Today, HUD issued an advanced notice of proposed rulemaking requesting public comments to its 2013 Final Rule which implemented the Fair Housing Act’s disparate impact standard. HUD indicates this rulemaking is in light of the Supreme Court’s  2015 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., which held that disparate impact claims are cognizable under the Fair Housing Act. HUD is reexamining its rule to determine if any changes may be necessary.

HUD is specifically requesting public comments to the following six questions:

  1. Does the Disparate Impact Rule’s burden of proof standard for each of the three steps of its burden-shifting framework clearly assign burdens of production and burdens of persuasion, and are such burdens appropriately assigned?
  2. Are the second and third steps of the Disparate Impact Rule’s burden-shifting framework sufficient to ensure that only challenged practices that are artificial, arbitrary, and unnecessary barriers result in disparate impact liability?
  3. Does the Disparate Impacts Rule’s definition of “discriminatory effect” in 24 CFR 100.500(a) in conjunction with the burden of proof for stating a prima facie case in 24 CFR 100.500(c) strike the proper balance in encouraging legal action for legitimate disparate impact cases while avoiding unmeritorious claims?
  4. Should the Disparate Impact Rule be amended to clarify the causality standard for stating a prima facie case under Inclusive Communities and other Supreme Court rulings?
  5. Should the Disparate Impact Rule provide defenses or safe harbors to claims of disparate impact liability (such as, for example, when another federal statute substantially limits a defendant’s discretion or another federal statute requires adherence to state statutes)?
  6. Are there revisions to the Disparate Impact Rule that could add to the clarity, reduce uncertainty, decrease regulatory burden, or otherwise assist the regulated entities and other members of the public in determining what is lawful?

The 60 day comment period ends on August 20, 2018. Interested persons can submit comments to HUD electronically through http://www.regulations.gov or by mail.

 Ballard has been closely monitoring potential changes to the Rule and will continue to do so. We will also continue to work with clients on issues pertaining to the Rule.

On September 11, 2017, HUD published a Notice designating the 2018 Qualified Census Tracts (QCTs) and Difficult Development Areas (DDAs) for the Low Income Housing Tax Credit (LIHTC) program. Qualified Census Tracts are those areas where either (1) 50% or more of the households have incomes below 60% of the area median gross income or (2) the poverty rate is at least 25%. Difficult Development Areas are those areas with high construction, land and utility costs relative to the area median gross income.  Both QCTs and DDAs are eligible for an increase in basis and available tax credits of up to 30%.  The Notice specifically details HUD’s methodology in determining the QCTs and DDAs through the use of fair market rents, FY2017 income limits, census counts, and other income and poverty data. An interactive map, full listing of the 2018 QCTs and DDAs, and other historical data can be accessed at https://www.huduser.gov/portal/datasets/qct.html.

These 2018 designation lists are effective for allocations of LIHTC credit after December 31, 2017, or in the case of bond transactions where tax-exempt bonds are issued and the building is placed in service after December 31, 2017. The HUD Notice also explains the effectiveness of the designations for areas not specifically on a 2018 QCT or DDA list, along with illustrative examples of the consequences of the effective date for areas that either gain or lose QCT or DDA status.

 

 

On November 29, 2016, HUD published Notice PIH 2016-20 (HA) on the subject 2 CFR 200.311(c)(1) Disposition Instructions for the Public Housing Agency (PHA) Retention of Certain Public Housing Real Property (that is no longer used or was never used for public housing dwelling purposes) Free from Public Housing Use Restrictions (the “Notice”).  The Notice covers instances in which a PHA desires to retain particular property rather than sell, transfer or ground lease the property to a separate entity.

A main example for such disposition is property that once comprised public housing dwelling units assisted under Section 9 of the 1937 Act that are no longer receiving the benefit of any Section 9 assistance because the assistance was transferred through the Rental Assistance Demonstration (“RAD”). The Notice provides the following additional examples of public housing property that are eligible for disposition and retention by the PHA under the Notice:

  • administrative buildings, central warehouses, garages, community buildings or other non-dwelling structures that the PHA no longer needs to support its public housing units;
  • vacant land that formerly comprised public housing units that have been demolished with HUD approval under HOPE VI, Choice Neighborhoods grants, or Section 18 demolition under the 1937 Act;
  • “excess” vacant land that was acquired by the PHA with public housing funds from the 1937 Act, but was never developed with units operated as public housing; and
  • “excess” vacant land that was not released from the Declaration of Trust as part of a RAD.

Unless an exception is granted by HUD, a request to retain the property will require the PHA to compensate HUD based on applying the percentage of HUD’s participation in the cost of the original purchase (and costs of any improvements, including subsequent modernization) of the public housing property to the fair market value of the project or property. This calculation will often result in the PHA compensating HUD 100% of the fair market value of the property, since generally public housing property has been funded exclusively with public housing funds.

The PHA can request an exception to the compensation requirement under two scenarios. The first is if the public housing property proposed for retention will include development of rental housing or homeownership units that will be operated as housing affordable to low-income families (e.g., families with incomes at or below 80% of area median income with rents generally not to exceed 30% of 80% of area median income). The second scenario in which HUD will consider an exception to HUD compensation is if retention of the property will allow for a non-dwelling use that primarily serves or supports the service of low-income families.  HUD may require the recordation of a use restriction against the property, typically for not less than 30 years, if HUD grants a compensation exception.

To retain property as described in the Notice, PHAs must submit an Inventory Removal Application Form (HUD-52860) and HUD-52860 Addendum-G electronically and the Notice details the information to be included in the application, which includes, but is not limited to, specific authorization for the retention in the PHA Plan, an estimate of the fair market value based on an appraisal and a letter of support from the chief executive officer of the unit of local government.

HUD has been quite active this month publishing a variety of new rules and housing notices. The following is a list of some of HUD’s most recent guidance.

For certain public housing authorities (PHAs) with less than 250 public housing dwelling units, this notice offers guidance on the flexible uses of capital and operating funds for large improvements and other eligible expenditures.

For certain metropolitan areas experiencing high housing choice voucher (HCV) concentrations, this final rule allows rents to be determined by zip codes instead of the 50th percentile formula for the entire metropolitan area. According to HUD, using zip codes to define the Small Area Fair Market Rent (FMR)  will allow the agency to provide a more accurate subsidy to reduce the number of voucher families residing in areas of high poverty concentration. The rule also implements the Housing Opportunity through Modernization Act of 2016 (HOTMA) provisions related to FMRs and regulatory changes to the HCV program payment standard adjustments.

This rule amends HUD regulations to include the requirements of the 2013 reauthorization of the Violence Against Women Act (VAWA), which extended VAWA protectections beyond public housing to tenant-based and project-based Section 8 programs as well.

See our recent blog post for more detailed information on these updated RAD civil rights and reolocation requirements.

This PIH notice discusses revisions to form HUD-52725 used to report executive compensation. For calendar year 2015 compensation data collection, PHAs must complete the HUD-52725 form online and submit it electronically by December 9, 2016.

On a case by case basis, HUD will allow for the amendment and restatement of a property’s LIHPRHA Use Agreement to allow the project owner to receive proceeds from the refinance of the property, unlimited annual distributions from surplus cash, and funds accumulated in a residual receipts account. This notice outlines the circumstances under which HUD will allow such amendment and restatement, and approve LIHPRHA preservation transactions.

Pursuant to this notice, HUD allocated $500 million in CDBG-DR funds to assist long-term recovery efforts in Louisiana, Texas, and West Virginia. The notice also outlines the grant award process, and describes eligible disaster recovery activities, alternative requirements, and applicable waivers available to potential grantees.

This rule extends HUD’s equal access protections to HUD’s Native American and Native Hawaiian program regulations to ensure that eligible persons and families have access to housing programs regardless of sexual orientation, gender identity, or marital status.

 

HUD has issued a Federal Register Notice offering initial implementation guidance for the Housing Opportunities through Modernization Act of 2016 (HOTMA) (Pub. L. 114-201). The notice highlighted both the HOTMA provisions that are self-implementing or otherwise already in effect, and outlined certain key HOTMA provisions that will require further action by HUD.

In addition to the five self-implementing HOTMA provisions noted in our previous blog post, the following HOTMA provisions are also currently in effect due to prior HUD rulemaking or notices:

  • Section 402: Inclusion of Public Housing Agencies (PHAs) and Local Development Authorities in Emergency Solutions Grants (ESG)
  • Section 501: Inclusion of Disaster Housing Assistance Program in Certain Fraud and Abuse Prevention Measures
  • Section 502: Energy Efficiency Requirements under the Self-Help Homeownership Opportunity Program
  • Section 701: Formula and Terms for Allocations to Prevent Homelessness for Individuals Living with HIV or AIDS

In addition to clarifying which HOTMA sections are immediately applicable, the notice also highlights guidance that PHAs and other housing providers can expect from HUD in the future. This guidance includes, but is not limited to, the following topics:

  • PHA discretion in applying different payment standards for family subsidy calculations when fair market rents have decreased
  • Improving coordination between PHAs and public child welfare agencies to carry out the Family Unification Program
  • Conditions and requirements for subawarding ESG funds to PHAs and local redevelopment authorities
  • Changes to the allocation formula for the Housing Opportunities for Persons with AIDS (HOPWA) program, and forthcoming HUD regulations on the reallocation of HOPWA funds to alternative grantees
  • Annual adjusted income caps for public housing tenancy, and regulations outlining subsidy calculations for over-income families remaining in their units
  • Funding Capital Fund Replacement Reserves, caps for capital improvements, plus accounting and reporting requirements for replacement reserve funds
  • Forthcoming Mortgagee Letter to establish specific percentages of owner-occupied units in FHA-insured condominiums

Part IV of the notice also discusses the type of implementation action HUD is considering for the HOTMA sections that require further rulemaking or guidance.  We will continue to monitor HOTMA’s implementation across various HUD programs.

HUD recently published a Revised Notice for the growing Rental Assistance Demonstration (RAD) program. The Notice clarifies long-term project funding eligibilities and provides guidance on the overall conversion process, the points of which are detailed on our blog.

The Ballard Spahr RAD team is excited to announce a free webinar luncheon event on July 14 that will explore the RAD program changes and the impacts of the clarifications and modifications on existing and planned projects. Those interested can attend in person or listen in by phone. Registration is now open, and we are happily taking any related questions about RAD and the challenges, implications, and future of the recent Revised Notice.

ConstructionHUD published revised Rental Assistance Demonstration (RAD) Notice, PIH 2012-32, REV-2, on Monday, June 15. The Notice addresses stakeholder feedback on RAD’s transactional and operational issues, and also incorporates key changes to the program’s Congressionally-authorized unit cap expansion from 60,000 to 185,000 conversions. Some of the most notable revisions include clarifications to long-term project funding eligibilities and guidance on the overall conversion process:

  • The time period for the submission of multi-phase public housing applications is extended to July 1, 2018.
  • Finance plan milestones are eliminated to streamline transactional processing and to complement the deadlines of tax credit providers.
  • Program eligibility extends to Moderate Rehabilitation Single Room Occupancy (Mod Rehab SRO) properties funded under the McKinney-Vento Homeless Assistance Act.
  • Various resident and property management rights and protections are clarified.
  • Property owners of Rent Supplement (Rent Supp) and Rental Assistance Payment (RAP) programs are eligible to participate in the RAD Program and also have the option to convert properties through a long-term PBRA contract.
  • Clarifications are provided for non-dwelling property and land removal in the context of a conversion.
  • Davis-Bacon wage requirements are applied to rehabilitation/construction work.

Demand for the RAD program is anticipated to grow. To prioritize for high-need conversion, preservation, and rehabilitation, HUD has established a public housing waiting list beyond the 185,000 unit cap.

The Ballard Spahr RAD team is assessing the updates to the RAD Notice and working with key stakeholders to identify the impact of the clarifications and modifications on existing and planned projects.  We are excited to work with these RAD program changes and look forward to their fruitful implementation. Some of our Housing Plus authors, along with other affordable housing industry leaders, will host a free webinar on July 14 that will explore the need-to-know challenges, implications, and future of the recent Revised Notice. We will keep you apprised of the webinar registration details.

The U.S. Department of Housing and Urban Development (HUD) recently published a notice updating the interim regulation at 24 CFR Part 135, which provides for compliance with Section 3 of the Housing and Urban Development Act of 1968 (Section 3). Since 1994 (until now), the interim regulation has remain unchanged. The purpose of Section 3 is to ensure that when employment or contracting opportunities are generated because a covered project or activity necessitates the employment of additional persons or the awarding of contracts for work, preference will be given to low- and very low-income persons (Section 3 residents) or business concerns (Section 3 businesses) residing in the community where the project is located.

HUD’s notice seeks to incorporate new HUD programs established since 1994, promote compliance with Section 3, and codify “best practices” implemented by recipients of HUD funds. The notice proposes several changes to the Section 3 interim regulation, including but not limited to, clarifying the definitions of “new hire” and “Section 3 business,” changing the numeric goals for awarding contracts, and permitting recipients of HUD to accept self-certifications from Section 3 residents and businesses.

Interested persons are invited to submit comments on the notice no later than 60 days following the date of publication in the Federal Register (which is not yet known). The notice identifies certain key areas for which HUD is most interested in receiving comments. Comments may be submitted: 1) 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 or 2) by electronic submission at www.regulations.gov.

For more in depth coverage, please keep an eye out for Ballard Spahr’s alert that will be posted later this week.