the applicable independent 
entity responsibilities for the project in compliance with 24 CFR 
983.59 and PIH Notice 2015-05 (or subsequent guidance) for PBV and 24 
CFR 982.352(b) for HCV tenant-based assistance.
    For PBV projects where the PHA has an interest in the project, but 
such interest does not cause the project to be classified as PHA-owned 
housing as described above, HUD may review the PHA's rent determination 
for such projects, including the PHA's methodology of determining rent 
comparability. HUD intends to issue additional guidance concerning HUD 
review and monitoring of rent determinations and rent adjustments for 
PBV projects, including cases in which the PHA has an interest in the 
PBV project.
Questions for Comment
    1. Should the definition of ``controlling interest'' be different?
    2. Are there programmatic issues with changing a unit's designation 
from PHA-owned to not PHA-owned that need to be address by HUD?
    3. What, if any, additional oversight and monitoring should HUD 
undertake for units in which the PHA has ownership interest in order to 
ensure that all program requirements (including rent reasonableness and 
housing quality standards) are being met, especially in cases where the 
PHA responsible for enforcing those standards has a financial interest 
in the project?
C. Project-Based Vouchers (HOTMA Sec.  106)
    This section makes several statutory changes to the Project-Based 
Voucher (PBV) Program in section 8(o)(13) of the 1937 Act. The 
amendments include:
    (1) changing the terminology in the statute from ``structure'' to 
``project'' where the statute refers to structure instead of project;
    (2) changing the PHA HCV program limitation on PBV vouchers from a 
20 percent funding limitation to a 20 percent unit limitation 
calculation and allowing for additional project-basing of vouchers by 
raising the limit an additional 10 percent for homeless families, 
families with veterans, supportive housing for persons with 
disabilities or elderly persons, or in areas where vouchers are 
difficult to use. The statute also excludes certain projects that were 
previously subject to federally required rent restrictions or were 
receiving another type of long-term HUD housing subsidy from the 
program PBV limitation entirely;
    (3) changing the income-mixing cap on the number of PBV units in a 
project to be the greater of 25 units in a project or 25 percent of the 
units in a project (the project unit cap), and making changes to the 
categories of PBV units that are excepted from this project unit cap;
    (4) allowing the PHA to provide for an initial PBV contract of up 
to 20 years and to further extend that term for an additional 20 years;
    (5) allowing the PHA to establish a selection preference for 
families who qualify for voluntary services, including disability-
specific services, offered in conjunction with assisted units, provided 
that the preference is consistent with the PHA plan;
    (6) allowing the PHA to attach assistance to structures in which 
the PHA has an ownership interest or control without following a 
competitive process; and
    (7) allowing PHAs to project-base HUD-VASH and FUP vouchers in 
accordance with statutory and regulatory requirements of the PBV 
program without additional requirements for approval by HUD.
    This notice does not implement all the provisions of section 106 of 
HOTMA, but only those where HUD believes it is reasonable to do so and 
does not provide undue burden on PHAs to implement. HUD may provide 
additional guidance to this notice to ensure effective implementation 
and elaborate on issues that may need clarification.
    Provisions under section 106 of HOTMA that are not implemented by 
this document and that the PHA and owner may not yet implement are as 
follows:
    (1) Entering into a PBV HAP Contract for any unit that does not 
qualify as existing housing and is under construction or recently has 
been constructed regardless of whether the PHA and owner executed an 
Agreement to Enter a Housing Assistance Payments Contract (AHAP) (see 
section 106(a)(4) of HOTMA);
    (2) Providing rent adjustments using an operating cost factor (see 
section 106(a)(6) of HOTMA);
    (3) Establishing and utilizing procedures for owner-maintained 
site-

[[Page 5464]]

based waiting lists (see section 106(a)(7) of HOTMA); and
    (4) Concering the environmental review requirements for existing 
housing (see section 106(a)(8) of HOTMA).
1. Changing ``structure'' to ``project'' (Sec.  106(a)(1) of HOTMA)
    This provision amends section 8(o)(13) by replacing the term 
``structure'' with the term ``project'' throughout the paragraph. No 
guidance is needed to make this change. In accordance with the law, 
this document serves as official notice that this statutory change is 
effective as of April 18, 2017. HUD will issue any needed conforming 
regulatory changes in the future.
2. Changing the Maximum Amount of PBVs Permitted in the PHA HCV Program 
(Sec.  8(o)(13)(B) of 1937 Act).
    This section of the document overrides 24 CFR 983.6 of the PBV 
program regulations.
A. Maximum Amount of PBVs in the PHA's HCV Program
    Under the new Sec.  8(o)(13)(B) of the 1937 Act, PHAs may now 
project-base up to 20 percent of the PHA's authorized units, instead of 
20 percent of the PHA's voucher budget authority. However, the PHA is 
still responsible for determining the amount of budget authority it has 
is available and ensuring that the amount of assistance that will be 
attached to the units is available under the ACC, regardless of whether 
the PHA has vouchers available for project-basing.
    Prior to issuing a request for proposals (RFP) (24 CFR 
983.51(b)(1)), selecting a project based on a previous competition (24 
CFR 983.51(b)(2)), or selecting a project without following a 
competition process where the PHA has ownership interest and is engaged 
in improving, developing or replacing a public housing property or site 
(see section C.7 of this document), the PHA must submit to the local 
field office all the following information (in lieu of following the 
requirements of 24 CFR 983.6(d)):
    (1) The total number of units authorized under the Consolidated 
Annual Contributions Contract (ACC) for the PHA (excluding those PBV 
units entirely excluded from the cap described in sections C.2.C and 
C.2.D below). This number of authorized units includes special-purpose 
vouchers such as HUD-VASH (except as provided in section D below) and 
Family Unification Program vouchers. The PHA must also identify the 
number of PBV units that are excluded from total, if applicable.
    (2) The total number of units currently committed to PBV (excluding 
those PBV units entirely excluded from the cap described in sections 
C.2.C and C.2.D below.). The number of units ``committed to PBV'' is 
comprised of the total number of units that are either (a) currently 
under PBV HAP contract, (b) under an Agreement to Enter into HAP 
contract (AHAP), or (c) covered by a notice of proposal selection (24 
CFR 983.51(d)). The PHA must also identify the number of PBV units that 
are excluded from the total, if applicable. This number must match the 
number of PBV units excluded from the baseline units (discussed above).
    (3) The number of units to which the PHA is proposing to attach 
project-based assistance through the new RFP or selection.
    The PHA is no longer required to submit information on funding or 
available budget authority when submitting information to HUD on its 
intent to project-base vouchers. However, PHAs are still required to 
provide this PBV unit information to HUD no later than 14 calendar days 
prior to the date that the PHA intends to issue the Request for 
Proposals (or makes the selection based on a previous competition or 
noncompetitively as applicable). The PHA continues to submit the 
required information electronically to the HUD field office by sending 
an email to [email protected]. The PHA must also copy their local 
HUD Office of Public Housing Director on its email submission.
B. Additional Project-Based Units
    HOTMA further allows PHAs to project-base an additional 10 percent 
of its units above the 20 percent program limit, provided those 
additional units fall into one of the following categories:
    (1) The units are specifically made available to house individuals 
and families that meet the definition of homeless under section 103 of 
the McKinney-Vento Homeless Assistance Act (42 U.S.C. 11302), and 
contained in the Continuum of Care Interim Rule at 24 CFR 578.3. See 
https://www.federalregister.gov/d/2012-17546 and https://www.federalregister.gov/d/2016-13684.
    (2) The units are specifically made available to house families 
that are comprised of or include a veteran. A veteran is an individual 
who has served in the United States armed forces. The PHA may further 
define ``veteran'' for purposes of determining if the units are 
eligible for this exception. For example, the PHA could require that 
the veteran must be eligible to receive supportive services from the 
Department of Veterans Affairs or require that the veteran was not 
dishonorably discharged.
    (3) The units provide supportive housing to persons with 
disabilities or to elderly persons. The definitions of a person with 
disabilities and an elderly person are found at 24 CFR 5.403. 
Supportive housing means that the project makes supportive services 
available for all of the assisted families in the project and provides 
a range of services tailored to the needs of the residents occupying 
such housing. Such services may include (but are not limited to):
    (A) meal service adequate to meet nutritional need,
    (B) housekeeping aid,
    (C) personal assistance,
    (D) transportation services;
    (E) health-related services;
    (F) educational and employment services: or
    (G) other services designed to help the recipient live in the 
community as independently as possible.
    The PHA must include in the PHA administrative plan the types of 
services offered to families for a project to qualify for the exception 
and to the extent to which such services will be provided. Such 
supportive services need not be provided by the owner or on-site, but 
must be reasonably available to the families receiving PBV assistance 
in the project. A PHA may not require participation as a condition of 
living in an excepted unit, although such services may be offered.
    Note that in accordance with 24 CFR 983.354, with the exception of 
an assisted living facility, the owner of a PBV project may not require 
the assisted family to pay charges for meals or supportive services, 
and non-payment of such charges by the family is not grounds for 
termination of tenancy. In the case of an assisted living facility (as 
defined in Sec.  983.3) receiving PBV assistance, owners may charge 
families for meals or supportive services. These charges may not be 
included in the rent to owner or the calculation of reasonable rent.
    (4) The units are located in a census tract with a poverty rate of 
20 percent or less, as determined in the most recent American Community 
Survey 5-Year Estimates.
    These categories are those under which a PHA is permitted to 
project-base an additional 10 percent of its units above the normally 
applicable 20 percent PBV program limitation. These categories are 
separate and distinct from exceptions to the income-mixing requirements 
that limit the number and percentage of units within a particular

[[Page 5465]]

project to which PBV assistance may be attached (no more than the 
greater of 25 units or 25 percent of the units), which is discussed 
later in this document.
    If a PHA wishes to add PBV units under this exception authority, 
the PHA must submit the same information in section C.2.A above to the 
Field Office, and identify the exception category (or categories) for 
which the PHA will project-base additional units (up to an additional 
10 percent above the normally applicable PBV program limitation) and 
the specific number of units that qualify under the exception category.
    PBV units may only be covered by this 10 percent exception 
authority if the PBV HAP contract was first executed on or after the 
effective date of this notice.
C. Units Not Subject to PBV Program Unit Limitation
    New language in section 8(o)(13)(B) provides that units that were 
previously subject to certain federal rent restrictions or receiving 
another type of long-term housing subsidy provided by HUD do not count 
toward the percentage limitation when PBV assistance is attached to 
them.
    (1) Exception requirements. For purposes of this document, the unit 
must meet the following conditions in order to qualify for this 
exception:
    (a) The unit must be covered under a PBV HAP contract that first 
became effective on or after the effective date of this notice; and
    (b) In the 5 years prior to the date the PHA either (i) issued the 
RFP under which the project was selected or (ii) selected the project 
based on a prior competition or without competition, the unit met at 
least one of the two following conditions:
    (i) The unit received one of the following forms of HUD assistance:
    (I) Public Housing Capital or Operating Funds (section 9 of the 
1937 Act).
    (II) Project-Based Rental Assistance (section 8 of the 1937 Act). 
Project-based rental assistance under section 8 includes the section 8 
moderate rehabilitation program, including the single-room occupancy 
(SRO) program.
    (III) Housing For the Elderly (section 202 of the Housing Act of 
1959).
    (IV) Housing for Persons With Disabilities (section 811 of the 
Cranston-Gonzalez National Affordable Housing Act).
    (V) The Rent Supplement (Rent Supp) program (section 101 of the 
Housing and Urban Development Act of 1965).
    (VI) Rental Assistance Program (RAP) (section 236(f)(2) of the 
National Housing Act).
    (ii) The unit was subject to a rent restriction as a result of one 
of the following HUD loan or insurance programs:
    (I) Section 236.
    (II) Section 221(d)(3) or (d)(4) BMIR.
    (III) Housing For the Elderly (section 202 of the Housing Act of 
1959).
    (IV) Housing for Persons With Disabilities (section 811 of the 
Cranston-Gonzalez National Affordable Housing Act).
    Units that were previously receiving PBV assistance or HCV tenant-
based assistance are not covered by this exception. (The statute 
provides that the units must have been receiving ``other'' project-
based assistance provided by the Secretary in order to cover by the 
exception authority.)
    Both existing units and units rehabilitated under the PBV program 
are eligible for this exception if the units meet the conditions 
outlined above. In addition, newly constructed units developed under 
the PBV program may also be excluded from the PHA program limitation, 
provided the newly constructed unit qualifies as a replacement unit as 
described below.
    (2) PBV New Construction Units that Qualify for the Exception as 
Replacement Housing. For purposes of this notice, a PBV new 
construction unit must meet all of the following requirements in order 
to be a replacement unit and qualify for this exception to the program 
limitation:
    (a) The unit which the PBV new construction unit is replacing 
(i.e., the original unit) must have received one of the forms of HUD 
assistance or was subject to a rent restriction as a result of one of 
the HUD loan or insurance programs listed above no more than 5 years 
from the date the PHA either (i) issued the RFP under which the PBV new 
construction project was selected or (ii) selected the PBV new 
construction project based on a prior competition or without 
competition. If the PBV new construction project was selected based on 
a prior competition or without competition, the date of selection used 
to determine if the 5-year threshold has been met is the date of the 
PHA written notice of owner selection under 24 CFR 983.51(d)).
    (b) The newly constructed unit is located on the same site as the 
unit it is replacing. An expansion of or modification to the prior 
project's site boundaries as a result of the design of new construction 
project is acceptable as long as a majority of the replacement units 
are built back on the site of the original public housing development 
and any units that are not built on the existing site share a common 
border with, are across a public right of way from, or touch that site.
    (c) One of the primary purposes of the planned development of the 
PBV new construction project is or was to replace the affordable rental 
units that previously existed at the site, as evidenced by at least one 
of the following:
    (i) Former residents of the original project are provided with a 
selection preference that provides the family with the right of first 
occupancy at the PBV new construction project when it is ready for 
occupancy.
    (ii) Prior to the demolition of the original project, the PBV new 
construction project was specifically identified as replacement housing 
for that original project as part of a documented plan for the 
redevelopment of the site.
    HUD is specifically seeking comment on what changes HUD should 
consider making to the initial conditions set forth under this notice 
in order for a PBV new construction unit to qualify as replacement 
housing and the exception to the PBV program limitation. Please see the 
questions for comment section, below.
    (3) Unit size configuration and number of units for new 
construction and rehabilitation projects. The unit size configuration 
of the PBV new construction project may differ from the unit size 
configuration of the original project that the PBV units are replacing. 
In addition, the total number of PBV assisted units may differ from the 
number of units in the original project. However, under no 
circumstances may the program limitation exception be applied to PBV 
new construction units that exceed the total number of covered units in 
the original project that the PBV units are replacing. For example, 
assume the PBV new construction project will consist of a total of 50 
PBV units and is replacing a former section 236 project consisting of 
40 units. The maximum number of PBV units that would meet the exception 
from the program limitation in this example would be 40 units, and the 
remaining 10 PBV units in the project would count against the program 
limitation.
    These same policies apply in the case where the owner is 
rehabilitating the project under the PBV program and is changing the 
unit configuration and/or total number of units in the project as a 
result of the rehabilitation.
    (4) Applicability of PBV project selection requirements. For owner 
proposals involving all of these PBV

[[Page 5466]]

properties (existing, rehabilitation, and new construction), the 
standard criteria for selection of projects and the units to which 
project-based assistance can be attached, including consistency with 
the PHA Plan, the goals of deconcentrating poverty and expanding 
housing and economic opportunities, site selection, and all civil 
rights requirements, are still in effect. Likewise, the requirements of 
HUD Notice PIH 2013-27 that concern the voluntary relinquishment by 
families of enhanced voucher assistance for PBV assistance remains in 
effect. The only difference is that the PBV units in these projects 
will not be included in determining if a PHA has exceeded its PBV 
program cap. These units are excluded from both the total number of 
units authorized under the PHA's ACC and the number of units committed 
to PBV in the program.
    As noted above, the PHA is required to provide the number of PBV 
units to which it will be attaching PBV assistance under this exception 
authority to HUD no later than 14 calendar days prior to the date that 
the PHA intends to issue the RFP or make the selection. The PHA must 
indicate the specific exception that covers the units (i.e., identify 
the property and the covered program or programs under which the 
property was formerly assisted). The PHA submits the required 
information electronically to the HUD field office by sending an email 
to [email protected]. The PHA must also copy their local HUD Office 
of Public Housing Director on its email submission.
D. Other Units Not Subject to the PBV Program Unit Calculation
    In addition to the units listed under section C.2.C above, other 
units are not subject to the program limitation calculation and would 
be excluded in the total number of authorize units and the total number 
of PBV units currently committed to PBV that the PHA submits to the 
field office (in lieu of following the requirements of 24 CFR 
983.6(b)).
    (1) RAD exception. HUD waived the 20 percent limitation at section 
8(o)(13)(B) of the 1937 Act as well as 24 CFR 983.6 for PBV units under 
the RAD demonstration. This waiver remains in effect, and, 
consequently, a PHA that continues to be exempted from submitting 
information on its PBV cap calculation to HUD when it is project-basing 
vouchers under RAD. Furthermore, RAD PBV units are excluded from both 
the total number of units under the ACC and the units committed to PBV 
when determining if the PHA has vouchers available to project-base 
under the program limit requirements.
    (2) HUD-VASH PBV Set-aside vouchers. HUD has awarded vouchers 
specifically designated for project-based assistance out of the HUD-
VASH appropriated funding made available from the FY 2016, FY 2015, FY 
2014, FY 2013, FY 2011, and FY 2010 Appropriations Acts. Since these 
voucher allocations were specifically allocated for project-based 
assistance, HUD has determined that the PBV units supported by those 
vouchers should not count against the PHA's PBV program unit limitation 
as long as those vouchers remain under PBV HAP contract at the 
designated project. The Appropriations Acts funding these vouchers 
authorize the HUD Secretary, in consultation with the VA Secretary, to 
waive or specify alternative requirements for any provision of any 
statute or regulation that the HUD Secretary administers in connection 
with the use of those HUD-VASH funds (except for requirements related 
to fair housing, labor standards, and the environment), upon a finding 
by the Secretary that any such waivers or alternative requirements are 
necessary for the effective delivery and administration of such voucher 
assistance. Accordingly, section 8(o)(13)(B) is waived for those HUD-
VASH PBV vouchers.
    This exception only applies to HUD-VASH PBV vouchers that were 
awarded to the PHA through the HUD-VASH PBV set-aside funding process. 
All other HUD-VASH vouchers, including those HUD-VASH vouchers that the 
PHA opts to project-base, are still subject to the PHA PBV program 
limitation, and would be included in the units authorized and units 
committed to PBV that the PHA submits to HUD under this document, which 
replaces the voucher funding information that was previously provided 
under 24 CFR 983.6(b).
    (3) Additional categories established by HUD by regulation. Section 
8(o)(B)(ii), as amended by HOTMA, further provides that the Secretary 
may, by regulation, establish additional categories for the exception 
to the PBV program unit limitation. HUD has not yet exercised this 
authority but may do so in the future.
    For future PBV projects other than RAD, the PHA is required to 
provide the number of PBV units to which it will be attaching PBV 
assistance under this exception authority to HUD no later than 14 
calendar days prior to the date that the PHA intends to issue the RFP 
or make the selection. The PHA must indicate the specific exception 
that covers the units. The PHA submits the required information 
electronically to the HUD field office by sending an email to 
[email protected]. The PHA must also copy their local HUD Office of 
Public Housing Director on its email submission.
Questions for Comment
    1. Should HUD allow PHAs that are administering PBV units that 
would qualify under the additional 10 percent exception categories but 
were placed under HAP contract prior to the effective date of this 
notice count those units as excepted? This would potentially allow a 
PHA that was at the 20 percent limit to add new PBV units that do not 
fall under any of the exception categories, because counting the PBV 
units that were already under HAP under the new 10 percent exception 
authority would free up space under the regular 20 percent cap.
    2. The new (o)(13)(B) further provides that the additional 10 
percent exception may be applied to units that are difficult to use, as 
determined by the Secretary, and with respect to census tracts with a 
poverty rate of 20 percent or less. This document, for now, only 
applies the statutory exception provision to those units located in 
census tracts with poverty rates of 20 percent or less. What criteria 
should HUD use to define or determine the areas where vouchers are 
``difficult to use'' for this exception category?
    3. The statute allows the Secretary to issue regulations to create 
additional exception categories from the normally applicable PBV 
program limit, which could apply to the additional 10 percent authority 
or that could be exempted from the program limit entirely. What 
additional exception categories that should be included in the 10 
percent authority? What other types of units should be exempted from 
the PBV program limit entirely?
    4. This document sets out certain conditions that a PBV new 
construction unit must meet in order to be considered replacement 
housing and eligible for the exception to the PHA PBV program 
limitation. Are those conditions appropriate or should they be changed 
or expanded?
    5. In light of the impact that additional exceptions and exemptions 
from the program limit will have on the number of vouchers available 
for tenant-based assistance under the HCV program, should HUD establish 
additional categories at all? What limits or requirements on project-
basing, if any, should be placed on the use of this exception authority 
to ensure that the PHA has sufficient tenant-based assistance available 
for families to exercise their statutory right to move

[[Page 5467]]

from the PBV project with tenant-based assistance after one year of 
occupancy at the PBV project?
3. Changes to Income-Mixing Requirements for a Project (Project Cap) 
(Sec.  8(o)(13)(D) of 1937 Act)
    This section overrides the PBV program regulations at 24 CFR 
983.56(a) and 983.56(b)(1) and (2). This section also overrides 
Sec. Sec.  983.262(c) and (d).
A. PBV Income-Mixing Project Cap, Generally
    HOTMA amended the income-mixing requirement for an individual 
project found in section 8(o)(13)(D) of the 1937 Act. The limitation on 
the number of PBVs in a project is now the greater of 25 units or 25 
percent of the units in a project. However, owners under current HAP 
contracts are still obligated by the terms of those HAP contracts with 
respect to the requirements that apply to the number of excepted units 
in a multifamily project. The owner must continue to designate the same 
number of contract units and assist the same number of excepted 
families as provided under the HAP contract during the remaining term 
of the HAP contract, unless the owner and the PHA mutually agree to 
change those requirements. For example, if an owner has a PBV HAP 
contract for a 20 unit project, and the HAP contract provides that 15 
of those units were exempted from the 25 percent income mixing 
requirement because the units are designated for elderly families, the 
owner must continue to designate those units for occupancy by elderly 
families, notwithstanding the fact that the statutory limit on PBV has 
been increased to 25 units, unless the owner and the PHA mutually agree 
to change the terms of the assistance contract.
    Except as provided below, the PBV HAP contract may not include 
units in excess of the greater of 25 units or 25 percent of the units 
in the project.
B. Exceptions to Project Cap
    Units that are in one of the following categories are excluded from 
the 25 percent or 25-unit project cap on PBV assistance:
    (1) Units exclusively serving elderly families (as such term is 
defined in 24 CFR 5.403).
    (2) Units housing households eligible for supportive services 
available to all families receiving PBV assistance in the project. The 
project must make supportive services available to all assisted 
families in the project (but the family does not have to actually 
accept and receive the supportive service for the exception to apply to 
the unit). Families eligible for supportive services under this 
exception to the project cap would include families with a household 
member with a disability, among other populations. Such supportive 
services need not be provided by the owner or on-site, but must be 
reasonably available to the families receiving PBV assistance in the 
project and designed to help the families in the project achieve self-
sufficiency or live in the community as independently as possible. PHAs 
must include in the PHA administrative plan the type of services 
offered to families for a project to qualify under the exception and 
the extent to which such services will be provided.
    A PHA may not require participation in the supportive services as a 
condition of living in an excepted unit, although such services may be 
offered. In cases where the unit is excepted because of FSS supportive 
services or any other supportive services as defined in the PHA 
administrative plan, if a family at the time of initial tenancy was 
eligible for FSS supportive services and successfully completes its FSS 
contract of participation or the supportive services objective, the 
unit continues to count as an excepted unit for as long as the family 
resides in the unit even though the family is no longer eligible for 
the service.
    However, if the FSS family fails to successfully complete the FSS 
contract of participation or supportive services objective and 
consequently is no longer eligible for the supportive services, the 
family must vacate the unit within a reasonable period of time 
established by the PHA, and the PHA shall cease paying housing 
assistance payments on behalf of the ineligible family. If the family 
fails to vacate the unit within the established time, the unit must be 
removed from the HAP contract (unless it is possible to substitute a 
different unit for the formerly excepted unit in the project in 
accordance with 983.207(a)).
    (3) Projects that are in a census tract with a poverty rate of 20 
percent or less, as determined in the most recent American Community 
Survey 5-Year Estimates.
    The PHA may only refer qualifying families for occupancy of 
excepted units under (1) and (2) above.
C. Grandfathering of Certain Properties
    The HOTMA amendments entirely eliminate the statutory exemption 
from a project cap for projects that serve disabled families and modify 
the supportive services exception. Previously, the statutory exception 
required that the family must be actually receiving the supportive 
services for the individual unit to be exempted from the income-mixing 
requirement. The new requirement provides that the project must make 
supportive services available to all assisted families in the project 
(but that the family does not have to actually accept and receive the 
supportive services for the exception to apply to the unit). However, 
projects that are using the former statutory exemptions will continue 
to operate under the pre-HOTMA requirements and will continue to renew 
their HAP contracts under the old requirements, unless the PHA and the 
owner agree by mutual consent to change the conditions to the HOTMA 
requirement. The PBV HAP contact may not be changed to the HOTMA 
requirement if the change would jeopardize an assisted family's 
eligibility for continued assistance at the project (e.g., excepted 
units at the project included units designated for the disabled, and 
changing to the HOTMA standard would result in those units no longer 
being eligible as an excepted unit unless the owner will make 
supportive services available to all assisted families in the unit.)
D. Projects Not Subject to a Project Cap
    New language in section 8(o)(13)(D) exempts certain types of units 
receiving project-based voucher assistance from having a project cap 
entirely. These are PBV units that were previously subject to certain 
federal rent restrictions or receiving another type of long-term 
housing subsidy provided by HUD. This exception to the project cap may 
only be applied to projects that were not already under HAP contract on 
the effective date of this document. The exception may not be applied 
retroactively to projects under HAP contract on the effective date of 
this notice or subsequently applied at the extension of those HAP 
contracts.
    (1) Exception requirements. For purposes of this document, the unit 
must meet the following conditions in order to qualify for this 
exception:
    (a) The unit must be covered under a PBV HAP contract that first 
became effective on or after the effective date of this notice, and
    (b) In the 5 years prior to the date the PHA either (i) issued the 
RFP under which the project was selected or (ii) selected the project 
without competition, the unit met at least one of the two following 
conditions:
    (i) The unit received one of the following forms of HUD assistance:
    (I) Public Housing Capital or Operating Funds (section 9 of the 
1937 Act).

[[Page 5468]]

    (II) Project-Based Rental Assistance (section 8 of the 1937 Act). 
Project-based rental assistance under section 8 includes the moderate 
rehabilitation program, including the SRO program.
    (III) Housing For the Elderly (section 202 of the Housing Act of 
1959).
    (IV) Housing for Persons With Disabilities (section 811 of the 
Cranston-Gonzalez National Affordable Housing Act).
    (V) The Rent Supplement program (section 101 of the Housing and 
Urban Development Act of 1965).
    (VI) Rental Assistance Program (section 236(f)(2) of the National 
Housing Act); or
    (ii) The unit was subject to a rent restriction as a result of one 
of the following HUD loan or insurance programs:
    (I) Section 236.
    (II) Section 221(d)(3) or (d)(4) BMIR.
    (III) Housing For the Elderly (section 202 of the Housing Act of 
1959).
    (IV) Housing for Persons With Disabilities (section 811 of the 
Cranston-Gonzalez National Affordable Housing Act).
    Units that were previously receiving PBV assistance are not covered 
by this exception. The statute provides that the units must have been 
receiving ``other'' project-based assistance provided by the Secretary 
in order to be covered by the exception authority.
    For proposals involving these properties, the standard criteria for 
selection of projects and the units to which PBV assistance can be 
applied are still in effect. The only difference is that any PBV 
assistance provided to these properties may be used to project base up 
to 100 percent of the units in the project.
    Both existing units or units rehabilitated under the PBV program 
are eligible for this project cap exception if the units meet the 
conditions outlined above. In addition, newly constructed units 
developed under the PBV program may also be excluded from the PHA 
program limitation, provided the newly constructed unit qualifies as a 
replacement unit as described below.
    (2) PBV New Construction Units that Qualify for the Exception as 
Replacement Housing. For purposes of this document, the PBV new 
construction unit must meet the following requirements in order to be a 
replacement unit and qualify for the project cap exception (these are 
the same conditions that apply for units to qualify as replacement 
units for purposes of the exception to the PBV Program unit limit under 
section C.2.C of this document above):
    (a) The unit which the PBV new construction unit is replacing 
(i.e., the original unit) must have received one of the forms of HUD 
assistance or was subject to a rent restriction as a result of one of 
the HUD loan or insurance programs listed above within 5 years from the 
date the PHA either (i) issued the RFP under which the PBV new 
construction project was selected or (ii) selected the PBV new 
construction project under a prior competition or without competition. 
If the PBV new construction project was selected based on a prior 
competition or without competition, the date of selection is the date 
of the PHA notice of owner selection (24 CFR 983.51(d)).
    (b) The newly constructed unit is located on the same site as the 
unit it is replacing. (An expansion of or modification to the prior 
project's site boundaries as a result of the design of new construction 
project is acceptable as long as new project is generally located at 
the same site as the original project for purposes of this 
requirement.)
    (c) One of the primary purposes of the planned development of the 
PBV new construction project is or was to replace the affordable rental 
units that previously existed at the site, as evidenced by at least one 
of the following:
    (i) Former residents of the original project are provided with a 
selection preference that provides the family with the right of first 
occupancy at the PBV new construction project when it is ready for 
occupancy.
    (ii) Prior to the demolition of the original project, the PBV new 
construction project was specifically identified as replacement housing 
for that original project as part of a documented plan for the 
redevelopment of the site.
    (3) Unit size configuration and number of units. The unit size 
configuration of the PBV new construction project may differ from the 
unit size configuration of the original project that the PBV units are 
replacing. In addition, the total number of PBV assisted units may 
differ from the number of units in the original project. However, under 
no circumstances may the project cap exception be applied to PBV new 
construction units that exceed the total number of covered units in the 
original project that the PBV units are replacing. For example, assume 
the PBV new construction project will consist of a total of 50 PBV 
units and is replacing a former section 236 project consisting of 40 
units. The maximum number of PBV units that would meet the exception 
from the project cap in this example would be 40 units, and the 
remaining 10 PBV units would be subject to the project cap and would 
need to qualify for an exception on the basis of another exception 
category.
    These same policies apply in the case where the owner is 
rehabilitating the project under the PBV program and is changing the 
unit configuration and/or total number of units in the project as a 
result of the rehabilitation.
Questions for Comment
    1. What other standards should HUD require for supportive services 
under B.2, above?
    2. The Secretary has authority to define areas where tenant-based 
vouchers are ``difficult to use.'' This document, for now, only applies 
the statutory provision of census tracts with poverty rates of 20 
percent or less. What are some other criteria that HUD should include? 
For example, other possible criteria include rental vacancy rates, 
voucher success rates, high cost areas as captured by the difference 
between the zip code level small area FMR and the metropolitan-wide 
FMR, or alternative measures of low-poverty areas.
    3. Are there additional properties formerly subject to federal rent 
restrictions or receiving rental assistance from HUD that should be 
exempted from a project cap?
    4. The statute allows HUD to impose additional monitoring and 
requirements on projects that project-base assistance for more than 40 
percent of the units. How can PHAs ensure that this increase in PBV 
units will not hamper mobility efforts and moves to opportunity areas?
4. PBV Contract Terms (Sec.  8(o)(13)(F) and (G) of 1937 Act and 
Sec. Sec.  106(a)(4) and (5) of HOTMA)
A. Initial Term of HAP Contract and Extension of Term
    The initial HAP Contract term may now be of a period of up to 20 
years (instead of the prior 15-year limitation). The length of the term 
of the initial HAP contract for any HAP contract unit may not be less 
than one year nor more than 20 years (instead of the prior 15-year 
limitation on the initial term of the HAP contract). In addition, the 
PHA may agree to enter into an extension (at the time of the initial 
HAP contract execution or any time before the expiration of the 
contract, for an additional term of up to 20 years (as opposed to the 
prior 15-year limitation on the term of the contract extension). A HAP 
contract extension may not exceed 20 years. The PHA may provide for 
multiple extensions; however, in no circumstances may such extensions 
exceed 20 years, cumulatively.

[[Page 5469]]

    PHAs and owners with HAP contracts that are still in the initial 
term may extend the initial term up to a maximum initial term of 20 
years by mutual consent, and then may subsequently agree to extend the 
contract for up to 20 years. The maximum term of the HAP contract in 
that instance (initial term and subsequent extension) would be 40 
years. PHAs and owners with HAP contracts that are no longer in the 
initial term may mutually agree to extend the HAP contract for a total 
extension term of 20 years. The maximum term of the HAP contract in 
that case would be 20 years plus the number of years that constituted 
the initial term of the HAP contract.
    If the project in question is a PHA-owned project, any change in 
the initial term and any subsequent extension is also subject to the 
approval of the independent entity.
    This section overrides 24 CFR 983.205(a) and (b) only with respect 
to the length of the initial term and the extension of the term of the 
HAP contract. Otherwise, all of the other requirements of those 
regulations remain in effect, including the requirements related to 
PHA-owned units.
B. Priority of Assistance Contracts
    The new section 8(o)(13)(F)(i)(I) requires PHAs, in times of 
insufficient funding, to first take all cost-savings measures prior to 
failing to make payments under existing PBV HAP contracts (i.e., 
terminating the HAP contract). If the PHA has taken all cost-savings 
measures and still has insufficient funding to make HAPs, it is left up 
to the discretion of the PHA to choose to terminate HCV or PBV 
assistance first. The list of cost-savings measures that must be taken 
prior to terminating assistance contracts are found in PIH Notice 2011-
28.\1\
C. Biennial Inspection Requirements
    The new language in section 8(o)(13)(F)(i)(II) of the 1937 Act is a 
change that clarifies the frequency of inspection requirement for PBV 
projects to those found in paragraph (8), which allows for biennial as 
opposed to annual inspections. The language in paragraph (13)(F)(i)(II) 
merely clarifies that for PBV assistance, biennial inspections may be 
conducted using a sample of units. The PBV regulations at 24 CFR 
983.103 were revised under the final rule entitled, ``Streamlining 
Administrative Regulations for Public Housing, Housing Choice Voucher, 
Multifamily Housing, and Community Planning and Development Programs,'' 
published in the Federal Register on March 8, 2016, at 81 FR 12353. 
This rule amended regulations to reflect the biennial inspection 
requirement for PBV and that a random sampling of at least 20 percent 
of the PBV units in each building may be used to fulfill that biennial 
inspection requirement.
D. Additional Units Without Competition
    The new language in section 8(o)(13)(F)(ii) allows PHAs and owners 
to amend the HAP contract to add additional PBV contract units in 
projects that already have a HAP contract without having to fulfill the 
selection requirements (see 24 CFR 983.51(b)) for those added PBV 
units, regardless of when the HAP contract was signed. The additional 
PBV units, however, are still subject to the PBV program cap and the 
individual project caps, found in sections 8(o)(13)(B) and (D) of the 
1937 Act, respectively. Furthermore, prior to attaching additional 
units without competition, the PHA must submit to the local field 
office the information described in section C.2.A above, which pertains 
to demonstrating the PHA is able to project-base additional units 
without exceeding the PHA program limitation on PBV units. PHAs must 
also detail their intent to add PBV units in this manner in their 
administrative plan, along with their rationale for adding PBVs to this 
specific project. This provision overrides the restriction in 24 CFR 
983.207(b) that additional units may only be added to the HAP contract 
during the three-year period immediately following execution of the HAP 
contract. All of the other requirements under Sec.  983.207(b) continue 
to apply.
E. Additional Contract Conditions
    The new 8(o)(13)(F)(IV) allows the PBV HAP contract to have 
additional conditions, including conditions related to continuation, 
termination, or expiration. HUD is not adding any additional conditions 
to the PBV HAP contract at this time.
    The section further requires that HAP contracts specify that, upon 
termination or expiration of a contract that is not extended, a family 
living at the property is entitled to receive a tenant-based voucher 
(the voucher that was previously providing project-based assistance for 
the family in the PBV project). The PHA must provide the family with a 
voucher and that family must also be given the option by the PHA and 
owner to remain in their unit with HCV tenant-based assistance if the 
unit complies with inspection requirements and rent reasonableness 
requirements. The family must pay the total tenant payment (determined 
under 24 CFR part 5 subpart F) and any additional amount if the unit 
rent exceeds the applicable payment standard. The family has the right 
to remain in the project as long as the units are used for rental 
housing and are otherwise eligible for HCV assistance (for example, the 
rent is reasonable, unit meets HQS, etc.). The owner may not terminate 
the tenancy of a family that exercises its right to remain except for a 
serious or repeated lease violation or other good cause.
    Families that receive a tenant-based voucher at the expiration or 
termination of the PBV HAP contract are not new admissions to the PHA 
HCV tenant-based program, and are not subject to income eligibility 
requirements or any other admission requirements. If the family chooses 
to remain in their unit with tenant-based assistance, the family may do 
so regardless of whether the family share would initially exceed 40 
percent of the family's adjusted monthly income.
    The statutory owner notice requirements related to the contract 
termination or expiration at 24 CFR 983.206 continue to apply to the 
PBV program. If the owner fails to provide timely notice of 
termination, the owner must permit the tenants in assisted units to 
remain in their units for the required notice period with no increase 
in the tenant portion of the rent, and with no eviction as a result of 
an owner's inability to collect an increased tenant portion of the 
rent. For families that wish to remain at the property, the HCV tenant-
based assistance would not commence until the owner's required notice 
period ends.
Question for Comment
    Are there additional parameters HUD should consider placing on PHAs 
and owners when amending HAP contract terms related to continuation, 
termination or expiration?
5. Preference for Families Who Qualify for Voluntary Services (Sec.  
8(o)(13)(J) of 1937 Act)
    Section 106(a)(7)(A) and (C) of HOTMA makes changes to section 
8(o)(13)(J) of the 1937 Act to allow a PHA to allow owners with PBV 
contracts to create and maintain site-based waiting lists. HUD is not 
implementing these provisions at this time, but instead will pursue 
rulemaking.
    However, section 106(a)(7)(B) of HOTMA provides that a PHA may 
establish a selection preference for families who qualify for voluntary

[[Page 5470]]

services, including disability-specific services, offered in 
conjunction with assisted units, provided that the preference is 
consistent with the PHA plan. This is a change from the current 
regulatory requirement at 24 CFR 983.251(d), that provides in selecting 
families, PHAs may give preference to disabled families who need the 
services offered at a particular project in accordance with the limits 
under the regulatory paragraph, regardless of whether the family 
qualifies for the supportive service and will actually be able to 
receive the supportive services. Note, however, that the prohibition on 
granting preferences to persons with a specific disability at 24 CFR 
982.207(b)(3) continues to apply. This document provides PHAs with 
additional guidance and information on how to establish such 
preferences.
A. Selection Preference for Families Who Qualify for Voluntary Services
(1) Consistency With Nondiscrimination and Civil Rights Statutes and 
Requirements
    Both the owner and the PHA are responsible for ensuring that the 
proposed preference is consistent with all applicable Federal 
nondiscrimination and civil rights statutes and requirements. This 
includes, but is not limited to, the Fair Housing Act, Title VI of the 
Civil Rights Act, Section 504 of the Rehabilitation Act, the Americans 
with Disabilities Act, and HUD's Equal Access Rule. See 24 CFR 
5.105(a). It is also the responsibility of the PHA to ensure that an 
owner is carrying out the PHA's program in a manner consistent with 
Section 504. There are unique requirements regarding the selection 
preference when considered in the context of providing services for 
individuals with disabilities. In particular, the statutory language 
permitting a preference for individuals who qualify for voluntary 
services, including disability-specific services, must be read 
consistent with Federal laws that provide protections against 
discrimination based on disability and segregation of individuals with 
disabilities as well as the affirmative requirement that programs, 
services, and activities be provided in the most integrated setting 
appropriate to the needs of individuals with disabilities. Among these 
requirements, PHAs and owners, and in certain circumstances services 
providers, may not impose eligibility criteria that discriminate on the 
basis of disability, and must comply with the integration mandate.
    The HOTMA amendments permit a PHA to establish a preference based 
on who qualifies for voluntary services, including disability-related 
services, offered in conjunction with the assisted units. Consistent 
with Federal nondiscrimination laws, qualifications or eligibility 
criteria, including for voluntary services, cannot be applied in a 
discriminatory manner. In particular, PHAs, owners, and service 
providers cannot impose additional admissions criteria that 
discriminate or are applied in a discriminatory manner. Any individual 
who is qualified for the services must be able to receive the 
preference, including qualified individuals with disabilities, 
regardless of disability type.
    Voluntary services can consist of a variety of activities, 
including for example, meal service adequate to meet nutritional needs, 
housekeeping assistance, personal assistance, transportation services, 
case management, child care, education services, employment assistance 
and job training, counseling services, life skills training, and other 
services designed to help the recipient live in the community as 
independently as possible. Voluntary services can also include 
disability-specific services, such as mental health services, 
assistance with activities of daily living, personal assistance 
services, outpatient health services, and the provision of medication, 
which are provided to support a person with a disability. Such services 
may also include, for example, services provided by State Medicaid 
programs to promote community based settings for individuals with 
disabilities.
    The revised statute permits such a preference to be established if 
it is consistent with the PHA plan. As part of the PHA plan review 
process, the Office of Fair Housing and Equal Opportunity, in 
consultation with the Office of General Counsel, will review each 
proposed preference for consistency with fair housing and civil rights 
requirements. As part of this process, HUD may request the PHA or owner 
provide any additional documentation necessary to determine consistency 
with the PHA plan and all applicable federal fair housing and civil 
rights requirements. In developing any proposed targeted preferences, 
PHAs must comply with the requirements outlined in PIH Notice 2012-31 
and HUD's Statement on the Role of Housing in Accomplishing the Goals 
of Olmstead.
(2) Preferences for Disability-Specific Services
    A PHA or owner may offer a preference for individuals who qualify 
for voluntary services offered in connection with the units. Such 
services may or may not include disability-specific services. For 
example, a preference may be only for persons who qualify for 
employment assistance, or for transportation services, or a preference 
may be for persons who qualify for either housekeeping assistance, case 
management, or outpatient health services. If a PHA or owner decides, 
however, that the only preference that will be offered is based on 
qualification for a disability-specific service, it is especially 
important for the entity to consider how to implement this preference 
consistent with Section 504 and the ADA, and their implementing 
regulations.
    Further, the statutory language allowing an agency or owner to give 
preference to families who qualify for voluntary services, including 
disability-specific services, must be implemented consistent with the 
integration mandate under Section 504 and Title II of the ADA. 24 CFR 
8.4(d); 28 CFR 35.130(d). The integration mandate, as mentioned earlier 
in the notice, requires that covered entities ensure persons with 
disabilities can interact with persons without disabilities to the 
fullest extent possible. HUD has provided guidance on what the 
Department considers integrated settings in the housing context:

    ``Integrated settings also enable individuals with disabilities 
to live independently with individuals without disabilities and 
without restrictive rules that limit their activities or impede 
their ability to interact with individuals without disabilities. 
Examples of integrated settings include scattered-site apartments 
providing permanent supportive housing, tenant-based rental 
assistance that enables individuals with disabilities to lease 
housing in integrated developments, and apartments for individuals 
with various disabilities scattered throughout public and 
multifamily housing developments.'' \2\
---------------------------------------------------------------------------

    \2\ Statement of the Department of Housing and Urban Development 
on the Role of Housing in Accomplishing the Goals of Olmstead, 
http://portal.hud.gov/hudportal/documents/huddoc?id=OlmsteadGuidnc060413.pdf.

    By contrast, HUD has stated that segregated settings are ``occupied 
exclusively or primarily by individuals with disabilities.'' \3\
---------------------------------------------------------------------------

    \3\ The U.S. Department of Justice provides additional relevant 
guidance on the application of the integration mandate under Title 
II and Section 504 in its Statement of the Department of Justice on 
Enforcement of the Integration Mandate of Title II of the Americans 
with Disabilities Act and Olmstead v. L.C., https://www.ada.gov/olmstead/q&a_olmstead.htm and its Olmstead compliance and 
enforcement efforts, https://www.ada.gov/olmstead/index.htm.

---------------------------------------------------------------------------

[[Page 5471]]

    In addition, requirements under the Fair Housing Act, including the 
regulatory obligation under 24 CFR 100.70(c)(4) regarding dispersion of 
units occupied by individuals with disabilities and not assigning 
individuals with disabilities to a particular section or floor of a 
building, continue to apply.
    As more states implement requirements under Title II of the ADA and 
Olmstead, which are focused on transitioning individuals from 
institutional and other segregated settings into integrated community-
based settings, as well as assisting individuals at risk of 
institutionalization from entering such settings, there is an increased 
need for affordable, integrated, and accessible housing opportunities. 
To assist with these concerns, PHAs or owners may want to coordinate 
with other relevant agencies implementing Olmstead planning and 
transition planning related to the Centers for Medicare and Medicaid 
Services (CMS)' Home and Community-Based Setting (HCBS) regulation in 
their State. HUD encourages the PHA or owner to consult with the 
relevant agencies who make determinations as to whether the housing 
qualifies as a HCBS under the CMS regulations to allow for State 
Medicaid funding to be accessed at the site. The CMS regulations 
specify the qualities that HCBS must have in order to receive funding, 
including that the setting is integrated.
B. Informed Client Choice and Self-Determination
    HUD emphasizes the importance of client choice, independence, and 
self-determination in implementing this provision. Consistent with the 
statutory language, as well as federal fair housing and civil rights 
requirements, participation in services is voluntary. Accordingly, the 
existing regulatory language at 24 CFR 982.251(d)(2) stating that 
residents with disabilities shall not be required to accept the 
particular services at the project continues to apply. Program 
beneficiaries who receive housing because of the preference still have 
the ability to receive voluntary services from a service provider of 
their choosing, or choose not to participate in services at all. 
Similarly, an individual who chooses to no longer participate in a 
service or who no longer qualifies for services he or she did qualify 
for at the time of initial occupancy cannot subsequently be denied a 
continued housing opportunity because of this changed circumstance. A 
PHA or owner also cannot determine that a participant's needs exceed 
the level of care offered by qualifying services or require that 
individuals be transitioned to different projects based on service 
needs
C. Additional Requirements
     PHAs and project owners must also ensure that their 
programs are operated in a manner to affirmatively further fair housing 
under the Fair Housing Act, 42 U.S.C. 3608, and related authorities, 
such as the Affirmatively Furthering Fair Housing Rule, 24 CFR 5.150 et 
seq.
     Housing providers cannot use a preference to impose 
additional criteria that intentionally discriminates against members of 
any protected class or may result in a discriminatory effect. For 
recent HUD guidance on discriminatory effects under the Fair Housing 
Act, see Office of General Counsel Guidance on Application of Fair 
Housing Act Standards to the Use of Criminal Records by Providers of 
Housing and Real Estate-Related Transactions, https://portal.hud.gov/hudportal/documents/huddoc?id=HUD_OGCGuidAppFHAStandCR.pdf; Office of 
General Counsel Guidance on Fair Housing Act Protections for Persons 
with Limited English Proficiency, http://portal.hud.gov/hudportal/documents/huddoc?id=lepmemo091516.pdf.
     PHAs and owners must also ensure their implementation of 
preferences and other operations comply with other Federal 
nondiscrimination requirements. This includes, among other 
requirements, providing reasonable accommodations for persons with 
disabilities, auxiliary aids and services necessary to ensure effective 
communication with individuals with disabilities, which includes 
ensuring that information is provided in appropriate accessible formats 
as needed, e.g., Braille, audio, large type, accessible web-based 
applications, assistive listening devices, and sign language 
interpreters, and taking reasonable steps to maximize the utilization 
of accessible units (units accessible to persons with mobility 
impairments and units accessible to persons with hearing or vision 
impairments) by eligible individuals who need the accessibility 
features of the particular unit. For additional guidance on permissible 
PHA preferences, please see the Statement of the Department of Housing 
and Urban Development on the Role of Housing in Accomplishing the Goals 
of Olmstead, http://portal.hud.gov/hudportal/documents/huddoc?id=OlmsteadGuidnc060413.pdf, and PIH Notice 2012-31, http://portal.hud.gov/hudportal/documents/huddoc?id=pih2012-31.pdf. In 
addition, HUD anticipates issuing additional guidance on the 
application of HOTMA, including fair housing guidance.
6. Attaching PBVs to Structures Owned by PHAs (Sec.  8(o)(13)(N) of 
1937 Act)
    The new section 8(o)(13)(N) allows PHAs to attach PBVs to projects 
in which the PHA has an ownership interest or has control of, without 
following a competitive process, in cases where the PHA is engaged in 
an initiative to improve, develop, or replace a public housing property 
or site. The PHA's ownership interest does not have to meet the 
definition of the term ``owned by a PHA'' established by section 105 of 
HOTMA. For purposes of this section, an ownership interest means that 
the PHA or its officers, employees, or agents are in an entity that 
holds any such direct or indirect interest in the building, including, 
but not limited to an interest as: titleholder; lessee; a stockholder; 
a member, or general or limited partner; or a member of a limited 
liability corporation. These PBV projects are still subject to all 
other applicable PBV requirements.
    In order to be subject to this non-competitive exception, the PHA 
must be planning rehabilitation or construction on the project with a 
minimum of $25,000 per unit in hard costs. The PHA must detail in its 
PHA administrative plan what work it plans to do on the property or 
site and how many units of PBV it is planning on adding to the site.
    This section overrides the regulatory requirements for selection of 
PBV proposals at 24 CFR 983.51(b).
Questions for Comment
    1. Is the $25,000 per unit threshold appropriate for this exception 
from the competitive process? HUD chose the $25,000 threshold based on 
the findings of the 2010 Capital Needs study on the average existing 
capital need per public housing unit, but is seeking public comment on 
other possible dollar thresholds or methodologies for determining 
whether a PHA's rehabilitation or construction projects qualifies as an 
initiative to improve, develop, or replace a public housing property or 
site.
    2. The law provides that this section is applicable to a PHA that 
has an ownership interest in or has control of the project. Are there 
examples or cases where a PHA may have control of a project but would 
not have any ownership interest in the project that HUD should address 
in future implementing guidance or when

[[Page 5472]]

conforming the regulation to these provisions?
7. Project-Basing Special-Purpose Vouchers (Sec.  8(o)(13)(O) of 1937 
Act)
    HOTMA added a new section 8(o)(13)(O) to the 1937 Act, allowing 
PHAs to project-base Family Unification Program (FUP) and HUD-VASH 
vouchers without requiring additional HUD approval. This document 
serves as official notice that this statutory change is effective as of 
April 18, 2017. This document also provides additional information on 
how PHAs may project-base HUD-VASH or FUP vouchers.
    All normally applicable PBV requirements under 24 CFR part 983 or 
implemented through this document apply to project-based FUP and HUD-
VASH vouchers, and PHAs must continue to meet all of their obligations 
to assist the required number of HUD-VASH and FUP families for their 
HCV programs.
A. HUD-VASH Vouchers
    The most current requirements for the HUD-VASH program may be found 
in PIH Notice 2015-10. In that notice, HUD requires that PHAs wishing 
to project-base HUD-VASH vouchers must meet certain requirements in 
order to do so. Those PBV requirements are now superseded by the 
statutory amendments made by HOTMA.
    However, statutory authorization for the HUD-VASH program, 
including section 8(o)(19) of the 1937 Act and the FY 2016 
appropriations Act,\4\ requires that PHAs conduct their HUD-VASH 
programs in conjunction with a Veterans Administration Medical Center 
(VAMC), which must make supportive services available to individuals 
receiving HUD-VASH assistance. Therefore, in order to meet the 
requirement that the PHA provide rental assistance in conjunction with 
a VAMC's ability to provide supportive services, PHAs wishing to 
project-base HUD-VASH vouchers must consult with their partner VAMC to 
ensure that the VAMC will be able to continue to provide supportive 
services should the PHA project-base its HUD-VASH vouchers. 
Furthermore, PHAs that received HUD-VASH PBV set-aside funds must 
continue to comply with all of the terms and conditions that apply to 
those vouchers.
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    \4\ Division L, Title II of the Consolidated Appropriations Act, 
2016 (Pub. L. 114-113, approved December 18, 2015).
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B. Family Unification Program (FUP) Vouchers
    HOTMA also allows PHAs to project-base vouchers awarded to the PHA 
for the FUP program without further approval from HUD. However, HUD 
encourages PHAs wishing to do so to consider whether project-basing 
such vouchers yields significant benefits, whether doing so would limit 
the ability of youth to use such vouchers, and whether project-basing 
FUP vouchers would allow the PHA to serve the populations eligible for 
FUP vouchers in such a way as to keep the units filled. A PHA project-
basing FUP vouchers may limit the project-based vouchers to one 
category of FUP eligible families, such as making the project-based 
vouchers exclusively available for FUP-youth.
Questions for Comment
    1. Is there an advantage to grouping FUP families (either FUP 
families, FUP youth, or all FUP families) in one project (as opposed to 
interspersed with other PBV units in a PHA's portfolio)?
    2. How would the PHA administer waitlists and preferences to manage 
FUP availability across multiple waitlists?
    3. How do PHAs ensure mobility access with a time-limited voucher 
(i.e., FUP voucher that is assisting a FUP-eligible youth)?
4. How do PHAs ensure full occupancy of PBV units with time-limited 
vouchers and limited numbers?
D. Using Vouchers in Manufactured Housing (HOTMA Sec.  112)
    Section 112 of HOTMA amends section 8(o)(12) of the 1937 Act with 
respect to the use of voucher assistance provided to families that are 
owners of manufactured housing. Prior to the HOTMA amendment, voucher 
assistance payments on behalf of owners of manufactured housing under 
section 8(o)(12) could only be made to assist the manufactured home 
owner with the rent for the space on which the manufactured home is 
located (the manufactured home space). Section 112 expanded the 
definition of ``rent'' for manufactured home owners receiving voucher 
assistance to also include other housing expenses, specifically the 
monthly payments made by the family to amortize the cost of purchasing 
the manufactured home (including any required insurance and property 
taxes) and tenant-paid utilities.
    The use of housing assistance payments to assist a manufactured 
home owner with the rent of the manufactured home space and other 
eligible expenses continues to be a special housing type under 24 CFR 
part 982 subpart M. In general, the PHA is not required to permit 
families to use any of the special housing types and may limit the 
number of families using special housing types. However, the PHA must 
permit use of any special housing type if needed as a reasonable 
accommodation so that the program is readily accessible to and usable 
by persons with disabilities in accordance with 24 CFR part 8.
    For manufactured home owners that are currently receiving HCV 
assistance to rent the manufactured home space in accordance with 24 
CFR 982.622 through 982.624, the PHA must implement the HOTMA changes 
to the calculation of ``rent'' and the amount of subsidy effective on 
the first regular reexamination following the effective date of this 
document, or no later than one year after the effective date of this 
document (if the first regular examination falls after that date). The 
new subsidy calculation shall apply from that point on during the term 
of the HAP contract.
    24 CFR 982.622 and 982.624 continue to apply for HCV assistance 
provided on behalf of a manufactured home owner that is renting the 
manufactured home space. Section 982.623, which covers how the housing 
assistance payment is calculated, is no longer applicable. Instead, if 
a PHA chooses to provide voucher assistance to a manufactured home 
owner who is renting the manufactured home space, the monthly housing 
assistance payment is calculated as the lower of:
    (a) The PHA payment standard minus the total tenant payment; or
    (b) The rent of the manufactured home space (including other 
eligible housing expenses) minus the total tenant payment.
    The PHA payment standard is determined in accordance with 24 CFR 
982.505 and is the payment standard used for the PHA's HCV program. The 
payment standard for the family is the lower of the payment standard 
amount for the family unit size or the payment standard amount for the 
size (number of bedrooms) of the manufactured home. The separate fair 
market rent (FMR) for a manufactured home space is no longer applicable 
to establishing the payment standard for a manufactured homeowner who 
is renting the manufactured home space since the payment is assisting 
the homeowner with other housing expenses. The PHA payment standard 
will be based on the applicable HUD published FMR for the area in which 
the manufactured home space is located.
    The rent of the manufactured home space (including other eligible 
housing expenses) is the total of:
    (a) The rent charged for the manufactured home space;

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    (b) owner maintenance and management charges for the space;
    (c) the monthly payments made by the family to amortize the cost of 
purchasing the manufactured home, including any required insurance and 
property taxes; and
    (d) the applicable allowances for tenant paid utilities.
    The monthly payment made by the family to amortize the cost of 
purchasing the manufactured home is the debt service established at the 
time of application to a lender for financing the purchase of the 
manufactured home if monthly payments are still being made. Any 
increase in debt service due to refinancing after purchase of the home 
may not be included in the amortization cost. Debt service for set-up 
charges incurred by a family may be included in the monthly 
amortization payments made by the family. In addition, set-up charges 
incurred before the family became an assisted family may be included in 
the amortization cost if monthly payments are still being made to 
amortize the charges.
    The total amount for the rent of the manufactured home space and 
the other eligible expenses is reported in PIC on the HUD-50058 on line 
12k, even though it includes amounts in addition to the total monthly 
rent payable to the owner under the lease for the contract unit.
    The utility allowances are the applicable utility allowances from 
the PHA utility allowance schedule under 24 CFR 982.517 and 982.624.
    If the amount of the monthly assistance payment for a family 
exceeds the monthly rent for the manufactured home space (including the 
owner's monthly management and maintenance charges), the PHA may pay 
the remainder to the family, lender or utility company.
    HOTMA further provides that the PHA may choose to make a single 
payment to the family for the entire monthly assistance amount rather 
than making the HAP directly to the owner of the manufactured home 
space the family is renting. HUD is not implementing this option at 
this time but is seeking comment on how to best implement this option, 
including how to best ensure the PHA may still take enforcement action 
when necessary against an owner who fails to fulfill his or her 
responsibilities under the HCV program.
Question for Comment
    When implementing the option to allow the PHA to make a single HAP 
directly to the family, how would HUD ensure that a PHA take 
enforcement action against an owner of a manufactured home space who 
fails to fulfill his or her responsibilities under the HCV program? 
Would a manufactured home park owner be willing to enter into a 
contract under which he or she would receive no direct payment?

III. Environmental Impact Certification

    A Finding of No Significant Impact (FONSI) with respect to the 
environment has been made in accordance with HUD regulations in 24 CFR 
part 50 that implement section 102(2)(C) of the National Environmental 
Policy Act of 1969 (42 U.S.C. 4332(2)(C)). The FONSI is available for 
public inspection on www.regulations.gov.

    Dated: January 10, 2017.
Nani Coloretti,
Deputy Secretary.
[FR Doc. 2017-00911 Filed 1-17-17; 8:45 am]
BILLING CODE 4210-67-P