80 FR 31332 - Establishing a More Effective Fair Market Rent (FMR) System; Using Small Area Fair Market Rents (SAFMRs) in Housing Choice Voucher Program Instead of the Current 50th Percentile FMRs; Advanced Notice of Proposed Rulemaking

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Federal Register Volume 80, Issue 105 (June 2, 2015)

Page Range		31332-31336
FR Document		2015-13430

Section 8(c)(1) of the United States Housing Act of 1937 (USHA) requires HUD to publish Fair Market Rents (FMRs) periodically, but not less than annually, adjusted to be effective on October 1 of each year. Some examples of uses of FMRs are to determine payment standard amounts for the Housing Choice Voucher (HCV) program, to establish a limit on the amount of rent to owner for project-based vouchers, to determine initial and renewal rents for some new and expiring project-based Section 8 contracts, to determine initial rents for housing assistance payment (HAP) contracts in the Moderate Rehabilitation Single Room Occupancy program (Mod Rehab), and to serve as a rent ceiling in the HOME rental assistance program. This document announces HUD's intention to amend HUD's FMR regulations applicable to the HCV program (24 CFR part 888) to provide HCV tenants with subsidies that better reflect the localized rental market, including subsidies that would be relatively higher if they move into areas that potentially have better access to jobs, transportation, services, and educational opportunities. Specifically, this document requests public comments on the use of small area FMRs (SAFMRs) for the HCV program within certain metropolitan areas. Small areas FMRs vary by ZIP code and support a greater range of payment standards than can be achieved under existing regulations.

Federal Register, Volume 80 Issue 105 (Tuesday, June 2, 2015)

[Federal Register Volume 80, Number 105 (Tuesday, June 2, 2015)]
[Proposed Rules]
[Pages 31332-31336]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2015-13430]

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 888

[Docket No. FR-5855-A-01]
RIN 2501-AD74

Establishing a More Effective Fair Market Rent (FMR) System;
Using Small Area Fair Market Rents (SAFMRs) in Housing Choice Voucher
Program Instead of the Current 50th Percentile FMRs; Advanced Notice of
Proposed Rulemaking

AGENCY: Office of the Assistant Secretary for Policy Development and
Research, HUD.

ACTION: Advanced notice of proposed rulemaking.

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SUMMARY: Section 8(c)(1) of the United States Housing Act of 1937
(USHA) requires HUD to publish Fair Market Rents (FMRs) periodically,
but not less than annually, adjusted to be effective on October 1 of
each year. Some examples of uses of FMRs are to determine payment
standard amounts for the Housing Choice Voucher (HCV) program, to
establish a limit on the amount of rent to owner for project-based
vouchers, to determine initial and renewal rents for some new and
expiring project-based Section 8 contracts, to determine initial rents
for housing assistance payment (HAP) contracts in the Moderate
Rehabilitation Single Room Occupancy program (Mod Rehab), and to serve
as a rent ceiling in the HOME rental assistance program.
This document announces HUD's intention to amend HUD's FMR
regulations applicable to the HCV program (24 CFR part 888) to provide
HCV tenants with subsidies that better reflect the localized rental
market, including subsidies that would be relatively higher if they
move into areas that potentially have better access to jobs,
transportation, services, and educational opportunities. Specifically,
this document requests public comments on the use of small area FMRs
(SAFMRs) for the HCV program within certain metropolitan areas. Small
areas FMRs vary by ZIP code and support a greater range of payment
standards than can be achieved under existing regulations.

DATES: Comments Due Date: July 2, 2015.

ADDRESSES: Interested persons are invited to submit comments to the
Office of the General Counsel, Rules Docket Clerk, Department of
Housing and Urban Development, 451 Seventh Street SW., Room 10276,
Washington, DC 20410-0001. Communications should refer to the above
docket number and title and should contain the information specified in
the ``Request for Comments'' section. There are two methods for
submitting public comments.
1. Submission of Comments by Mail. Comments may be submitted by
mail to the Regulations Division, Office of General Counsel, Department
of Housing and Urban Development, 451 7th Street SW., Room 10276,
Washington, DC 20410-0500. Due to security measures at all federal
agencies, however, submission of comments by mail often results in
delayed delivery. To ensure timely receipt of comments, HUD recommends
that comments submitted by mail be submitted at least two weeks in
advance of the public comment deadline.
2. Electronic Submission of Comments. Interested persons may submit
comments electronically through the Federal eRulemaking Portal at
http://www.regulations.gov. HUD strongly encourages commenters to
submit comments electronically. Electronic submission of comments
allows the commenter maximum time to prepare and submit a comment,
ensures timely receipt by HUD, and enables HUD to make comments
immediately available to the public. Comments submitted electronically
through the http://www.regulations.gov Web site can be viewed by other
commenters and interested members of the public. Commenters should
follow instructions provided on that site to submit comments
electronically.

Note: To receive consideration as public comments, comments must
be submitted using one of the two methods specified above. Again,
all submissions must refer to the docket number and title of the
notice.

No Facsimile Comments. Facsimile (fax) comments are not acceptable.
Public Inspection of Comments. All comments and communications
submitted to HUD will be available, for public inspection and copying
between 8 a.m. and 5 p.m. weekdays at the above address. Due to
security measures at the HUD Headquarters building, an advance
appointment to review the public comments must be scheduled by calling
the Regulations Division at (202) 708-3055 (this is not a toll-free
number). Copies of all comments submitted are available for inspection
and downloading at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Marie L. Lihn, Senior Economist,
Economic Market Analysis Division, Office of Economic Affairs, Office
of Policy Development and Research, U.S. Department of Housing and
Urban Development, 451 7th Street SW., Washington, DC 20410, telephone
(202) 402-5866; email: marie.l.lihn@hud.gov. Hearing- or speech-
impaired persons may use the Telecommunications Devices for the Deaf
(TTY) by contacting the Federal Relay Service at 1-800-877-8339. (Other
than the ``800'' TTY number, telephone numbers are not toll free.)
Electronic Data Availability. This Federal Register notice will be
available electronically from the HUD User page at http://www.huduser.org/datasets/fmr.html. Federal Register notices also are
available electronically from http://www.gpoaccess.gov/fr/index.html,
the U.S. Government Publishing Office Web site. SAFMRs based on Final
Fiscal Year (FY) 2015 Metropolitan Area Rents are available in
Microsoft Excel format at the same HUD web address http://www.huduser.org/portal/datasets/fmr/smallarea/index.html.

SUPPLEMENTARY INFORMATION:

I. Background

HUD's HCV program helps low-income households obtain standard
rental housing and reduces the share of their income that goes toward
rent. Vouchers issued under the HCV program provide subsidies that
allow individuals and families to rent eligible units in the private
market. A key parameter in operating the HCV program is the FMR.

[[Page 31333]]

In the HCV program, the FMR is the basis for determining the
``payment standard amount'' used to calculate the maximum monthly
subsidy for a voucher household (see 24 CFR 982.503). Public Housing
Agencies (PHAs) may establish payment standards between 90 and 110
percent of the FMR. Voucher program households receive a housing
assistance payment equal to the difference between the payment standard
established by the PHAs and the family's Total Tenant Payment (TTP),
which is generally 30 percent of the household's adjusted monthly
income. Participants in the voucher program can choose to live in units
with gross rents higher than the payment standard, but they must then
pay the full cost of the difference between the gross rent and the
payment standard, in addition to their TTP. Please note that at initial
occupancy the family's share cannot exceed 40 percent of monthly
adjusted income.
HUD establishes FMRs for different geographic areas. Because
payment standards are based on FMRs, housing assistance payments on
behalf of the voucher household are limited by the geographic area in
which the voucher household resides. In general, the FMR for an area is
the amount that would be needed to pay the gross rent (shelter rent
plus utilities) of privately owned, decent, and safe rental housing of
a modest (non-luxury) nature with suitable amenities. In addition, all
rents subsidized under the HCV program must meet rent reasonableness
standards. Rent reasonableness is determined by PHAs with reference to
rents for comparable unassisted units.
Currently, HUD calculates FMRs for all nonmetropolitan counties and
metropolitan areas. The same FMR is applicable throughout a
nonmetropolitan county or metropolitan area, which generally is
comprised of several metropolitan counties. FMRs in a metropolitan area
represent the 40th percentile (or in special circumstances the 50th
percentile) gross rent for typical non-substandard rental units
occupied by recent movers in a local housing market.\1\
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\1\ See http://www.huduser.org/periodicals/USHMC/winter98/summary-2.html.
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As noted earlier, PHAs may set a payment standard between 90
percent and 110 percent (inclusive) of the FMR. PHAs may determine that
payment standards that are higher than 110 percent, or lower than 90
percent, are appropriate for subareas of their market; in this
instance, a PHA would request HUD approval for a payment standard below
90 percent or an exception payment standard above 110 percent. The
total population of a HUD-approved exception payment area (i.e., an
area covered by a payment standard that exceeds 110 percent of the FMR)
may not include more than 50 percent of the population of the FMR area
(see 24 CFR 982.503).
For eligible areas, HUD establishes the FMR at the 50th percentile
rather than at the 40th percentile of gross rent. For an FMR area to
qualify to use the 50th percentile FMR, the following conditions must
be met (see 24 CFR 888.113(c)):
1. Minimum Area Size--the FMR area must be a metropolitan area
containing at least 100 Census tracts;
2. Concentration of Participants--25 percent or more of voucher
program participants in the FMR area must be located in the 5 percent
of Census tracts with the highest number of voucher participants; and
3. Concentration of Affordable Units--70 percent or fewer of the
FMR area's Census tracts containing 10 or more rental units have at
least 30 percent of rental units at or below the 40th percentile FMR.
The main objective of the 50th percentile program was to provide a
broad range of housing opportunities that would enable voucher holders
to de-concentrate from low opportunity areas. However, research
indicates that 50th percentile FMRs are not an effective tool in
increasing HCV tenant moves from areas of low opportunity to higher
opportunity areas; specifically, it appears that much of the benefit of
increased FMRs simply accrues to landlords in lower rent submarket
areas in the form of higher rents rather than creating an incentive for
tenants to move to units in communities with more and/or better
opportunities. To determine the 50th percentile program's
effectiveness, HUD must measure the reduction in concentration of HCV
tenants (measure 2 above) presumably from high poverty areas, over a
three-year period. If there is no measureable reduction in the
concentration of HCV tenants, the FMR area loses the use of 50th
percentile FMRs for a three-year period. A large number of areas have
been disqualified from the program for failure to show measurable
reduction in voucher concentration of HCV tenants \2\ since 2001 when
the program started, strongly suggesting that the de-concentration
objective is not being met.
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\2\ Areas may subsequently requalify for 50th percentile status
after a three-year period.
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Since the establishment of the 50th percentile program, HUD has
developed SAMFRs to reflect rents in ZIP code-based areas with a goal
to improve HCV tenant outcomes. SAFMRs have been shown to be a more
direct approach to encouraging tenant moves to housing in lower poverty
areas by increasing the subsidy available to support such moves.\3\
Since 2010, when the Census Bureau made available data collected over
the first 5 years of the American Community Survey (ACS), HUD has
considered various methodologies that would set FMRs at a more granular
level. HUD's goal in pursuing the SAFMR methodology is to create more
effective means for HCV tenants to move into higher opportunity, lower
poverty areas by providing them with subsidy adequate to make such
areas accessible and to thereby help reduce the number of voucher
families that reside in areas of high poverty concentration. Toward
this end, on May 18, 2010, at 75 FR 27808, HUD announced a SAFMR
demonstration project to ascertain the efficacy of FMRs which are
published using U.S. Postal Service ZIP codes as FMR areas within
metropolitan areas. On August 4, 2010, at 75 FR 46958, HUD mandated the
use of SAFMRs in place of metropolitan-area-wide-FMRs to settle
litigation in the Dallas, TX, HUD Metro FMR Area. HUD began a SAFMR
demonstration on November 20, 2012, at 77 FR 69651, with the following
PHAs: the Housing Authority of the County of Cook (IL), the City of
Long Beach (CA) Housing Authority, the Chattanooga (TN) Housing
Authority, the Town of Mamaroneck (NY) Housing Authority, and the
Housing Authority of Laredo (TX).
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\3\ Please see Collinson and Ganong, ``The Incidence of Housing
Voucher Generosity'', available at: http://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2255799.
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Based on HUD's research and experience with the SAFMR
demonstration, HUD believes that amending its current FMR regulation to
enable adoption of the SAFMR methodology could provide HCV tenants
greater access to higher opportunity, lower poverty neighborhoods. As a
part of this change, HUD would eliminate the use of 50th percentile
FMRs as a means to reduce HCV tenant concentration. Before publication
of a proposed rule, however, HUD is soliciting public comment on
several pivotal issues, as described in section IV of this notice. As
described in this notice, HUD is only considering such a change in its
tenant-based HCV program, but is also specifically seeking comments on
whether using the SAFMRs for new project-based voucher (PBV) projects
is advisable. All other programs that use FMRs would continue

[[Page 31334]]

to use area-wide FMRs. HUD is also considering whether regulations
governing the use the 50th percentile FMR for success rate payment
standards (under 24 CFR 982.503(e)) should be eliminated or changed.
Success rate payment standards, which are set between 90 and 110
percent of the 50th percentile rent, are established for the entire FMR
area when that area is having considerable lease-up issues in areas,
both metropolitan and nonmetropolitan, that do not have 50th percentile
FMRs. HUD will use public comments received in response to this notice
in developing a proposed rule.

II. Methodology for SAFMRs

In general, SAFMRs are calculated using a rent ratio determined by
dividing the median gross rent across all standard quality units for
the small area (a ZIP code) by the similar median gross rent for the
metropolitan area (the Core Based Statistical Area (CBSA)) of the ZIP
code. ZIP codes were chosen because they localize rental rates, and a
unit's ZIP code is easily identified by both PHAs and tenants.
The rent ratio is calculated using median gross rents provided by
the Census Bureau for both the small area and its encompassing
metropolitan area. HUD restricts the use of ZIP code level median gross
rents to those areas for which the margin of error of the ACS estimate
is smaller than the estimate itself. The rent relationship is
calculated in the following manner for those ZIP codes within the
metropolitan area that have a sufficiently small margin of error:

Rental Rate Ratio = Median Gross Rent for ZIP Code Area/Median Gross
Rent for CBSA

The rent relationship is capped at 150 percent for areas that would
otherwise be greater. This cap was instituted as a mechanism for
ensuring that HCV program funds are used as judiciously as possible. At
the time of the institution of the SAFMR demonstration program, 2000
Census data showed that only one percent of all metropolitan ZIP codes
had rents above this 150 percent.
If the gross rent estimate for a ZIP code within the CBSA has a
margin of error that is greater than the estimate, then the median
gross rent for the county within the state containing the ZIP code is
divided by the similar median gross rent for the CBSA of the ZIP code;
the rent relationship is calculated as:

Rental Rate Ratio = Median Gross Rent of the County/Median Gross Rent
of the CBSA

For metropolitan areas, FMRs will be calculated and published for
each small area.
HUD multiplies this rent ratio by the current estimate of the 40th
percentile two-bedroom rent for recent movers into standard quality
units for the entire metropolitan area containing the small area to
estimate the current year two-bedroom rent for the small area. For FY
2015 SAFMRs, HUD continues to use the rent ratios developed in
conjunction with the calculation of FY 2013 FMRs based on 2006-2010 5-
year ZIP Code Tabulation Area (ZCTA) median gross rent data. The Census
Bureau requires the use of ZCTAs to report data for ZIP codes, because
ZCTAs are a standard Census geography. In addition to ZCTAs defined by
the Census Bureau, HUD produces SAFMR estimates for ZIP codes obtained
from the U.S. Postal Service where the number of residential addresses
is greater than zero. The rent ratio set for these ZIP codes is based
on the county-to-metropolitan relationship for the ZIP code in
question.
To set the floor for SAFMRs in a metropolitan area, HUD compares
two-bedroom SAFMR estimates to the state nonmetropolitan minimum two-
bedroom rent for the state in which the area is located that is
established as a floor for all FMRs. If the ZIP code rent determined
using the rental rate ratio is less than the state minimum, the ZIP
code rent is set at this state nonmetropolitan minimum. SAFMRs for
bedroom counts other than two-bedroom are based on the bedroom-size
relationships estimated for the metropolitan area. The final calculated
rents are then rounded to the nearest $10. SAFMRs for all metropolitan
areas are available for viewing and download on the Internet at (http://www.huduser.org/portal/datasets/fmr/smallarea/index.html). There are
also detailed calculations for each ZIP code area in participating
jurisdictions at this Web site.

III. Current Problems With 50th Percentile FMR Areas and Proposed
Replacement With Small Area FMRs

The 50th percentile FMR allows payment standards set between 90
percent and 110 percent of the 50th percentile FMR across the entire
qualifying area, whereas Small Area FMRs better differentiate between
higher and lower rent areas within a metropolitan area. As mentioned
earlier, the use of 50th percentile FMRs has several limitations with
respect to the goal of providing tenants more choice in the
neighborhoods where they can rent and reducing HCV household
concentration.
There is a regulatory requirement to reevaluate the designations
after three years to gauge progress in alleviating HCV tenant
concentration in the designated FMR area. If an area does not show an
improvement in its voucher tenant concentration level after a three-
year period, then the area loses its 50th percentile FMR for a period
of three years. After the three-year period, these areas may, and
generally do, return to the 50th percentile FMR. While there are a
couple of FMR areas that graduated from the 50th percentile FMRs (which
means they no longer have at least 25 percent of the voucher holders
living in the five percent of the Census tracts with the most voucher
participants), most of the remaining FMR areas have cycled in and out
of the 50th percentile FMR program at least once. Originally, in 2001,
there were 39 areas that qualified to use 50th percentile FMRs. With
the change in FMR area definitions and the use of 2000 Decennial Census
data to determine the concentration of affordable units (criteria 3),
only 21 FMR areas remained eligible, while an additional 10 areas
became newly eligible. In FY 2008, there were 28 50th percentile FMR
areas, the most since FY 2006. Only three of the original and two of
the new areas have never lost the use of 50th percentile FMRs; most of
the remaining areas lost the 50th percentile FMR for failure to de-
concentrate, though a few have cycled in and out as they hover around
the HCV tenant concentration threshold (three areas) and a few areas
have only had reporting issues (two areas), meaning that their
exclusion from the program is reassessed annually instead of every 3
years. The cycling in and out of the 50th percentile FMRs over a three
year period for failure to reduce HCV concentration by the majority of
program participant areas shows that the program is not meeting its de-
concentration goals. In addition, a loss of 50th percentile FMRs is
disruptive both to the HCV program and to other non-HCV programs (where
payment standard flexibility to modify assistance payments does not
exist), such as the Shelter Plus Care program, the Low Income Housing
Tax Credit program, and other state and local programs tied to HUD's
FMRs.
HUD's analysis of the FY 2015 FMRs indicates that the 50th
percentile FMRs provide a rent that is on average, weighted by
population, 7.3 percent higher than the 40th percentile FMR for

[[Page 31335]]

those sixteen areas that currently use 50th percentile FMRs. Even with
the use of a 110 percent payment standard authority, the FMR in 50th
percentile areas would not reach a gross rent that is 120 percent above
the 40th percentile rent (it would on average be 110 percent of 1.073
or 118 percent higher). This average 50th percentile FMR rent
differential is generally not high enough to provide HCV households
with access to higher opportunity neighborhoods. Also, by providing the
same FMR for the entire FMR area, 50th percentile FMRs fail to provide
tenants sufficient means to move to areas of higher opportunity while
also unnecessarily raising subsidies in neighborhoods with lower rents.
Alternatively, SAFMRs may provide voucher families with subsidies
that better reflect the localized rental market, including subsidies
that would be relatively higher if they move into areas that
potentially have better access to jobs, transportation, services, and
educational opportunities. More importantly, SAFMRs vary within an FMR
area, and they can go as high as 165 percent of the 40th percentile FMR
(using 110 percent payment standard authority when the SAFMR is at 150
percent of the metropolitan area rent).
A third issue with the current 50th percentile FMRs is that they
only measure the degree to which vouchers are concentrated in a small
share of neighborhoods but do not take poverty rates into account. In
moving to SAFMRs, HUD will have an opportunity to reconsider the
criteria for identifying areas with undue voucher concentration and
make sure the SAFMRs are also available in areas where vouchers are
concentrated in high-poverty areas. Measuring whether vouchers are
concentrated in high-poverty areas will enable HUD to target SAFMRs to
areas where voucher concentration likely has the most severe adverse
effects.
In addition, HUD would limit application to FMR areas where there
are a substantial number of units in neighborhoods where SAFMRs are
significantly above or below the 40th percentile FMR. This will ensure
that the SAFMR program is targeted to FMR areas where PHAs' normal
authority to set payment standards between 90 and 110 percent of the
FMR would not allow access to opportunity areas but SAFMRs would.

IV. Request for Public Comments on Replacing the 50th Percentile FMRs
With the Use of Small Area FMRs

This notice seeks comments on the use of SAFMRs to provide HCV
tenants with access to better housing and better neighborhoods and to
reduce poverty concentration. The SAFMRs would be limited to
metropolitan areas with significant rent differentials in areas with
adequate housing, since these are the areas in which SAFMRs have the
greatest potential to improve the housing options available to HCV-
assisted households. HUD plans to limit the use of SAFMRs to the HCV
program only and to a limited number or percentage of vouchers,
especially now while the demonstration program is under way. HUD also
wants to eliminate the cycling in and out of FMR areas; once an area
qualifies for the use of SAFMRs, the area would not be subject to
losing the use of SAFMRs. To assist HUD in framing the issues involved
in moving to SAFMRs, HUD seeks public comment on this topic, but
specifically on the following questions:
1. Measurement of undue voucher concentration: What poverty rate
and concentration level should be used in determining the criteria for
selecting SAFMR areas? Measuring the extent to which vouchers are
concentrated in high-poverty areas will enable HUD to target SAFMRs to
areas where voucher concentration likely has the most severely adverse
effects. Poverty concentration levels of 20 percent and 40 percent have
been identified as particularly significant thresholds for adverse
impacts.\4\ However, simply measuring the share of voucher holders in
areas with poverty rates above these levels may be inadequate since
this share will tend to be higher in metropolitan areas with generally
high poverty rates regardless of the performance of the voucher
program. Should the Department attempt to target areas where
concentration of voucher tenants in high-poverty census tracts, however
defined, is generally higher than the concentration of rental units?
Should the Department target some higher threshold of relative poverty
concentration?
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\4\ Thresholds, or tipping points, also prove important. In a
recent review of research, Galster notes that studies suggest ``that
the independent impacts of neighborhood poverty rates in encouraging
negative outcomes for individuals like crime, school leaving, and
duration of poverty spells appear to be nil unless the neighborhood
exceeds about 20 percent poverty, whereupon the externality effects
grow rapidly until the neighborhood reaches approximately 40 percent
poverty; subsequent increases in the poverty population appear to
have no marginal effect.'' George C. Galster, ``The Mechanism(s) of
Neighborhood Effects: Theory, Evidence, and Policy Implications.''
Presentation at the ESRC Seminar, St. Andrews University, Scotland,
UK, 4-5 February 2010 as footnoted in the HUD publication at: http://www.huduser.org/portal/periodicals/em/winter11/highlight2.html.
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2. SAFMR effectiveness: What percentage of an area's rental stock
should be above and below the FMR? SAFMRs will only be an effective
means of reducing HCV tenant concentration in high-poverty
neighborhoods in metropolitan areas where there are sufficient numbers
of rental units in ZIP codes with rents substantially above or below
metropolitan area-wide FMRs. PHAs may establish voucher payment
standards up to 10 percent above or below the FMR, so SAFMRs must be
substantially above or below this range. What is the appropriate
``sufficient'' threshold proportion of units in ZIP codes with rents
substantially different from metropolitan-area-wide FMRs? What is the
appropriate threshold for defining ``substantial'' variation in SAFMRs
above and below the 90 to 110 payment standard basic range around
metropolitan area-wide FMRs?
3. Program scale: In terms of number or percentage of metropolitan-
area vouchers (which is roughly 1.9 million), what should be the size
of the SAFMR program? Based on rental housing stock limitations, SAFMR
estimations are limited to metropolitan areas. Because SAFMRs are more
complex to administer for PHAs serving a territory containing many ZIP
codes, HUD does not wish to impose too high an administrative burden on
PHAs by moving to SAFMRs in place of 50th percentile FMRs. The current
50th percentile FMRs account for about 10 percent of the vouchers in
all metropolitan areas, or less than 175,000 vouchers, and affect about
150 PHAs. For areas that have ever been 50th percentile areas, the
number of vouchers shows a program size of just over 350,000 vouchers,
with more than 300 PHAs serving these vouchers. Would SAFMRs of similar
size (in terms of number of vouchers used) to the current or the
maximum (ever) 50th percentile FMR be appropriate? Note that the
selection of the thresholds described in 1 and 2 above will necessarily
affect the size of the SAFMR program in terms of the number of voucher
holders or PHAs that administer the program, and that the selected
areas will not necessarily include areas currently statistically
eligible for the 50th percentile FMR.
4. PHA or metropolitan-wide: Should SAFMRs apply to all PHAs in a
metropolitan area, or only to PHAs that display a pattern of HCV tenant
concentration in high-poverty census tracts? Limiting the application
of SAFMRs to individual PHAs would reduce overall administrative
burden; however, might it be too confusing to have PHAs that service
the same area not use the same set of FMRs. HUD

[[Page 31336]]

seeks comments on the relative value of limiting the use of SAFMRs to
those agencies exhibiting a pattern of HCV tenant concentration in
high-poverty areas versus using SAFMRs for all PHAs servicing an area
where HCV tenants are concentrated in high-poverty areas.
5. Voluntary participation: Should a PHA be allowed to use SAFMRs
even if the PHA or the underlying metropolitan area would not qualify
for the use of SAFMRs? Qualification thresholds as discussed above will
invariably result in ``near misses'' of areas or PHAs falling just
below qualification thresholds, but where PHAs may see value in the
SAFMR approach for addressing voucher concentration, or providing
better access to opportunity. HUD seeks comment on whether the choice
to use SAFMRs should be entirely up to individual PHAs, or if
participation should be limited in some way.
6. PBV Use of SAFMRs: Should SAFMRs be applied to PBVs at least for
future PBV projects? HUD seeks comment on whether the SAFMRs should be
applied to PBV assistance as well as tenant-based rental assistance.
Under the PBV program, one of the limitations on the amount of subsidy
that may be paid is that the rent to owner may not exceed 110 percent
of the applicable FMR (or an exception payment standard approved by the
Secretary) for the unit bedroom size minus any utility allowance. As a
result, the use of SAFMRs for future PBV projects could potentially
increase the number of PBV units that are located in areas of
opportunity, because the SAFMRs would recognize the higher rents that
are prevalent in more desirable neighborhoods, rather than applying the
same 110 percent FMR limitation to all PBV projects throughout the
entire metro area, regardless of the project's location.
Because the 110 percent FMR rent limitation applies not only to the
initial rent to owner but also to the re-determined rent to owner
during the term of the HAP contract, a change to SAFMRs could impact
the rents for existing PBV projects and could have an adverse impact on
some PBV projects. Should the applicability of SAFMRs to PBV be limited
to future PBV projects (or limited in some other manner) so that the
change would not potentially impact the rents of existing PBV projects?
7. Success Rate Payment Standards: In addition to using Small Area
FMRs as a tool to alleviate concentrations of voucher tenants in high
poverty areas, should Small Area FMRs also be used in areas that
qualify for success rate payment standards? HUD seeks comment on
whether the Success Rate Payment Standard regulations (24 CFR
982.503(e)) should continue to use 50th percentile FMRs or if these
areas would also benefit from operating under Small Area FMRs. Raising
the level of rents across an entire FMR area to the 50th percentile may
be necessary in areas where current success rates are low;
consequently, the Department could continue to produce 50th percentile
rents for this purpose. Such an area may not have enough of a rent
differential and/or may not be in a metropolitan area and may benefit
from the higher payment standard, up to 110 percent of the 50th
percentile rent.
8. Relevant PHA Experience: What information do PHAs currently
using SAFMRs (Dallas area and SAFMR Demonstration PHAs), or other PHAs
that have used SAFMRs for helping set Housing Choice Voucher payment
standards (such as PHAs in the Moving to Work Demonstration) have
regarding their use of Small Area FMRs? HUD is seeking information
about the impacts of implementing Small Area FMRs, including (but not
limited to) administrative burden, tenant outcomes and landlord
participation.

Environmental Impact

A Finding of No Significant Impact with respect to the environment
as required by the National Environmental Policy Act (42 U.S.C. 4321-
4374) is unnecessary, since the Housing Choice Voucher Program is
categorically excluded from the Department's National Environmental
Policy Act procedures under 24 CFR 50.19(c)(d).

Regulatory Review--Executive Orders 12866 and 13563

Executive Order 12866 (Regulatory Planning and Review), a
determination must be made whether a regulatory action is significant
and therefore, subject to review by the Office of Management and Budget
(OMB) in accordance with the requirements of the order. Executive Order
13563 (Improving Regulations and Regulatory Review) directs executive
agencies to analyze regulations that are ``outmoded, ineffective,
insufficient, or excessively burdensome, and to modify, streamline,
expand, or repeal them in accordance with what has been learned.
Executive Order 13563 also directs that, where relevant, feasible, and
consistent with regulatory objectives, and to the extent permitted by
law, agencies are to identify and consider regulatory approaches that
reduce burdens and maintain flexibility and freedom of choice for the
public. This advance notice of proposed rulemaking was reviewed by OMB
and determined to likely result in a ``significant regulatory action,''
as defined in section 3(f) of Executive Order 12866, and potentially an
``economically significant action,'' as provided in section 3(f)(1) of
that Order.
The docket file is available for public inspection in the
Regulations Division, Office of the General Counsel, 451 7th Street
SW., Room 10276, Washington, DC 20410-0500. Due to security measures at
the HUD Headquarters building, please schedule an appointment to review
the docket file by calling the Regulations Division at 202-708-3055
(this is not a toll-free number). Individuals with speech or hearing
impairments may access this number via TTY by calling the Federal Relay
Service at 800-877-8339.

Dated: May 27, 2015.
Katherine M. O'Regan,
Assistant Secretary for Policy Development and Research.
[FR Doc. 2015-13430 Filed 6-1-15; 8:45 am]
BILLING CODE 4210-67-P

31334 Federal Register / Vol. 80, No. 105 / Tuesday, June 2, 2015 / Proposed Rules

to use area-wide FMRs. HUD is also Rental Rate Ratio = Median Gross Rent goal of providing tenants more choice in
considering whether regulations of the County/Median Gross Rent of the the neighborhoods where they can rent
governing the use the 50th percentile CBSA and reducing HCV household
FMR for success rate payment standards For metropolitan areas, FMRs will be concentration.
(under 24 CFR 982.503(e)) should be There is a regulatory requirement to
calculated and published for each small
eliminated or changed. Success rate reevaluate the designations after three
area.
payment standards, which are set years to gauge progress in alleviating
HUD multiplies this rent ratio by the
between 90 and 110 percent of the 50th HCV tenant concentration in the
current estimate of the 40th percentile
designated FMR area. If an area does not
percentile rent, are established for the two-bedroom rent for recent movers into
show an improvement in its voucher
entire FMR area when that area is standard quality units for the entire
tenant concentration level after a three-
having considerable lease-up issues in metropolitan area containing the small
year period, then the area loses its 50th
areas, both metropolitan and area to estimate the current year two-
percentile FMR for a period of three
nonmetropolitan, that do not have 50th bedroom rent for the small area. For FY
years. After the three-year period, these
percentile FMRs. HUD will use public 2015 SAFMRs, HUD continues to use areas may, and generally do, return to
comments received in response to this the rent ratios developed in conjunction the 50th percentile FMR. While there
notice in developing a proposed rule. with the calculation of FY 2013 FMRs are a couple of FMR areas that
based on 2006–2010 5-year ZIP Code graduated from the 50th percentile
II. Methodology for SAFMRs Tabulation Area (ZCTA) median gross FMRs (which means they no longer
rent data. The Census Bureau requires have at least 25 percent of the voucher
In general, SAFMRs are calculated
the use of ZCTAs to report data for ZIP holders living in the five percent of the
using a rent ratio determined by codes, because ZCTAs are a standard
dividing the median gross rent across all Census tracts with the most voucher
Census geography. In addition to ZCTAs participants), most of the remaining
standard quality units for the small area defined by the Census Bureau, HUD
(a ZIP code) by the similar median gross FMR areas have cycled in and out of the
produces SAFMR estimates for ZIP 50th percentile FMR program at least
rent for the metropolitan area (the Core codes obtained from the U.S. Postal once. Originally, in 2001, there were 39
Based Statistical Area (CBSA)) of the Service where the number of residential areas that qualified to use 50th
ZIP code. ZIP codes were chosen addresses is greater than zero. The rent percentile FMRs. With the change in
because they localize rental rates, and a ratio set for these ZIP codes is based on FMR area definitions and the use of
unit’s ZIP code is easily identified by the county-to-metropolitan relationship 2000 Decennial Census data to
both PHAs and tenants. for the ZIP code in question. determine the concentration of
The rent ratio is calculated using To set the floor for SAFMRs in a affordable units (criteria 3), only 21
median gross rents provided by the metropolitan area, HUD compares two- FMR areas remained eligible, while an
Census Bureau for both the small area bedroom SAFMR estimates to the state additional 10 areas became newly
and its encompassing metropolitan area. nonmetropolitan minimum two- eligible. In FY 2008, there were 28 50th
bedroom rent for the state in which the percentile FMR areas, the most since FY
HUD restricts the use of ZIP code level
area is located that is established as a 2006. Only three of the original and two
median gross rents to those areas for
floor for all FMRs. If the ZIP code rent of the new areas have never lost the use
which the margin of error of the ACS
determined using the rental rate ratio is of 50th percentile FMRs; most of the
estimate is smaller than the estimate less than the state minimum, the ZIP
itself. The rent relationship is calculated remaining areas lost the 50th percentile
code rent is set at this state FMR for failure to de-concentrate,
in the following manner for those ZIP nonmetropolitan minimum. SAFMRs though a few have cycled in and out as
codes within the metropolitan area that for bedroom counts other than two- they hover around the HCV tenant
have a sufficiently small margin of error: bedroom are based on the bedroom-size concentration threshold (three areas)
Rental Rate Ratio = Median Gross Rent relationships estimated for the and a few areas have only had reporting
for ZIP Code Area/Median Gross Rent metropolitan area. The final calculated issues (two areas), meaning that their
for CBSA rents are then rounded to the nearest exclusion from the program is
$10. SAFMRs for all metropolitan areas reassessed annually instead of every 3
The rent relationship is capped at 150 are available for viewing and download years. The cycling in and out of the 50th
percent for areas that would otherwise on the Internet at (http:// percentile FMRs over a three year
be greater. This cap was instituted as a www.huduser.org/portal/datasets/fmr/ period for failure to reduce HCV
mechanism for ensuring that HCV smallarea/index.html). There are also concentration by the majority of
program funds are used as judiciously detailed calculations for each ZIP code program participant areas shows that
as possible. At the time of the area in participating jurisdictions at this the program is not meeting its de-
institution of the SAFMR demonstration Web site. concentration goals. In addition, a loss
program, 2000 Census data showed that III. Current Problems With 50th of 50th percentile FMRs is disruptive
only one percent of all metropolitan ZIP both to the HCV program and to other
Percentile FMR Areas and Proposed
codes had rents above this 150 percent. non-HCV programs (where payment
Replacement With Small Area FMRs
standard flexibility to modify assistance
If the gross rent estimate for a ZIP The 50th percentile FMR allows payments does not exist), such as the
code within the CBSA has a margin of payment standards set between 90 Shelter Plus Care program, the Low
tkelley on DSK3SPTVN1PROD with PROPOSALS

error that is greater than the estimate, percent and 110 percent of the 50th Income Housing Tax Credit program,
then the median gross rent for the percentile FMR across the entire and other state and local programs tied
county within the state containing the qualifying area, whereas Small Area to HUD’s FMRs.
ZIP code is divided by the similar FMRs better differentiate between HUD’s analysis of the FY 2015 FMRs
median gross rent for the CBSA of the higher and lower rent areas within a indicates that the 50th percentile FMRs
ZIP code; the rent relationship is metropolitan area. As mentioned earlier, provide a rent that is on average,
calculated as: the use of 50th percentile FMRs has weighted by population, 7.3 percent
several limitations with respect to the higher than the 40th percentile FMR for

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Document Modified: 2015-12-15 15:11:51

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Proposed Rules
Action		Advanced notice of proposed rulemaking.
Contact		Marie L. Lihn, Senior Economist, Economic Market Analysis Division, Office of Economic Affairs, Office of Policy Development and Research, U.S. Department of Housing and Urban Development, 451 7th Street SW., Washington, DC 20410, telephone (202) 402-5866; email: [email protected] Hearing- or speech- impaired persons may use the Telecommunications Devices for the Deaf (TTY) by contacting the Federal Relay Service at 1-800-877-8339. (Other than the ``800'' TTY number, telephone numbers are not toll free.)
FR Citation		80 FR 31332
RIN Number		2501-AD74