oversight

The Poplar Bluff Housing Authority Improperly Phased In Flat Rents

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-03-09.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

        Poplar Bluff Housing Authority,
               Poplar Bluff, MO
                            Public Housing Program




Office of Audit, Region 7                Audit Report Number: 2016-KC-1002
Kansas City, MO                                               March 9, 2016
To:            Daniel W. Sherrod, Director, Office of Public Housing, 7EPH
               //signed//
From:          Ronald J. Hosking, Regional Inspector General for Audit, 7AGA
Subject:       The Poplar Bluff Housing Authority Improperly Phased In Flat Rents




Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of the Poplar Bluff Housing Authority.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call me at
913-551-5870.
                    Audit Report Number: 2016-KC-1002
                    Date: March 9, 2016

                    The Poplar Bluff Housing Authority Improperly Phased In Flat Rents




Highlights

What We Audited and Why
We audited the Poplar Bluff Housing Authority because information obtained from the U.S.
Department of Housing and Urban Development’s (HUD) Public and Indian Housing
Information Center indicated that the Authority appeared to have flat rents set at a rate below 80
percent of the fair market rent in that area. Our objective was to determine whether the
Authority complied with HUD’s flat rent requirements.

What We Found
The Authority did not properly implement HUD’s flat rent requirements. It improperly phased
in flat rent increases for 30 newly admitted tenants, 6 tenants converting to flat rent from an
income-based rent, and 7 additional tenants with recertifications since September 2015. As a
result, it undercharged flat rent tenants by $11,853 from October 1, 2014, to December 31, 2015,
and it will undercharge these tenants by $19,679 during the next year if it does not correct this
problem. It will also collect increased operating subsidies from HUD in the future.

What We Recommend
We recommend that HUD’s St. Louis Office of Public Housing (1) monitor the Authority to
ensure that it properly implements flat rent requirements, thereby putting $19,679 to better use
over the next year and (2) add the $11,853 of undercharged flat tenant rent to the appropriate
operating subsidy calculations to ensure that it does not overpay operating subsidies in the future.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding: The Authority Improperly Phased In Flat Rents .......................................... 4

Scope and Methodology ...........................................................................................7

Internal Controls ......................................................................................................9

Appendixes ..............................................................................................................10
         A. Schedule of Funds To Be Put to Better Use ............................................................ 10
         B. Auditee Comments and OIG’s Evaluation ............................................................. 11
         C. Criteria ....................................................................................................................... 15




                                                                     2
Background and Objective
The Poplar Bluff Housing Authority is governed by a five-member board of commissioners
appointed by the mayor of Poplar Bluff, MO, and approved by the city council. The Authority’s
administration building and records are located at 302 North E Street, Poplar Bluff, MO. The
Authority operates a 575-unit low-rent public housing program, consisting of 289 elderly units
(project number MO013000002) and 286 family units (project number MO013000001). The
U.S. Department of Housing and Urban Development (HUD) provides funding based on formula
distribution to public housing agencies to cover operating and management costs. Funding
eligibility is offset by the amount of expected tenant rental revenue.
                Operating subsidy funding - Poplar Bluff Housing Authority
       Project number                      2014                          2015
       MO013000001                      $839,481                      $1,011,528
       MO013000002                      $461,363                        550,302
            Totals                           $1,300,844                         $1,561,830

Once each year, public housing agencies must offer families the choice between a flat rent or an
income-based rent. Flat rents are intended to reflect market values. When a family’s income-
based rent is above market value, the family may elect to pay a flat rent instead. According to
HUD guidance, higher flat rent levels will ensure that families with higher income pay an
appropriate market-based rent. Lower rents are a disincentive for tenants to become self-
sufficient and move into unassisted housing, which helps to allow public housing resources to go
to those most in need of assistance. HUD encourages public housing agencies to provide a
balance between the important goals of supporting the sustained self-sufficiency of families with
the increasing demand for affordable housing units among families on their waiting lists.
On May 19, 2014, HUD’s Office of Public and Indian Housing (PIH) issued Notice PIH 2014-
12(HA). This notice introduced the requirement that flat rents be at least equal to 80 percent of
the applicable fair market rent. Fair market rents are gross rent estimates that cover the shelter
rent plus the cost of all necessary utilities. The notice also provided the discretion to public
housing agencies to phase in rent increases of 35 percent or less over a 3-year period. HUD
published questions and answers under this notice clarifying that any flat rent increase phase-ins
should be on a case-by-case basis for existing flat rent tenants.
On September 8, 2015, HUD issued Notice PIH 2015-13(HA). This notice continued the
provision that flat rents must be at least equal to 80 percent of the applicable fair market rent but
removed the ability for public housing agencies to phase in flat rent increases of 35 percent or
less over a 3-year period.
Our objective was to determine whether the Authority complied with HUD’s flat rent
requirements.




                                                  3
Results of Audit

Finding: The Authority Improperly Phased In Flat Rents
The Authority did not properly implement HUD’s flat rent requirements. It misunderstood the
provisions for phasing in flat rent in Notices PIH 2014-12(HA) and PIH 2015-13(HA). As a
result, it undercharged flat rent tenants by $11,853 from October 1, 2014, to December 31, 2015,
it will undercharge these tenants by $19,679 during the next year if it does not correct this
problem, and it will collect increased operating subsidies from HUD in the future.
Flat Rent Increases Improperly Phased In
The Authority did not properly implement HUD’s flat rent requirements. Of the Authority’s 101
total flat rent tenants, it improperly phased in flat rent increases for 30 newly admitted tenants, 6
tenants converting to flat rent from an income-based rent, and 7 additional tenants with
reexaminations since September 2015.
Improperly Phased-In Rent Increases for New Flat Rent Tenants
The Authority improperly phased in flat rent increases for 30 newly admitted tenants and 6
tenants converting to flat rent from an income-based rent. Notice PIH 2014-12(HA) required
public housing agencies to set flat rent at no less than 80 percent of the local fair market rent. It
also allowed agencies the discretion to phase in flat rent increases over a 3-year period on a case-
by-case basis for existing flat rent tenants whose rental payments would be increased by 35
percent or less. The Authority updated its flat rent schedules by globally phasing in the increase
over a 3-year period as shown in figures 1 and 2.

       Figure 1: Poplar Bluff Housing Authority flat rent schedule for family units
                                        Year 1 phase- Year 2 phase-in Year 3 phase-
       Unit           Prior flat rent
                                         in 10/01/2014       10/01/2015       in 10/01/2016
1 bedroom project 1        $282              $274
1 bedroom project 5                          $272
2 bedroom project 1        $339              $352               $365               $378
2 bedroom project 5                          $353               $367               $379
3 bedroom project 1        $424              $443               $462               $481
3 bedroom project 5                          $443               $462               $480
3 bedroom project 7                          $444               $464               $482
4 bedroom project 1        $500              $505               $510               $515
4 bedroom project 5                          $504               $508               $511




                                                  4
        Figure 2: Poplar Bluff Housing Authority flat rent schedule for elderly units
                                          Year 1 phase- Year 2 phase-in Year 3 phase-
        Unit            Prior flat rent
                                          in 10/01/2014        10/01/2015       in 10/01/2016
     1 bedroom              $282              $310                $338              $366
     2 bedroom              $339              $388                $437              $484
     3 bedroom              $424              $484                $544              $602
     4 bedroom              $500              $550                $600              $650


HUD published questions and answers related to Notice PIH 2014-12(HA) further clarifying that
public housing agencies were permitted to phase in flat rent increases only on a case-by-case
basis for families that were paying flat rent at the time the new flat rents were implemented.
New admission tenants and tenants switching to flat rent from an income-based rent were
required to pay the full flat rent amount and were not allowed to pay the lower phased-in rent.
Since the Authority phased in applicable flat rent increases for its flat rent schedules instead of
phasing in increases on a case-by-case basis, new flat rent tenants were offered a phased-in flat
rent amount based on when they began paying flat rent. The Authority improperly allowed 30
new admission tenants and 6 tenants switching from an income-based rent to flat rent since
October 1, 2014, to pay the lower phased-in flat rents.
Improperly Phased-In Flat Rent Increases for Annual Recertification Tenants
The Authority had improperly phased in flat rent increases for seven additional tenants since
September 8, 2015. Notice PIH 2015-13(HA) removed the option for public housing agencies to
phase in flat rent increases of 35 percent or less. The notice further specified that for any tenants
paying a phased-in flat rent amount under the previous notice, public housing agencies did not
need to take immediate action to increase rent but were required to offer the full flat rent amount
at the tenant’s next annual rent option. The Authority updated its flat rent schedule under the
notice to remove the phase-in periods, but its updated schedule was not set to go into effect until
April 1, 2016. The Authority improperly allowed seven tenants that had annually recertified
since HUD issued the notice on September 8, 2015, to continue paying the phased-in flat rent
amounts identified in figures 1 and 2.
Requirements Misunderstood
The Authority misunderstood the provisions in the notices for phasing in flat rent increases. It
was not aware of the questions and answers for Notice PIH 2014-12(HA) and thought it needed
to wait for HUD to publish updated fair market rents before implementing Notice PIH 2015-
13(HA).
The Authority stated that it was not clear from Notice PIH 2014-12(HA) that phased-in flat rent
increases should be applied only on a case-by-case basis and that phased-in rent increases were
not available for new admissions or tenants switching to flat rent from an income-based rent.
The Authority was unaware of the questions and answers HUD published for Notice PIH 2014-
12(HA), which clarified the requirement.
The Authority did not realize from Notice PIH 2015-13(HA) that it needed to stop using phased-
in flat rent increases for annual recertifications completed since HUD issued the notice on



                                                  5
September 8, 2015. The Authority thought that it needed to wait for HUD to publish updated
fair market rents before updating its flat rents. Because the Authority improperly applied the
previous phase-ins across its entire schedule rather than on a case-by-case basis, it continued to
offer phased-in flat rents to tenants annually recertifying while it was preparing a new schedule
based on 2016 fair market rents.
Flat Rent Tenants Undercharged
The Authority undercharged flat rent tenants and will collect increased operating subsidies from
HUD in the future.
The Authority undercharged flat rent tenants by $11,853 from October 1, 2014, to December 31,
2015. We calculated the undercharged rent by comparing the difference between the actual
amount the Authority charged and the amount the Authority should have charged over our
review period. It will undercharge flat rent tenants by $19,679 during the next year if it does not
correct this problem. Tenants were admitted, converted to flat rent, or annually recertified at
different times during this period. Therefore, we calculated the future amount of undercharged
rent by projecting the amount undercharged during the most recent month of our review period,
December 2015 ($1,640), over a 12-month period.
The Authority will collect increased operating subsidies from HUD in the future. HUD’s
operating subsidy calculation is based on rental income received from tenants during prior years.
The undercharged flat rent during our review period will cause HUD to calculate the Authority’s
calendar years 2017 and 2018 operating subsidies based on lower rental income amounts than if
the Authority had properly set its flat rents. HUD’s operating subsidies will be increased to
make up for lower rental income amounts. We are not able to calculate the actual amount that
subsidy will be overpaid because some factors of the calendar year 2017 and 2018 calculations
are not yet determined, however, if HUD adds the amount of undercharged tenant rent to the
rental income received portion of the applicable operating subsidy calculations, it will ensure it
does not overpay operating subsidies in the future.
Conclusion
The Authority undercharged flat rent tenants by $11,853, it will undercharge these tenants by
$19,679 during the next year if it does not correct this problem, and it will collect increased
operating subsidies from HUD in the future because it misunderstood the provisions for phasing
in flat rent outlined in Notices PIH 2014-12(HA) and PIH 2015-13(HA).
Recommendations
We recommend that the Director of HUD’s St. Louis Office of Public Housing

       1A.     Monitor the Authority to ensure that it properly implements flat rent requirements,
               thereby putting $19,679 to better use over the next year.
       1B.     Include the $11,853 in undercharged flat tenant rent to the appropriate operating
               subsidy calculations to ensure that it does not overpay operating subsidies in the
               future.




                                                 6
Scope and Methodology
Our audit period generally covered October 1, 2014, through December 31, 2015. We performed
our audit work from December 2015 through February 2016. We conducted onsite work at the
Authority’s administrative offices located at 302 North E Street, Poplar Bluff, MO.
To accomplish our objective, we

      Reviewed applicable HUD requirements and Authority policies;
      Reviewed the audited financial statements;
      Reviewed board minutes;
      Reviewed physical records maintained by the Authority, including flat rent schedules,
       utility allowance schedules, and relevant documents in the tenants’ files;
      Interviewed Authority employees; and
      Interviewed HUD staff responsible for overseeing the Authority.
We identified a total of 101 flat rent tenants. The Authority phased in increased flat rents for its
entire flat rent schedule instead of on a case-by-case basis, so new admissions and tenants
switching to flat rent were improperly allowed to pay lower rents. Using HUD’s Public and
Indian Housing Information Center data, we determined that there were 30 tenants that were new
admissions and 6 tenants that had switched from an income-based rent to flat rent since the
Authority implemented rent updates under Notice 2014-12(HA) on October 1, 2014. In addition,
the Authority did not plan to implement rent updates from Notice PIH 2015-13(HA) until April
1, 2016, so any annual recertifications since the notice was issued on September 8, 2015, were
improperly allowed to pay phased-in flat rent increases. We identified 12 tenants that had annual
recertifications since September 8, 2015. We conducted a 100 percent review of these 48
tenants.
We did not use a statistical sample to select tenant files for review because we were looking for
specific examples of noncompliance and taking a representative statistical sample from the entire
universe of flat rent tenants would have included items that we believed to have a lower risk of
noncompliance. The results of our review sample apply only to the items reviewed and cannot
be projected to the entire universe.
We estimated the amount the Authority will undercharge tenants over the next 12-month period.
The amount that we project will be undercharged is an illustration of the impact of the error. The
actual amount may be less, but because we were not able to verify any future adjustments the
Authority may make to a tenant’s rent or the continued tenancy of any given tenant, we used the
most recent month of underpayment to project the impact over the next 12-month period.
We used computer-processed data from HUD’s Public and Indian Housing Information Center
for sample selection. We verified instances of noncompliance using supporting documentation in
the sampled tenant files. We determined that the data were sufficiently reliable for the purposes
of this report.


                                                 7
We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                8
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

   Effectiveness and efficiency of operations,
   Reliability of financial reporting, and
   Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objective:

   Policies and procedures that have been implemented to reasonably ensure that public housing
    flat rents comply with applicable laws and regulations.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:

   The Authority did not have adequate controls in place to ensure that flat rents complied with
    applicable laws and regulations.




                                                  9
Appendixes

Appendix A


                        Schedule of Funds To Be Put to Better Use
                          Recommendation Funds to be put
                              number          to better use 1/
                                   1A                $19,679
                                   1B                $11,853

                                 Totals              $31,532



1/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this case, if the Authority properly implements flat rent
     requirements, it will ensure that it puts $19,679 to better use over the next year, and if
     HUD adds $11,853 in underpaid rent to the appropriate operating subsidy calculations, it
     will ensure that it does not overpay operating subsidies in the future.




                                                10
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1




                               11
12
13
                         OIG Evaluation of Auditee Comments


Comment 1   The Authority concurred with our finding and revised its flat rent schedules.
            While we recommend the St. Louis, MO HUD Office conduct monitoring to
            ensure the Authority properly implements flat rent requirements, the updated flat
            rent schedules complied with HUD requirements. Proper implementation of this
            schedule will help to ensure that the Authority does not undercharge flat rent
            tenants in the future.

            We would also like to thank the Authority for its cooperation during the course of
            our review and its willingness to make changes to address these deficiencies and
            improve the future of its program.




                                             14
Appendix C
                                             Criteria


HUD Public and Indian Housing Notice 2014-12(HA)

2. APPLICABILITY, BACKGROUND, AND HUD INTERPRETATION OF NEW
STATUTORY REQUIREMENTS
Currently, PHAs [public housing agencies] are required to establish flat rents based on the
market rent of comparable units in the private, unassisted rental market. Paragraph (2)(B)(i) of
Section 3(a) of the United States Housing Act of 1937 (the Act), as amended by Section 210,
establishes new parameters that PHAs must use when determining the flat rent amounts.
Specifically, flat rents must now be:

     set at no less than 80 percent of the applicable Fair Market Rent (FMR); and
Section 210 also establishes that PHAs may, but are not required to lower flat rents to 80% of the
applicable FMR in years when the FMR decreases from the previous year. This provision
applies to the FMRs published for fiscal year 2015 and beyond. If a PHA must increase their flat
rents to comply with the statutory changes, the increase shall be considered a significant
amendment to the PHA Annual Plan. Please review Section 8 of this Notice which provides a
detailed explanation regarding significant amendments for flat rent changes. PHAs shall comply
with the new flat rent requirements by June 1, 2014. The Department [HUD] will consider PHAs
to be in compliance with the new requirements if non-qualified agencies have initiated the
process to amend their PHA Annual Plan, and qualified agencies have initiated the public hearing
process by no later than June 1, 2014. PHAs should begin applying the new flat rent schedules to
households they are recertifying and new applicants by October 31, 2014. If a new flat rent
amount for a unit will increase a family’s existing rental payment by more than 35 percent, then
the new flat rent amount shall be phased in as necessary to ensure that the family’s existing rental
payment does not increase by more than 35 percent annually. For more information, see Section
6 of this notice.

6. FLAT RENT INCREASE PHASE-IN REQUIREMENTS
Section 210 of the FY [fiscal year] 14 Appropriations Act requires that if an existing tenant’s
rental payment would be increased by 35 percent or more as a result of changes to the flat rent
amount, that the increase must be phased in such that a family would not experience an increase
in their rental payment of more than 35 percent in any one year. Although Section 210 permits
PHAs to increase flat rents by up to 35 percent annually, PHAs may consider any limitations on
annual rent increases pursuant to state and local law. For example, some states have established
annual rent increase limits of no more than 10 percent. Further, PHAs have discretion to phase-
in rent increases 35 percent or less over a three-year period. For example, for a family that will
experience a rent increase of 10 percent due to the new flat rent requirements, a PHA could
choose to phase in the total rent increase over three years.




                                                 15
In order to determine how to phase-in increases in rental payments, PHAs must:
    1) On a case-by-case basis, at the family’s next annual rent option, compare the updated
    flat rent amount applicable to the unit for which a family is currently paying the flat rent to
    the flat rent that was being paid by the family immediately prior to the annual rent option;
             a. If the new flat rent amount would not increase a family’s rental payment, the
             family may choose to pay either the updated flat rent amount or the previously
             calculated income-based rent;
             b. If the updated flat rent amount would increase a family’s rental payment, PHAs
             must conduct a flat rent impact analysis by multiplying the existing flat rent amount
             by 35 percent (or a lesser amount pursuant to state/local law) and adding that
             product to the flat rent amount (FR x 35%= X + FR). This calculation can be done
             by simply multiplying the current flat rent amount by 1.35. PHAs must then
             compare the product of the calculation to the updated flat rent amount; and
    2) The PHA must offer and the family may choose to pay, either the lower of the flat
    rents that were compared in the flat rent impact analysis or the previously calculated
    income-based rent.

Notice PIH 2014-12(HA) Question and Answers
 
9. Q: Notice PIH 2014-12 requires PHAs to phase in flat rent changes that will increase a
family’s existing rental payment by more than 35%. Does this mean that all families –
program participants and new admissions – that chose to pay flat rent will pay the same
flat rent?
    A: No. The law requires that PHAs establish flat rents at no less than 80% of the applicable
    FMR. New families that are admitted to the program after a PHA has adopted the new flat
    rent do not qualify for the phased in flat rent amounts. Therefore, all new families that are
    admitted to the program after a PHA has implemented the new requirements must be offered
    the flat rent set at no less than 80% of the applicable FMR.
    The phased-in requirement is available for families that are currently paying the flat rent.
    For those families, PHAs must assess, on a case by case basis, whether the flat rent
    increase would increase their current rental payment by more than 35%. Specifically, for a
    family that is currently paying a flat rent that is significantly below 80% of FMR, the PHA
    must cap the flat rent increase at 35% annually, and the total flat rent increase must be
    phased in.
    10. Q: Over what time period must PHAs phase in flat rents for families that will
    experience a rental payment increase by more than 35%?
    A: As described in question 9 above, the law requires PHAs to phase in flat rent increases
    at no more than 35% for families that were paying the flat rent immediately prior to the
    implementation of the new flat rent provisions. Through Notice PIH 2014-12, HUD
    required that if an existing tenant’s rental payment would be increased by 35 percent or
    more as a result of changes to the flat rent amount, then the increase must be phased in such
    that a family would not experience an increase in their rental payment of more than 35


                                                  16
   percent in any one year. HUD made a policy determination to provide PHAs a three-year
   period to align all flat rents at no less than 80% FMR. If an existing tenant’s rental payment
   would be increased by less than 35%, the PHA may phase-in the flat rent increase by any
   percentage, provided that the flat rent reaches no less than 80% FMR by the third year.
   Specifically, a PHA may choose to phase in flat rent increases at 35% or less, provided that
   the PHA reaches 80% FMR within the three-year period.
   A PHA may phase-in flat rent increases beyond the three-year period when the PHA
   phases-in the flat rent increase at 35% annually and cannot reach 80% of the applicable
   FMR in three years. For example, if a family is currently paying a flat rent of $300, but 80
   percent of the applicable FMR is $800, the family’s rent would be raised by 35% annually
   as follows: $105 increase in year 1, $142 increase in year 2, and $191.45 increase in year
   3. By year 3, the family would be paying a flat rent of approximately $739 and the PHA
   would need another year to reach $800 or 80% of FMR.

HUD Public and Indian Housing Notice 2015-13(HA)

2. APPLICABILITY, BACKGROUND, AND HUD INTERPRETATION OF NEW
STATUTORY REQUIREMENTS

The FY 2014 Appropriations Act required PHAs to establish flat rents at no less than 80 percent
of the applicable Fair Market Rent (FMR). However, if a new flat rent amount for a unit
increased a family’s existing rental payment by more than 35 percent, then the new flat rent
amount was required to be phased in as necessary to ensure that the family’s existing rental
payment did not increase by more than 35 percent annually. HUD implemented these
requirements through Notice PIH 2014-12, which outlined the changes in the FY 2014
Appropriations Act and provided guidance to PHAs on how to implement the new changes.
Through FAQs [frequently asked questions] accompanying Notice PIH 2014-12, HUD provided
flexibility to PHAs to phase in all flat rent increases over a three year period, including those
increases that were 35 percent or less.
The FY 2015 Appropriations Act further amended the public housing rent requirements for flat
rents. Specifically, the statute was amended to require that flat rents must be set at no less than
the lower of 80 percent of:
           1. the applicable fair market rental established under section 8(c) of this Act; or
           2. at the discretion of the [HUD] Secretary, such other applicable fair market rental
           established by the Secretary that the Secretary determines more accurately reflects
           local market conditions and is based on an applicable market area that is
           geographically smaller than the applicable market area used for purposes of the
           applicable fair market rental under section 8(c);

A PHA may apply for an exception waiver allowing for a flat rental amount for a property that
is lower than the amount outlined in the options above. The Secretary may grant such an
exception if HUD determines that the fair market rent for the applicable market area does not
reflect the market value of the property and the proposed lower flat rental amount is based on a
market analysis of the applicable market.



                                                  17
The FY 2015 Appropriations Act maintained the protection that any rent increase of more than
35 percent due to the flat rent changes must be phased in as necessary.
As flat rents are fully implemented, the higher rent levels will ensure that families with higher
incomes pay an appropriate market-based rent. It is an important policy goal to provide scarce
public resources to those most in need of deeply affordable housing. PHAs are therefore
reminded that they have the discretion, in accordance with federal law and regulations (24 CFR
960.261; FR-4824-F-02), to establish occupancy policies that include the eviction of public
housing tenants who are above the income limits for eligibility to participate in public housing
programs. HUD encourages PHAs to provide a balance between the important goals of supporting
the sustained self-sufficiency of families with the ever increasing demand for affordable housing
units among families on their waiting lists.

7. FLAT RENT INCREASE PHASE-IN REQUIREMENTS
In compliance with the FY 2014 Appropriations Act, Notice PIH 2014-12 required that if an
existing tenant’s rental payment would be increased by more than 35 percent as a result of
changes to the flat rent amount, the increase must be phased-in such that a family would not
experience an increase in their rental payment of more than 35 percent in any one year. Through
Notice PIH 2014-12, HUD provided additional flexibility that would permit PHAs to phase in all
rent increases resulting from the new flat rent requirements over a three year period. However,
the FY 2015 Appropriations Act provides PHAs additional flexibility to establish flat rents at
lower amounts, thereby eliminating the need for the three-year phase-in of all flat rent increases.
Therefore, pursuant to this Notice, the only flat rent increases that may be phased-in are those
where a family’s rent will increase by more than 35 percent. PHAs that began phase-ins for
families with rent increases at 35 percent or less do not need to take any immediate action to
update the flat rents for such families, but at the family’s next annual rent option, the
requirements outlined below shall apply.
In order to determine how to phase-in increases in rental payments, PHAs must:
   1) On a case-by-case basis, at the family’s next annual rent option, compare the updated
   flat rent amount applicable to the unit to the rent that was being paid by the family
   immediately prior to the annual rent option;
           a. If the new flat rent amount would not increase a family’s rental payment by
           more than 35 percent, the family may choose to pay either the updated flat rent
           amount or the previously calculated income-based rent;
           b. If the PHA determines that the updated flat rent amount would increase a
           household’s rental payment by more than 35 percent, the family may choose to
           pay the phased-in flat rent amount resulting from the flat rent impact analysis or
           the previously calculated income-based rent.




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