U. S. Department of Housing and Urban Development

Office of Public and Indian Housing

Special Attention of:

Public Housing Agencies; NOTICE PIH 99-13 (HA)

Secretary\'s Representatives;

State/Area Coordinators; Issued: February 23, 1999

Directors, Public Housing Expires: February 28, 2000

Divisions; Resident Management

Corporations (RMCs) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Cross References:

Subject: FY 1999 Subsidies for Operation of Low-Income Housing

Projects

The purpose of this Notice is to advise Public Housing Agencies (HAs) of
the proration of operating budget approvals during Federal fiscal year
1999 (HA fiscal years beginning January 1, April 1, July 1, and October
1, 1999). The 1999 Departments of Veterans Affairs and Housing and Urban
Development and Independent Agencies Appropriations Act includes
\$2,818,000,000 for FY 1999 operating subsidy requirements. Under
current authorizations, the amount appropriated in the FY 1999
Appropriations Act will not be sufficient to cover total subsidy
requirements for both Performance Funding System (PFS) and non-PFS
projects. Accordingly, payments to all HAs will be based on 92.5 percent
of the full eligibility of each as determined by the PFS, or the
appropriate alternate approach for the non-PFS HAs and projects. Under
24 CFR 990.112(c) of the regulations, "In the event that insufficient
funds are available to make payments approvable under PFS for operating
subsidy payable by HUD, HUD shall have complete discretion to revise, on
a pro rata basis or other basis established by HUD, the amounts of
operating subsidy to be paid to PHAs."

In order to maximize the FY 1999 proration percentage, HUD Offices were
instructed on January 21, 1999, not to process any year end adjustments
(Line 33 "Prior Years' Net Year-End Adjustments" of Form HUD-52723).
They are also instructed not to approve mid-year rental and utility
adjustments. (Note: In a fully funded year, under some circumstances,
HAs may receive mid-year adjustments to rental income or utilities.) HAs
are still

required to submit all mandatory year-end adjustments within the
required time frames to enable the Department to analyze our ability to
process them in the future if the FY 1999 funding shortfall situation
changes as a result of Congress enacting a supplemental or operating
subsidy requirements being lower than anticipated.

In FYs 1996 and 1997 the Department adopted three changes to the PFS to
allow HAs to offset PFS funding shortfalls. In order to maximize the FY
1999 proration percentage, these changes will not be adopted for FY
1999.

A.  **Three percent rental income change factor will be used in FY
    1999.** For FY 1999 the Department [will not]{.underline} suspend
    the three percent change factor applied to project an HA's dwelling
    rental income. To do so would lower the proration percentage for all
    HAs, and many HAs are achieving the income projection. Therefore,
    for Federal fiscal year 1999, all HAs will enter 1.03 on Line 15 of
    Form HUD 52723, Calculation of Performance Funding System Operating
    Subsidy.

B.  **Incentive for HAs to increase Other Income.** For FY 1999 the
    Department will not adopt the other income incentive to permit HAs
    to retain additional other income, above that permitted under the
    PFS formula.

C.  **Incentive for HAs which adopt Optional Earned Income exclusions or
    deductions.** HAs which adopt optional earned income exclusions or
    deductions must make an adjustment in reporting the rent roll used
    for calculating operating subsidy. The rent roll amount reported on
    Line 12 must be adjusted by adding back the total value of all
    optional earned income exclusions and deductions. This step results
    in a decrease in operating subsidy that can be made up through the
    adjustment when the HA achieves an increase in rents from earnings.
    The amount of the potential incentive is calculated by comparing the
    rental income per occupied unit resulting from earned income on the
    April 1, 1996 rent roll to the rental income per occupied unit
    resulting from earned income on the date of the rent roll used for
    the FY 99 PFS calculation. During Federal Fiscal Year 1999 the HA
    qualifies for an adjustment in operating subsidy in an amount that
    is less than or equal to the total of the optional earned income
    exclusions and deductions reported on Line 12. The incentive will be
    entered on Line 38 of Form HUD-52723 and will increase the operating
    subsidy. A sample format for calculating this adjustment is included
    as Appendix A.

If additional information is needed, please contact Joan DeWitt,
Director of the Funding and Financial Management Division, Office of
Public and Assisted Housing Delivery, at (202) 708-1872, or
Joan_W.\_DeWitt@hud.gov.

/s/

Harold Lucas

Assistant Secretary for Public

and Indian Housing

Appendix A

**SAMPLE FORMAT FOR FY 1999 OPTIONAL PFS EARNED INCOME
EXCLUSIONS/DEDUCTIONS ADJUSTMENT**

+------------------------------------------------------------+---+-------+
| **HA Name:**                                               |   |       |
+------------------------------------------------------------+---+-------+
| **Fiscal Year 1999 (12/99, 3/00, 6/00, 9/00)**             |   |       |
+------------------------------------------------------------+---+-------+
| **For HAs with optional earned income                      |   |       |
| exclusions/deductions**                                    |   |       |
+------------------------------------------------------------+---+-------+
| **Note: Line references are to PFS form HUD-52723.         |   |       |
| Calculate PFS subsidy eligibility and proration before     |   |       |
| completing this worksheet.**                               |   |       |
+------------------------------------------------------------+---+-------+
| **DWELLING RENTAL INCOME ADJUSTMENT: HA must certify that  |   |       |
| it is making significant efforts to utilize Optional       |   |       |
| Earned Income Exclusions/Deductions for current            |   |       |
| residents.**                                               |   |       |
+------------------------------------------------------------+---+-------+
| April 1, 1996 rent roll: **Total Tenant Payment** from     |   | PUM   |
| wages and self employment divided by total no. of occupied |   |       |
| units: (This number reflects the subtraction of any        |   |       |
| exclusions/deductions)                                     |   |       |
|                                                            |   |       |
| A                                                          |   |       |
+------------------------------------------------------------+---+-------+
| From [actual]{.underline} rent roll for used for Line 12   |   | PUM   |
| of FY 1999 PFS calculation: **Total Tenant Payment** from  |   |       |
| wages and self employment divided by total no. of occupied |   |       |
| units: (This number reflects the subtraction of any        |   |       |
| exclusions/deductions)                                     |   |       |
|                                                            |   |       |
| B                                                          |   |       |
+------------------------------------------------------------+---+-------+
| PUM change in Total Tenant Payment from earned income (B   |   | PUM   |
| minus A):                                                  |   |       |
|                                                            |   |       |
| If negative, stop here, no adjustment earned.              |   |       |
|                                                            |   |       |
| C                                                          |   |       |
+------------------------------------------------------------+---+-------+
| Increase in Total Tenant Payment from earned income (C     |   | \$    |
| times PFS UMA):                                            |   |       |
|                                                            |   |       |
| D                                                          |   |       |
+------------------------------------------------------------+---+-------+
| Earned income exclusions/deductions in subject year's PFS  |   | \$    |
| rent roll month per occupied unit times PFS occupancy      |   |       |
| percentage and UMAs. This amount must be added to Line 12  |   |       |
| of HUD-52723. *In description column of Line 37 enter as a |   |       |
| comment: "Line E for FY 99 = \_\_\_\_\_"*                  |   |       |
|                                                            |   |       |
| E                                                          |   |       |
+------------------------------------------------------------+---+-------+
|                                                            |   |       |
+------------------------------------------------------------+---+-------+
| Actual adjustment (Enter the smaller of D or E.)           | \ |       |
|                                                            | $ |       |
| F                                                          |   |       |
+------------------------------------------------------------+---+-------+
| Multiply F by FY 1999 Proration Factor and enter on Line   | \ |       |
| 38 of HUD 52723.                                           | $ |       |
|                                                            |   |       |
| G                                                          |   |       |
+------------------------------------------------------------+---+-------+