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Excess Subsidy Repayment Agreements

When households receiving federal rental assistance - such as Section 8 - receive more assistance than they are entitled to based on their income, the residents are required to repay the excess amount. In order to ensure that these repayments are made, HUD encourages owners to work with residents by entering into repayment agreements. As noted, residents are obligated to reimburse the owner for any excess assistance received due to underreporting of income. Residents must repay the difference between the rent that should have been paid and the amount actually charged. However, residents are not required to reimburse the owner for undercharged rent caused by the owner s failure to follow HUD rules relating to the calculation of rent. In these cases, the owner must repay the excess subsidy. Notification of the Resident After a determination is made that a tenant provided false or incomplete information leading to the payment of excess rental subsidy, the owner must notify the resident in writing of the error and identify the information believed to be incorrect. The written notice must: Provide an explanation of the error;Identify what information is believed to be incorrect;Notify the resident that he or she has an opportunity to meet with the owner to discuss the allegations within ten days from the date of the letter; andInform the resident that failure to meet with the owner to discuss the situation may result in the resident s termination of tenancy. Meeting with the Resident When the owner meets with the resident, the result of the investigation must be discussed. A designated representative for the owner who has not been involved in any manner with the review of the information must chair the meeting. Once the meeting is held, within ten days the owner must provide a written final decision to the tenant based solely on the facts presented and discussed at the meeting. The decision must state the basis for the determination. Determining the Amount Owed If it is determined that the unreported (or underreported) income was unintentional, the owner must go back to the time the misreported income started and calculate the difference between the amount of rent the resident should have paid and the amount of rent the resident actually paid. The time period may not exceed the five-year limitation during which the resident was receiving assistance. (Note: if the underreporting of income was intentional {1.e., fraud}, the proper course of action is termination of tenancy). The owner must notify the resident of any amount owed and his or her obligation to reimburse the owner. A record of this calculation must be provided to the resident and be kept in the resident s file. The owner must also correct certifications and/or retroactively process certifications that should have been processed if the resident had reported accurate information at the proper time. If the owner discovers prior certifications that involve incorrect income, correction of those certifications must be created to show the accurate income for the prior certification period. Income for this time period must be verified before creating corrections and/or retroactive certifications. The information contained within the third party verification must apply to the appropriate certification time period. When processing a correction to a certification, the original certification must be in the resident file as well as the corrected certification. The corrected certification must be signed and dated by both the resident and the owner/agent along with supporting documentation. Repayment Options Residents may repay amounts due in a lump-sum (i.e., one-time) payment, periodic payments, or a combination of the two. Residents have the right to consult with HUD s Housing Counseling Agency in their area to assist them in working with the owner to reach agreeable terms for the repayment agreement. If the resident has agreed to a monthly repayment, the payment must be what the resident can afford based on the family s income. The monthly payment plus the amount of the resident s total tenant payment (TTP) at the time the repayment agreement is executed should not exceed 40 percent of the family s monthly adjusted income. The monthly payment may exceed 40 percent of the monthly adjusted income if the family agrees to the amount stated in the repayment agreement, but they cannot be forced to do so. If the family s income increases or decreased by $200 or more per month during the term of the agreement, the agreement should be renegotiated. There are no regulations that authorize owners to limit the amount of time the resident has to pay off the debt. Repayment Agreement Information that is required to be in the repayment agreement is found in HUD Handbook 4350.3, Paragraph 8-23(B): The total retroactive rent amount owed, the amount of lump sum paid at time of execution of the agreement (if any), and the monthly payment amount;A reference to the paragraphs in the lease with which the resident is in noncompliance and whereby the resident may be subject to termination of the lease;A clause stating that the terms of the agreement will be renegotiated if there is a decrease or increase in the family s income of $200 or more per month;A statement that the monthly retroactive rent repayment amount is in addition to the family s regular monthly rent payment and is payable to the owner;A statement that late and missed payments constitute default of the repayment agreement and may result in termination of assistance and/or tenancy; andDated signatures of the resident and the owner. It is recommended that the head of household and, if applicable, the family member who had the unreported or underreported income sign the repayment agreement. How Much of the Repayment May Owners Retain? Owners may retain a portion of the repayments collected from the residents who have improperly reported income at the time of certification or recertification to help defray the cost of pursuing these cases. Owners may only retain an amount necessary to cover actual costs, which is considered the lesser of: Actual costs; or20% of the amount received from the resident. Amounts retained by the owner/agent (O/A) must be deposited into the site s operating account.

2020 Mileage Rates

The IRS has issued the mileage rates for 2020, including the rate for miles driven for medical purposes. This is an important rate for Section 8 and Rural Development Properties since elderly households may deduct such mileage as a medical expense. Beginning on January 1, 2020, the new rate for medical mileage expense will be $.17 per mile, down from the 2019 rate of $.20 per mile. Elderly households with travel expenses relating to medical services have the option of claiming the expense based on the actual cost of travel, such as bus fare, cab fare, etc. In these cases, documentation of the actual cost is required. Other IRS mileage reimbursements include: Business Mileage: $.575, down cent from 2019; andDriving for charitable organizations: $.14 - unchanged from 2019.

What Affordable Housing Managers Need to Know About Changes in Retirement Laws

Just before adjourning for the Christmas/New Year holiday, Congress included, and the President signed, the Setting Every Community Up for Retirement Enhancement (SECURE) Act in the federal government spending bill. This action provides the most significant changes in retirement law in more than a decade. Some of the changes relate to how income will be determined for eligibility in various affordable housing programs, including the LIHTC and Section 8. Here are some of the changes that affordable housing managers should be familiar with: An increase in the required minimum distribution (RMD) age. Most affordable housing managers know that with the exception of Roth IRAs, individuals must begin taking a minimum annual distribution from retirement accounts once they turn 70.5. This new law increases the RMD age to 72 for persons who turn 70.5 after December 31, 2019. So, for applicants/residents who were 70.5 on or before December 31, 2019, we should still be looking for RMDs. However, if you have an applicant or resident who will turn 70.5 after December 31, 2019, the RMD will not be required until they reach age 72.Eliminated the age cap for traditional IRA contributions. Under the prior law, people age 70.5 with wage income were prohibited from putting money into a traditional IRA. This cap has been removed, meaning that regardless of age or whether they are working, individuals may continue to contribute to their IRA. So, even for older residents, the balance in these accounts may increase from year-to-year.Makes it easier to include annuities inside retirement plans. Companies have been reluctant to offer annuities in 401k plans due to legal liabilities. The SECURE Act reduces the legal issue so we may see more retirement accounts that include annuities. While this will not require any immediate change in how affordable housing managers deal with annuities, it may cause HUD to re-examine how annuities are handled for housing purposes. However, changes are incremental at HUD, so any short-term change is unlikely.Eligibility for part-time workers has been expanded. The former rules required that people work at least 1,000 hours in a calendar year to participate in most company plans. Beginning in 2021, the new law will allow those who worked at least 500 hours per year for at least three consecutive years to enroll in retirement plans. This means that affordable housing managers - beginning in 2021 - should not assume that part-time workers do not have company retirement plans such as 401ks. From the standpoint of affordable housing managers, the biggest change is the age change for RMDs. This should be kept in mind when determining the potential income of older applicants and residents.

Rules for Electronic Waiting Lists at Section 8 Properties

In most cases, HUD projects are required to maintain waiting lists. A waiting list is a formal record of applicants for housing assistance that identifies the applicant s name, date and time of application, selection preferences claimed, income category, and the need for an accessible unit. The waiting list may be kept in either a bound journal or a computer program. While many of the HUD waiting list rules apply to both the manual and electronic waiting lists, some are unique to the electronic lists. Setting Up the List There are two main issues to consider when setting up an electronic waiting list: How to maintain the list - you can use a spreadsheet or specially designed software. If special software will be used, there are some highly recommended features:Tracking History: all changes made to the waiting list are tracked;Handbook Rules are Built Into the System: this alerts the user when a change is being made to the list that violates HUD rules;List Filtering: allows the list to be sorted by various categories including unit size, applicant age, and income categories;Integration: allows applicant information to be keyed into the system only once;Reports: e.g., comparing information like precertified applicants and yearly turnover;Usability; andUser Control: limits password access to selected staff users.How to convert a manual to an electronic waiting list - ensure that no applicant names are lost or misspelled and the list s order is not changed. Once the manual list is transcribed to the electronic lists, the manual list should be retained for at least 36 months. Meeting HUD Requirements Primary HUD rules include: Include required information:Name of head of household;Date and time application was submitted;Applicant s preference status;Applicant s annual income level for income targeting purposes (e.g., ELI, VLI, or LI);Whether the applicant needs an accessible unit, including the need for accessible features; andUnit size needed. Note that the applicant s race/ethnicity/gender/family size should not be included on the waiting list. Include applicant phone number, address, email, and date of contact on the list. Explain all changes - this includes why applicants were selected, withdrawn, rejected, or had family status changed. Any list should include a comment section.Document all changes - the following methods for documenting changes should be used:Use a "data backup function" that records the time and date that changes are made to the list;Print a record of the list at least monthly to show each applicant s place on and selection from the list. A copy should be made each time an applicant is added to or selected from the list. The copy should include the time and date of the printing. Keep a copy in the applicant file and central waiting list file. If there has been no change to the list, keep a copy in the waiting list file only.Re-sort and print the list after making changes in an applicant s status, such as changes in family composition and unit size.Both before and after an applicant is removed from the list the list should be printed and preserved.If the list is printed monthly to document the changes, you should also file a copy of the monthly rejection letters with the printouts.Implement safeguards -  the following safeguards are not required, but are recommended:Limit password access to only staff members who maintain the waiting list;The system should track the time and date each change is made to the list and should identify the staff member who made the change;Store hard copies in a secure location;Backup the list every time it is modified;Store back-ups both on and off site; andTake steps to avoid staff manipulation.Print out the list periodically and compare it to the previous printout to detect any inappropriate changes. This should be done at least every few months. An electronic waiting list is a convenient, comprehensive, and safe way to maintain a project s waiting list. As long as the procedures and recommendations noted above are adhered to, the use of an electronic waiting list is often preferable to manual waiting lists. Projects that still use manual waiting lists should give consideration to converting to an electronic system, which, in the long-run, will make life easier for onsite staff.

Minimum Wage to Increase in Many Areas

In 2020, 21 states will increase their minimum wage requirements for workers beginning January 1, 2020 and Connecticut, Nevada, and Oregon (and possibly Delaware) will have increases later in the year. Affordable housing managers responsible for determining the income of applicants and residents need to be aware of state and local minimum wage laws in order to ensure the most accurate possible projection of income. States with Minimum Wage in Excess of Federal $7.25 per Hour (as of 1/1/20) Alaska: $10.19Arizona: $12.00Arkansas: $10.00California: $13.00 - applies only to employers with 26 or more employees. Employers in CA with 25 or fewer employees have a minimum wage of $12.00 per hour.Colorado: $12.00Connecticut: $11.00 ($12.00 effective 9/1/20)Delaware: $9.25District of Columbia: $14.00 ($15.00 effective 7/1/20)Florida: $8.56Hawaii: $10.10Illinois: $9.25Maine: $12.00Maryland: $11.00Massachusetts: $12.75Michigan: $9.65Minnesota: $10.00 - this is the rate for large employers (employers with $500,000 or more gross revenue). Small employers have a minimum wage of $8.15 per hour.Missouri: $9.45Montana: $8.65Nebraska: $9.00Nevada: $8.25 for employees who are not offered health insurance. On July 1, 2020, minimum wage for employees with health insurance will increase to $8.00 and those without health insurance to $9.00.New Jersey: $11.00New Mexico: $9.00New York: $11.80 statewide ($15.00 in New York City)Ohio: $8.70Oregon: $11.25 (Portland, $13.25 on July 1) - effective July 1, 2020, statewide minimum will be $12.00 ($11.50 for nonurban counties).Rhode Island: 10.50South Dakota: $9.30Vermont: $10.96Washington: $13.50West Virginia: $8.75 Certain occupations are exempt from federal minimum wage laws, but states have their own exemptions. Anytime an applicant or resident reports or has a verification of income that is less than the federal or state minimum wage, managers should follow up with employers to determine the reason. That reason should be documented in the file.

Modular Construction - Another Component for Solving the Affordable Housing Crisis

There is an affordable housing crisis in the United States - of that there is no doubt. The reasons for the crisis are well known: a lack of will at the national level to provide necessary funding; a growing labor shortage; and restrictive local zoning and the age-old problem of NIMBYism ("not in my backyard). Labor shortages in construction are leading to increased costs and extended timelines. While the price of goods has increased due to tariffs on China, Mexico, and Germany (which may be easing due to recent agreements), it is the lack of labor that is the primary driver of the price increases. Immigrants have traditionally made up a large percentage of the construction workforce, but current immigration policies at the federal level are putting a severe crimp in the number of available workers. Another factor - which is generally unacknowledged - is the opioid crisis, which is depleting the existing construction workforce. The government, at least in its current configuration, is not going to help with the labor crisis. As an industry, we are going to have to find ways to build with less labor. Modular construction is one solution - building in factories and assembling onsite.  This can substantially reduce construction time.  With modular construction, whole rooms, including kitchens and bathrooms, are built in offsite factories, loaded onto containers that are trucked to construction sites, and placed onto structures. Benefits to modular construction include: Reduced cost (15% or more);Reduced operational costs due to a reduction in defects that are common with "stick-built" housing;Increased energy efficiency due to a better fit of components;Easier higher-vertical density; andLess stress on the environment. A major reason for the cost effectiveness of modular building is the labor efficiencies that are built into the factory construction. A significant impediment to this type of construction are the localities. Nearly every major U.S. city has built-in restrictions - or even prohibitions - against manufactured housing.  This is the case even though manufactured housing is now virtually indistinguishable from stick-built housing. No matter how local governments couch their reasons for denying such housing, it is just another example of NIMBYism - just an effort to keep out certain "types" of people. What Makes Modular Construction so Efficient? Efficient production; andControl of an entire process through vertical integration. In addition to the built-in efficiencies, consumer perception of modular housing is changing, as are the viewpoints of many in the construction industry. One of the most inefficient workplaces in the world is a construction jobsite. In my days as a builder/developer, it was always frustrating to watch people standing around waiting for something to be completed, installed, or delivered. With pre-fab construction, an entire room, or even larger building elements are manufactured offsite, trucked in, and lifted into place by cranes - resulting in a 20-50% reduction in the construction timeline. The change is most dramatic in areas subject to weather delays. Manufactured Housing & Labor The construction industry is experiencing a clear shortage in skilled and semi-skilled labor. Fewer younger workers are coming into the construction trades to replace those who are aging out. Estimates of vacant trade positions nationwide range as high as 250,000. Factories are much easier to staff on a regular and predictable basis with full-time and long-term employees. The vagaries of weather and seasons don t play a role in the production process. End-users of modular buildings are becoming more comfortable with the product. Decades of experience with computer-aided design have made modular construction much more attractive and inviting, with bright colors, large windows and interesting shapes. This method works best for projects that are both repeatable and scalable, such as affordable housing, schools and hotels. Differences in materials used - lighter, stronger and often easier to produce - will also have an increasingly positive effect on costs and perception. It is becoming common for cement and concrete to be replaced by cross-laminated timber and modules with light steel frames that can simply be bolted into place on site. While this will lead to an increase in factory jobs, onsite positions will decrease. The traditional method of onsite construction will still be required for small, specialized and one-off projects, but offsite prefabrication will become a growing force in the construction industry. A recent example of how modular construction works well with affordable housing is Hope on Alvarado, a LIHTC project in Los Angeles. This is an 84-unit tax credit deal with tax-exempt bonds and is targeting the chronically homeless. It is a five-story building with a concrete podium and four stories of modular steel units on top. The modular units were manufactured in China, shipped to Long Beach, CA, trucked hour to the site and put in place by cranes. Components installed at the factory in China included electrical and plumbing, kitchen cabinets, energy star appliances, floor-to-ceiling windows, wall, ceiling, and floor finishes. On-site contractors hooked up electrical fixtures and plumbing and bolted the modular units to the existing platform. While pouring of the base was delayed due to weather, once it was in place, one floor per week was finished. The modules meet or exceed every applicable CA and U.S. code, are earthquake and hurricane safe, termites and mold proof, and have a GOLD green rating. A recent report by McKinsey & Company states that modular construction is poised for a great leap forward - with a 50% decrease in construction time and a 20% cost reduction. Origins of Modular Construction After World War II, in order to rebuild Europe, Britain, the Netherlands, and Germany began developing modular models. With the catastrophic loss of buildings and decimation of the male population of Europe, there was no choice but to push for efficiency over labor. Using only 10% of the labor force present before the war, they were able to build safe, affordable, and weather-proof shelter. That lesson should not be lost on the United States. Labor shortages and the opioid crisis have made traditional construction methods more expensive and less reliable. After years of hard physical labor many older workers have become addicted to opioids to the point that they are unable to work at all. One early effort in this area has been the use of shipping containers as housing. While these containers are fine for pop-up retail or emergency housing, once they are reinforced and the doors and windows are cut, they are as costly as traditional construction. Lack of Labor & the Aging of the Industry During the 2009-2010 recession, millions of people who worked in construction left the country and are now unable to return. This - along with an average construction worker age of 48 - is creating an existential threat to the construction industry s business model. Factory Proximity to Construction Sites is Critical For the modular housing model to work at maximum efficiency, factories should be no more than a day s drive (350 to 400 miles) from the site. Transportation costs are high and can quickly eat into potential cost savings. The process must be scalable in order to have a meaningful impact. Multifamily modular is also a more complex undertaking than single-family. Utility connections must be run through multiple floors and multiple units, which means more offsite work. Plumbing and electricity can be added at the factory but connections in the building and from the building to the street must be done onsite. Ultimately, developers of affordable housing need to give serious attention to modular housing. This type of development is not theoretical - it is here and will revolutionize how we develop affordable housing. Forward looking developers need to begin adapting to this new business model.

HUD Publishes 2020 OCAF Rent Adjustments

On November 22, 2019, the Department of Housing & Urban Development (HUD) published the Operating Cost Adjustment Factors (OCAF) for 2020. These factors apply to project-based assistance contracts issued under Section 8 of the Housing Act of 1937 (the "Section 8" program) and will be available to projects having an anniversary date on or after February 11, 2020. Contract rents are adjusted by applying the OCAF to the portion of the rent attributable to operating expenses exclusive of debt service. OCAFs are calculated as the sum of weighted component cost changes for wages, employee benefits, property taxes, insurance, supplies and equipment, fuel oil, electricity, natural gas, and water/sewer/trash using publicly available indices. Average expense proportions were calculated using three years of Audited Annual Financial Statements from projects covered by OCAFs. The nine cost component weights were calculated at the state level, which is the lowest level of geographical aggregation with enough projects to permit statistical analysis. This type of data was not available for the Western Pacific Territories, so the data for Hawaii was used as the best available indicator for these areas. The national average OCAF is 2.2%. The lowest increases are found in Missouri and Oklahoma, both with an OCAF of 1.8%. The highest OCAFs are in Hawaii and the Western Pacific Islands at 3.4% with Massachusetts and Rhode Island having the highest in the contiguous 48 states at 3.3%. The list for all the states was published in the November 22, 2019 Federal Register and owners subject to OCAF should obtain a copy of that document.

REAC Requirements for Emergency Call Systems

On October 11, 2019, the Department of Housing & Urban Development (HUD) issued Notice PIH 2019-25, which provides guidance on emergency call systems in public housing. The notice applies to all PHAs and localities that operate public housing. It should be noted that while the notice applies to public housing, the Uniform Physical Condition Standards (UPCS) of the notice apply to all HUD housing subject to REAC. PHAs are not required to install emergency call systems in any public housing property. However, systems may have to be installed as a reasonable accommodation. If a housing unit has call-for-aid pull cords, wireless electronic notification systems, or other similar emergency call systems, the systems must function as intended. All systems are subject to REAC protocols and must be tested during inspections. If the PHA has replaced an old call-for-aid system, any part of the old system that remains (e.g., the pull cord) will be tested and recorded as a deficiency if inoperable and does not function as intended. For this reason, when replacing an old call-for-aid system, all components of the old system must be completely removed. In order to be deemed operable, all the following conditions for an emergency call system must be met: The system must work as intended;The system sounds an alarm to summon help from the intended source, and/or actuates a signal, which may be visual, audible, or both; andThe system is available in each bathroom and each bedroom in dwelling units. All owners/agents with subject to REAC inspections should be familiar with this HUD Notice and the requirements relative to Emergency Call Systems.