News

Congressional Spending Bill Keeps Funding for Many Housing Programs

Congress has approved a $1.3 trillion spending bill designed to provide funding for the federal government for the rest of the fiscal year, which ends September 30. The bill has been sent to the President s desk for signature (although he is threatening to veto the bill because it does not provide enough funding for the "wall"). Assuming the bill is actually signed into law, it does spare a number of housing programs that the President wanted to severely cut or eliminate.   In the bill, HUD receives a $4.7 billion overall funding boost, instead of the $6 billion reduction the president sought.   The bill includes significant increases to programs the President had proposed cutting or killing, including the Community Development Block Grant (CDBG) program, the HOME program and a 42% increase in funding for the RAD program, which the President planned to eliminate completely.   The most important addition is an increase of $1.25 billion for HUD s core rental assistance programs, including Section 8.   Thankfully, Congress has shown that it is not on board with the President s desire to gut the nations affordable housing programs.

HOME Funds and Affirmative Fair Housing Marketing Plans

In February 2018, the HUD Office of Community Planning and Development issued guidance relating to the requirement that projects funded with HOME funds have an Affirmative Fair Housing and Marketing Plan. This requirement is contained in the HOME final rule (24 CFR 92.351(a)), and requires that Participating Jurisdictions (PJs) and state recipients develop, adopt, and follow written affirmative marketing procedures and requirements for rental and homebuyer projects containing five or more HOME-assisted housing units, regardless of the specific activity the HOME funds finance (e.g., acquisition, rehabilitation, and/or new construction). The PJ, its subrecipients, and project owners it funds must implement the written affirmative marketing procedures for the program or project.   The objective of affirmative marketing is to ensure that PJs, subrecipients, and project owners design and employ marketing plans that promote fair housing by ensuring outreach to all potentially eligible households, especially those least likely to apply for assistance. Affirmative marketing consists of actions to provide information and otherwise attract eligible persons to available housing without regard to race, color, national origin, sex, religion, familial status, or disability. The affirmative marketing requirements also apply to projects targeted to persons with special needs. If a PJ s written agreement with a project owner permits a rental housing project to limit tenant eligibility or to have a tenant preference in accordance with 92.253(d)(3), the PJ must have affirmative marketing procedures and requirements that apply in the context of the limited/preferred tenant eligibility for the project.   The affirmative marketing procedures must describe specific steps that must be taken to ensure that applicants who are unlikely to apply for housing without special outreach have equal access to housing opportunities generated by the use of HOME Program funds. There are five elements that each PJ or state recipient s marketing procedures must include:   A description of how the PJ plans to inform the public, subrecipients, owners, and potential tenants about Federal fair housing laws and the PJ s affirmative marketing policy; The requirements and practices that each subrecipient and owner of HOME-funded housing must adhere to in order to carry out the PJ s affirmative marketing procedures and requirements; A statement of procedures to be used by subrecipients an owners to inform and solicit applications from persons in the housing market who are least likely to apply for the housing without special outreach; A list of what records the PJ will keep, and what records the PJ will require the subrecipients and owners to keep, regarding efforts made to affirmatively market HOME-assisted units, and to assess the results of these actions; and A description of how the PJ will annually assess the success of the affirmative marketing action(s) and what corrective actions will be taken where affirmative marketing requirements are not met.   PJs must implement their affirmative marketing procedures in projects or programs that they administer directly. PJs must also provide their affirmative marketing procedures to subrecipients that administer all or a portion of the PJ s HOME program and to owners/developer of HOME projects with five or more HOME-assisted units. The requirement to affirmatively market must be included in the written agreement between the PJ and the subrecipient or owner. The PJ must ensure that subrecipients and owners have an understanding of the fair housing practices for advertising and soliciting applications (targeted populations should include those least likely to apply), know what records they must keep to document compliance, and how the PJ will assess the owner s marketing procedures and their success.   The HUD field office may request that a PJ provide the marketing procedures during monitoring and may evaluate whether the PJ is ensuring that subrecipients and owners comply with its procedures. Consequently, PJs must evaluate subrecipients and project owners records during on-site monitoring to ensure that compliance is taking place and being adequately documented.   There is no submission requirement for affirmative marketing procedures in the HOME regulations. However, as a best practice, HUD recommends that affirmative marketing procedures be included in the Consolidated Plan, so that the procedures are subject to public review and comment, PJs should review their affirmative marketing procedures at least every five years to determine if they are still appropriate to the market, or more frequently if the demographics and market conditions of the jurisdiction have changed significantly.   With changing demographics in the United States, there are challenges when marketing to an eligible population that is limited in English proficiency (LEP). If there is a LEP population, HUD encourages the PJ to:   Translate its marketing materials to serve this population; Work with the language minority-owned print media, radio and television stations; Place marketing material at movie theaters that provide free public service announcements; Partner with faith-based and community organizations that serve newly arrived immigrants; and Conduct marketing activities at adult-education training centers or during "English as a Second Language" classes.   Based on this guidance, owners of HOME funded projects are not responsible for creating affirmative marketing plans, but are required to implement the plans created by the PJ.

FAST Act Interim Final Rule Effective March 12, 2018

On December 12, 2017, HUD published an interim final rule in the Federal Register that amends the regulatory language for Public & Indian Housing PIH) and Multifamily Housing rental assistance programs. This interim rule went into effect on March 12, 2018. The rule aligns the current regulatory flexibilities with those provided in the Fixing America's Surface Transportation (FAST) Act. In addition, it extends two of the administrative streamlining changes that were adopted in 2016 for the Housing Choice Voucher (HCV) and Public Housing (PH) programs to Multifamily programs (e.g., project-based Section 8). The interim final rule implements FAST Act provisions that allow Public Housing Agencies (PHAs) and multifamily housing owners to conduct full income recertification for families with 90 percent or more of their income from fixed-income sources every three years instead of annually. The rule also aligns the current regulatory flexibilities with those provided in the FAST Act by modifying the earlier streamlining regulations. This makes the procedures for families meeting the fixed income threshold as similar as possible to families who do not have 90 percent or more of their income from fixed sources, but still have some fixed income. In addition to streamlining fixed income stipulations, the interim final rule also indicates that an owner may: >Make utility reimbursements of $45 or less per quarter ($15 a month) on a quarterly basis; and >Accept family declaration of assets of $5,000 or less (similar to the LIHTC program). Third party verification of all family assets is required at move-in and every three years thereafter. Use of streamlined procedures authorized by this rule is all at the option of the owner and are not required.

The Importance of Internal Controls

All executives are taught the importance of "internal controls." Unfortunately, many executives don t fully understand what is meant by the term "internal controls." A recent HUD audit of a Section 8 project in Port Arthur, TX serves as a reminder of the importance of both understand what is meant by the term internal controls, and the importance of having such systems in place.   What are Internal Controls   Internal controls are methods put in place by a company to ensure the integrity of financial and accounting information, meet operational and profitability targets, and transmit management policies throughout the organization. Internal controls work best when they are applied to multiple divisions and deal with the interactions between the various business departments. No two systems of internal controls are identical, but many core philosophies regarding financial integrity and accounting practices have become standard management practices.   The importance of understanding these principles were made evident by the findings of the HUD investigation.   Details of the Audit   The HUD Office of Inspector General (OIG) audited the multifamily Section 8 project in Port Arthur (Villa Main Apartments) to determine whether the project owner was administering the Section 8 program in accordance with HUD regulations and guidance.   HUD found that the owner did not administer the Section 8 program at Villa Main in accordance with HUD regulations and guidance. It assisted at least 82 tenants who were either ineligible for assistance because they did not exist or the tenant eligibility and the unit physical condition standards could not be supported. These conditions occurred because the owner and the former management agent lacked oversight of the staff. They also failed to establish effective control systems, which allowed the onsite employees to commit fraud. The employees falsified tenant eligibility, did not properly verify tenant income, and did not inspect the units are required by HUD. As a result, HUD paid the owner $534,741 in subsidies for ineligible "ghost" tenants and incurred more than $1 million in subsidies for which the owner could not support the tenants subsidy amounts or that the units were in decent, safe, and sanitary condition.   The Result   As a result of the findings, the OIG recommended in January 2018, that the project owner be required to (1) repay HUD $534,741 for housing subsidies received for ineligible nonexistent "ghost" tenants, and (2) support or repay HUD more than $1 million for tenants whose eligibility the owner could not support. In addition, HUD should require the Contract Administrator to ensure that the owner s recently implemented quality control program is working as designed and in accordance with HUD regulations. OIG also recommended that appropriate administrative actions be taken against the owner.   The results of this audit reinforce the importance of good internal controls, and the critical importance of redundant systems and strong oversight. Every owner and management company should have a system in place that includes internal audits, capital control, quality control, administrative accounting, and third party reviews. Failure to have such systems in place can result in situations similar to the one I ve outlined here. Take the time to examine your current systems, identify weaknesses, and implement improvements.

Possible Work Requirements and Rent Changes for Affordable Housing

I have recently reviewed a draft, unpublished document dated January 17, 2018, from HUD that introduces minimum work requirements for some residents of assisted housing and raises rent for others.   This seems to continue the pattern of requiring work in return for some forms of welfare assistance. In January, the Administration said that it would permit states to impose work requirements for Medicaid and the Department of Agriculture announced in December that it will permit states to set work requirements for people who use the SNAP (food stamp) program.   While requiring work in return for aid seems reasonable, a review of the specific proposals raises questions about the impact on the most at risk families.   The proposed changes would allow public housing agencies (PHAs) to introduce minimum employment requirements for families in order to be eligible for housing assistance. Without proof of employment, housing assistance could be denied. This is only a draft (discussion) document, but it has a lot of weaknesses relative to the broad swath of families that would be impacted. For example, the draft does not provide exceptions for persons who need to care for children or disabled relatives. Nor, does it address the circumstances when a person just cannot find a job. It also does not deal with the issues of seasonal or cyclical employment.   While requiring able-bodied adults to work, train, or volunteer - at least on a part-time basis - in return for taxpayer assistance is reasonable, this draft document does not recognize volunteer work toward the minimum work requirements, nor does it count part-time work. This is a major weakness, since obtaining part-time work may be very possible, but full time employment opportunities are much more limited.   Incredibly, the language in the document includes no exemption for parents who care for children, essentially giving PHAs discretion as to whether single mothers could qualify for the housing. If such loss of housing were to occur due to a lack of employment, the risk to families would increase significantly. Without adequate housing, children may very well be placed in foster care.   The draft language caps the work requirement at 32 hours per week on average per adult, excluding elderly or disabled families. Both active employment and vocational training would qualify.   In addition to the work requirement, the proposal would raise the rent-burden on low-income families from 30% of adjusted income to 35% of gross income. Under this proposal, there would be no more deductions for expenses such as medical, dependent, childcare, disability, etc. Under the draft guidelines, each household would be required to pay a minimum rent of $50 - including elderly and disabled - regardless of income.   This draft document may explain why there has not yet been a regulatory implementation of the 2016 Housing Opportunity Through Modernization Act (HOTMA). It appears that the current administration may want to go in a completely different direction. Since HOTMA is statutory, HUD cannot just ignore its requirements. However, regulatory agencies have great discretion in how they interpret laws and HUD appears to be looking for ways around some of the HOTMA requirements.   If I receive any more information about informal HUD efforts in these areas I will let you know, but at this point, I would not count on any short-term regulations from HUD implementing the changes outlined in the 2016 legislation.  

Rental Assistance - Is It Income or Not?

After more than 40 years in the affordable housing business, I still occasionally get the question as to why federal rental assistance - such as Section 8 - is not counted as income. After all, it is a regular, recurring payment made on behalf of a household, and it does not appear to be excluded income under HUD regulation. I advise my students and clients on a regular basis that unless income is specifically excluded by HUD regulation (as outlined in Exhibit 5-1 of HUD Handbook 4350.3), it should be counted as income for purposes of all federally assisted housing programs (and most state and local affordable housing programs as well).   It is true that rental assistance is not shown as a specific excluded income in HUD regulations. This is because the language in the Included Income section of Exhibit 5-1 and in the underlying statute (The Housing Act of 1937) eliminates the need to specifically exclude rental assistance.   The Housing Act of 1937 requires that persons renting housing in programs covered by the Act pay the greater of 30% of adjusted income or 10% of gross income in rent. Based on this requirement, federal rental assistance cannot be counted as income because if it was counted as income, the result would be a circular calculation and neither the income nor the rent could be determined. A quick example illustrates the problem.   Assume a household with gross income of $20,000 and adjusted income of $19,040. Ten percent of gross income on a monthly basis is $167 and 30% of adjusted income on a monthly basis is $476, so the household s monthly rent will be $476. On an annual basis, this is $5,712. If added to the gross income, the gross income would be 25,712 and the adjusted income would be $24,752 - the required rent would be $619. Of course, this would have to be added to income, making the new income $32,178, the new adjusted income $31,218 and so on - ad infinitum.   In short, if rental assistance, that is adjusted based on income, is counted as income, neither the rent nor the income could ever be determined. While hard to discern, this is actually addressed in the Included Income Section of HUD Handbook 4350.3, Exhibit 5-1. Number 7 of the Included Income section states that "Periodic and determinable allowances" should be counted as income. As shown above, if counted as income, the amount of rental assistance is not "determinable," and therefore is not considered income.   This same requirement should be applied to state or local rental assistance that is paid (and adjusted) based on the income of the family receiving assistance. However, if any rental assistance is determinable (i.e., does not change regardless of the income of the household), it should be considered income and added to the gross income of the household.    

Civil Rights Lawsuit Brought Against America's Largest Landlord for Criminal Screening Procedures

In a complaint filed in the United States District Court for the District of Columbia on December 12, 2017, the nonprofit Equal Rights Center (a Washington, DC civil rights group), and the Washington Lawyers Committee alleged that Mid-America Apartments policy of forbidding anyone with a "felony conviction or pending felony charge as well as certain misdemeanors or pending misdemeanor charges" from renting an apartment. The complaint alleges that the practice violates the Fair Housing Act of 1968 because it has a "disproportionate adverse impact on African Americans and Latinos."   Mid-America is the largest corporate landlord in the United States, with more than 100,000 apartments under management across the Southwest and Southeast United States.   The complaint alleges that Mid-America enforces the policy in at least 55 apartment communities with over 20,000 units. The complaint asks the court to stop the company from enforcing the policy and demands damages "that would punish Defendants for the willful, malicious, and reckless conduct alleged herein and that would effectively deter similar conduct in the future."   Based on the complaint, the company s practice goes against instructions issued by the U.S. Department of Housing and Urban Development (HUD), which require that any restrictions placed on applicants based on criminal history "must be tailored to serve the housing provider s substantial, legitimate, nondiscriminatory interest and take into consideration such factors as the type of the crime and the length of the time since conviction." The investigation that led to the complaint revealed that applicants who disclosed a felony conviction through the company s online application portal were not even able to submit an application for review because a felony conviction worked as an absolute bar to applying for an apartment.   I sent a memo to clients on April 6, 2016, outlining the basic elements of the HUD policy, which essentially states that only prior convictions for crimes relating to living is a housing environment, such as drug crimes, violent crimes, property crimes, and sex offenses should be considered when making housing decisions. Also, issues such as the length of time since the conviction, the severity of the crime, and activities since the crime should all be considered in the housing decision.   This is the first major action filed against a large landlord based on criminal screening policies. It should serve as a reminder to all owners and management companies to carefully review any criminal screening policies for compliance with HUD guidance.    

Independent Contractor or Employee - How to Tell the Difference

Affordable housing property managers are required to verify the income of applicants and residents in order to determine both eligibility and (for some programs) rent. The most common type of income requiring verification is employment income and the most common verification method for employment income is third party verification from the employer. This verification is most commonly a written verification from the employer or pay stubs.   Verification is also required when an applicant is self-employed or an "independent contractor." In these cases, we tend to rely on financial records provided by the applicant, such as tax returns or financial statements. Compliance professionals and affordable housing property managers must be able to distinguish between an employee and an independent contractor, which is not always easy, since the line between the two is often blurred. This article is intended to provide guidance that may assist affordable housing professionals in determining whether an individual is an employee or an independent contractor.   For many years, employers have recognized a number of benefits of using independent contractors instead of employees for some types of jobs. As with most things, however, those benefits carry some risk. Most of that risk arises because of the difficulty in determining independent contractor status. Whether an individual rendering services to a company is an employee or an independent contractor is often unclear. Even if the parties themselves characterize their relationship as an independent contractor arrangement, courts and governmental agencies will look beyond that classification to determine the "real" relationship. Following is a discussion of the three primary aspects of the employer/worker relationship that must be examined in determining how to classify the arrangement. These three elements are (1) behavioral control, (2) financial control, and (3) type of relationship.   Behavioral Control - facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of -   Instructions the business gives the worker. An employee is generally subject to the business instructions about when, where, and how to work. All of the following are examples of types of instructions about how to work: When and where to do the work; What tools or equipment to use; What workers to hire or to assist with the work; Where to purchase supplies and services; What work must be performed by a specified individual; and What order or sequences to follow. The amount of instructions needed varies among different jobs. Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work is done. A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. The key consideration is whether the business has retained the right to control the details of a worker s performance or, instead, has given up that right.   Training the business gives the worker. An employee may be trained to perform services in a particular manner. Independent contractors ordinarily use their own methods.   Financial Control - Facts that show whether the business has a right to control the business aspects of the workers job include: The extent to which the worker has unreimbursed business expenses. Independent contractors are more likely to have unreimbursed expenses than are employees. Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. However, employees may also incur unreimbursed expenses in connection with the services they perform for their business; The extent of the worker s investment. An independent contractor often has a significant investment in the facilities he or she uses in performing services for someone else. However, a significant investment is not required for independent contractor status; The extent to which the worker makes services available to the relevant market. An independent contractor is generally free to seek out business opportunities. Independent contractors may advertise, maintain a visible business location, and are available to work in the relevant market; How the business pays the worker. An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. This usually indicates that a worker is an employee, even when a commission supplements the wage or salary. An independent contractor is normally paid by a flat fee for the job, or in the case of professionals, by an hourly rate; and The extent to which the worker can realize a profit or loss. An independent contractor can make a profit or loss.   Type of Relationship - facts that show the parties type of relationship include the following:   Written contracts describing the relationship the parties intended to create; Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay; The permanency of the relationship. If a worker is engaged with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship; and The extent to which services performed by the worker are a key aspect of the regular business of the company. If a worker provides services that are a key aspect of the regular business activity, it is more likely that the employer has the right to direct and control those activities. For example, if a management company hires a compliance professional, it is likely that the company will present the work of the compliance professional as its own and would have the right to control and direct that work. This is indicative of an employer-employee relationship.   While in most cases, the type of relationship is clear, there are times when management professionals have to determine whether an applicant is an employee or an independent contractor, and verify income accordingly. Understanding the concepts outlined in this article may assist in making that determination.