[Federal Register Volume 87, Number 95 (Tuesday, May 17, 2022)]
[Rules and Regulations]
[Pages 30020-30057]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-09528]



[[Page 30019]]

Vol. 87

Tuesday,

No. 95

May 17, 2022

Part II





Department of Housing and Urban Development





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24 CFR Parts 887 and 984





Streamlining and Implementation of Economic Growth, Regulatory Relief, 
and Consumer Protection Act Changes to Family Self-Sufficiency Program; 
Final Rule

Federal Register / Vol. 87 , No. 95 / Tuesday, May 17, 2022 / Rules 
and Regulations

[[Page 30020]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 887 and 984

[Docket No. FR-6114-F-03]
RIN 2577-AD09


Streamlining and Implementation of Economic Growth, Regulatory 
Relief, and Consumer Protection Act Changes to Family Self-Sufficiency 
(FSS) Program

AGENCY: Office of the Assistant Secretary for Public and Indian Housing 
and Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, Department of Housing and Urban Development (HUD).

ACTION: Final rule.

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SUMMARY: This final rule amends HUD's regulations to implement changes 
to the Family Self-Sufficiency (FSS) program made by the Economic 
Growth, Regulatory Relief, and Consumer Protection Act (``the Economic 
Growth Act'' or ``the Act''). Section 306 of the Act made multiple 
amendments to the FSS program, including changes to the methodology for 
determining the size of the FSS program, expanding the definition of 
eligible families to include tenants of certain privately owned 
multifamily properties subsidized with Project-Based Rental Assistance 
(PBRA), updating the FSS Contract of Participation (CoP), reducing 
burdens on Public Housing Agencies (PHAs) and multifamily assisted 
housing owners, clarifying escrow account requirements, and updating 
the FSS Action Plan requirements. After consideration of public 
comments, this final rule incorporates these changes, responds to 
public comments, and further revises HUD's FSS regulations to further 
streamline the program for PHAs, multifamily property owners, and 
eligible families, including providing that families participating in 
the Housing Choice Voucher Homeownership Program and all Section 8 
programs can participate in the FSS program, revising certain 
definitions that apply to the program to align with commenters' 
suggestions, making changes to the CoP provisions, revising the lists 
of activities for which forfeited escrow funds may be used, and making 
changes to portability provisions.

DATES: 
    Effective date: June 16, 2022.
    Compliance date: Public Housing Authority and Owner compliance with 
this rule is required no later than November 14, 2022.

FOR FURTHER INFORMATION CONTACT: For Public and Indian Housing (PIH) 
FSS contact Anice S. Chenault, Office of Public and Indian Housing, 
U.S. Department of Housing and Urban Development, 451 7th Street SW, 
Room 4120, Washington, DC 20410; telephone number 502-618-6163 (this is 
not a toll-free number); and for Multifamily FSS contact Elizabeth 
Fernandez, Office of Multifamily Housing Programs, U.S. Department of 
Housing and Urban Development, 451 7th Street SW, Room 6182, 
Washington, DC 20410; telephone number 202-402-6763 (this is not a 
toll-free number). The public is encouraged to email questions to 
<a href="/cdn-cgi/l/email-protection#0c4a5f5f4c647968226b637a"><span class="__cf_email__" data-cfemail="17514444577f627339707861">[email protected]</span></a> or MF_<a href="/cdn-cgi/l/email-protection#05435656456d70612b626a73"><span class="__cf_email__" data-cfemail="22647171624a57460c454d54">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Background

    In 1990, section 554 of the Cranston Gonzalez National Affordable 
Housing Act (Pub. L. 101-625, approved November 28, 1990) amended the 
United States Housing Act of 1937 by adding a new section 23 (42 U.S.C. 
1437u) to create the FSS program. The FSS program requires that PHAs 
and Indian Housing Authorities \1\ use Public and Indian Housing 
assistance and Section 8 Housing assistance rental voucher programs, 
together with public and private resources, to provide supportive 
services, case management, and an escrow account to participating 
families, with the intent to help families achieve economic 
independence and self-sufficiency. The program's goal is to enable 
participating low-income families to increase their earned income, 
achieve economic stability, and reduce or eliminate their need for 
welfare assistance and rental subsidies. FSS Program Coordinators 
create plans with participating families to achieve goals and connect 
them with services that will assist the family in making progress 
toward economic security. As the family's earnings increase, the 
difference between the original rent and the increased rent due to 
increased earned income is credited to an interest-bearing escrow 
account on the family's behalf. Families that meet program requirements 
and successfully complete the FSS program receive their accrued FSS 
escrow funds, plus interest. No regulatory restrictions exist on the 
use of the escrowed funds. Many families use the funds to help with the 
purchase of a home, debt reduction, post-secondary education, or to 
start a new business.
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    \1\ The Native American Housing Assistance and Self 
Determination Act of 1996 (25 U.S.C. 4101 et seq.) (NAHASDA) removed 
the application of the FSS program to Indian Housing Authorities.
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    On May 24, 2018, the Economic Growth, Regulatory Relief, and 
Consumer Protection Act (the ``Economic Growth Act'' or ``the Act'') 
was signed into law (Pub. L. 115-174), and section 306 of title III of 
the Act, Protections for Veterans, Consumers, and Homeowners, amended 
the United States Housing Act of 1937 (42 U.S.C. 1437, et seq.), FSS 
program, which required HUD to issue regulations to update its program 
requirements and provide new provisions for private owners of 
multifamily assisted housing to set up their own FSS programs. 
Additional details about the FSS program may be found in the background 
of the ``Streamlining and Implementation of Economic Growth, Regulatory 
Relief, and Consumer Protection Act Changes to Family Self-Sufficiency 
(FSS)'' at 85 FR 59234 (September 21, 2020).

II. The September 21, 2020, Proposed Rule

    On September 21, 2020 (85 FR 59234), HUD published a proposed rule 
to implement changes required by the Economic Growth Act and streamline 
the FSS program. The public comment period closed on November 20, 2020, 
and HUD received 105 public comments. The proposed rule makes changes 
to the existing FSS regulations at 24 CFR part 984 and adds a new 24 
CFR part 887 to address the FSS program for owners of multifamily 
assisted housing. The proposed rule also updates references to PHAs and 
owners and clarifies the provisions that would apply to both when 
operating an FSS program. Owners would be subject to the requirements 
only if they are operating an FSS program.
    The changes include updating the mandatory size of a PHA's required 
FSS program and available exceptions; updating the definition of 
eligible families; allowing family members other than the Head of 
Household for rental assistance purposes to sign the Contract of 
Participation (CoP) and to meet the employment obligation; amending the 
definition of supportive services; changing the term of the CoP; 
amending the requirements pertaining to the management of the escrow 
account, including the requirements for forfeiture of the escrow funds; 
and, amending reporting requirements. Also, the Economic Growth Act 
provided new provisions for private owners of multifamily assisted 
housing to set up their own FSS program or enter into a Cooperative 
Agreement with another private owner or PHA to offer an FSS

[[Page 30021]]

program to the owner's assisted residents. For more information about 
the specific proposed changes to conform with the Economic Growth Act 
see the background of the ``Streamlining and Implementation of Economic 
Growth, Regulatory Relief, and Consumer Protection Act Changes to 
Family Self-Sufficiency (FSS)'' at 85 FR 59234 (September 21, 2020).
    HUD also proposed changes, that were not statutorily required, to 
streamline the program, including removing references to the 
establishment of mandatory programs; requiring an FSS Program 
Coordinator as a Program Coordinating Committee (PCC) member; requiring 
that at least one resident participant from each HUD-assisted program 
served by FSS is a member of the PCC; revising the amount of time a 
family must be independent from welfare assistance prior to expiration 
of the CoP; expanding the definition of ``good cause'' for a contract 
extension to include the active pursuit of a goal that will further 
self-sufficiency, such as a college degree or credit repair program; 
removing the provision that automatically completes the FSS contract 
when thirty percent (30%) of the family's adjusted monthly income 
equals or exceeds the Fair Market Rent (FMR); requiring that 
nullification would occur when the PHA or owner and participant 
determine that services integral to an FSS family's advancement towards 
self-sufficiency are unavailable or when the head of FSS family becomes 
permanently disabled and unable to work or dies during the period of 
the contract, with exceptions; differentiating between ``determining 
the FSS escrow amount'' and ``crediting that FSS escrow amount'' to a 
family's FSS escrow account and requiring that, during the term of the 
FSS contract, the PHA or owner credits the escrow amount to each 
Family's FSS escrow account on a monthly basis; revising the provision 
concerning reduction of amounts due by the FSS family; and revising 
several provisions concerning FSS families that move with continued 
housing choice voucher (HCV) assistance from the jurisdiction of one 
PHA to the jurisdiction of another PHA under portability. HUD also 
reminded PHAs and owners that they may not establish mandatory goals or 
requirements for all participants other than the two mandatory goals 
set in regulation (seek and maintain suitable employment, and be 
independent from welfare assistance), and that all other goals must be 
set on an individual basis.
    After the publication of the proposed rule, HUD determined that 
changes to the information collection requirements described in it 
would be necessary. As a result, on November 15, 2021, at 86 FR 62964, 
HUD published a supplemental notice of proposed rulemaking re-opening 
the public comment period on the information collection requirements in 
the September 21, 2020, proposed rule. HUD received only one comment, 
which spoke about affordable housing generally and not about FSS or 
information collection requirements.

III. Changes Made at the Final Rule Stage

    In response to public comments, a discussion of which is presented 
in Section IV, and in further consideration of issues addressed at the 
proposed rule stage, HUD is publishing this final rule adopting the 
September 21, 2020, proposed rule as final with the following changes.
    A. Purpose, applicability, and scope. As part of this final rule, 
HUD updates the list of public housing and voucher programs through 
which families can participate in the FSS program in Sec.  984.101. 
Public commenters noted that the change in the Economic Growth Act 
provided HUD with further flexibility to allow participants beyond 
those being funded under 8(o) of the U.S. Housing Act of 1937. After 
further consideration, HUD amends Sec.  984.101 to provide that 
families participating in the HCV Homeownership Program under section 
8(y) of the U.S. Housing Act of 1937 will also be allowed to 
participate in the FSS program. Additionally, this final rule includes 
Moderate Rehabilitation and Moderate Rehabilitation Single Room 
Occupancy for homeless individuals under 24 CFR part 882 in the list of 
programs under which families can participate in FSS, as these are also 
Section 8-assisted housing. The final rule also explicitly identifies 
Family Unification Program (FUP) assistance under section 8(x) of the 
1937 Act as a program under which families can participate in FSS; the 
proposed rule did not adequately distinguish that FUP is not a section 
8(o) program, unlike other special purpose vouchers.
    This final rule also clarifies in Sec.  984.101 that participation 
in the FSS program, or lack thereof, may not be used as cause to 
terminate rental assistance.
    B. Definitions. In Sec.  984.103, this final rule maintains the 
current definition of ``effective date of the Contract of 
Participation'' which currently is the first day of the month following 
the month in which the FSS family and the PHA or owner entered into the 
Contract of Participation, rather than finalize the proposed rule 
definition that would have made this the date the parties sign the 
contract. HUD revises the definition slightly so the effective date 
will be the first day of the month following the date in which the FSS 
family and the PHA or owner entered into the Contract of Participation 
for clarity, but the change is not substantive. HUD is maintaining the 
current definition because many commenters requested that the CoP 
continue to conform with other rental assistance processes that operate 
on a monthly cycle.
    Additionally, this final rule revises the definition of ``FSS 
family in good standing'' as recommended by some commenters to mean an 
FSS family that is in compliance with their FSS CoP, has satisfied or 
is current on any debts owed the PHA or owner, and is in compliance 
with the regulations regarding participation in the relevant rental 
assistance program. The definition under the proposed rule provided 
that an FSS family is in good standing if it is not in eviction 
proceedings and is otherwise in compliance with any repayment agreement 
and the FSS CoP and did not include language noting that the family 
must also be in compliance with regulations for the relevant assistance 
program. This final rule also expands the definition of ``Personal 
welfare'' in Sec.  984.103 to include health, dental, mental health and 
health insurance services.
    C. Cooperative Agreements. In response to public comment, this 
final rule specifies in Sec. Sec.  887.107 and 984.106 that Cooperative 
Agreements between PHAs and owners of multifamily properties must 
include processes for the entities to communicate with each other about 
changes in their Action Plans to ensure continued coordination between 
the participating entities in administering their program.
    D. FSS award funds formula. This final rule removes language in 
Sec. Sec.  887.111 and 984.107 of the proposed rule that stated notice 
of, and changes to, the FSS Award Funds Formula will be published in 
the Federal Register, as the formula will continue to be published in 
Notices of Funding Opportunities (NOFO).\2\ HUD believes that adding 
the publication of the funding formula in the Federal Register would 
duplicate the inclusion of the formula that would also need to be

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included in the NOFO. This final rule adds the statutory formula to 
HUD's regulations in Sec.  984.107 for clarity.
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    \2\ HUD currently uses the term Notices of Funding Opportunity 
or ``NOFO'' for documents that would previously have been referred 
to as Notice of Funding Availability or ``NOFAs.'' This change is 
based on the terminology used in Office of Management and Budget 
Management in its Guidance for Grants and Agreements (85 FR 49506, 
August 13, 2020).
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    E. FSS Action Plans. Section 984.201 of this final rule includes 
examples of policies over which PHAs/owners have discretion. These may 
be included in the FSS Action Plan to help HUD determine the soundness 
of the PHA or owner's FSS program.
    F. FSS appropriated funds. This final rule revises Sec.  984.302 to 
clarify that FSS appropriated funds awarded pursuant to this statute 
may be used by PHAs or owners for eligible FSS costs, including when an 
owner operates an FSS program through a Cooperative Agreement or on its 
own. Additionally, to ensure that there is no confusion about funding 
available to PBRA owners who operate an FSS program, this final rule 
adds a provision at Sec.  887.113(a), that states that owners may also 
or alternatively use residual receipts to pay for reasonable FSS 
program operation costs, including hiring an FSS Program Coordinator or 
coordinators for their FSS program. This new regulatory text implements 
statutory language of section 23(l) of the U.S. Housing Act of 1937, as 
amended by the Economic Growth Act, which states that PBRA owners may 
access funding from any residual receipt accounts for the property to 
hire an FSS Program Coordinator(s) for their program.
    G. Contract of Participation. In Sec.  984.303, which covers the 
``Contract of Participation,'' this final rule makes various changes 
and revisions. This clarifies that there will only be one CoP per 
household, and there may be an Individual Training and Services Plan 
(ITSP) for as many members of the household that wish to participate, 
which will be incorporated into the CoP. The rule also revises the 
regulatory text in paragraph (b)(3) to clarify that all considerations 
allowed for other residents for repayment agreements and other matters 
shall also be allowed for FSS participants. The rule revises Sec.  
984.303(b)(2) to state that being independent from welfare assistance 
will be a mandatory final goal instead of an interim goal.
    Additionally, the rule revises paragraph (b)(4)(iii) to note that 
the determination of suitable employment will be made with the 
agreement of the affected participant, so that the affected participant 
has input into this matter along with the PHA or owner, and expands the 
regulation to include that the determination will involve consideration 
of the receipt of other benefits of the participant, to ensure that new 
employment will not cause the loss of necessary supports, in addition 
to the skills, education, and job training of that participant. 
Further, in paragraph (a) this final rule eliminates the requirement 
from the proposed rule that the family consult with the PHA or owner in 
designating the head of FSS family, as HUD believes that it is 
generally in the best interests of assisted households to choose the 
head of FSS family that is most suitable for their individual household 
circumstances.
    This final rule also revises paragraph (d) to clarify that the 
determination of good cause for a Contract extension can include 
circumstances beyond the control of the FSS family that impede the 
family's ability to complete the CoP obligations and can include any 
circumstance that the PHA or owner determines warrants an extension, as 
long as the PHA or owner is consistent in its determinations. Further, 
this final rule provides in paragraph (k) that while the CoP will be 
terminated, escrow can be disbursed to the family when services that 
the PHA or owner and the FSS family have agreed are integral to the FSS 
family's advancement towards self-sufficiency are unavailable. Under 
the proposed rule language, only the PHA or owner made that 
determination.
    This final rule revises paragraph (f) to clarify that modifications 
to the CoP must be in writing and signed by the PHA/owner as well as 
the head of FSS family. Additionally, this final rule revises paragraph 
(j) to clarify that only non-HUD funds or non-HUD restricted funds can 
be used by PHAs and owners to offer supportive services to former FSS 
families that have left assisted housing.
    Lastly, this final rule provides in paragraph (k) that a CoP will 
be terminated but escrow can be disbursed to the family rather than 
forfeited, if an FSS family in good standing moves outside the 
jurisdiction of the PHA for good cause, as determined by the PHA, and 
continuation of the CoP after the move, or completion of the CoP prior 
to the move, is not possible.
    H. FSS escrow account. This final rule removes from Sec.  984.305 
language that would permit a PHA or owner to set a policy to either 
conduct a new re-examination of income before the effective date of the 
FSS contract, or to use the amounts on the family's last income re-
examination when setting a participant's baseline rent. This final rule 
will instead require the PHA or owner to use the amounts on the most 
recent rent certification. HUD believes this is more in line with 
congressional intent.
    Additionally, this final rule expands the list of eligible 
activities for which forfeited escrow funds may be used to include 
other costs related to achieving obligations outlined in the CoPs of 
remaining FSS participants and adds to the list of ineligible 
activities ``general administrative costs of the FSS program.'' HUD has 
made this change to eliminate any incentive PHAs may have had not to 
graduate participating families so as to recapture the forfeited escrow 
funds and to ensure forfeited funds are used to advance participants' 
goals and not for the overall implementation of the FSS program.
    This final rule does not contain language from the proposed rule 
that would have provided for escrow disbursement to an estate if the 
head of the FSS family dies before a CoP is completed, as HUD 
determined that there is no legal authority for this. However, if the 
head of the FSS family dies before the CoP is completed, another member 
of the FSS family may take over the CoP.
    This final rule also clarifies how the increase in the family's 
monthly rent is determined when computing the FSS credit amount for 
Section 8 Moderate Rehabilitation (Mod Rehab) and PBRA families and 
that, as is the case with Project-Based Vouchers (PBVs), it is the 
difference between the baseline monthly rent and the current gross 
rent.
    I. HCV portability requirement. Due to the fact that PBVs are 
allocated to a specific unit, a family with a PBV does not have the 
right to take that rental assistance and move. Generally, after having 
a PBV for 12 months, the family may apply for and receive Tenant-Based 
Rental Assistance (TBRA, also known as a Tenant-Based Voucher) if it is 
available. The proposed rule did not discuss an FSS family's right to 
move after transitioning from a PBV to TBRA. In Sec.  984.306, this 
final rule clarifies that a PBV family that has been enrolled in the 
FSS program for 12 months, and who exercises its right to transfer from 
the PBV unit to tenant-based rental assistance in accordance with 24 
CFR 983.261, may move outside of the jurisdiction of the initial PHA in 
accordance with standard portability regulations. The PHA's discretion 
to allow portability moves for TBRA FSS participants within the 12 
months following the effective date of the CoP also applies to PBV 
families who become Tenant-Based voucher families.
    Additionally, this final rule provides that a receiving PHA that is 
already serving the number of families identified in its FSS Action 
Plan and determines it does not have the resources to manage the 
additional FSS contract is not required to enroll a porting family. In 
such cases, the initial PHA must discuss with the family

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options available to the family, such as modification of the FSS 
contract, termination of the FSS contract and forfeiture of escrow, 
termination of the contract and the release of escrow if the initial 
PHA determines there is good cause for the move, or locating a 
receiving PHA that has the capacity to enroll the family into its FSS 
program. HUD has made this change after considering public comments and 
determining that a lack of capacity to serve a ported FSS family would 
be a reasonable justification for a receiving PHA to deny enrollment of 
the ported FSS family into its FSS program.
    Further, in response to comments, this final rule allows a family 
that was not an FSS participant at the initial PHA to enroll in a 
receiving PHA's program when the receiving PHA bills the initial PHA if 
the initial PHA agrees, and the initial PHA manages an FSS program. 
Under the proposed rule, if the receiving PHA bills the initial PHA, a 
family that was not an FSS participant at the initial PHA would not 
have been able to enroll in the receiving PHA's FSS program.
    J. Basic requirements of FSS (for multifamily FSS programs). This 
final rule revises Sec.  887.105 to provide that where a Program 
Coordinating Committee (PCC) is available, owners can either work with 
that PCC or create their own, either by themselves, or in conjunction 
with other owners. This adds flexibility to the language that was in 
the proposed rule that said owners must work with a PCC when one is 
available and did not mention an option for such owners to create their 
own PCCs.
    Additionally, under this final rule, multifamily owners are not 
exempt from the family selection procedures in Sec.  984.203. HUD makes 
this change from the proposed rule in order to give the owner the 
option of using certain selection preferences and motivational 
screening factors and make it easier for an owner to operate an FSS 
program through a Cooperative Agreement with a PHA that uses selection 
preferences or motivational screening factors.
    K. Additional grammatical and technical changes. This final rule 
makes additional grammatical and technical changes throughout, such as 
clarifying the usage of the word ``jurisdiction'' so that it is only 
used when referring to a PHA's jurisdiction, and not also the community 
where a PBRA property is located; clarifying that PBRA owners may 
develop their own FSS Action Plans; including ``Head of Household'' in 
the list of definitions defined in part 5 of HUD's regulations; and 
other minor changes for clarity and conformance.
    L. Delayed compliance date. This final rule includes a compliance 
date that provides PHAs and owners with up to six months from the date 
of publication of this rule to comply with its provisions. HUD 
encourages PHAs and owners to comply with this new rule's provisions as 
soon as possible. This means that all FSS Action Plans must be updated 
by the compliance date. HUD intends to provide guidance on that process 
and encourages PHAs and Owners to visit the FSS Resources web page at: 
https://www.hud.gov/program_offices/public_indian_housing/programs/hcv/fss and to subscribe to HUD's FSS listserv at https://public.govdelivery.com/accounts/USHUDPIH/signup/30989. The requirements 
in this rule may apply to CoPs that are signed after the effective date 
of the rule but before the compliance date if the PHA or Owner is in 
compliance with the new rule. PHAs and Owners may reach an agreement 
with FSS participants covered by existing CoPs to modify those CoPs on 
a family-by-family basis, so those contracts are governed by this final 
rule.

IV. Public Comments

    The public comment period for the September 21, 2020, proposed rule 
closed on November 20, 2020. HUD received and reviewed 105 comments on 
the proposed rule from a wide variety of interested entities, 
including: Individuals, public housing agencies, affordable housing 
organizations, housing associations, community development 
corporations, and investment companies. This section addresses 
significant issues raised by the public comments and is organized by 
the proposed rule section, with summaries of the issues followed by 
HUD's responses. There were also numerous comments received both in 
support of and opposition to the proposed rule generally, as well as 
comments that did not address one specific section of the proposed 
rule. Those comments are organized into general categories and 
responded to accordingly. Following are the issues raised by the public 
comments and HUD's responses.

General Support

    Commenters generally supported the proposed rule as beneficial to 
program participants and to beneficiaries. A commenter supported 
updating FSS rules so that PHAs do not have to ignore outdated 
language.
    HUD Response: HUD appreciates this feedback and the time taken to 
review the proposed rule.

Section 984.101: Purpose, Applicability, Scope

Section 8 Participants Eligibility
    A commenter asked HUD to clearly state that all Section 8 
participants are eligible to participate in FSS, including those with 
Non-Elderly Disabled (NED), Veterans Affairs Supportive Housing (VASH), 
and Mainstream Vouchers. The commenter also asked HUD to provide 
specific instructions on reporting through the PIH Information Center 
(PIC) and Voucher Management System (VMS), noting that there is no 
clear direction on how to assist families on Mainstream 5 and the funds 
used for escrows need to be backed out and submitted as Housing 
Assistance Payments (HAP) in the Mainstream 5 VMS line. The commenter 
said when they asked HUD, they were told Mainstream 5 participants were 
not eligible to participate in FSS as the funds are from the Section 
811 Supportive Housing for Persons with a Disability program.
    HUD Response: As stated in the proposed and this final rule, 
families assisted under Section 8 voucher programs are eligible to 
participate in FSS. This includes any applicable special purpose 
voucher considered rental assistance under section 8(o) or 8(x) of the 
U.S. Housing Act of 1937 (1937 Act) (such as Family Unification Program 
(FUP), Foster Youth Initiative (FYI), Veterans Affairs Supportive 
Housing (VASH), and Mainstream Vouchers). Based on comments received 
concerning the eligibility of Housing Choice Vouchers (HCV) 
homeownership families for FSS, HUD has revised the regulatory text to 
clarify and allow HCV homeownership families to participate in FSS. 
Additionally, this final rule includes Section 8 Moderate 
Rehabilitation for low-income families and Moderate Rehabilitation 
Single Room Occupancy for homeless individuals under 24 CFR part 882 in 
the list of programs under which families can participate in FSS, as 
these are also Section 8-assisted housing. For further explanation 
concerning this change, see the discussion of public comments on Sec.  
984.103. As it relates to the reporting concerns raised by a commenter, 
HUD is in the process of updating VMS to allow PHAs to properly report 
FSS escrow deposits and forfeitures for Mainstream Voucher participants 
and will share guidance when it is available.
Non-Participation
    Commenters supported HUD's addition of language clarifying that a 
family's rental assistance shall not be

[[Page 30024]]

delayed or terminated by reason of a family electing not to participate 
in the FSS program because families may, despite best efforts, fail to 
meet the obligations and objectives of the CoP, which would 
disincentivize participation. A commenter stated that the non-
participation clause was too narrow and suggested HUD should 
affirmatively state that rental assistance cannot be terminated for 
non-compliance with the FSS program to avoid ambiguity and conform with 
the statute.
    HUD Response: This final rule revises Sec.  984.101(d) to be clear 
that participation in the FSS program, or lack thereof, may not be used 
as cause to terminate rental assistance. This final rule also revises 
Sec.  887.101(d) to be clear that assistance under Section 8 Housing 
assistance payments programs cannot be refused, delayed or terminated 
because a family chooses not to participate in an FSS program.
Mandatory and Voluntary Programs
    A commenter stated HUD should leave the language as is and allow 
the PHA to decide if they want to keep the program voluntary or make it 
mandatory.
    HUD Response: As used in the proposed rule and this final rule, the 
terms ``voluntary'' and ``mandatory'' refer to whether PHAs are 
required to institute an FSS program, not whether residents must 
participate. All FSS programs must be voluntary for participants.

Section 984.102: Program Objectives

Graduation Timing
    A commenter requested that HUD add a provision allowing a client to 
graduate at time of verification of full-time/suitable employment or at 
the time the new wages/income from employment is added to the Form HUD-
50058 Family Report.
    HUD Response: As explained in Sec.  984.303, the CoP is considered 
completed and a family's participation in the program is considered 
concluded when the FSS family has fulfilled all of its obligation under 
the CoP, on or before the expiration of the Contract term. Section 
984.303(b) requires that the head of FSS family under the CoP seek and 
maintain suitable employment during the term of the contract, but the 
family may have other obligations under the CoP, as described in Sec.  
984.303. Participants may graduate at any time their obligations under 
the CoP are met. The national average time in the program for graduates 
is less than four years. HUD notes that the goal of FSS is self-
sufficiency; therefore, a participant being hired for their first job 
may in fact be only at the beginning of what they can achieve while in 
the FSS program.
Performance Measures
    Commenters recommended that HUD allow the public the opportunity to 
comment on any performance standards. A commenter said any performance 
standards that will impact new, or renewal funding and incentives 
should be subject to public comments prior to the effective date. A 
commenter said that there were issues with HUD's attempt to implement 
new performance metrics in the past and asked that HUD's scoring system 
not place excessive weight on increased earned income, which may 
negatively impact FSS program participants that are enrolled in 
lengthier training and educational programs compared to participants 
that focus specifically on employment. A commenter said any weighing of 
graduation rates and earnings performance should be equal to reflect 
their equal importance. Other commenters expressed concern that the 
``Composite Score'' methodology does not give credit for programs or 
participants who enter educational pursuits prior to entering 
employment. Another commenter recommended that the performance measures 
and criteria for awarding incentives include an FSS family's successful 
move to homeownership when graduating.
    A commenter stated that HUD received criticism for attempting to 
implement the performance measurement system and that HUD found 
inexplicable anomalies between consecutive years of scoring of certain 
housing authorities. The commenter said that Congress specifically 
prohibited HUD in an appropriations act from using funding to consider 
FSS performance measures or scores in determining funding awards. The 
commenter stated that the system does not account for the diversity of 
households in educational levels, skills, and employability at 
enrollment, and that HUD's own contractor recommended that HUD tailor 
its performance measurement system to fit the stated structure and 
goals of the program. The commenter suggested HUD devise a system that: 
Is not implemented retroactively; does not fail to award points to all 
the educational, employment and supportive services allowed by statute 
for program participants; does not score performance until FSS 
contracts are completed; does not penalize non-metropolitan areas who 
may have a dearth of employment opportunities in their markets; does 
not penalize PHAs that are voluntarily administering an FSS program 
with no FSS Program Coordinator funding from HUD; and does not prevent 
PHAs from administering the FSS program at the local level. The 
commenter also said HUD lacks authority to determine how participants 
and PHAs will devise their contracts under FSS, and that if HUD wants 
to limit pre-employment services and educational/job training, it 
should seek a statutory change. This commenter asked HUD to remove from 
the final rule the explicit language related to HUD's proposed 
measurement system factors--namely graduation from the program, 
increased earned income, and program participation--since no such 
language is included in section 306 of the Economic Growth, Regulatory 
Relief, and Consumer Protection Act.
    Two commenters stated the proposed rule is silent about how 
performance standards would affect coordinator funding awards and said 
HUD should comply with Congress' directive by specifying that funding 
for renewed and additional coordinator positions would be subject to 
performance criteria. One commenter said it would not be fair to 
provide agencies serving more families than they are required 
additional points as other programs may be serving families and 
individuals that may require more time with a coordinator. Another 
commenter stated the ``Composite Score'' accurately evaluates the 
success of the FSS program outcomes, and that when one looks at the 
outcomes achieved and not the process then it becomes clear what is 
being evaluated.
    A commenter said it has no objection to HUD using a PIC driven 
``Composite Score'' to evaluate its FSS program but asked that HUD 
provide detailed reporting guidelines on how and when the data is mined 
from PIC to ensure they are reporting accurately. Another commenter 
said that the HUD-commissioned MDRC National FSS Evaluation will 
provide rich information about FSS program operations and that any 
changes in evaluation measurements should wait until the results of 
this study are published so that they may inform best practices for 
performance measurement. One commenter stated a concern that the 
proposed rule would not give credit to a program for graduating 
participants who have never received Temporary Assistance for Needy 
Families (TANF) or whose wages remained steady throughout the five-year 
FSS contract. The commenter was also concerned that the performance 
measure did not address the number of program

[[Page 30025]]

participants who did not have TANF within the time of their FSS 
contract.
    Another commenter expressed concern about the potential for 
developing a tool that is not flexible enough to reflect the 
complicated nature of the participants in the FSS program, the outside 
forces that directly impact their ability to meet and reach their ITSP 
goals, and the non-quantifiable impact of services and supports on 
their long-term economic stability. The commenter opposed the 
development of a tool that is applied the same way to all programs, if 
that tool cannot account for the impact of region, participant 
enrollment characteristics, short- and medium-term economic realities 
and changing government priorities.
    Commenters stated that the proposed rule did not reference Moving 
to Work (MTW) agencies as being covered by such an evaluation system, 
but it also did not indicate that MTW agencies will be exempt or 
subject to different criteria. The commenters said that the scoring 
criteria in the proposed rule should not apply to MTW agencies without 
engaging the MTW Collaborative and the individual MTW PHAs in a 
collaborative process to develop the tool, ensuring that in drafting 
scoring criteria HUD will consider the unique circumstances of MTW 
agencies operating alternative FSS programs. A commenter said that the 
Form HUD-50058/PIC does not allow for accurate reporting for MTW 
agencies, and if HUD intends to use Form HUD-50058-MTW for FSS 
performance scoring, HUD must fix the existing technical issues.
    HUD Response: The Proposed Family Self-Sufficiency Performance 
Measurement System (``Composite Score'') Notice requesting public 
comment was published on December 12, 2017 (82 FR 58434). The Final 
Notice was published in the Federal Register on November 15, 2018 (83 
FR 57493). HUD wishes to note that the Performance Management System, 
as published, is not structured to include MTW agencies, unfunded FSS 
programs or PBRA FSS programs. The majority of the comments above 
commented on the current Performance Measurement System, not the 
proposed rule.

Section 984.103: Definitions

Baseline Annual Earned Income
    A commenter agreed with HUD's proposed definition of ``Baseline 
Annual Earned Income,'' stating it aligns with the new Housing 
Opportunity through Modernization Act (HOTMA) proposal of removing 
Earned Income Disallowance (EID). One commenter agreed that disregarded 
income associated with self-sufficiency incentives should no longer be 
excluded in calculating baseline annual earned income because families 
who previously could not build escrow could now do so even if they are 
in a waiver program. Another commenter stated that instructing PHAs and 
owners to add back any disregard of earned income associated with self-
sufficiency initiatives would have a punitive effect and likely deter 
rather than encourage participation for the persons with disabilities 
who could most benefit from FSS. This commenter said that just as HUD 
is proposing greater consistency across the board by allowing FSS 
families the opportunity to continue participation during the six-month 
Zero-HAP window rather than automatically graduating families who meet 
the 30% rule, HUD should maintain consistency across programs by 
continuing to extend the EID in calculating the baseline income for FSS 
CoP purposes.
    Commenters requested that HUD clarify the definition and asked 
specifically about the meaning of ``disregard of earned income 
associated with self-sufficiency initiatives.'' One commenter asked if 
it referenced EID, Jobs Plus, or others, and, if so, that HUD provide a 
citation to the source of these initiatives so PHAs may easily 
reference them. Another commenter asked HUD to clarify whether the 
self-sufficiency initiatives HUD is in the process of implementing from 
the HOTMA would impact the calculation of FSS escrow.
    HUD Response: As explained in the proposed rule's preamble, adding 
back any disregarded earned income associated with self-sufficiency 
initiatives at the time that the PHA or owner determines the baseline 
annual earned income (that is, when the PHA or owner is determining the 
amount of earned income when the family enrolls in the program), helps 
ensure that escrow amounts are the result of increases in earned income 
while the family is in the FSS program. Otherwise, the family's earned 
income would be lower at baseline resulting in potential for higher 
escrow credits based on increases in earned income that happened prior 
to FSS enrollment. It does not mean that this will necessarily result 
in all families with a disregard not being able to escrow, but rather, 
that the calculation will more accurately reflect increases in escrow 
that are the result of increases in earned income while the family is 
in FSS. Based on this, HUD has determined not to change the proposed 
regulatory language. Currently, ``self-sufficiency initiatives'' 
includes programs that include financial incentives including the Jobs 
Plus Earned Income Disregard and the standard Earned Income Disregard. 
HUD's proposed rule implementing sections 102, 103, and 104 of HOTMA 
(published on September 17, 2019 at 84 FR 48820) would eliminate the 
standard Earned Income Disregard. Additionally, that proposed rule 
would change rent calculation, but would not introduce new ``self-
sufficiency initiatives'' (with financial incentives). HUD is not 
including the name of specific self-sufficiency initiatives in the 
rule, as we do not wish to limit ``self-sufficiency initiatives'' to 
those that exist at present. However, this final rule revises the 
definition to note that disregarded earned income ``or other 
adjustments associated with self-sufficiency initiatives'' may be 
applied when calculating baseline annual earned income, to account for 
``self-sufficiency initiatives.'' This final rule also clarifies that 
any disregarded earned income ``and other adjustments associated with 
self-sufficiency initiatives'' will be included in calculations of 
current annual earned income.
Certification/Documentation of Goal Attainment and Completion
    A commenter stated the certification standard should be consistent 
with the HCV program of self-certification, and PHAs should strive to 
get third-party verification to confirm CoP goals were met. Another 
commenter recommended that HUD reduce unnecessary administrative 
burdens on housing providers and demonstrate trust in families by 
clarifying that self-certification is permissible for documenting: (1) 
Completion of ITSP Goals; and (2) being independent from cash welfare 
assistance. This commenter recommended that under Sec.  984.305(c), HUD 
explicitly state that self-certification of goal completion is 
sufficient evidence.
    One commenter asked that HUD further clarify the certification 
definition to include a verification hierarchy to track ITSP goals with 
evidence provided by participants, such as third-party authentic 
documents, to help keep clear, concise record keeping. This commenter 
supported self-certification only in situations where third-party 
verification would be difficult.
    HUD Response: The definition of certification, as written, and 24 
CFR 984.305(c)(1) and (2) allows for PHAs and owners to accept self-
certification of being independent from welfare assistance from FSS 
participants and 24 CFR 984.305(c)(4) also gives PHAs and owners the 
discretion to require third party verification. This final rule notes

[[Page 30026]]

that the requirements for the documentation of attainment of ITSP goals 
will be left to the PHA or owner to determine, and the policy may be 
included in their FSS Action Plan.
Current Monthly Rent
    A commenter recommended that HUD allow the current definition of 
family rent to remain, to decrease the uncertainty FSS Program 
Coordinators may have when explaining what family rent is to an FSS 
participant when determining the escrow calculation.
    HUD Response: HUD declines to accept the commenter's 
recommendation. The proposed rule does not define ``family rent.'' The 
definitions of ``baseline monthly rent'' and ``current monthly rent'' 
were updated in the proposed rule and this final rule to reflect the 
evolution of rent options and nuances since the original regulations 
were written. The definition in the current regulation does not 
encompass the current realities.
Effective Date of the Contract of Participation (CoP) (Question 1)
    Several commenters supported the proposed change to the effective 
date of the CoP. Commenters suggested that this could cause less 
confusion about the FSS program start date. One commenter supported the 
change but noted that software changes may need to be implemented to 
track these new dates. Two commenters supported the change to define 
this as the day the head of FSS family and PHA or owner execute the 
CoP. One commenter stated the current definition creates unnecessary 
delays for families interested in enrolling in the program. A commenter 
suggested applying this change prospectively rather than retroactively, 
as that would cause undue confusion for all parties.
    Many commenters opposed the proposed change to the CoP effective 
date. Commenters stated that the change would make recordkeeping and 
escrow reporting more complicated, creating an administrative burden. 
Other commenters said it would be harder to track and monitor progress 
and end dates for FSS program participants. A commenter requested the 
option of keeping the effective date as the first of the following 
month.
    Several commenters opposed defining the date of the CoP as the date 
it is executed, stating the CoP should continue to begin the next first 
of the month from the date of signing the contract.
    Other commenters noted that the change would be inconsistent with 
rent calculations, which are generally effective the first day of the 
month. One commenter noted that Section 8 actions could affect an FSS 
program participant's income on the day that the Contract of 
Participation is signed, or the time directly afterwards.
    A commenter said there are some Form HUD-50058 (Family Report) 
actions that are not processed due to household changes, but Contract 
rent increases or change of unit due to extenuating circumstances such 
as fire, flooding, or owner possession of unit, and asked how this 
would impact the CoP start date.
    A commenter stated that because the tenant file comes from the 
Section 8 population to the FSS program, there have always been issues 
with actions that are in process by the current occupancy specialist 
and the FSS reporting timelines. For FSS Program Coordinators that do 
not process their own actions or in some cases do not even have access 
to those functions in the HCV software, this must be coordinated with 
the Occupancy Specialist. In the case of the proposed rule, the FSS 
enrollment addendum, for example, would be entered for the October 15th 
enrollment date and the pending action would still need to be deleted 
and reprocessed to include the FSS progress enrollment, so either way 
there is additional data entry to be done and clear communication with 
other staff if one is not processing the actions in the software.
    Another commenter suggested an option to keep the effective date of 
the CoP on the first of the following month after signing to allow for 
easier tracking and PIC submission purposes.
    A commenter said that starting the CoP on the date the contract is 
executed may pose a challenge if the participant has submitted an 
interim recertification for a rent decrease that has not yet been 
processed at the time of enrollment. The commenter asked if a 
recertification that occurred before the execution of the CoP but 
processed after the execution of the CoP would count as the first 
recertification of income for the purpose of the CoP? Would the 
baseline rent be the last rental amount paid by the family or the next 
rental payment which would reflect the interim recertification? The 
commenter stated that it is unclear if a family graduates from the 
program mid-month as to whether an agency would be required to pro-rate 
the family's escrow credit for the month or not.
    One commenter stated that if the effective date of the contract is 
changed from the date of signing, this affects the monthly rent roll 
and landlord payments, which would trigger the system to pro-rate 
payments that were already issued for that month. A commenter said a 
new workaround may need to be created to overcome this issue.
    HUD Response: HUD appreciates the comments on the proposal. Many 
commenters opposed the change and requested that the CoP continue to 
conform with other rental assistance processes that operate on a 
monthly cycle. This final rule does not include the provision to change 
the effective date to the same date as the enrollment date. The CoP 
effective date will remain the first of the month following execution 
of the CoP. HUD does not believe that the rent roll or landlord 
payments should be impacted by the Contract effective date. The new 
statute and proposed and final regulation state that the CoP will end 
no later than 5 years after the first recertification of income after 
the execution date of the CoP. Therefore, a change in rent due to 
``contract rent increases or change of unit due to extenuating 
circumstances such as fire, flooding, or owner possession of unit'' as 
suggested by a commenter, would not impact the start date or the length 
of the CoP. HUD notes that while the statute uses the term 
``recertification,'' these regulations use the term ``re-examination,'' 
and these two terms have the same meaning in this rule.
Eligible Families
    Commenters requested that HUD not limit eligible voucher recipients 
to ``section 8(o)'' program participants in the proposed definition of 
``eligible families'' and should replace this with ``Housing Choice 
Voucher program participants, including families with project-based 
vouchers and homeownership vouchers.'' These commenters said that HUD 
does not explain why the proposed definition excludes these voucher 
participants. The commenters stated that a HUD Q&A clarifies that 
families receiving rental assistance through the Family Unification 
Program, other special purpose vouchers or Tenant Protection Vouchers 
would still be eligible to participate in FSS.\3\ The commenters said 
the statute does not prohibit these categories of families, and 
families utilizing the HCV homeownership program still pay income-based 
rent and could benefit from the additional savings available through 
the FSS program. These commenters stated HUD would also need to 
eliminate the

[[Page 30027]]

proposed definition of ``section 8(o)'' and make parallel changes in 
the definition of ``FSS family'' and elsewhere in the new regulations. 
Another commenter advocated that anyone of any income-based program 
should be eligible for this opportunity because the FSS program's 
objective is to help people become independent of welfare assistance 
and work their way up to homeownership.
---------------------------------------------------------------------------

    \3\ U.S. Department of Housing and Urban Development, Family 
Self-Sufficiency Program Proposed Rule Questions & Answers (Q&A), 
https://www.hud.gov/sites/dfiles/PIH/documents/QA_on_FSS_Proposed%20Rule_-clean.pdf.
---------------------------------------------------------------------------

    A commenter recommended this definition be changed to allow 
families participating in the HCV homeownership program to have the 
opportunity to participate in FSS. Another commenter disagreed that 
those FSS participants who move into homeownership could or should 
remain on the FSS Program because most of the homeownership programs in 
their area offer assistance programs in case homeowners face hardship. 
A commenter recommended that Homeownership participants not be allowed 
to participate in FSS once they meet their CoP requirements.
    A commenter supported the proposed rule change allowing residents 
at Rental Assistance Demonstration (RAD)-converted properties to 
participate in the FSS program. Another commenter stated that FSS 
authorizing documents do not fully support the intentions of the FSS 
program, especially in RAD-converted properties. The commenter said 
there is conflicting information regarding the eligibility of former 
PHA relocated residents within a PHA's FSS Action Plan between the 
continuum of RAD Notices, the 2020 FSS Renewal Notice of Funding 
Availability (NOFA), and HUD's proposed rule. The commenter said that 
the NOFA language seemed punitive to the resident and inconsistent with 
the program's intentions and asked that HUD consider consistent 
language to allow continuous resident participation so long as the PHA 
and post-RAD conversion owner enter into a Cooperative Agreement and 
that residents be allowed into the program at any time after 
relocation. The commenter also asked that any new residents to the RAD-
converted property also have the option to enroll into FSS and that the 
NOFA acknowledge these as eligible families.
    HUD Response: As it concerns the eligibility of HCV homeownership 
families (under section 8(y) of the U.S. Housing Act of 1937) to 
participate in FSS, HUD has considered the comments received, which are 
almost unanimously supportive of such participation. HUD has also 
determined that while section 23 of the 1937 Act prior to the Economic 
Growth Act amendments prevented an HCV homeownership family from 
participating in FSS, changes to the definition of eligible families 
under section 23(c)(1) as amended by the Economic Growth Act mean that 
participants receiving HCV homeownership assistance may also be 
included in this definition; the statutory definition of FSS eligible 
families under the Economic Growth Act includes Section 8 participants 
broadly rather than being limited to Section 8 rental certificate or 
rental voucher program participants. HUD revised Sec.  984.101 of this 
rule accordingly, so that participants of the HCV homeownership option 
are eligible to participate in FSS. Additionally, HUD revised the 
definition of Section 8 programs to include multifamily assisted 
housing; tenant-based and project-based rental assistance under section 
8(o) of the 1937 Act; the HCV homeownership option under section 8(y) 
of the 1937 Act; Family Unification Program (FUP) assistance under 
section 8(x) of the 1937 Act; and Moderate Rehabilitation for low-
income families and Moderate Rehabilitation Single Room Occupancy for 
homeless individuals under 24 CFR part 882. Tenant-based and project-
based rental assistance under section 8(o) of the 1937 Act includes any 
applicable special purpose voucher considered rental assistance under 
section 8(o) of the 1937 Act (such as FYI, VASH, and Mainstream 
Vouchers).
    The comment about conflicting information regarding eligibility for 
residents at RAD-converted properties refers to the FY20 Notice of 
Funding Availability (NOFA). The FY20 NOFA reflects the eligibility of 
RAD-affected public housing residents prior to the new statute being 
implemented. The final rule will allow PBRA residents in RAD-converted 
properties to be served by PHAs with FSS appropriated funds if the PBRA 
owner enters into a Cooperative Agreement with the PHA and this will be 
reflected in future NOFOs following implementation of the final rule.
Family Self-Sufficiency (FSS) Program
    A commenter stated that the definition of ``FSS program'' is 
established within its own jurisdiction and the language should be left 
as is because it gives the PHA more flexibility in defining and 
managing the program.
    Commenters noted that the definition referred to ``a program 
established by a PHA or owner within its jurisdiction'' but the phrase 
``within its jurisdiction'' has no applicability to owners and could be 
read to indicate that a PBRA owner is somehow within the jurisdiction 
of the local PHA, and therefore recommended deleting the phrase 
``within its jurisdiction'' from this definition.
    HUD Response: HUD has clarified its usage of the word 
``jurisdiction'' throughout this rule. In the proposed rule, 
``jurisdiction'' was sometimes used to refer to the community where a 
PBRA property is located. In this final rule, ``jurisdiction'' is only 
used when referring to a PHA's jurisdiction.
Supportive Services
    A commenter stated support for HUD's clarification that PHAs are 
only required to coordinate the availability of supportive services, 
not actually provide them, but requested that HUD clarify in its 
definition that PHAs and owners may directly provide supportive 
services, such as a childcare center or health clinic. Another 
commenter asked if, because of this provision, PHAs should no longer 
provide credit and financial services, even though PHAs are supposed to 
be trained in them in case an FSS participant faces those obstacles. 
Lastly, a commenter suggested that the final rule provide the 
flexibility for services to be conducted onsite or virtually, due to 
the COVID-19 pandemic.
    A commenter suggested that HUD keep intact the full list of 
services as distinctly listed by Congress so as not to minimize the 
importance of any one specific service by combining it with other 
services. The commenter stated that the system fails to account for 
achievement such as obtaining a college degree and favors an approach 
that moves participants quickly to employment.
    A commenter asked HUD to integrate health as part of the necessary 
conditions that promote and advance self-sufficiency because a health 
condition often prevents otherwise eligible families from participating 
in the FSS program. Before paragraph (ix) (Other services) of the 
definition, the commenter suggested adding the following: ``(ix) Health 
management and empowerment--where available, the coordination with a 
Community Health Worker (CHW) as may be necessary to improve the health 
of the FSS participant, so long as the FSS participant consents in 
writing. The FSS participant may also withdraw consent, in writing, at 
any time.''
    Another commenter questioned whether FSS families could participate 
in first-time homebuyer programs while they are in the FSS program and 
what protections would the regulations provide to protect against 
possible discrimination while transitioning into homeownership.

[[Page 30028]]

    HUD Response: PHAs and owners may provide FSS services directly 
using non-FSS appropriated funding, in accordance with the eligible 
activities of those funds. The FSS program does not impose any 
restrictions as to the location or modality of the services.
    The definition of Supportive Services in the final rule at Sec.  
984.103 includes all services as defined in the statute and adds 
clarifying language. Both education and employment-related supportive 
services are included, as in the statute. This final rule expands the 
definition of ``Personal welfare'' to include health, dental, mental 
health, and health insurance services.
    FSS families may, and often do, participate in first-time homebuyer 
programs while they are in the FSS program. Participating in a first-
time homebuyer program, receiving housing counseling services, or 
participating in any form of homebuyer education or advocacy program 
should have no adverse effect on an FSS family's participation in FSS. 
Participation in the FSS program would not curtail or impact in any way 
the protections against discrimination that cover all families.

Section 984.105: Minimum Program Size

Extension of HUD-Approved Exception (Question 2)
    A number of commenters supported the proposed change to extend the 
duration for a HUD-approved exception to five years. A commenter 
suggested that an annual report should be submitted by the PHAs to HUD 
concerning the use of the exception. Another commenter stated that the 
duration of any HUD-approved exception should be left at the PHA's 
discretion. When a PHA submits the request for an exception, the PHA 
should provide a good cause for the requested timeframe since FSS 
participant family profiles vary between PHAs as well as local 
circumstances.
    HUD Response: HUD appreciates the comments received in response to 
this question and, will keep the five-year limit on exceptions as 
stated in the proposed rule. In the interest of consistency in HUD's 
administration of the FSS program, HUD will not leave the time period 
of an exception up to each PHA. Under section 23 of the 1937 Act, as 
amended by the Economic Growth Act, HUD does not have the discretion to 
grant a permanent exception to the implementation of a Mandatory 
Program.
Proposed Changes to Minimum Program Size
    A commenter opposed the proposed change to the minimum program 
size. A commenter disagreed with the proposal that when determining the 
minimum program size, the relevant figure is the total number of Public 
Housing units plus the total number of HCV units because even within 
the context of a unified FSS program, the calculation of program size 
for HCV participants should be calculated independently of the total 
number of public housing units. This commenter said that this has the 
potential to negatively impact the Section Eight Management Assessment 
Program (SEMAP) scores of PHAs that are working to comply with 
mandatory FSS requirements and whose current SEMAP scores derive from 
their performance serving HCV program participants. This commenter 
asked whether this change would impact current FSS obligations or would 
only apply to future obligations.
    A commenter asked for more clarification for PHAs to accurately 
track their mandatory size. A commenter asked HUD to clarify whether 
HUD will be providing PHAs with the accurate number of required 
families to be served as of May 24, 2018, and whether all participants 
who have graduated since October 21, 1998, still reduce the May 24, 
2018, mandatory number. Another commenter requested that the final rule 
provide additional clarification for FSS programs that reduced their 
size according to existing regulations because the proposed rule does 
not make it clear as to whether a program that reduces its program size 
after May 24, 2018, but before the final rule is implemented will be 
required to revert their program back to the size it was on May 24, 
2018, or maintain its current minimum program size. The commenter 
recommended that HUD allow the minimum size of an FSS program to be 
either what it was on May 24, 2018, or the lesser amount if, as allowed 
by current regulations, a family graduated after May 24, 2018, and the 
FSS program opted not to refill that spot.
    HUD Response: HUD will calculate each PHA's minimum program size as 
of May 24, 2018, by calculating the original minimum program size 
(including public housing and Section 8) and reducing that number by 
the number of graduations reflected in PIC since October 21, 1998, to 
date. HUD plans to communicate these through the Field Offices to PHAs 
and provide additional forthcoming guidance.

Section 984.106: Cooperative Agreements (Question 3)

    Several commenters stated that the list of requirements for PHAs 
entering into a Cooperative Agreement with owners of multifamily 
properties to voluntarily make an FSS program available to the owner's 
assisted tenants was comprehensive. One commenter noted that the 
requirement is being expanded without adequate appropriations to fund 
the FSS program, which would create an administrative burden for PHAs 
taking on an additional caseload for eligible families covered under a 
Cooperative Agreement with owners of multifamily properties. Another 
commenter opposed the change stating that it makes more sense to have 
the staff providing direct services to the client track and be 
knowledgeable about their escrow account, and that having separate 
hands involved with service coordination and escrow tracking creates an 
administrative burden on staff. One commenter recommended defining the 
word ``serve'' and the statement ``FSS funds'' to clarify that funds 
cannot be used for additional service provision like activities or 
incentives.
    HUD Response: HUD appreciates commenter feedback on the proposed 
list's comprehensiveness and notes that the preponderance of commenters 
felt it was comprehensive. HUD notes the concerns raised by a commenter 
regarding coordination between FSS Program Coordinators and staff who 
track client escrows when these functions are not performed by the same 
staff; however, HUD does not feel that such challenges are 
insurmountable, or should prevent a PHA from choosing to serve PBRA 
residents via Cooperative Agreement. The PBRA owner is ultimately 
responsible for managing the Federal funds provided through their PBRA 
contract, for rent calculation, and for the amounts placed in escrow 
and distributed to FSS families. The rule requires that the Cooperative 
Agreement between a PHA and an owner set forth the procedures for the 
sharing of escrow information between the PHA and the owner. HUD 
recommends that these procedures include the role of the FSS Program 
Coordinators. Each PHA may choose whether to enter into a Cooperative 
Agreement with a multifamily owner, assessing its own capacity to take 
on new participants by expanding the program or integrating them into 
their current program size. PBRA residents served by a PHA are already 
incorporated into the ``number of residents served'' as part of the 
NOFO funding process. HUD does not believe

[[Page 30029]]

it is necessary to define the words ``serve'' or ``FSS funds'' in the 
rule.

Section 984.107: FSS Award Funds Formula

Incorporation of Formula in the Final Rule
    Commenters stated that HUD should incorporate a formula in the 
final FSS rule addressing how HUD will approach the discretionary 
authorities provided in 42 U.S.C. 1437u(i), created by the Economic 
Growth Act. The commenters encouraged HUD to specify in the final rule 
the other criteria which may be considered in determining eligibility 
for base or additional awards, which should include factors such as the 
planned enrollment level for a new or growing program, or the historic 
enrollment level for an existing program which may be experiencing a 
temporary dip in enrollment. One commenter stated that this requirement 
is mandatory, rather than discretionary.
    A commenter urged HUD to detail funding formulas in the final rule, 
as well as address how it will approach other discretionary funding 
authorities to give housing providers and service coordinators a clear 
understanding of the funding parameters and allow them to better 
prepare for the future.
``Base Awards'' Threshold and Prorating the Award Amount
    Commenters suggested that the Secretary use discretion, under the 
Economic Growth Act to determine the policy concerning awards for 
eligible entities serving fewer than 25 participants (the threshold for 
a ``base award'') and suggested that such a policy could include 
prorating the award amount or allowing such entities to combine 
programs.
    A commenter suggested that HUD should clarify that the first 
priority encompasses only the renewal of the full costs of the same 
number of full-time and part-time coordinators as were funded by FSS 
awards in the prior year, with appropriate adjustments for local 
staffing costs and for year-to-year cost-of-living increases; and that 
the second priority encompasses all other funding requests, whether for 
new coordinators, incremental increases from part-time to full-time 
coordinators, or for existing coordinators not previously funded with 
FSS award funding.
Criteria for Determining Additional Awards of FSS Program Coordinator 
Funding
    Commenters urged HUD to address its intended approach to 
determining awards of ``new or incremental coordinator funding'' under 
the second priority and urged HUD to use fair and reasonable ``general 
principles.'' The commenter suggested additional funds appropriated by 
Congress should be used for program expansion and deploying additional 
service coordinators.
    Commenters recommended that HUD commit in the rule to implementing 
competitive processes that provide fair and reasonable access to 
funding for both programs operated by PHAs and programs operated by 
PBRA owners; and a reasonable balance between incremental awards for 
existing programs and new awards for previously unfunded programs.
    HUD Response: This final rule adds the statutory funding formula in 
regulation. The new statute codifies the formula that HUD has used in 
NOFOs (previously called ``NOFAs'') for many years. All of the areas 
that are at HUD's discretion (criteria for funding, policy on award for 
eligible entities that are serving fewer than 25 participations, 
amounts available, etc.) in the new statute have been and will continue 
to be addressed in standard NOFOs. The statute provides that First 
Priority funding goes to FSS Program Coordinators that qualify as 
renewals. Beyond that, Second Priority will fund new programs or 
additional coordinators for renewal grantees. The distribution and 
priority under the Second Priority will be published in the NOFO each 
year. HUD has determined that it would be duplicative to publish the 
funding formula in both the NOFO, which is available to the public on 
Grants.gov, and also in a separate Federal Register Notice. 
Additionally, publishing the formula in a separate Federal Register 
Notice could potentially delay funding awards, and since funding is 
annual, it is critical that awards be made by December 31 of the year 
in which it was appropriated. Therefore, this final rule removes 
language from the proposed rule that provides that HUD will publish a 
separate notice in the Federal Register. Each year, within the bounds 
of the statute, the implementation of the funding award formula may 
change slightly to reflect best practices, lessons learned, the needs 
of the day, etc. All criteria for making awards are shared, in 
conformance with the HUD Reform Act, with the applicant community via 
the NOFO.
Incentives for Innovation and High Performance
    Commenters said that the final rule should address HUD's 
implementation of new subsection (i)(6) of 42 U.S.C. 1437u(i), created 
at section 306(a)(11) of the Economic Growth Act, which authorizes the 
Secretary to reserve up to 5 percent of FSS appropriated funding for 
use as ``incentives for innovation and high performance.''
    Commenters recommended that the authorized incentives for 
innovation and high performance be incorporated within a competitive 
funding process for allocation of funding to ``second priority'' 
requests for new or incremental coordinator funding. The commenters 
noted that the ``incentive'' funding under this section, unlike all 
other funding authorized in subsection (i), is not specifically 
restricted to use for FSS Program Coordinators, but is more flexibly 
defined as ``to provide support or to reward'' FSS programs; and urged 
HUD to provide in the final rule that it may employ this authority to 
provide support to innovative or high-performing FSS programs for costs 
other than coordinator costs, which could include the costs of IT 
systems, participant incentives, or other costs. Commenters recommended 
that HUD support programs to establish innovation, cross-sector 
partnerships to help strengthen the types and quality of services 
offered to FSS participants (such as partnerships with employers, 
workforce and career development programs, colleges, etc.). A commenter 
encouraged flexibility for program providers and the possibility of 
incentives that may allow them to pursue innovative efforts, which 
could complement the service coordinators' work and improve resident 
outcomes. The commenter suggested that incentive payments permitted 
under the rules should only be considered after renewals are fully 
funded.
    HUD Response: HUD appreciates the comments. At the current time, 
HUD is focused on Priorities One and Two as stated in the Statute. If 
HUD chooses to avail itself of the option for Incentives for Innovation 
and High Performance, we will issue a separate notice. However, at this 
time, HUD is not including it in this final rule.

Section 984.201: Action Plan

    A commenter requested that HUD state the exact ``slight changes'' 
it is making especially since they are not easily identifiable in 
section 306 of the Economic Growth Act.
    HUD Response: Compared to the current regulation (24 CFR 984.201), 
the final rule at Sec.  984.201: (1) Expands requirements for 
consultation on the FSS Action Plan, as required by section 23, as 
amended; (2) removes language around FSS Action Plan submission 
requirements for mandatory programs

[[Page 30030]]

(there are no new mandatory programs); (3) adds language to clarify 
that all voluntary programs are required to have an approved FSS Action 
Plan, regardless of whether they receive funding (this is not a change, 
just a clarification); (4) deletes references to outdated programs that 
no longer exist (e.g., the Job Opportunities and Basic Skills Training 
Program under part F of title IV of the Social Security Act has been 
replaced by the Workforce Innovation and Opportunity Act); and (5) 
removes requirements for policies around ``terminating or withholding 
Section 8 assistance'' (as this provision has been removed per other 
areas of statute). In the final rule, HUD is also adding to Sec.  
984.201(d)(13) providing that optional additional information is such 
other information that would help HUD determine the soundness of the 
proposed FSS program. Examples of policies that may be included in the 
FSS Action Plan include:
    <bullet> Policies related to the modification of goals in the ITSP;
    <bullet> The circumstances in which an extension of the Contract of 
Participation may be granted;
    <bullet> Policies on the interim disbursement of escrow, including 
limitations on the use of the funds (if any);
    <bullet> Policies regarding eligible uses of forfeited escrow funds 
by families in good standing;
    <bullet> Policies regarding the re-enrollment of previous FSS 
participants, including graduates and those who exited the program 
without graduating;
    <bullet> Policies on requirements for documentation of goal 
completion;
    <bullet> Policies on documentation of the household's designation 
of the ``head of FSS family;'' and
    <bullet> Policies for providing an FSS selection preference for 
porting families (if the PHA elects to offer such a preference).

Section 984.202: Program Coordinating Committees (PCCs)

    A commenter said they support the proposal to include service 
coordinators on PCCs because the committee should have a deep 
understanding of resident needs, and service coordinators are uniquely 
skilled at building relationships with residents to understand the 
complex challenges they may be facing and then swiftly connect them to 
essential resources. Another commenter agreed that the PCC should 
include at least one participating FSS family member and an FSS staff 
coordinator, and stated their agency already includes these individuals 
as committee members. Another commenter stated it can be difficult to 
have a resident participant from a FUP voucher holder group as persons 
housed with a FUP voucher have multiple ongoing challenges and little 
time for goals not closely related to their own welfare.
    HUD Response: HUD appreciates these comments. The requirement is 
that one participant per type of rental assistance served in the FSS 
program must be included in the PCC--Public Housing, Housing Choice 
Vouchers, and/or Multifamily Housing. It is not required that each type 
of voucher (FUP, VASH, etc.) be represented.

Section 984.203: FSS Family Selection Procedures

    A commenter objected to Sec.  984.203(d)'s use of ``motivation'' as 
a factor in screening candidates, as it would reinforce negative and 
untrue stereotypes about families. Another commenter suggested leaving 
the current language regarding ``motivation'' as is to make sure 
everyone has an opportunity to participate in the program, and the PHA 
should be able to determine if a participant is motivated.
    HUD Response: The original regulation and proposed rule both 
allowed a PHA (and owner, in the proposed rule) to screen for 
motivation as an option. There was no change to the original regulation 
in the proposed rule and HUD is not changing the final regulation as it 
relates to motivation as a screening factor in this final rule.

Section 984.302: FSS Funds

    Two commenters stated that Sec.  984.302(c) is somewhat ambiguous 
and urged HUD to revise it so that it explicitly conveys PBRA owners' 
eligibility to access FSS appropriated funds for independently operated 
FSS programs, consistent with the statutory language and intent. The 
commenters suggested either deleting the phrase ``including through a 
Cooperative Agreement in accordance with Sec.  984.106;'' or adding at 
the end of the section a new phrase ``or through an independently 
operated PHA or PBRA FSS program.''
    HUD Response: Subject to funding priorities in section 23(i)(3) and 
HUD appropriations, HUD may award FSS appropriated funds directly to 
PBRA owners operating FSS programs independently or in partnership with 
another PBRA owner. To clarify this, HUD revises Sec.  984.302 to state 
that FSS appropriated funds may be used by an owner when it operates an 
FSS program ``through a Cooperative Agreement or on its own.'' As long 
as it is permitted in the NOFO, an owner may choose to subcontract 
awarded funding to another entity such as another owner or a PHA with 
whom the owner has a Cooperative Agreement. To ensure that there is no 
confusion about funding available to PBRA owners who operate an FSS 
program, HUD added a regulatory provision at Sec.  887.113(a) that 
states that owners may also use residual receipts to pay for reasonable 
FSS program operation costs, including hiring an FSS Program 
Coordinator(s) for their program.

Section 984.303: Contract of Participation

    A commenter said ``Seek Employment'' should include a requirement 
for the FSS participant and FSS Program Coordinator to certify that the 
participant has completed these defined activities, and that any false 
certification is reason for termination, because in auditing FSS files, 
this is often an undocumented component.
    Another commenter said the new final sentence in Sec.  
984.303(b)(3) is confusing and should be rewritten as follows to 
provide more clarity: ``All considerations allowed for other assisted 
residents for repayment agreements, etc., shall also be allowed for FSS 
participants.'' The commenter also stated Sec.  984.303(i) is mostly 
repetitive of Sec.  984.303(b)(5). A commenter said that, to make the 
regulations easier to read, HUD should add the right to a hearing from 
Sec.  984.303(i) to Sec.  984.303(b)(5) and delete Sec.  984.303(i).
    HUD Response: HUD appreciates the recommendations provided by 
commenters for regulatory text changes to clarify requirements and 
streamline the regulations. HUD has revised the regulatory text in 
Sec.  984.303(b)(3) as suggested by a commenter. HUD has also revised 
Sec.  984.303(b)(5), which addresses the form and content of the CoP, 
to cross-reference Sec.  984.303(i), which addresses actions PHAs may 
take for non-compliance with the CoP, instead of restating the 
requirements. As it concerns requiring the FSS participant and 
coordinator to certify that the Family has completed its defined 
activities and goals, under current requirements, which continue to 
apply under this rule, PHAs are already responsible for ensuring that 
the Family complies with the CoP, including the goals and activities 
defined in the Family's ITSP and the final rule includes an option that 
the PHA include in its FSS Action Plan the policies on documentation of 
goal completion. See 24 CFR 984.201(d)(13).

[[Page 30031]]

Allowing Any Adult Member of the FSS Family, and Not Solely the Head of 
Household for Rental Assistance Purposes, To Execute the CoP (Question 
4)
    Many commenters agreed with the proposed change. A commenter noted 
that allowing any adult to be head of FSS family may increase 
participation at their PHA. Commenters stated this is a positive change 
for the program that will make it easier to serve families. A commenter 
noted this would allow access to the FSS program where the head of 
household is disabled and unable to work.
    A number of commenters said that the proposed change needed more 
revisions. One commenter suggested guidance on the number of adult 
members in a family that may be eligible to execute a CoP and the 
number of times a household can participate in the FSS program. Some 
commenters stated that without clarity, this could cause confusion as 
to who was the head of the household under various circumstances. Other 
commenters said there could be confusion when there are disagreements 
concerning the beneficiary of the escrow account.
    One commenter questioned if PHAs would have discretion on the 
implementation of this new rule. The commenter also questioned if the 
head of FSS family successfully completes the FSS contract, and the 
Head of Household for rental assistance purposes is behind on rent or 
noncompliant with the lease; can the PHA hold the head of FSS family 
responsible? One commenter requested explicit guidance on how the 
proposed change would be operationalized, specifically regarding 
changes in household composition and distribution of escrow. The 
commenter further stated that the proposed change could put FSS staff 
in the position of having to arbitrate as to which household member is 
the primary FSS participant who signs the CoP. A commenter asked if the 
HCV Head of Household would be required to sign an addendum to the CoP 
that states they have designated the other adult member as the head of 
FSS family.
    One commenter recommended that any adult family member who 
expresses interest in joining the FSS program, and is ultimately 
enrolled first, be considered the head and designated as the individual 
allowed to execute the contract and requested guidance on when a family 
fails to designate an adult family member.
    A commenter noted the proposed revision seemed to be missing the 
following: who would receive the disbursement; what would happen if the 
adult family members left the assisted household; if another adult 
household member could enroll to participate after the Head of 
Household enrolled and completed FSS; and if consent from the Head of 
Household would be required regarding who would be entitled to escrow.
    One commenter opposed the proposed change. A commenter was 
concerned that there could be circumstances in which this might not be 
advisable, such as when there is a coercive dynamic in a household 
relationship. Another commenter warned that if the head of FSS family 
is not the Head of Household, they may not have decision-making power 
over who gets on the lease and lives in the household, including those 
who may be receiving cash welfare; and therefore, the ability to 
graduate may be beyond the head of FSS family's control.
    HUD Response: The change from only the Head of Household for rental 
assistance purposes being able to sign the CoP to any adult household 
member being eligible to sign a CoP is statutory. The final rule will 
reflect a change to clarify that there will be only one CoP per 
household at any one time. There may be an unlimited number of ITSPs 
for each Family. The proposed rule stated that the head of FSS family 
is ``as designated by the Family.'' The final rule will eliminate ``in 
consultation with the PHA or the owner.'' The PHA may make itself 
available to consult with families on this decision. HUD recognizes 
that financial disagreements between household members may cause 
significant distress, and that sometimes such conflicts rise to the 
level of financial abuse. However, HUD believes that as a general 
policy, it is in the best interests of assisted households to choose 
the head of FSS family that is most suitable for their individual 
household circumstances. While a head of FSS family who is not also the 
Head of Household for rental assistance purposes will not have control 
over some decisions, such as to who joins the household, they may still 
be the best choice to serve as head of FSS family; that choice should 
be made by the household, informed by their greater knowledge of their 
own circumstances. FSS Program Coordinators may provide information on 
resources for people experiencing abuse where appropriate. The PHA or 
owner may make a policy in the FSS Action Plan regarding documentation 
of that decision.
    The escrow will be disbursed to the head of FSS family. The number 
of times a family can participate in the FSS program and other policies 
on re-enrollment have been and will remain policies to be determined at 
the local level. Please see the Promising Practices Guidebook for more 
discussion.\4\ If the head of FSS family leaves the household, as with 
any CoP, a determination will be made regarding whether that person is 
eligible to graduate before they leave. If they do not graduate, as is 
the case now, another family member may step in as head of FSS family 
and continue with the CoP. While generally the Head of Household for 
rental assistance purposes, which may be different than the head of FSS 
family, would be responsible for debts incurred by the family in 
connection with the rental assistance program, such debts are 
subtracted from the escrow balance prior to disbursement of escrow at 
graduation.
---------------------------------------------------------------------------

    \4\ U.S. Department of Housing and Urban Development, 
Administering an Effective Family Self-Sufficiency Program: A 
Guidebook Based on Evidence and Promising Practices, https://www.hudexchange.info/resource/5241/administering-an-effective-fss-program-guidebook/.
---------------------------------------------------------------------------

Time Period That a Family Must Be Independent From Welfare (Questions 
5, 6, and X \5\)
---------------------------------------------------------------------------

    \5\ Note: This question was labeled as ``Question X'' in the 
proposed rule.
---------------------------------------------------------------------------

    Many commenters supported removing the 12-month requirement or 
changing the requirement to being independent from welfare assistance 
at the time of their Contract of Participation expiring or graduation 
instead. These commenters stated: This would lead to better outcomes, 
allow flexibility for clients finishing school or training; this would 
assist families dealing with the ``benefits cliff'' in a more gradual 
and welcoming manner; this would reduce the need for FSS escrow 
accounts to be forfeited by participants who would be otherwise 
eligible to receive any remaining escrow; this would ease the 
administrative burden for FSS staff; often the end date for being 
independent from welfare assistance is out of the participants' hands 
as they usually have transitional benefits after becoming employed; and 
the current 12-month period has prevented otherwise qualified 
participants from graduating and leads to artificially forfeiting 
accumulated escrow for families who are employed but had a period of 
time on public assistance. Commenters stated that the 12-month 
requirement was punitive, would needlessly frustrate families' attempt 
to graduate, and did not incentivize families to graduate. Many 
commenters supported, for the

[[Page 30032]]

same reasons, allowing PHAs to set the requirement at their discretion.
    Some commenters did not recommend giving PHAs discretion and 
requested that HUD keep this uniform to the program, while others 
supported PHAs having discretion while maintaining a certain maximum.
    Some commenters opposed the proposed change and agreed with the 12-
month requirement, seeing no issue or undue burden a PHA would 
experience with the timeframe. The commenters suggested that, given the 
confirmation requirement, effective organizations should have a data 
sharing agreement with the appropriate entities to determine the FSS 
participants' welfare assistance status regardless of the requisite 
time period. The commenters believed that without a timeline, there 
could be a lack of motivation for families to gradually become 
independent from welfare. The commenters stated that a participant must 
be free from cash assistance over a period to adjust financially to 
being self-sufficient and the proposed change defeats the purpose of 
the program. Commenters noted that the CoP can be extended to allow a 
participant time to become free of assistance, so this is not typically 
a barrier to successful program completion. The commenters added that 
if a participant is not free of cash assistance after seven years of 
participating in the program, they likely are not in a place or time in 
their life to become self-sufficient. A commenter suggested adding 
extra resources to help the families reach that 12-month goal, 
including PHA discretion, and warned that it would also be detrimental 
to external stakeholders in the long run with the possibility of having 
to reallocate more funds to the welfare system to continue the 
programs.
    Some commenters supported changing the rule so that welfare 
independence is only required for the participating member of the 
family in the FSS program, not the entire household because the 
participation in TANF or other welfare programs should not reflect the 
progress and eligibility for graduation of the participating member.
    Some commenters said that this should have no impact on TANF 
requirements. Commenters stated that TANF is not a good indicator of 
welfare self-sufficiency. One commenter stated that accessing TANF 
within a specified time should not preclude completion of the program 
and the emphasis on utilization of TANF is a deficit-based requirement 
that does little to promote self-sufficiency because families encounter 
a range of changing life circumstances where they may need to access 
TANF assistance to sustain their livelihood. Another commenter noted 
that after moving into the work components of the TANF program, 
families can continue receiving benefits for up to 24 months and there 
are instances where the continuation of welfare helps families offset 
increased costs due to a decrease in other income-based supports.
    One commenter stated that some participants decide to not enroll in 
the program for fear of losing or being denied other benefits. The 
commenter suggested that the rule clearly state that the savings held 
in escrow is only contingently available to families and would not be 
counted as an asset or resource for other state or Federal benefits. A 
commenter stated that reducing or eliminating the time would allow for 
families to successfully complete the Contract and collect escrow even 
if a family member has needed access to TANF in the past 12 months. One 
commenter stated there is nothing to preclude a family from returning 
to TANF after graduation from FSS. A few commenters noted that the TANF 
(Family Investment Program (FIP)) income eligibility guidelines are so 
low that most working families would not be eligible for TANF benefits.
    Some commenters suggested alternative time requirements, because 
requiring participants to be free from TANF for a full 12 months poses 
undue hardship for many families and leaves little room for 
flexibility. Commenters suggested a 3- or 6-month requirement off TANF 
as a reasonable timeframe that would allow participants to demonstrate 
stable employment and financial self-sufficiency prior to graduating 
from the FSS program. They added that requiring participants to 
maintain stable employment for 3 months rather than abstain from TANF 
benefits for 3 months would be a better indicator of participants' 
ability to demonstrate long term self-sufficiency and positive steps 
toward goal achievement. They urged HUD to consider revising the FSS 
work requirement in addition to, or in lieu of, the TANF requirement.
    One commenter stated that a required time limit off TANF before 
program end could be beneficial if clients used their time in the 
program to work on the areas which are hindering them from holding down 
a successful position that would eliminate the need for TANF. Some 
commenters said the requirement to be independent from TANF should 
follow the same requirements as being independent from other welfare, 
and most participants are aware that TANF is temporary. While another 
commenter said that requiring participants to be TANF free should be 
required, and that not receiving welfare assistance is a sign of self-
sufficiency and would enhance their independence from government 
assistance. Another commenter stated that by keeping the 12-month rule, 
FSS Program Coordinators can work in conjunction with TANF staff to 
provide transitional services to the participant.
    Commenters supported the proposed change and stated that removing 
the 12-month requirement would decrease incentive for FSS participants 
from exiting the program permanently. A number of commenters stated 
that the application of the welfare requirement in FSS will not impact 
participants' decision to permanently stay off welfare. Another 
commenter said that removing the 12-month requirement increases FSS 
family access to escrow account balances that can be used for asset 
building activities. Two commenters answered ``no,'' saying that many 
of their participants are not receiving ``cash'' welfare assistance 
anyway.
    A commenter stated FSS participants will still be required to be 
independent from welfare assistance at the time their CoP ends, so the 
incentive to be independent from welfare assistance remains without a 
static timeframe. A few commenters said that most participants 
transition off welfare assistance as they increase their income, so 
this is a good complement to the FSS Goals. One of these commenters 
said the PHA's ability to work with an individual to define 
``suitable'' employment will take care of the rare exceptions.
    One commenter suggested that HUD reconsider using terms such as 
``incentive'' when describing the decisions a household may make 
regarding their receipt of welfare assistance or other forms of public 
assistance because this language reinforces negative and untrue 
stereotypes about people who receive welfare and/or housing assistance.
    HUD Response: HUD thanks commenters for responses to Questions 5, 
6, and X. This final rule maintains the language as it was in the 
proposed rule, eliminating the requirement to be independent from 
welfare assistance for 12 months prior to graduation. The requirement 
will be for the household to be independent from welfare assistance on 
the day of graduation. The requirement to be independent from welfare 
assistance in Sec.  984.303(b)(2) will be revised to reflect that it 
will be a required final goal, as opposed to an interim goal. In 
addition to the explanation provided in the preamble to

[[Page 30033]]

the proposed rule, HUD is attempting to prevent a scenario when, for 
instance, a participant is unable to graduate because they have met all 
of their goals with the exception of being independent from welfare 
assistance for 12 months but is ineligible for an extension on their 
CoP. With regard to other benefits, the only other entitlement program 
to which FSS directly relates is TANF and it is a contingency of the 
HUD program that participants be free from TANF. Until the escrow funds 
are disbursed, they are the property of the PHA and cannot impact any 
eligibility of the FSS family for any benefit or entitlement. HUD 
cannot speak to the impact of the escrow, once disbursed, on other 
Federal, state, or local programs. The Internal Revenue Service has 
determined that escrow disbursements do not qualify as income and are 
not taxable and do not require a Form 1099. See: https://www.hud.gov/sites/documents/FSSESCROWTAX_IRSOPINION.PDF.

Section 984.303(b)(1)

    Two commenters interpreted the change to Sec.  984.303(b)(1) to 
mean that PHAs and owners would have the discretion to use a CoP in the 
form of their choosing, and supported this change, as it would enable 
programs to streamline the CoP, revise it to use more plain and 
straightforward language, and make it available in other languages 
besides English. The commenters recommended that HUD require all PHAs 
and owners to make available and to accept electronic execution of the 
CoP in whatever form in use. Another commenter said there needs to be 
some standard parameters on the wording of each Agency's CoP and 
perhaps each Agency's proposed CoP should be reviewed by their FSS 
Field Office.
    HUD Response: The CoP form itself (including ITSP) will be revised 
as part of the Paperwork Reduction Act package that is published with 
the final rule. PHAs or owners may translate the CoP into any 
applicable language and may revise the structure of the CoP as long as 
the information and content included in the CoP is the same as on the 
HUD form. Along with producing documents in translated formats, PHAs 
and owners must also provide any other necessary language assistance 
services to ensure meaningful access for persons with limited English 
proficiency in compliance with Title VI of the Civil Rights Act. PHAs 
and owners that provide access to CoP forms in printed format or an 
electronic format and accept electronic submissions and signatures must 
ensure that such forms and procedures are language accessible and 
accessible with respect to the communications needs of persons with 
disabilities. PHAs and owners must ensure effective communication with 
individuals with disabilities in accordance with Section 504 of the 
Rehabilitation Act of 1973 (Section 504) and the Americans with 
Disabilities Act (ADA), which includes providing the CoP form 
(including ITSP) in accessible formats. Furthermore, PHAs and owners 
must provide reasonable accommodations and modifications for 
individuals with disabilities consistent with applicable Federal 
nondiscrimination laws.

Section 984.303(b)(2): FSS Family Goals

    Commenters agreed with prohibiting the PHA or owner from modifying 
or adding additional required activities that must be completed by 
every participant. According to the commenters, one of the fundamental 
strengths of the FSS program is its flexibility: Each participant can 
set and make progress toward the particular goals that matter to them 
and make sense in their particular situation. Commenters said that if a 
PHA or owner can require other mandatory goals beyond the parameters of 
the terms and conditions prescribed by HUD, it would serve only to 
curtail participation and participant success in the program. Another 
commenter noted that a minimum income limit from wages for FSS 
graduation would enhance the program. A commenter stated that any 
household member completing the ITSP goals would accomplish the FSS 
program's purpose. Another commenter recommended that only completion 
of ITSP goals by the head of FSS family should be evaluated for 
purposes of determining completion of graduation requirements including 
meeting the employment obligation. A commenter stated that this 
clarification is not new, and that it has been in the NOFA for several 
years. A commenter suggested that the ITSP should be updated to allow 
the PHA flexibility to change the format.
    HUD Response: Thank you for your comments on this topic. As stated, 
this is a continuation of the current policy that does not allow for 
program-wide graduation requirements/enhancements (beyond the two 
required by regulation: I.e., to complete the FSS program, the head of 
the FSS family must seek and maintain employment and the family must be 
independent of welfare assistance). All ITSP goals for all family 
members with ITSPs become part of the CoP and must be completed in 
order for the family to graduate. This final rule revises Sec.  
984.303(g) to clarify the requirement that all family members' ITSPs 
that are part of the CoP must be completed on or before the expiration 
of the contract term.
    Regarding the ITSP format, as stated above regarding the CoP (of 
which the ITSP is a part), PHAs or owners may translate the ITSP into 
any applicable language and may revise the structure of the ITSP as 
long as the information and contents included in the ITSP is the same 
as on the HUD form. This includes translating into an electronic format 
and accepting electronic signatures. PHAs and owners must ensure 
effective communication with individuals with disabilities in 
accordance with the Section 504 and the ADA, which includes providing 
the CoP form (including ITSP) in accessible formats.

Section 984.303(b)(4): Employment Obligation

    A commenter said the family member who signed the CoP should be 
employed at the time of Contract termination, and the PHA should also 
have flexibility to mandate some requirement that would support Self-
Sufficiency, such as opening a savings account and saving a reasonable 
amount that is suitable for the family, such as saving $20 a month.
    HUD Response: Any goals other than the two mandatory goals of being 
employed and independent from welfare assistance, such as establishing 
a bank account and contributing to it may be negotiated on a person-by-
person basis and may not be mandated for all participants. HUD will not 
mandate additional requirements, as they may be unnecessary or 
infeasible for some families.

Section 984.303(b)(4)(iii): Suitable Employment

    Two commenters said the ``suitable employment'' definition gives 
PHAs and owners too much authority in determining what is suitable and 
can be applied arbitrarily and without substantiation, leading to 
unequal rules across and possibly within FSS programs. The commenters 
recommended that the proposed language be refined such that the FSS 
participant defines ``suitable employment.'' The commenters believed 
goal setting and goal defining should be a mutual effort to include the 
coordinator's knowledge and expertise in the field, as well as the 
client's right to self-determination. Another commenter stated an 
expert in the field should provide the definition after a thorough 
assessment. A commenter asked if it was possible to include ``achieving 
a local living wage'' in

[[Page 30034]]

``Determination of Suitable Employment'' as there are several sources 
readily available to determine what a living wage is for communities 
across the U.S. One commenter suggested that HUD should consider 
implementing a minimum income for wages similar to the homeownership 
program.
    HUD Response: The final rule revises paragraph (b)(4)(iii) of the 
proposed rule to note that the determination of suitable employment 
will be made ``with the agreement of the affected participant,'' so 
that the affected participant has input into this matter along with the 
PHA or owner, and that the determination will be based on the receipt 
of other benefits of the participant, in addition to the skills, 
education, and job training of that participant. When making the 
determination of ``suitable employment'' it is critical to be aware of 
how increased income may affect other benefits such as Social Security 
Disability, Medicare, Medicaid, etc. which may be in the best interest 
of the participant to keep rather than increasing income beyond 
eligibility limits.
Good Cause for a Contract Extension (Question 7)
    Several commenters supported expanding the ``good cause'' 
definition to include additional circumstances, like a natural 
disaster, serious illness, or involuntary loss of employment, 
especially during the COVID-19 pandemic. One commenter recommended that 
the definition include any other circumstance that the PHA determines 
is preventing the family from achieving their goal within the five-year 
timeframe, on a case-by-case basis. Another commenter suggested that 
the definition include a natural disaster. One commenter questioned how 
the Health Insurance Portability and Accountability Act (HIPAA) 
impacted this rule, when ``serious illness'' would consider an 
additional circumstance for ``good cause.'' A commenter questioned how 
a PHA would verify ``involuntary loss of employment'' when employers 
are not required to disclose why an employee was terminated. One 
commenter noted that the definition concerning ``involuntary loss of 
employment'' may need to be revised, as it may not consider 
circumstances where individuals voluntarily leave employment based on 
not being able to afford increases in childcare if the FSS participant 
is not receiving childcare assistance. Another commenter encouraged HUD 
to clarify and define new circumstances to now be considered ``good 
cause'' to extend a family's contract. Another commenter recommended 
clarifying the definition to include additional circumstances, 
including active pursuit of a goal that furthers self-sufficiency.
    One commenter opposed establishing a definition for ``good cause'' 
for a Contract extension, suggesting that individual circumstances 
should be considered and left to the PHA's discretion. One commenter 
suggested that reasons for ``good cause'' should be at the FSS Program 
Coordinator's discretion because they are familiar with the clients' 
needs and goals. One commenter suggested adding some language that 
advises that the two-year extension period is a guideline not an 
absolute, as every reason for an extension does not require an 
automatic two-year extension. Another commenter suggested that the FSS 
participant must have already met at least one goal to qualify for such 
an extension.
    A commenter recommended that HUD codify that declared disasters or 
emergencies recognized by local, State, or Federal government should 
qualify as good cause categorically, instead of relying on case-by-case 
waivers such as the one provided for this section under PIH Notice 
2020-13, PH and HCV-6: Family Self-Sufficiency (FSS) Contract of 
Participation: Contract Extension, dated July 2, 2020.\6\
---------------------------------------------------------------------------

    \6\ U.S. Department of Housing and Urban Development, PIH Notice 
2020-13 (HA), REV-1, https://www.hud.gov/sites/dfiles/OCHCO/documents/2020/13pihn.pdf.
---------------------------------------------------------------------------

    One commenter believed the proposed definition is sufficient, and 
does not require any further clarification, as the examples provided 
communicate intent, while allowing the PHA or owner flexibility to 
assess on a case-by-case basis.
    HUD Response: The final Contract of Participation (CoP) regulations 
at Sec.  984.303(d) state that ``good cause'' to extend the CoP is 
determined on a case-by-case basis by the PHA or owner. HUD declines to 
define and limit ``good cause,'' but the final rule expands the 
examples of ``good cause'' to include more than circumstances beyond 
the participant's control, including active pursuit of a current or 
additional goal that will result in furtherance of self-sufficiency 
during the period of the extension.
    The final rule has also been revised to include that the PHA or 
owner can grant the extension as long as the PHA or owner is consistent 
in its determination as to which circumstances warrant an extension. 
The participant must request an extension, so any information shared by 
the family in pursuit of that goal will be voluntarily shared. 
Additionally, unless the PHA or owner employs medical staff, HIPAA does 
not apply in this situation.
Removal of the Automatic Completion Provision (AKA ``30% Rule'') 
(Question 8)
    Several commenters supported removing the automatic completion 
provision. Commenters noted that removing the automatic completion 
provision would lead to more consistency between programs and fairness 
for all participants, and that removing this provision would also be 
more administratively efficient because PHAs would not have to track 
automatic completion. One commenter noted that additional time is 
helpful for the FSS Program Coordinator to work with the FSS family in 
completing any remaining subgoals and provide additional support for 
maintaining the employment as well as building confidence with 
financial literacy so the family can positively manage the additional 
income. Another commenter stated it doesn't exclude the other way to 
graduate and provides a clear ``look at the math'' definition of 
graduation for cases where a family's graduation is in dispute. Some 
commenters stated it would allow for true independence from rental 
assistance when 30% of income fully covers contract rent and the family 
successfully leaves both the FSS and Section 8 programs.
    Commenters asked for clarification on how the proposal would 
operate when the HAP contract is terminated after the six-month grace 
period after a family's last housing assistance payment is made if 
their goals are not met. Commenters expressed concern that the six 
months was not enough time for families to complete their goals. 
Commenters recommended that a family graduate automatically at the end 
of this grace period because the family has reached independence.
    A commenter suggested that regulations should be established to 
prevent the family from reporting losses of income immediately after 
escrow disbursement to maintain the housing assistance or decrease 
tenant portion of rent.
    Commenters suggested that HUD include a provision that allows for 
automatic graduation when an FSS participant moves to market rate 
housing and releases their housing subsidy under positive 
circumstances.
    Two commenters asked HUD to clarify whether families were allowed 
to

[[Page 30035]]

retain the escrow immediately after graduation.
    Another commenter asked if the 30% rule is removed, will ongoing 
Contracts of Participation be grandfathered since the CoP does include 
the 30% rule as a way to graduate FSS? One commenter asked HUD to 
elaborate further and asked if the 30% would be replaced by a different 
percentage.
    HUD Response: Based on the commenters' support for removal of the 
automatic FSS graduation provision (the 30% rule), HUD will move 
forward with such removal as proposed. Under HCV and PBV regulations, 
zero-HAP voucher families (i.e., families for which no HAP payments are 
made), are automatically terminated from the housing assistance program 
180 calendar days after the last HAP payment. Under current FSS 
requirements, which continue to apply under this rule, once housing 
assistance is terminated, FSS participation also terminates. However, 
Zero-HAP families may continue to escrow during this 180-day period if 
they have not surpassed the Low-Income threshold (80% of Area Median 
Income (AMI)). Also, the 180-day period gives the family and the FSS 
Program Coordinator time to review the ITSP and make changes, if 
necessary, to put the family on a path to graduation prior to the 
expiration of the 180-days.
Escrow Funds in the Case of Nullification (Question 9)
    A number of commenters supported adding the language regarding the 
handling of escrow funds in the case of nullification. One commenter 
supported the change and noted that these situations are currently 
handled through a waiver process which can be time-consuming and 
administratively burdensome for all parties involved. One commenter 
questioned whether the nullification would be considered a CoP 
Completion or Termination for purposes of keying #8 Recertification 
into PIC, as these are the only two choices that are given when 
completing a #8 Exit for FSS Participants. Commenters suggested that 
the proposed rule clarify who the beneficiaries of the escrow account 
would be when the CoP has been nullified. One commenter noted that FSS 
Participants in good standing who find themselves disabled and unable 
to work should be able to receive the funds if there is no household 
member who could take over the FSS CoP and complete it to receive the 
family's escrow funds.
    A commenter suggested this can be managed in two different ways: 
the CoP can be terminated and the funds can be passed on to a member in 
the household who was appointed by the head of FSS family, or the CoP 
can continue if there is an adult member in the household who can 
continue and fulfill the CoP, and during the enrollment period the head 
of FSS family should assign the person whom these funds can go to in 
case something such as death happens.
    Commenters suggested that escrow management should be managed on a 
case-by-case basis, dependent upon the circumstances for nullification. 
Another commenter suggested that if the reason for nullification is 
that the family was considered ``not in good standing'' due to eviction 
or non-compliance with the agreement, then the escrow funds should be 
liquidated and belong to the PHA for funding housing repairs, unpaid 
rent, support for tenants in good standing, or improvements where 
needed. Another commenter suggested that if a CoP is nullified the PHA 
must document and report to HUD its reasonable efforts to discover the 
availability of these services.
    Some commenters said that the language of the escrow distribution 
should allow an FSS program participant to reject the distribution in 
such cases where their SSA benefits would be in jeopardy by obtaining 
such a resource. Another commenter suggested that HUD should add 
language stating that following such a disbursement, the family member 
and/or any other household member may not re-enroll in an FSS program 
at a later date. Two commenters suggested allowing the ITSP or CoP to 
be amended rather than nullified, such as by allowing an adult member 
who is able and agrees to take over the CoP.
    Other commenters opposed the change. Commenters noted that 
releasing escrow funds upon nullification of the FSS CoP does not align 
with the FSS program's goal, and the escrow funds should remain an 
incentive to achieve self-sufficiency or to use towards achieving self-
sufficiency. Other commenters stated that this will create an 
additional administrative burden to track and pay out monies for 
participants that have not completed the program regardless of why the 
CoP was nullified and will require the FSS Program Coordinator to seek 
out heirs in the case of a deceased single-person family.
    One commenter asked how nullifying would affect performance 
measures. A commenter said that even with this change, HUD should 
ensure families have the right to be consulted about and appeal adverse 
determinations by a PHA or owner that unavailable supportive services 
are integral to the family's success.
    HUD Response: The regulation will be changed in Sec.  984.303 to 
reflect that the FSS family will be consulted in the determination that 
services are not available, before the CoP is terminated and FSS escrow 
is disbursed. HUD notes that this final rule removes the term 
``nullification'' and related references to the CoP being ``null and 
void'' from the regulations and instead refers to ``terminations with 
FSS escrow disbursement.'' For a contract to be ``null'' or ``void'' 
means it has no legal validity, force, or effect. Contracts are voided 
in rare circumstances, such as when the contract was entered into under 
duress or its terms are unconscionable. This does not align with the 
use of ``nullification'' in the existing FSS regulations or in the 
proposed rule. HUD has determined there are situations when a family 
should receive escrow funds, even when they haven't completed the CoP. 
The CoP will still be ``terminated,'' but the family will get escrow 
funds in those situations. This preamble retains the term 
``nullification'' when discussing public comments, but the term will no 
longer appear in HUD's FSS regulations.
    This final rule does not contain language from the proposed rule 
that would have provided for escrow disbursement to an estate if the 
head of FSS family dies before a CoP is completed. Section 23 of the 
1937 Act, as amended by the Economic Growth Act, states that amounts in 
the escrow account may be withdrawn by the participating family after 
the family ceases to receive income assistance under Federal or State 
welfare programs, upon successful performance of the obligations of the 
family under the contract of participation entered into by the family 
under subsection (d), as determined according to the specific goals and 
terms included in the contract, and under other circumstances in which 
the Secretary determines an exception for good cause is warranted. The 
statute states that escrows may be ``withdrawn by the participating 
family.'' An estate cannot be considered a ``participating family.'' 
Therefore, FSS escrow cannot be disbursed to an estate. There may be 
situations where there is good cause to disburse escrow to a remaining 
FSS family member when the head of FSS family dies. While the general 
rule is that the escrow is only withdrawn if the FSS family completes 
the CoP, the Economic Growth Act allows HUD to provide exceptions to 
this general rule when ``good cause is warranted.'' However, HUD cannot 
make a blanket finding of ``good cause'' in all cases when an FSS 
participant

[[Page 30036]]

dies before completing the CoP. There may be instances where good cause 
is warranted (e.g., when an FSS participant is close to completing the 
CoP and they die), but not always (e.g., when an FSS participant is a 
recent enrollee in the program and has not completed much of the CoP). 
Therefore, this final rule cannot provide for escrow disbursement any 
time the head of FSS family dies before a CoP is completed. Where good 
cause for an escrow disbursement to a family member may be warranted 
when the head of FSS Family dies, HUD will consider waiver requests, as 
has been the case prior to this rulemaking.
    HUD notes that the regulations continue to provide that if the head 
of FSS family is unable to complete the CoP, and the family wishes, 
another household member may take over the CoP. The disposition of 
forfeited escrow funds is addressed later in this document in the 
discussion about Question 14.

Section 984.303(g), (h), (j), and (k)

    Some commenters recommended that HUD require PHAs and owners to 
offer the heads of FSS families the opportunity to pause participation 
in the program to deal with family crises and challenges without 
jeopardizing their escrow. These commenters stated that under the rules 
of some FSS programs, families may be terminated or denied coordination 
services for not complying with a required engagement schedule. The 
commenters said they had heard feedback from FSS participants that it 
would be helpful to have the option to ``pause'' their participation in 
the FSS program, citing reasons, such as health or family crisis, that 
are similar to why a participant might request an extension of their 
participation. Under current rules, these types of challenges 
contribute to increased terminations. These commenters said that 
suspending expectations for participating in services and accumulation 
of escrow and extending the CoP end date by the same period of time 
that the participant pauses their participation, would help to 
strengthen program participation and graduation rates, and support 
participants to maximize their escrow accumulation. Another commenter 
stated this may be a good idea but that allowing pausing would bring up 
a lot of questions that would need to be addressed and clarified. A 
commenter recommended HUD modify Sec.  984.303(h)(2) to be consistent 
with the final portability changes in Sec.  984.306.
    HUD Response: The length of the CoP is statutory. Therefore, HUD 
has no discretion to extend it. An initial five years (or longer, 
depending on the timing of the next recertification after effective 
date), plus a two-year extension should be long enough to cover most 
family circumstances, even emergencies, and ``pauses'' in pursuing 
education and/or employment goals. PHAs and owners also are at liberty 
to add goals around basic needs and crisis response, if that is what is 
needed and agreed to by the family. It is the purview of each PHA or 
owner to set goals regarding ``engagement'' with each participant. It 
is up to the PHA or owner to revise those goals as agreed to by the 
family, to respond to family needs.
    As explained later in the discussion of Sec.  984.306, this final 
rule revises Sec.  984.303(h) and (k), in addition to Sec.  984.306, to 
provide that if PHAs make a determination that an FSS family in good 
standing moves outside the jurisdiction of the PHA and continuation of 
the CoP after the move or completion of the CoP prior to the move is 
not possible, the CoP may be terminated with FSS escrow disbursement.
    Additionally, this final rule revises Sec.  984.303(j) to clarify 
that only non-HUD funds or non-HUD-restricted funds can be used by PHAs 
and owners to offer supportive services to former FSS families that 
have left public housing, Section 8 housing, or other assisted housing. 
This clarification is dictated by statute. In addition to appropriated 
FSS funds, PHAs and owners may use, subject to funding restrictions, 
public housing operating funds, public housing non-rental income, 
public housing section 18 proceeds, section 8 administrative fees, and 
PBRA residual receipts to pay for FSS coordinators. However, none of 
these funding sources can be used to assist families who are not public 
housing or section 8 participants. Therefore, to the extent a PHA or 
owner wishes to coordinate services for former FSS families that have 
left assisted housing, the PHA or owner must do so using only funding 
sources that are not HUD funds or HUD-restricted funds. If a PHA or 
owner chooses to provide service coordination to unassisted families, 
the PHA or owner will need to calculate the FSS coordinator's time 
spent on such coordination and prorate funding accordingly. 
Notwithstanding, PHAs or owners may permit former FSS families that 
have left assisted housing to attend FSS activities or functions (e.g., 
job fairs) that predominantly serve public housing residents or section 
8 participants without proration of funding.

Section 984.304: Amount of Rent Paid by FSS Family and Increases in 
Family Income

Changes to the Adjusted Income Threshold
    Commenters supported the proposed change to the adjusted income 
threshold because it would allow FSS families to continue to increase 
their escrow accounts. A commenter stated that participants should be 
given maximal opportunities to acquire as much escrow as possible 
during their term in the program.
    HUD Response: HUD thanks commenters for their feedback, and notes 
that these changes are statutory.

Section 984.305: FSS Escrow Account

Individual Escrow Accounts for Families
    A commenter asked whether the intent of the proposed rule was that 
each participating family will have their own escrow account, because 
under Sec.  984.305, ``each family's escrow account'' seems to be 
contrary to Sec.  983.303 (a)(1): ``[t]he PHA shall deposit account 
funds of all families participating in PHA's FSS program in a single 
depository account.''
    HUD Response: Escrow for all families will still be deposited in a 
single depository account, but accounted for separately, as 
demonstrated by the reference to ``each family's escrow account.'' This 
is not a change from the current regulation or practice.
Interim Disbursements
    A commenter recommended HUD require all FSS programs to allow 
interim disbursements, under Sec.  984.305(c)(2)(ii), and to permit 
PHAs and owners some discretion to determine the frequency and 
conditions by which an interim disbursement would be permitted, and 
that participants be entitled to a formal grievance process if their 
request for an interim disbursement is denied.
    A commenter stated that the current economic hardship resulting 
from the COVID-19 pandemic demonstrated that interim disbursements from 
an FSS escrow account can be a powerful tool for families. The 
commenter suggested that in paragraph (c)(2)(ii), HUD should require 
all FSS programs to allow interim disbursements consistent with the 
rule rather than leaving this important component of the program to 
local discretion and make clear that families have hearing rights if a 
PHA or owner rejects a request for an interim disbursement. 
Additionally, the

[[Page 30037]]

commenter suggested that HUD should take the opportunity to learn from 
the likely increased use of interim disbursements during the pandemic 
to add other examples of grounds for families to receive an interim 
disbursement.
    HUD Response: Participants are entitled to a grievance or hearing 
per the PHA's or owner's grievance policy as specified in the FSS 
Action Plan. It is a best practice to allow for interim disbursements, 
but HUD will not make them mandatory at this time. For further 
discussion of Interim Disbursements and considerations around making 
this policy, please see the HUD FSS Promising Practices Guidebook.\7\
---------------------------------------------------------------------------

    \7\ See supra footnote 3.
---------------------------------------------------------------------------

Frequency of Depositing Escrow Amounts to a Family's FSS Escrow Account 
(Question 10)
    Many commenters supported the proposed monthly escrow deposits into 
a family's FSS escrow account, where some are already doing it. 
Commenters said monthly calculating and crediting of escrow makes it 
easier to double check the escrow credit worksheet against the escrow 
deposit, prevent administrative backlog and delays in customer service 
for providing balance information to clients, and helps to maximize 
interest and the compounding effect of interest for the benefit of the 
FSS participant.
    One commenter generally opposed monthly escrow deposits, opting for 
annual deposits. Another commenter said the escrow calculation does not 
need to be done at every re-examination, and it should be left to the 
coordinator's discretion as to the frequency of escrow deposits. 
Another commenter suggested that PHAs should have flexibility in the 
frequency of depositing escrow to allow for quarterly deposits. A 
commenter stated that smaller programs may operate sufficiently with 
greater flexibility in these timelines.
    Commenters stated that annual statements should continue to be 
provided to FSS participants, and balance inquiries can be provided at 
any time.
    A commenter stated that the statement for multi-family properties 
should be monthly or upon receipt of HUD rent subsidies, because that 
maximizes cash flow for the owner, in the event HUD rental subsidy 
payments are delayed.
    A commenter suggested the frequency of deposits should be 
determined based on the client's income at the start of their program.
    A commenter stated a family should be able to have limited access 
to their account, including limits on the amount and times the account 
is accessed.
    HUD Response: Commenters largely supported the proposal for monthly 
escrow deposits and explained that this will prevent administrative 
backlogs and delays in customer service, as well as maximize interest 
for the FSS participants' benefit. HUD has determined, in consideration 
of the comments received, to move forward with the change as proposed. 
As a point of clarification, the PHA is not required to calculate the 
escrow amount monthly; rather, the escrow amount is re-determined at 
each re-examination of family income. As explained in the proposed 
rule's preamble, the requirement to provide an FSS escrow account 
report to the family, at least annually, has not changed; however, a 
family may inquire about their FSS escrow balance at any time.
Whether the Family's FSS Escrow Account Should Be Credited for Late 
Payments (Question 11)
    Some commenters agreed with the proposed change that escrow 
accounts be credited on a monthly basis, and that if there are cases 
where a tenant owes a landlord or housing authority unpaid rent at the 
end of a term, these should be subtracted from the escrow at the time 
of a final escrow payout. One commenter agreed that escrow should be 
credited for late payments, stating that by crediting the account the 
program acknowledges the family's efforts to adhere to tenant 
obligations and is incentivizing follow through with rental payments. A 
commenter opposed the proposed change, stating a goal of self-
sufficiency and stating that crediting late rent payments 
disincentivizes prompt rent payments and may negatively impact the 
owner and property operations. The commenter said any rent payments 
greater than 7 days late should not be credited to incentivize prompt 
rent payment.
    Many commenters opposed the proposed change, stating it would be an 
administrative burden; that landlords generally do not inform the PHA 
of late payments; that the person paying rent might not be the person 
participating in the program; and that it does not align with the 
obligations of the HCV or FSS program. Commenters also said that 
policies should be consistent across programs, and that there are other 
negative consequences for late rent payments. A commenter stated that 
PHAs would potentially have to deposit escrow credits into FSS escrow 
accounts at different times every month if some households pay rent on 
time while others are late. The commenter said money owed by an FSS 
family to a PHA is already required to be deducted from the family's 
escrow account at the end of the FSS CoP. Commenters stated that a 
landlord's best course of action is to enforce their lease with the 
tenant if the tenant is not in compliance with any part of the lease 
agreement. A commenter said changing the escrow calculation to mirror 
re-certs or annual exams for Section 8 may cause additional work for 
the Housing Specialist, but still may have no bearing on whether a 
client is paying their rent on time, and that FSS Program Coordinators 
requesting the client to provide a rent payment history monthly would 
assist with knowing if rent is paid on time.
    Commenters suggested adding language to allow FSS clients to be 
credited with an escrow deposit, as long as an FSS client pays their 
rent, even if they are late and they pay late fees.
    A commenter suggested that before escrow credit disbursement, the 
FSS participant family should certify that there is no outstanding 
balance regarding paying the owner any portion of the rent to owner 
that is not covered by the PHA housing assistance payment. A commenter 
said that escrow should not be credited if a tenant does not pay rent 
for a month from their own funds (for example, if paid by a rental 
assistance agency), but agreed that upon completion of the FSS CoP any 
funds owed to the PHA should be deducted from the final escrow 
disbursement. A commenter suggested that the rule further define the 
parameters for when late payments would and would not impact escrow 
credits, as there would likely be late payments outside the 
participant's control and/or could be considered to have good cause. A 
commenter said that if an FSS family is not paying their rent on time, 
a more appropriate approach is referring them to financial counseling, 
and the PHA's certified Homeownership Counselor or a partner from the 
PCC committee could provide this supportive service. A commenter 
suggested that the proposed change should be at the PHA's discretion. 
The commenter further suggested that the FSS escrow should not be 
applied to debts owed by the participant, because escrow is received 
from HAP funds; if escrow is used to compensate for debts owed this 
reduces the housing assistance payment funding available to unassisted 
families who have applied for housing. Commenters suggested two payment 
plans for FSS families that are late on their rent: (a)

[[Page 30038]]

The PHA or owner could work together with the family on a payment plan 
where the family pays the rent in small increments throughout the 
month; and (b) a payment plan is aligned with the days the paycheck is 
received.
    A commenter stated that, if this provision were implemented, HUD 
would need to consider cases where partial rent is paid and whether 
that would result in a partial escrow credit or in cases where rent was 
paid on time but not credited to the individual's account in a timely 
manner. The commenter said this provision would be particularly 
problematic in PBRA FSS programs because escrow credits are billed to 
HUD one month prior to rent being due; therefore, the housing provider 
is already in receipt of the escrow funds before rent is even due, 
which could result in additional retroactive adjustments and opens the 
door to even further potential errors in maintaining accurate escrow 
balances, which is already challenging enough for FSS programs to do.
    HUD Response: HUD appreciates the comments received on this issue 
and has determined, in consideration of such comments, not to implement 
a policy to stop escrow credits when the family is late in paying rent. 
HUD agrees with commenters that such a policy would be administratively 
burdensome, particularly for voucher families where the PHA is 
generally not the landlord and may not readily know that the family is 
late in paying rent, and because it would result in the PHA having to 
pause and resume escrow deposits for such families during the Contract 
term. Additionally, the rule already requires the family's FSS escrow 
balance to be reduced at the time of graduation by amounts owned by the 
FSS family for rent, or other amounts, that were due under the housing 
assistance program.
    In response to the commenter who said ceasing escrow credits when a 
family is late in paying rent is a good policy because crediting late 
rent payments disincentives prompt rent payments, HUD appreciates this 
perspective. However, besides the reasons described above for not 
instituting this policy, HUD agrees with commenters that a more 
effective approach for the FSS program would be to refer such families 
to the supports needed to ensure that rent payments are made on time 
and have landlords use other mechanisms already available to them to 
enforce the lease.
Conducting a New Income Recertification (Question 12)
    A commenter sought clarification regarding the income 
recertification because the FY19 NOFA removed this requirement, and it 
is still removed on the FY20 NOFA but is still on the current FSS CoP 
form. The commenter was concerned that there be consistency across the 
board for all program participants. Another commenter agreed with 
removing the 120-day requirement, as it would be less of an 
administrative burden.
    A commenter supported decisions made at the local level in favor of 
local objectives and conditions. In general, the commenter noted this 
would not appear to be a significant issue since increases in income 
must be reported by households (unless the agency has a policy that 
states otherwise), and agencies must conduct a re-examination of income 
if the household has a decrease in income (unless the agency has a 
policy that states otherwise).
    A commenter opposed the proposed change, stating it would be an 
administrative burden and potentially create a barrier for a family to 
accrue escrow, and noted that since HUD has decided to waive the 120-
day requirement to ease barriers to enrollment in the program, it would 
be counter-productive to allow discretion.
    Some commenters suggested that multifamily owners should have the 
same discretion as PHAs regarding this issue. Another commenter said 
that this change should be available across the board to all families 
participating in the HCV program. A commenter suggested eliminating the 
120-day recertification requirement, using its MTW waiver flexibility, 
and believed this change strengthened the program, both 
administratively by eliminating the requirement of a recertification, 
and programmatically for the participants, by streamlining the process 
and creating a straight line from interest to enrollment.
    Commenters suggested that the final rule remove PHA or owner 
discretion in deciding whether to conduct a new income examination 
prior to the execution of a CoP because such discretion, if exercised, 
would limit a household's potential to optimize the accrual of escrow 
and effectively reinstate the 120-day rule which was eliminated in the 
FY19 FSS Program Renewal NOFA. These commenters stated the pandemic 
crisis has further demonstrated the importance of HUD maintaining its 
commitment to ``ease barriers to participation'' by stating plainly in 
the regulation, without the housing provider's discretion, that the 
income and rents amounts to be used in the CoP shall be taken from the 
amounts on the last certification, re-examination, or interim 
determination in effect at the time the family enrolls in the FSS 
Program. The commenters said they saw significant delays for families 
who wanted to enroll but could not because they needed to complete an 
additional re-examination before enrollment. A commenter said that this 
requirement also creates an additional administrative burden on housing 
providers. Additionally, commenters said this rule makes it so that 
people need to re-certify even if they do not have a change in income, 
and sometimes housing authorities do not allow for a recertification if 
there was no income change.
    A commenter supported HUD's proposal to lift the requirement that a 
PHA or owner must perform a recertification for a resident to enroll in 
the FSS program if it has been greater than 120 days since the 
resident's most recent recertification and permit the administrators of 
FSS programs to determine whether to use the resident's most recent 
annual recertification or whether to perform an additional 
recertification as more effective and efficient.
    According to a commenter, the final rule should ensure tenants have 
the right to request an interim income recertification or full re-
examination at the time of enrollment if their income has decreased 
since the last recertification.
    A commenter suggested that the proposed rule should include 
language requiring PHAs or owners to conduct a re-examination if the 
family requests it based on a loss of income since the last re-
examination and should make it clear that a new or recent interim rent 
adjustment may be relied on to determine baseline earned income.
    HUD Response: Upon reviewing the Joint Explanatory Statement for 
FY21 Appropriations, HUD interprets the language to indicate that a 
policy requiring a recertification immediately prior to FSS enrollment 
is not consistent with Congressional intent. Thus, the regulation will 
be revised to require the PHA or owner, when setting a participant's 
baseline rent, to use the amounts on the most recent rent certification 
(with no discretion to do otherwise.) All standard rent certification 
regulations must be followed, including honoring a resident's request 
for a recertification due to loss of income, if that is a standard 
option.

[[Page 30039]]

Escrow Calculation (Question 13)
    Several commenters supported the proposed streamlined escrow 
calculation, stating that removing the difference in the calculation of 
escrow between very low-income and low-income families should provide a 
degree of simplification that can be enhanced by other proposed changes 
in the calculation.
    Commenters supported the proposed escrow calculation worksheet 
because they said it would be more user friendly. A commenter said the 
proposed change is easier, but in doing a case study against the 
current worksheet, the calculated outcomes are not coming up the same.
    Some commenters opposed the proposed change, stating that it 
further complicates escrow calculations.
    A commenter stated the Multifamily FSS Escrow Credit Worksheet 
still has escrow deducted if the family is over the very-low-income 
limit, and that this deduction was to be eliminated with the proposed 
rule. The commenter opposed the proposed change, stating that 
eliminating this for only HCV/PH and not PBRA is not an equitable 
representation of the families on the programs that are designed to 
mirror one another. Additionally, the commenter stated that this 
deduction is taken away from the maximum escrow amount versus the 
``preliminary escrow credit,'' which amounts to a double penalty for 
increasing earned income.
    A commenter suggested adding the line item from the 50058s to the 
spreadsheet to ease input and auditing. A commenter stated that the 
proposed rule provides a slightly streamlined escrow calculation, but 
requires users to calculate a monthly escrow cap and to obtain data to 
determine if the family's adjusted monthly income exceeds 80% of AMI. 
In addition, the commenter said that the proposed rule effectively 
continues to limit escrow to lower income families and provides a 
monthly cap, further limiting escrow potential. The commenter suggested 
a more streamlined escrow calculation process, where all escrow 
calculations are done the same way for all participants, eliminating 
the low-income check. The commenter stated that this would make it 
easier to explain to tenants and staff alike and has the benefit of 
offering all FSS participants the same access to escrow.
    Some commenters opposed the escrow cap where the family's adjusted 
monthly income exceeds 80% of AMI.
    A commenter suggested that the final rule contemplate the growth of 
wages earned specifically by the head of FSS family. Another commenter 
suggested the calculation should be based on the difference between the 
baseline and current 30% of monthly earned income, as that is the true 
reflection of the participants' growth in a work incentive program. A 
commenter suggested that the escrow calculation software should have a 
drop down for payment standards for the jurisdiction for which the 
participant resides, as many FSS Program Coordinators do not conduct 
recertifications. A commenter suggested a slight modification to the 
formula for the escrow credit worksheet, since on some calculations, 
under ``Calculation of Escrow'' do not round up to the nearest dollar, 
including the final escrow credit.
    Commenters stated the FSS escrow worksheet appears to work well for 
some of the more challenging escrow calculation situations, but that it 
would need to include reference to the line item for Form 50059 and 
identify which lines wouldn't apply to multifamily. The commenters said 
it is not clear whether there is a separate escrow credit worksheet for 
multifamily using the proposed guidelines. The commenters suggested 
that the line number of Form 50058 or Form 50059 accordingly be 
referenced for all items entered in the escrow sheet, to reduce 
confusion and allow the calculation to be better automated by software. 
The commenters said that currently, the instructions for (8) and (11), 
80% AMI and Applicable Payment Standard (for HCV families), suggest 
that the number be collected from an external link. The commenters 
further stated that if this number does not appear on Form 50058, the 
commenters recommended identifying another standard place from the 
recertification process where this number can be found to not require 
an external search.
    HUD Response: After consideration of comments received concerning 
the proposed escrow calculation, HUD determined not to make changes to 
the proposed requirements. Without specific details concerning how some 
commenters found that the proposed calculation further complicated 
escrow calculations, HUD is unable to determine which areas of the 
calculation could be revised or improved. As a reminder, parts of the 
proposed changes were based on statutory changes (such as a very low-
income family's escrow no longer capped) and the formula now 
incorporates other programmatic considerations not previously 
contemplated in the regulation (such as capping escrow for zero-HAP HCV 
families at the lower of the gross rent or payment standard and capping 
escrow for zero-HAP PBV, Mod Rehab, or Mod Rehab SRO families at the 
difference between the baseline monthly rent and current gross rent).
    Regarding opposition to the escrow cap where the family's adjusted 
monthly income exceeds 80% of AMI, HUD has no discretion to modify this 
statutory requirement, which has been in place since the FSS program's 
enactment. Regarding the suggestion that the calculation should be 
based on the difference between the baseline and current 30% of monthly 
earned income, the statute requires an increase in the amount of rent 
paid by the family (not just an increase in earned income); therefore, 
HUD has no authority to change this part of the calculation. As to 
commenters' technical suggestions concerning the escrow calculation 
worksheet (i.e., adding the line item from Form 50058s to the 
spreadsheet to ease input and auditing; rounding up to the nearest 
dollar; and incorporating the payment standard and 80% of AMI into the 
escrow calculation worksheet). HUD will consider the feasibility of 
these suggestions as it finalizes the escrow worksheet.
Definition of ``Good Standing'' and List of Eligible Activities for 
Forfeited Escrow Funds (Question 14)
Good Standing
    A commenter supported establishing the definition of ``good 
standing'' in the regulations and not leaving it to an individual PHA 
or owner's discretion because the definition of good standing can vary 
significantly on a subjective basis, even within the same program, and 
is confusing and frustrating for participants. This commenter said that 
under these new regulations, the head of FSS family who signs the CoP 
may not be the Head of Household for rental assistance purposes and 
therefore may not be able to control compliance with a repayment 
agreement since it is the Head of Household for rental assistance 
purposes who enters into a repayment agreement. A commenter stated the 
language should be left as is and the PHA should be allowed to continue 
to define good standing.
    Commenters opposed the proposed definition of ``good standing'' for 
unfairly penalizing families who are in current eviction proceedings. 
These commenters said it could exclude families facing eviction without 
cause. These commenters stated that some landlords initiate eviction 
proceedings as a means of terminating leases of voucher holders without 
cause. These commenters said HUD does not define

[[Page 30040]]

the phrase ``eviction proceedings,'' which is inherently unclear. These 
commenters stated that a family's compliance with FSS and HUD program 
requirements would not be affected simply by the landlord's initiation 
of an eviction action. Commenters also stated it would be unduly 
burdensome to PHAs and owners to have to determine whether pending 
eviction proceedings are likely to affect a family's standing in the 
FSS program.
    Some commenters suggested that the final rule should clearly define 
``good standing'' as families who: Are in compliance with their FSS 
CoP; have either satisfied or are current on any debts owed the PHA; 
and are in compliance with the PHA's regulations regarding 
participation in the HCV program, including rent and restitution 
payments. A commenter suggested adding language to the definition, to 
read: ``FSS family in good standing means, for purposes of this part, 
an FSS family that is not in current eviction proceedings or have open 
lease violations that may lead to eviction if left uncured and is 
otherwise in compliance with any repayment agreement and the FSS CoP.'' 
Commenters suggested ``good standing'' should also include participants 
who have documented progress towards their goals or self-sufficiency, 
such as communication with the FSS, coordinator, paystubs for work, 
class schedule if working on post-secondary education, etc. Only 
participants who are in ``good standing' should benefit from forfeited 
escrow for eligible activities. A commenter suggested that the 
definition of ``good standing'' should simply be any family who has not 
been found to be in non-compliance with FSS requirements. A commenter 
suggested that ``good standing'' should mean any FSS that is not in the 
termination process.
    HUD Response: As recommended by commenters, this final rule defines 
``good standing'' as an FSS family that is in compliance with their FSS 
CoP; has either satisfied or are current on any debts owed the PHA or 
owner; and is in compliance with the regulations regarding 
participation in the relevant rental assistance program, including rent 
payments.
Eligible Activities
    Commenters supported the proposal to allow forfeited escrow funds 
to be used for FSS participants in good standing. Commenters also 
supported the proposed rule's definition of ``eligible activities.'' 
Commenters said the proposed definition would enable Coordinators and 
participants to access resources to address significant barriers 
families face in achieving their goals.
    Commenters suggested that the proposed rule should add items to the 
eligible activities list for which forfeited escrow may be used. 
Commenters made the following suggestions: Childcare and citizenship 
costs; a catch-all that would allow PHAs to determine ``other eligible 
activities,'' potentially in consultation with the Secretary; staff 
training; educational expenses for FSS participants in good standing; 
items or expenses needed for self-sufficiency advancement; hosting job 
fairs; employment driven activities; mock interviews; counseling 
agencies; bus passes; obtaining or renewing state identification cards 
and driver's licenses; unpaid rent expenses; needed repairs or updates; 
food or clothing vouchers; families within the program that demonstrate 
the most need; gardening or recreational programs for their tenants; 
gas to go to a job interview; cost of interview clothing; homeownership 
bonus; scholarship funds; emergency funds; source for interim 
disbursement funds for participants who don't have escrow accrued; 
stipends for participants who are part of the PCC or Client Advisory 
Board (CAB); conferences expenses for FSS Program Coordinators; 
emergency medical co-pays; emergency transportation; a grant fund 
resource to assist participants with meeting their goals; and 
meaningful graduation ceremonies.
    A commenter suggested using the list of allowable uses of interim 
escrow disbursements as a model for allowable use of forfeited funds to 
help program participants. Commenters stated that this is especially 
important now, within the context of the COVID-19 pandemic and 
subsequent barriers to access digital technology, which is essential to 
take classes and work from home or at an off-site location.
    A commenter recommended that HUD explore adding incentives like 
gift cards or bonus escrow earnings for participants in good standing 
who complete big achievements (example: Graduating with a degree, 
paying off large debts, etc.). Another commenter suggested that for a 
participant to access incentives or activities funded by forfeited 
escrow funds, they would be required to have an existing goal or create 
a new goal related to the use of funding.
    Commenters suggested that the proposed rule also include a list of 
ineligible activities and provide discretion to PHAs regarding eligible 
activities. Specifically, some commenters suggested that the proposed 
rule state that funds cannot be used for general administrative costs 
of PHAs or owners.
    A commenter suggested that forfeited escrow should go to good 
standing participants who need the money for a good cause and the FSS 
Programs, such as: laptops or books for participants pursuing an 
education; car repairs for participants who need a vehicle for 
employment purposes; registration fees for education purposes or short-
term certifications.
    A commenter suggested that housing providers have a clear 
definition of how these funds will be used up front, perhaps in the 
Action Plan, to avoid subjective or discriminatory disbursement of 
these funds. A commenter warned that allowable activities must be 
equally available for all FSS participants in a given program and 
should not be allowed to be used as a resource for individual 
participants, but instead should be equally available to people 
consistent with the purposes of the FSS program.
    A commenter also suggested that the final rule should include as 
safe harbor allowances: educational programs and workshops for 
participants, and down payment assistance for families who graduate and 
choose to exit subsidized housing.
    A commenter stated escrow funds are HAP funds and any funds that 
are forfeited should be returned to HAP funds to benefit all HCV 
participants and applicants.
    A commenter stated that the bookkeeping process for these funds 
must be carefully developed because PHAs do not have accounts in place 
to separate escrow funds assigned to participants from forfeited FSS 
escrow funds and asked how PHAs would account for FSS forfeitures on 
the balance sheet.
    A commenter stated that when FSS escrows are forfeited, in the case 
of a Cooperative Agreement, the funds should go to the FSS 
administering entity (PHA or owner) and that administering entity is 
responsible to utilize the funds as defined as allowable uses.
    HUD Response: This final rule adds ``and other costs related to 
achieving obligations outlined in the Contract of Participation'' to 
eligible activities, and ``general administrative costs of the FSS 
program'' to ineligible activities. HUD revised this final rule (1) to 
eliminate any incentive PHAs may have had not to graduate participating 
families so as to recapture the forfeited escrow funds and (2) to 
ensure forfeited funds are used to advance participants' goals and not 
for the overall implementation of

[[Page 30041]]

the FSS program. Additionally, consistent with Section 23(e)(3) of the 
1937 Act, as amended by the Economic Growth Act, HUD revises the final 
rule to clarify that forfeited escrow accounts must be used for the 
benefit of FSS participants, and not for the FSS program more broadly.

Section 984.306: HCV Portability Requirements

Proposed Changes to HCV Portability Requirements (Question 15)
    Several commenters supported the proposed changes to the porting 
requirements. A commenter opposed HUD making changes regarding 
portability because these provisions are not addressed in the act, and 
the title of the proposed rule does not mention revisions to existing 
regulations. A commenter recommended HUD be consistent with current 
program regulations and require denying portability moves use existing 
provisions outlined under PIH Notice 2016-09, Section (6), Denying 
Family Requests to Move, and Section (7) Denying Family Requests to 
Move--Insufficient Funding.\8\
---------------------------------------------------------------------------

    \8\ U.S. Department of Housing and Urban Development, Notice PIH 
2016-09 (HA), https://www.hud.gov/sites/documents/16-09PIHN.PDF.
---------------------------------------------------------------------------

    HUD Response: While the Economic Growth Act does not specifically 
address portability in the FSS context, HUD exercised its authority to 
issue regulations to amend and clarify the existing FSS portability 
regulatory provisions. This regulatory section addresses portability 
provisions as they are applicable to the FSS program specifically and 
are not meant to replace portability requirements that are applicable 
to all HCV families (whether or not they are also participating in the 
FSS program). HCV portability requirements, as established in 
regulation at 24 CFR part 982, subpart H, and clarified in PIH Notice 
2016-09, continue to apply.
    HUD also took the opportunity to clarify the intersection between 
the family right to move from the PBV unit with continued tenant-based 
rental assistance (in accordance with 24 CFR 983.261) and the FSS 
portability requirements. While portability requirements do not apply 
to the PBV program, if the PBV family exercises its right to move with 
continued tenant-based rental assistance and is offered a tenant-based 
voucher, portability provisions apply. This final rule clarifies that a 
PBV family who has been enrolled in the FSS program for 12 months, and 
who exercises its right to move from the PBV unit with continued 
tenant-based rental assistance, may move outside of the jurisdiction of 
the initial PHA in accordance with portability requirements. 
Additionally, the PHA's discretion to allow portability moves within 
the 12 months following the effective date of the CoP also applies to 
such PBV families.
Porting of FSS Family Where Both PHAs Have FSS Programs
    Commenters diverged regarding whether the receiving PHA should be 
required to absorb the family into its FSS program. Several commenters 
specifically supported encouraging or requiring the receiving PHA to 
absorb the porting FSS family into the receiving FSS Program, which 
would ease administrative burdens. Commenters suggested that receiving 
PHAs should be required to absorb the family if the initial PHA vouched 
for the family. Commenters specifically noted the burden of management 
of an escrow account, and the inability of most software programs to 
account for a family that is not in the system for rent calculation 
purposes, as a reason that the receiving PHA should be required to 
administer the escrow. Commenters stated it is especially burdensome 
when PHAs, especially small PHAs, must continue providing participating 
families with FSS assistance when the family may be two or more hours 
away. A commenter said that the receiving PHA would receive the credit 
when a family graduates even though the initial PHA did all the work. A 
commenter objected that it is not clear what the process is for sending 
and receiving escrow funds for families that port and are absorbed.
    Other commenters opposed requiring the receiving PHA to enroll 
families that port and preferred it be left to the discretion of the 
receiving PHA. Commenters stated that the involved PHAs, who must work 
together in the portability procedure, should come to an agreement at 
their discretion. Commenters also asked what would happen if the 
receiving PHA is at full FSS capacity, especially for agencies with 
only a part-time position. A commenter suggested that receiving PHAs 
(RHAs) should be required to enroll the FSS family into their FSS 
program only if the initial PHA (IHA) ``vouches'' for the family.
    Some commenters opposed the continuation of FSS at all when a 
family ports. A commenter urged HUD to allow nullification where the 
PHA does not or cannot absorb the voucher. This commenter noted that 
absorptions are not determined based on FSS determinations but on the 
receiving PHA's financial condition and the family size of the voucher. 
Another commenter stated that the goal should be to graduate families 
before porting if possible.
    HUD Response: Some commenters stated that it should be left to the 
discretion of the receiving PHA (RHA) whether to enroll the ported FSS 
family into its FSS program. Other commenters were supportive of 
requiring RHAs to enroll FSS families into their FSS program HUD 
considered these comments and determined that lack of capacity to serve 
the ported FSS family (because the RHA is already serving the number of 
FSS families identified in its FSS Action Plan) would be a reasonable 
justification for a RHA to deny enrollment of the ported FSS family 
into its FSS program. Therefore, while the RHA would generally be 
required to enroll the ported FSS family into its FSS program, the RHA 
has discretion to make determinations concerning the family's 
enrollment if it lacks the capacity to manage the FSS contract. In such 
cases, the initial PHA (IHA) must inform the family of the potential 
impacts and options available to the family, as described in the 
regulatory text.
    As to the suggestion that RHAs should be required to enroll the FSS 
family into their FSS program only if the IHA ``vouches'' for the 
family, the rule already provides that the RHA is required to enroll 
the FSS family into its FSS program only if the FSS family is in good 
standing. The final rule defines good standing as an FSS family that is 
in compliance with their FSS CoP; has either satisfied or are current 
on any debts owed the PHA; and is in compliance with the regulations 
regarding participation in the relevant rental assistance program, 
including rent payments.
    In response to comments about the burden of managing an escrow 
account, HUD notes that in cases where the RHA is absorbing the FSS 
family into its HCV program, the RHA would be the one managing the 
escrow account and all escrow balances are transferred by the IHA to 
the RHA. The commenters' concern would only apply where the RHA is 
billing the IHA for the ported family. HUD considered these comments 
and determined that transferring the responsibility of managing the 
escrow account to the RHA may add another level of complexity to the 
process. The IHA's annual contributions contract (ACC) funds the escrow 
account in a portability billing scenario, and all HAP (including FSS 
escrow amounts) is provided by HUD to the IHA. Also, the

[[Page 30042]]

IHA is responsible for reporting such escrow expenses to HUD in the 
Voucher Management System (VMS). Based on this, having the RHA manage 
the escrow account would not only require a transfer of information 
between agencies, but also a transfer of funds, including changes to 
transfer amounts each time that the escrow changes, and other 
complexities. In addition to this, placing the responsibility of escrow 
account management on the IHA in a portability billing scenario is a 
long-standing policy and the systems concern raised by commenters 
should be manageable through the modification of system specifications 
to match program requirements.
    Another commenter suggested that the FSS contract should be 
nullified if the RHA does not absorb the FSS family into its voucher 
program. HUD disagrees with terminating the contract and disbursing FSS 
escrow in all instances where the RHA does not absorb the FSS family 
into its voucher program. Instead, the IHA must work with the family to 
determine whether continuation of the CoP after the move, or completion 
of the CoP prior to the move, is possible. As discussed below, in 
instances where such continuation or completion is not possible, this 
final rule allows CoPs to be terminated and accumulated escrow to be 
disbursed if an FSS family in good standing is moving for good cause, 
as determined by the IHA. A commenter stated that the goal should be to 
graduate families before porting if possible. HUD agrees that this 
should be the goal, however, the final rule establishes the 
requirements when graduation prior to the port is not possible.
FSS Family Moves To Receiving PHA That Does Not Administer an FSS 
Program
    A commenter supported the proposal to not allow a family to 
continue in the IHA's FSS program when they port to an RHA that does 
not have an FSS program. Commenters agreed that RHAs not administering 
the FSS program should not have to commit to providing FSS services.
    Other commenters wanted to allow IHAs to choose to let a family 
continue with the IHA's FSS program if the IHA chose to, or if the IHA 
and RHA agreed. A commenter suggested that this would be no different 
than staying with the IHA where the RHA does have an FSS program, as 
HUD proposed. A commenter stated that the IHA should continue to 
administer an FSS program only so that the families may keep their 
escrow with the IHA and work to complete their goals so they can 
graduate with escrow. Another commenter stated that the IHA should be 
required to continue with the family if the family chooses. Other 
commenters stated that the family should be allowed to graduate if 
feasible. A commenter suggested that HUD should allow the IHA and the 
family to work together to find a solution to remain in the program or 
graduate early so that the family is not punished for moving. A 
commenter suggested that HUD should allow graduation or termination if 
there are 12 or fewer months remaining on the CoP. Another commenter 
suggested that if an RHA does not offer the FSS program, the RHA should 
refer the family to a PHA that administers an FSS program or administer 
the program itself.
    HUD Response: As explained in the proposed rule's preamble, in 
order for a porting family to continue in FSS, it is not only important 
to know whether the RHA has an FSS program. It is also critical that 
the PHA that administers the rental assistance must have an FSS 
program. If the RHA absorbs the voucher, the RHA must have an FSS 
program in order for the participant to continue. If the RHA 
administers the voucher (bills the IHA) then the IHA must have an FSS 
program in order for the FSS participant to continue. It would be 
burdensome to require any PHA that does not administer an FSS program 
to manage such tasks even for a small number of FSS families, 
especially in light of the administrative complexity of a portability 
move, and the shared FSS responsibilities between PHAs.
    Additionally, the proposed rule already addresses the options 
available to the family, including modifying the FSS contract, which is 
already allowed under the regulation, so that the family may graduate 
from the FSS program prior to the move. The final rule also allows CoPs 
to be terminated and accumulated escrow to be disbursed if an FSS 
family in good standing is moving for good cause, as determined by the 
IHA, and where continuing the CoP after the move, or completing the CoP 
prior to the move, is not possible. Good cause for the move may 
include, but is not limited to, a housing opportunity in a lower-
poverty/higher opportunity neighborhood, an employment opportunity for 
which the family has already obtained a job offer, the ability to be 
closer to family or other support network, or a move needed to protect 
health and safety of the family or family member. The IHA must discuss 
the available options with the family, including whether modification 
of the contract to allow for graduation prior to the move is a 
possibility for the family. PHAs must be consistent in their 
determinations of whether a family has good cause for a termination 
with FSS escrow disbursement and cannot allow escrow disbursement for 
some families but deny them for others if the families have the same or 
a comparable reason for moving. PHA determinations are subject to the 
nondiscrimination and equal opportunity requirements of the Fair 
Housing Act, Title VI of the Civil Rights Act, Section 504 of the 
Rehabilitation Act of 1973, and the Americans with Disabilities Act, 
which prohibit discriminatory practices and practices that have a 
discriminatory effect. One way a PHA can ensure consistency in 
determining whether there is good cause to terminate a contract with 
FSS escrow disbursement is to establish a written policy as to what the 
PHA considers to be good cause, or what factors the PHA will consider 
in making that determination and codifying it in the FSS Action Plan.
Non-FSS Family Moves To Receiving PHA That Does Administer an FSS 
Program
    A commenter supported the opportunity for families to join an RHA's 
FSS program when they port from an IHA that does not have an FSS 
program. Another commenter recommended that RHAs may continue to refuse 
to enroll an FSS family if their program is full or does not have 
capacity, or to use preferences as described in their respective FSS 
Action Plan.
    Commenters stated that HUD should not mandate that if the RHA 
chooses to bill the IHA, the family cannot enroll in the RHA's FSS 
program, and suggested that the complex issues related to porting 
should be worked out by the agencies involved, not HUD, if the agencies 
are willing and able to share responsibilities. A commenter suggested 
that mandating otherwise would contradict the ``choice'' component of 
the program.
    HUD Response: The proposed rule addressed a new scenario (a non-FSS 
family who moved to an RHA that administers FSS). Under the proposed 
rule, the family could not enroll in the RHA's FSS program where the 
RHA was billing the IHA.
    After consideration of comments received, HUD agrees that RHAs 
should have discretion to make determinations concerning FSS enrollment 
of such families. However, the billed IHA must agree to such 
enrollment, because the IHA would still be responsible for certain FSS 
tasks. If the IHA does not administer an FSS program, similar to Sec.  
984.306(c) of the rule, enrollment of

[[Page 30043]]

the non-FSS family in the RHA's FSS program would not be possible. This 
is because the IHA would be responsible for certain FSS tasks after the 
move (even if the family enrolls in the RHA's FSS program), and it 
would be burdensome to require the IHA that does not administer an FSS 
program to manage such tasks for a small number of FSS families, 
especially in light of the administrative complexity of a portability 
move, and the shared FSS responsibilities between PHAs.
FSS Family Moves to a New PHA and Wants To Re-Enroll
    A commenter asked HUD to opine on enrollment in an RHA's FSS 
program, asking particularly whether a household moving in the fourth 
year of their FSS program should be eligible to receive their escrow 
payment and then re-enroll in a new five-year FSS program.
    HUD Response: If the family has completed the requirements of the 
FSS program prior to porting, then the IHA must graduate the family. 
The RHA should have policies in its FSS Action Plan regarding whether 
families that have graduated from the FSS program may re-enroll. For 
more information concerning policies on re-enrollment, please see the 
HUD FSS Promising Practices Guidebook.\9\
---------------------------------------------------------------------------

    \9\ See supra note 3.
---------------------------------------------------------------------------

Section 984.401: Reporting

Data on Curing Lease Violations
    A commenter suggested that FSS Program Coordinator actions to 
assist participants in curing lease violations should be reported, as 
this information help to evaluate the efficiency of FSS programs.
    HUD Response: HUD does not currently have an appropriate mechanism 
for reporting this information, and it is not included in the 
performance measures. In addition, while FSS Program Coordinators may 
sometimes help households resolve lease violation issues in the course 
of their work, this is not their primary function. Reporting and 
performance measurement of FSS programs will continue to focus on core 
FSS activities.
CoP Termination Reporting
    A commenter suggested that in any case where a CoP termination 
occurs, an FSS administrator should note the termination date and the 
process used to substantiate the reason for termination, and report to 
HUD, along with the number of terminations as part of the routine 
reporting requirements.
    HUD Response: A separate report of this nature would be 
administratively burdensome. However, the reason for exit from the 
program (including termination) for PIH programs is reflected on the 
Form HUD-50058 and further investigation may be pursued by the HUD 
field office on a case-by-case basis or upon monitoring review.

Section 887.101: Purpose, Scope, and Applicability

    Commenters supported the proposal to extend FSS eligibility to 
residents of PBRA-assisted properties and extend eligibility for FSS 
Program Coordinator funding to independently operated PBRA FSS 
programs. A commenter specifically supported mirroring the regulations 
for multi-family programs to those in the Housing Choice Voucher 
Program.
    Two commenters supported making the program voluntary for residents 
of PBRA properties. The commenters also recommended that HUD clarify 
that an FSS program may automatically enroll households and permit 
opting out of the program at any time.
    HUD Response: HUD appreciates commenters' feedback and notes that 
extending FSS eligibility to residents of PBRA properties and 
eligibility for FSS Program Coordinator funding to PBRA FSS programs is 
permitted by section 23 of the 1937 Act, as amended by the Economic 
Growth Act. The proposed regulations are streamlined to apply all PIH 
FSS regulations to PBRA owners with the few exceptions outlined in 24 
CFR part 887, which was included in the proposed rule. As stated in 
this preamble, all FSS programs are voluntary for participants. 
Administering an FSS program is voluntary for PBRA owners as well.
    HUD will not make the change regarding automatic enrollment and opt 
out as part of this final rulemaking, but HUD appreciates the 
suggestion and may consider it in the future.

Section 887.105: Basic Requirements for the FSS Program

Difficult To Consult in Some Areas
    One commenter stated that, under paragraph (a)(4), requiring owners 
to consult with a PCC may be difficult in rural or under-resourced 
communities or communities situated far from a public housing agency.
    HUD Response: HUD recognizes that fewer service partners are 
available in some communities, and that smaller housing provider 
entities may find it more difficult to establish partnerships with 
service providers. However, HUD views the establishment of partnerships 
as an essential component of FSS, even in communities where few 
partners are available. Communities with few potential service partners 
may find effective coordination even more crucial than those with more 
resources, to ensure that the FSS program is making the most of every 
available resource. The PCC also provides an important venue for 
resident input on the ongoing implementation of the FSS program. HUD 
has kept the requirements very flexible as to how the PCC operates to 
avoid unnecessary burdens, allowing PCCs to be tailored to local needs 
and circumstances. The PCC may meet frequently or may meet only once or 
twice a year, depending on what the PCC feels is necessary for 
effective coordination. The PCC may include many partners or only a few 
key partners. Meetings may be held in person or remotely. HUD 
encourages PBRA FSS programs to join an existing PCC if possible.
Should Operate Independent of a PHA
    Commenters stated that owners should be able to operate their FSS 
program(s) independent of any PHA and recommended that HUD remove this 
requirement and instead strongly encourage owners to develop an 
advisory group of FSS families to inform the services offered and 
provided as part of the FSS program.
    HUD Response: Multifamily owners are not required to work with a 
PHA. Multifamily owners implementing an FSS program are encouraged, but 
not required, to work with an existing PCC. However, where a local PCC 
is available, they are required to work with the PCC or create their 
own PCC, if they prefer. Once FSS grant funds are made available to 
multifamily property owners, owners will be able to submit an 
independent NOFO application for funds to start their own FSS program. 
In this final rule, owners starting a voluntary FSS program, even those 
without FSS grant funds, are subject to the final rule. Whether or not 
an FSS program receives HUD FSS appropriated funding, housing providers 
are strongly encouraged to engage with residents and FSS participants 
regularly and to get their input on the property's Action Plan and 
ongoing implementation of the FSS program. This can be done through 
joining or creating a PCC, or by other means such as a resident 
advisory group.
Owners Should Be Allowed To Form an Action Plan
    Commenters stated that Sec.  887.105(a)(3) of the proposed rule 
requires that a PBRA FSS program have an Action Plan approved by HUD, 
as

[[Page 30044]]

described in Sec.  984.201; but Sec.  984.201(b) of the proposed rule 
appears to provide authority for developing an Action Plan only to 
PHAs. These commenters requested that HUD clarify that owners, too, are 
authorized to develop Action Plans for their PBRA FSS programs.
    HUD Response: All PHAs and owners are required to have an approved 
FSS Action Plan before implementing the program. HUD has added a 
clarification to the language regarding the development of Action Plans 
to make it clear that PBRA owners who wish to implement an FSS program 
are required to develop their own FSS Action Plans.
Exclusion or Inclusion of Requirements for Multifamily Assisted Housing 
(Question 16)
    Several commenters expressed support and agreement with the 
exclusions and inclusions for multifamily assisted housing FSS 
programs. A commenter said that their current Program Coordinating 
Committee (PCC) includes HCV, PBV, and PH residents.
    A commenter objected to HUD's reasoning to treat multifamily owners 
differently than PHAs in the family selection process. The commenter 
said that HUD states that the unequal treatment is due to the small 
size of the multifamily FSS programs but did not provide any figures to 
support or allow commenters to understand that justification.
    A commenter suggested that HUD consider the same justifications 
which apply to exclude multifamily owners from FSS requirements, 
especially related to the size of the multifamily property, to small or 
similarly sized PHAs. The commenter stated that small PHAs are 
overregulated yet pose a small risk to HUD. This commenter asked HUD to 
request such relief to small PHAs from Congress. The commenter stated 
that small towns and rural areas do not have the same resources as 
large towns and areas. This commenter asked HUD to exclude small PHAs 
from the PCC requirement and the family selection process.
    Some commenters stated that multifamily owners should be allowed, 
or should be required, to be members of the PCC, and should be allowed 
or required to attend regular meetings and contribute to oversight of 
the program.
    One commenter asked if a PBRA owner can collaborate with the PHA to 
have one combined Action Plan.
    HUD Response: HUD appreciates the feedback provided by commenters 
on the exclusions and inclusions for multifamily assisted housing FSS 
programs. HUD notes the concerns raised by commenters about the burden 
imposed by the regulations on small PHAs, but believes that the 
requirements are necessary to ensure that FSS families are well served 
by the program, and further notes that many of the requirements are 
statutory. In response to public comment, HUD has made a change in the 
final rule so that multifamily owners are no longer exempt from the 
family selection procedures in Sec.  984.203. This section gives the 
owner the option of using certain selection preferences and 
motivational screening factors; housing providers are not required to 
use selection preferences or motivational screening factors, but HUD 
believes that as multifamily FSS programs grow in the future, they may 
wish to have these tools at their disposal for FSS waitlist management. 
This may also make it easier for an owner to operate an FSS program 
through a Cooperative Agreement with a PHA that uses selection 
preferences or motivational screening factors, by allowing them to 
align their family selection procedures. A PHA and PBRA owner may have 
a combined FSS Action Plan as long as it covers the requirements for 
both programs. If a housing provider chooses to establish a selection 
preference or use motivational screening factors, such activities are 
subject to Federal nondiscrimination and equal opportunity 
requirements.
    HUD excluded multifamily owners from the requirement to create a 
PCC in the proposed rule because, while statutorily required for PHAs, 
it was not required for owners in the FSS statute. HUD believes that 
coordination with the type of partners that would typically make up a 
PCC is essential to developing an Action Plan and successfully 
implementing an FSS program. In particular, a PCC provides an important 
opportunity for input from key service partners and from FSS 
participants. Where an existing PCC is available, multifamily housing 
owners who operate FSS programs are required by this rule to consult 
with or join a nearby PCC or create their own PCC, either by 
themselves, or in conjunction with other owners. In cases where the 
multifamily housing owner is unable to consult with or join an existing 
PCC, HUD encourages owners to establish their own PCC. If the owner 
does not join an existing PCC or create their own, owners are strongly 
encouraged to choose another avenue for receiving input from their 
partners and FSS participants.

Section 887.107: Cooperative Agreements

Requirements for Owners Entering Into a Cooperative Agreement (Question 
17)
    A commenter stated the Cooperative Agreement should define 
reporting expectations by both the PHA and the property manager. This 
commenter suggested the Cooperative Agreement should also include a 
written data sharing agreement between the owner and PHA, or between 
owners. The commenter continued that appropriate release language 
should be added to the CoP to ensure the FSS participant is providing 
approval, and acknowledging said approval, for this new type of 
information sharing, as some states may have laws that, without written 
consent, may make such sharing illegal. The commenters stated that the 
Cooperative Agreement should have language ensuring any changes made to 
administering entities' Action Plan after the Cooperative Agreement is 
completed, includes input from the owner, and that any Action Plans 
should include owner's involvement under any Cooperative Agreements and 
certifications by the PHA to HUD as part of the HUD Action Plan 
approval process to ensure an owner does not get burdened by a 
Cooperative Agreement in which it was not involved.
    A commenter said that HUD should consider the consequences to PHAs 
or owners who fail to comply with a Cooperative Agreement or who face 
unresolved disputes.
    HUD Response: HUD's intention is to allow flexibility in the 
requirements for Cooperative Agreements, and will not require reporting 
expectations, data sharing agreements, or release language to be 
included in the Cooperative Agreement per the regulations, but will 
consider including these topics in guidance. In response to public 
comment, HUD has added a requirement that the Cooperative Agreement 
must include process for entities to communicate about changes in the 
Action Plan. If a PBRA property is being served through a Cooperative 
Agreement, then at least one participant with assistance through PBRA 
must be a member of the PCC. HUD notes the concern expressed in one 
comment regarding the potential consequences to PHAs or owners who fail 
to comply with a Cooperative Agreement or who face unresolved disputes. 
HUD is not a party to the Cooperative Agreements so consequences and 
resolutions should be addressed by the parties involved.

[[Page 30045]]

Technical or Technological Challenges
    A commenter recommended that HUD remove #3 under Corrective Action 
for Failure to Meet Family Responsibilities from the FSS Contract of 
Participation, which allows the PHA to terminate HCV assistance where a 
family fails to meet responsibilities under the FSS contract.
    A commenter said the proposed rule would create an administrative 
burden and potentially require a separate system or require software 
adaptations to implement these changes for the reasons below.
    A number of commenters stated that the proposed change allowing the 
FSS head of household to be different from the HAP contract Head of 
Household would impact software applications that are currently 
designed to solely report on the Head of Household, and therefore these 
applications will have to be redesigned or adjusted to accommodate the 
required change in the Form 50058 addendum.
    The FSS addendum currently requires a start and end date when 
completing an enrollment From 50058; a fatal error occurs when an end 
date is not added; this may require placing a temporary or place holder 
date in the addendum or creating FSS addendum adjustments; the CoP end 
date will need to remain blank until such time that the next 
recertification is completed; and this type of back and forth would not 
only be an administrative burden but also complicate the enrollment 
process and general understanding of the program for those potentially 
participating.
    A commenter stated that all FSS programs are required to submit FSS 
information through PIC at least one time per year, and MTW agencies 
need to submit this information as an interim recertification. The 
commenter further stated that FSS families that may qualify for bi-
annual reviews due to a disability still have an interim 
recertification completed yearly strictly to send FSS information 
through PIC. The commenter said that under the proposed rule the FSS 
CoP would start for those families due to a PIC reporting requirement.
    A commenter said their current escrow accrual process is based on a 
strike point model and triggered when the enrollment Form 50058 is 
added, and that a work around to this process will need to be created 
to align with the new proposed rule.
    HUD Response: HUD appreciates commenters' note regarding software 
changes. HUD understands that changes in program rules may necessitate 
changes in software to conform. HUD will review all Form 50058 flags 
and fatal errors and adjust based on the new regulations. Please note 
that an interim recertification is NOT required in order to submit an 
FSS Progress Report into PIC.

Opposition to the Economic Growth Act Provision Regarding the Change in 
Length of the Contract of Participation

    A commenter opposed the provisions in the Economic Growth Act 
itself, and by extension, the proposed rule, that require a CoP to 
include a clause that each FSS family to fulfill their obligations no 
later than five years after the first recertification of income after 
the CoP's execution date. The commenter opposed the proposed change, 
stating that it would create unintended and arbitrary inequities in the 
length of time that program participants can accumulate escrow and 
participate in certain programs. The commenter also stated that the 
proposed change would result in inequities in how long households can 
accrue escrow.
    Some commenters suggested that participants would have differing 
lengths of participation, whereby some participants would be given more 
time to accrue escrow than others, which raise fairness and equality 
concerns. A commenter was concerned that this change introduces varying 
timelines for FSS participants based on their annual recertification 
date, and said their programs operate on a two-year recertification 
cycle, meaning that some households could potentially have close to two 
years before their first recertification cycle, allowing for up to 
seven years, nine years if maximum extension were granted, to fulfill 
their obligations under the CoP. The commenter also said that this 
would allow some households more time than others based on 
recertification dates and allow for fewer opportunities for new FSS 
participants to enroll in the program as caseload sizes are limited. 
The commenter encouraged HUD to consider how it can implement this 
statute in a way that minimizes these variances.
    Commenters said it may be confusing to change to five years after 
the first recertification of income after the execution date of the 
contract. A commenter stated the current regulation is easier to 
understand, execute, and follow.
    A commenter stated the new recommendation may present errors in 
CoPs because if the CoP effective date is changed to the following 
renewal date after the CoP is signed it might create confusion. A 
commenter said there would be three different dates which turn out to 
be more information to look at, (the previous renewal date for 
enrollment purposes, the date they sign the CoP and then the effective 
CoP date which will be dated for following renewal).
    A commenter stated there was no advantage in delaying the accrual 
of escrow until the next annual reexamination for contracts locked in 
after the annual re-examination. The commenter believed that the 
Contract should remain a 5-year contract. The expansion of extending 
the Contract for ``good reason'' gives the ability to the family to 
continue pursuing their goals if necessary, beyond the 5 years.
    HUD Response: The change in the length of the Contract of 
Participation is statutory and therefore HUD does not have any 
discretion to change it. HUD reminds all FSS practitioners that, beyond 
any requirements of funding, PHAs may set the number of concurrent 
enrollments themselves. Longer CoPs do not necessarily limit new 
enrollments. Programs are encouraged to review the FSS Promising 
Practices Guidebook and consider triaging their approach to case 
management/coaching as opposed to a one-size fits all.

V. Findings and Certifications

Regulatory Review--Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health, and safety effects; distributive impacts; and equity). 
Executive Order 13563 emphasizes the importance of quantifying both 
costs and benefits, reducing costs, harmonizing rules, and promoting 
flexibility.
    Under 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. This 
rule was determined to be a ``significant regulatory action'' as 
defined in section 3(f) of the Executive order, but not an economically 
significant regulatory action, as provided under section 3(f)(1) of 
Executive Order 12866. Consistent with Executive Order 13563, this rule 
implements the streamlining requirements of section 306 and provides 
additional flexibility for PHAs and multifamily owners. HUD has

[[Page 30046]]

prepared a Regulatory Impact Analysis (RIA) that addresses the costs 
and benefits of the final rule. HUD's RIA is part of the docket file 
for this rule.
    The docket file is available for public inspection on 
regulations.gov and in the Regulations Division, Office of General 
Counsel, Room 10276, 451 7th Street SW, 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 202-402-3055 (this is not a toll-free number).

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501-3520), an agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless the 
collection displays a valid control number. The information collection 
requirements contained in this final rule have been submitted to the 
Office of Management and Budget (OMB) under the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501-3520) and assigned OMB control number 2577-
0178. HUD is updating existing information collection requirements 
along with this final rule. Additional requirements will become 
effective when the revised collection is approved by OMB.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) establishes requirements for Federal 
agencies to assess the effects of their regulatory actions on State, 
local, and tribal governments, and on the private sector. This rule 
does not impose any Federal mandates on any State, local, or tribal 
government, or on the private sector, within the meaning of the UMRA.

Environmental Review

    This final rule does not direct, provide for assistance or loan and 
mortgage insurance for, or otherwise govern or regulate, real property 
acquisition, disposition, leasing (other than tenant-based rental 
assistance), rehabilitation, alteration, demolition, or new 
construction, or establish, revise or provide for standards for 
construction or construction materials, manufactured housing, or 
occupancy. Accordingly, under 24 CFR 50.19(c)(1), this final rule is 
categorically excluded from environmental review under the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321, et seq.).

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
As has been discussed in this preamble, this rule will make changes to 
HUD's regulations to implement the section 306 statutory changes and 
streamline other requirements. HUD believes this rule will overall 
reduce burden, including for small PHAs and multifamily owners. The 
burden reduction anticipated is more fully discussed in the 
accompanying Regulatory Impact Assessment (RIA). For these reasons, HUD 
determined that this rule would not have a significant economic impact 
on a substantial number of small entities.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either: (1) Imposes substantial direct compliance costs on State and 
local governments and is not required by statute, or (2) preempts State 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive order. This final rule does not have 
federalism implications and does not impose substantial direct 
compliance costs on State and local governments nor preempt State law 
within the meaning of the Executive order.

List of Subjects

24 CFR Part 887

    Grant programs--housing and community development, Public housing, 
Rent subsidies, Reporting and recordkeeping requirements

24 CFR Part 984

    Grant programs--housing and community development, Grant programs--
Indians, Indians, Public housing, Rent subsidies, Reporting and 
recordkeeping requirements.

    Accordingly, for the reasons stated in the preamble, HUD amends 24 
CFR chapters VIII and IX as follows:

0
1. Add part 887 to read as follows:

PART 887--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAMS--FAMILY 
SELF-SUFFICIENCY PROGRAM

Sec.
887.101 Purpose, scope, and applicability.
887.103 Definitions.
887.105 Basic requirements of FSS programs.
887.107 Cooperative Agreements.
887.109 Housing assistance and total tenant payments and increases 
in family income.
887.111 FSS award funds formula.
887.113 FSS funds.

    Authority:  42 U.S.C. 1437u, and 3535(d).


Sec.  887.101   Purpose, scope, and applicability.

    (a) Purpose. (1) The purpose of the Family Self-Sufficiency (FSS) 
program is to promote the development of local strategies to coordinate 
the use of Department of Housing and Urban Development (HUD) assistance 
with public and private resources, to enable families eligible to 
receive HUD assistance to achieve economic independence and self-
sufficiency.
    (2) The purpose of this part is to implement the policies and 
procedures applicable to operation of an FSS program under HUD's 
Section 8 Housing assistance payments programs, as established under 
section 23 of the 1937 Act (42 U.S.C. 1437u).
    (b) Scope. Each owner may implement an FSS program independently or 
by way of a Cooperative Agreement with a Public Housing Agency (PHA) or 
another owner. Each owner that administers an FSS program must do so in 
accordance with the requirements of this part.
    (c) Applicability. This part applies to owners of multifamily 
rental housing properties assisted by Section 8 Housing assistance 
payments programs. See part 984 of this title for program regulations 
applicable to PHAs.
    (d) Non-participation. Tenant participation in an FSS program is 
voluntary. Assistance under Section 8 Housing assistance payments 
programs for a family that elects not to participate in an FSS program 
shall not be refused, delayed or terminated by reason of such election.


Sec.  887.103   Definitions.

    The definitions in Sec.  984.103 of this title apply to this part, 
except that eligible families means tenant families living in 
multifamily assisted housing.


Sec.  887.105   Basic requirements of FSS programs.

    (a) An FSS program that is voluntarily established under this part 
by an owner

[[Page 30047]]

must comply with the following requirements:
    (1) Shall be operated in conformity with the regulations of this 
part and other Section 8 regulations, codified in 24 CFR parts 5, 402, 
880, 881, 883, and 884, respectively, and with FSS program objectives, 
as described in Sec.  984.102 of this title;
    (2) Shall coordinate supportive services as defined in Sec.  
984.103 of this title;
    (3) Shall have an Action Plan approved by HUD, as described in 
Sec.  984.201 of this title, before operating an FSS program;
    (4) When a Program Coordinating Committee (PCC), as described in 
Sec.  984.202 of this title, is available, owners shall work with that 
PCC or shall create their own PCC, either by themselves, or in 
conjunction with other owners;
    (5) Shall comply with the family selection procedures in Sec.  
984.203 of this title;
    (6) May make available and utilize onsite facilities, as described 
in Sec.  984.204 of this title;
    (7) Shall comply with the FSS funds provision, as described in 
Sec.  984.302(c) of this title;
    (8) Shall enter into Contracts of Participation with eligible 
families, as described in Sec.  984.303 of this title;
    (9) Shall establish and manage FSS escrow accounts as described in 
Sec.  984.305 of this title;
    (10) Shall report information to HUD as described in Sec.  984.401 
of this title; and
    (11) Shall be operated in compliance with applicable 
nondiscrimination and equal opportunity requirements including, but not 
limited to, those set forth in 24 CFR part 5.
    (b) An owner may employ appropriate staff, including an FSS Program 
Coordinator, to administer its FSS program, and may contract with an 
appropriate organization to establish and administer parts of the FSS 
program.


Sec.  887.107   Cooperative Agreements.

    (a) An owner may enter into a Cooperative Agreement with:
    (1) A local PHA that operates an FSS program, pursuant to Sec.  
984.106 of this title; or
    (2) Another owner that operates an FSS program, pursuant to this 
section.
    (b) Owners that enter into a Cooperative Agreement pursuant to this 
part, must:
    (1) Open any FSS waiting lists to all eligible families residing in 
the properties covered by the Cooperative Agreement.
    (2) Provide periodic escrow amounts to the FSS Program Coordinator 
for FSS families covered by the Cooperative Agreement under this part. 
The Cooperative Agreement must provide that each owner is responsible 
for managing the escrow accounts of their participating families, 
including calculating and tracking of escrow in accordance with Sec.  
984.305 of this title, and set forth the procedures for the sharing of 
escrow information between the PHA and the owner.
    (3) The Cooperative Agreement must clearly specify the terms and 
conditions of such agreement, including the requirements of this 
section, and it must include a process for PHAs and owners to 
communicate with each other about changes in their Action Plan.


Sec.  887.109   Housing assistance and total tenant payments and 
increases in family income.

    (a) Housing assistance payment. The housing assistance payment for 
an eligible family participating in the FSS program under this part is 
determined in accordance with the regulations set forth in Sec.  
5.661(e) of this title.
    (b) Total tenant payment. The total tenant payment for an FSS 
family participating in the FSS program is determined in accordance 
with Sec.  5.628 of this title.
    (c) Increases in FSS family income. Any increase in the earned 
income of an FSS family during its participation in an FSS program may 
not be considered as income or an asset for purposes of eligibility of 
the FSS family for other benefits, or amount of benefits payable to the 
FSS family, under any other program administered by HUD.


Sec.  887.111   FSS award funds formula.

    The Secretary may establish a formula by which funds for 
administration of the FSS program are awarded consistent with 42 U.S.C. 
1437u(i).


Sec.  887.113   FSS funds.

    Owners may access funding from any residual receipt accounts for 
the property to cover reasonable costs associated with operation of an 
FSS program, including hiring an FSS Program Coordinator or 
coordinators for their FSS program.

0
2. Revise part 984 to read as follows:

PART 984--SECTION 8 AND PUBLIC HOUSING FAMILY SELF-SUFFICIENCY 
PROGRAM

Subpart A--General
Sec.
984.101 Purpose, applicability, and scope.
984.102 Program objectives.
984.103 Definitions.
984.104 Basic requirements of the FSS program.
984.105 Minimum program size.
984.106 Cooperative Agreements.
984.107 FSS award funds formula.
Subpart B--Program Development and Approval Procedures
984.201 Action Plan.
984.202 Program Coordinating Committee (PCC).
984.203 FSS family selection procedures.
984.204 On-site facilities.
Subpart C--Program Operations
984.301 Program implementation.
984.302 FSS funds.
984.303 Contract of Participation (CoP).
984.304 Amount of rent paid by FSS family and increases in family 
income.
984.305 FSS escrow account.
984.306 HCV portability requirements for FSS participants.
Subpart D--Reporting
984.401 Reporting.

    Authority:  42 U.S.C. 1437f, 1437u, and 3535(d).

Subpart A--General


Sec.  984.101   Purpose, applicability, and scope.

    (a) Purpose. (1) The purpose of the Family Self-Sufficiency (FSS) 
program is to promote the development of local strategies to coordinate 
the use of Department of Housing and Urban Development (HUD or 
Department) assistance with public and private resources, to enable 
families eligible to receive HUD assistance to achieve economic 
independence and self-sufficiency.
    (2) The purpose of this part is to implement the policies and 
procedures applicable to operation of an FSS program, as established 
under section 23 of the 1937 Act (42 U.S.C. 1437u).
    (b) Applicability. This part applies to Public Housing Agencies 
(PHAs) administering a public housing program under section 9, a 
project-based and/or tenant-based assistance program under section 8(o) 
of the U.S. Housing Act of 1937 (1937 Act), a Housing Choice Voucher 
(HCV) homeownership program under section 8(y) of the U.S. Housing Act 
of 1937, or Section 8 Moderate Rehabilitation for low-income families 
and Moderate Rehabilitation Single Room Occupancy for homeless 
individuals under 24 CFR part 882. See part 887 of this title for 
program regulations applicable to owners of multifamily assisted 
housing.
    (c) Scope. Each PHA that administers an FSS program must do so in 
accordance with the requirements of this part. See Sec.  984.105 for 
more information concerning PHAs that are required to administer an FSS 
program.

[[Page 30048]]

    (d) Non-participation. Participation in an FSS program is 
voluntary. A family's admission to the public housing or Section 8 
programs cannot be conditioned on participation in FSS. A family's 
housing assistance cannot be terminated by reason of such election or 
due to an FSS family's failure to comply with FSS program requirements 
in this part.


Sec.  984.102   Program objectives.

    The objective of the FSS program is to reduce the dependency of 
low-income families on welfare assistance and housing subsidies. Under 
the FSS program, HUD assisted families are provided opportunities for 
education, job training, counseling, and other forms of social service 
assistance, while living in assisted housing, so that they may obtain 
the education, employment, and business and social skills necessary to 
achieve self-sufficiency, as defined in Sec.  984.103. The Department 
will evaluate the performance of a PHA's or owner's FSS program using a 
scoring system that measures criteria, such as graduation from the 
program, increased earned income, and program participation, as 
provided by HUD through a Federal Register notice.


Sec.  984.103   Definitions.

    (a) The terms 1937 Act, Fair Market Rent, Head of household, HUD, 
Low income family, Public housing, Public Housing Agency (PHA), and 
Secretary, as used in this part, are defined in part 5 of this title.
    (b) As used in this part:
    Baseline annual earned income means, for purposes of determining 
the FSS credit under Sec.  984.305(b), the FSS family's total annual 
earned income from wages and business income (if any) as of the 
effective date of the FSS contract. In calculating baseline annual 
earned income, all applicable exclusions of income must be applied, 
except for any disregarded earned income or other adjustments 
associated with self-sufficiency incentives that may be applicable to 
the determination of annual income.
    Baseline monthly rent means, for purposes of determining the FSS 
credit under Sec.  984.305(b):
    (i) The FSS family's total tenant payment (TTP), as of the 
effective date of the FSS contract, for families paying an income-based 
rent as of the effective date of the FSS contract; or
    (ii) The amount of the flat or ceiling rent (which includes the 
applicable utility allowance), and including any hardship discounts, as 
of the effective date of the FSS contract, for families paying a flat 
or ceiling rent as of the effective date of the FSS contract.
    Certification means a written assertion based on supporting 
evidence, provided by the FSS family or the PHA or owner, as may be 
required under this part, and which:
    (i) Shall be maintained by the PHA or owner in the case of the 
family's certification, or by HUD in the case of the PHA's or owner's 
certification;
    (ii) Shall be made available for inspection by HUD, the PHA or 
owner, and the public, as appropriate; and,
    (iii) Shall be deemed to be accurate for purposes of this part, 
unless the Secretary or the PHA or owner, as applicable, determines 
otherwise after inspecting the evidence and providing due notice and 
opportunity for comment.
    Chief executive officer (CEO) means the elected official or the 
legally designated official of a unit of general local government, who 
has the primary responsibility for the conduct of that entity's 
governmental affairs.
    Contract of Participation (CoP) means a contract, in a form with 
contents prescribed by HUD, entered into between an FSS family and a 
PHA or owner operating an FSS program that sets forth the terms and 
conditions governing participation in the FSS program. The CoP includes 
all Individual Training and Services Plans (ITSPs) entered into between 
the PHA or owner and all members of the family who will participate in 
the FSS program, and which plans are attached to the CoP as exhibits. 
For additional detail, see Sec.  984.303.
    Current annual earned income means, for purposes of determining the 
FSS credit under Sec.  984.305(b), the FSS family's total annual earned 
income from wages and business income (if any) as of the most recent 
re-examination of income which occurs after the effective date of the 
FSS contract. In calculating current annual earned income, all 
applicable exclusions of income will apply, including any disregarded 
earned income and other adjustments associated with self-sufficiency 
incentives or other alternative rent structures that may be applicable 
to the determination of annual income.
    Current monthly rent means, for purposes of determining the FSS 
credit under Sec.  984.305(b):
    (i) The FSS family's TTP as of the most recent re-examination of 
income, which occurs after the effective date of the FSS contract, for 
families paying an income-based rent as of the most recent re-
examination of income; or
    (ii) The amount of the flat rent (which includes the applicable 
utility allowance) or ceiling rent, including any hardship discounts, 
as of the most recent re-examination of income which occurs after the 
effective date of the FSS contract, for families paying a flat rent or 
ceiling rent as of the most recent re-examination of income.
    Earned income means income or earnings from wages, tips, salaries, 
other employee compensation, and self-employment. Earned income does 
not include any pension or annuity, transfer payments, any cash or in-
kind benefits, or funds deposited in or accrued interest on the FSS 
escrow account established by a PHA or owner on behalf of a FSS family.
    Effective date of Contract of Participation (CoP) means the first 
day of the month following the date in which the FSS family and the PHA 
or owner entered into the CoP.
    Eligible families means current residents of public housing 
(section 9) and current Section 8 program participants, as defined in 
this section, including those participating in other local self-
sufficiency programs.
    Enrollment means the date that the FSS family entered into the CoP 
with the PHA or owner.
    Family Self-Sufficiency (FSS) Program means the program established 
by a PHA within its jurisdiction or by an owner to promote self-
sufficiency among participating families, including the coordination of 
supportive services to these families, as authorized by section 23 of 
the 1937 Act.
    FSS escrow account (or, escrow) means the FSS escrow account 
authorized by section 23 of the 1937 Act, and as provided by Sec.  
984.305.
    FSS escrow credit means the amount credited by the PHA or owner to 
the FSS family's FSS escrow account.
    FSS family means a family that resides in public housing (section 
9) or receives Section 8 assistance, as defined in this section, and 
that elects to participate in the FSS program, and whose designated 
adult member (head of FSS family), as determined in accordance with 
Sec.  984.303(a), has signed the CoP.
    FSS family in good standing means, for purposes of this part, an 
FSS family that is in compliance with their FSS CoP; has either 
satisfied or are current on any debts owed the PHA or owner; and is in 
compliance with the regulations in part 5 and chapters VIII and IX of 
this title regarding participation in the relevant rental assistance 
program.
    FSS related service program means any program, publicly or 
privately sponsored, that offers the kinds of supportive services 
described in the

[[Page 30049]]

definition of ``supportive services'' set forth in this section.
    FSS slots refers to the total number of families (as determined in 
the Action Plan for mandatory programs in Sec.  984.105) that the PHA 
will serve in its FSS program.
    FSS Program Coordinator means the person(s) who runs the FSS 
program. This may include (but is not limited to) performing outreach, 
recruitment, and retention of FSS participants; goal-setting and case 
management/coaching of FSS participants; working with the community and 
service partners; and tracking program performance.
    FY means Federal fiscal year (starting October 1 and ending 
September 30, and year designated by the calendar year in which it 
ends).
    Head of FSS family means the designated adult family member of the 
FSS family who has signed the CoP. The head of FSS family may, but is 
not required to be, the head of the household for purposes of 
determining income eligibility and rent.
    Individual Training and Services Plan (ITSP) means a written plan 
that is prepared by the PHA or owner in consultation with a 
participating FSS family member (the person with for and whom the ITSP 
is being developed), and which sets forth:
    (i)(A) The final and interim goals for the participating FSS family 
member;
    (B) The supportive services to be provided to the participating FSS 
family member;
    (C) The activities to be completed by that family member; and,
    (D) The agreed upon completion dates for the goals, and activities.
    (ii) Each ITSP must be signed by the PHA or owner and the 
participating FSS family member and is attached to, and incorporated as 
part of the CoP. An ITSP must be prepared for each adult family member 
who elects to participate in the FSS program, including the head of FSS 
family who has signed the CoP.
    Multifamily assisted housing (also known as project-based rental 
assistance (PBRA)) means rental housing assisted by a Section 8 Housing 
Payments Program, pursuant to 24 CFR parts 880, 881, 883, 884, and 886.
    Owner means the owner of multifamily assisted housing.
    Program Coordinating Committee (PCC) means the committee described 
in Sec.  984.202.
    Section 8 means assistance provided under section 8 of the 1937 Act 
(42 U.S.C. 1437f). Specifically, multifamily assisted housing, as 
defined in this section; tenant-based and project-based rental 
assistance under section 8(o) of the 1937 Act; the HCV homeownership 
option under section 8(y) of the 1937 Act; Family Unification Program 
(FUP) assistance under section 8(x) of the 1937 Act; and the Section 8 
Moderate Rehabilitation (Mod Rehab) for low-income families and 
Moderate Rehabilitation Single Room Occupancy (Mod Rehab SRO) for 
homeless individuals under 24 CFR part 882.
    Self-sufficiency means that an FSS family is no longer receiving 
Section 8, public housing assistance, or any Federal, State, or local 
rent, homeownership subsidies, or welfare assistance. Achievement of 
self-sufficiency, although an FSS program objective, is not a condition 
for receipt of the FSS escrow account funds.
    Supportive services means those appropriate services that a PHA or 
owner will coordinate on behalf of an FSS family under a CoP, which may 
include, but are not limited to:
    (i) Child care. Child care (on an as-needed or ongoing basis) of a 
type that provides sufficient hours of operation and serves an 
appropriate range of ages;
    (ii) Transportation. Transportation necessary to enable a 
participating FSS family member to receive available services, or to 
commute to their place(s) of employment;
    (iii) Education. Remedial education; education for completion of 
high school or attainment of a high school equivalency certificate; 
education in pursuit of a post-secondary degree or certificate;
    (iv) Employment supports. Job training, preparation, and 
counseling; job development and placement; and follow-up assistance 
after job placement and completion of the CoP;
    (v) Personal welfare. Substance/alcohol abuse treatment and 
counseling, and health, dental, mental health and health insurance 
services;
    (vi) Household management. Training in household management;
    (vii) Homeownership and housing counseling. Homeownership education 
and assistance and housing counseling;
    (viii) Financial empowerment. Training in financial literacy, such 
as financial coaching, training in financial management, asset 
building, and money management, including engaging in mainstream 
banking, reviewing and improving credit scores, etc.; and
    (ix) Other services. Any other services and resources, including 
case management, optional services, and specialized services for 
individuals with disabilities, that are determined to be appropriate in 
assisting FSS families to achieve economic independence and self-
sufficiency. Reasonable accommodations and modifications must be made 
for individuals with disabilities consistent with applicable Federal 
civil rights and nondiscrimination laws.
    Unit size or size of unit refers to the number of bedrooms in a 
dwelling unit.
    Very low-income family is defined as set out in Sec.  813.102 of 
this title.
    Welfare assistance means (for purposes of the FSS program only) 
income assistance from Federal (i.e., Temporary Assistance for Needy 
Families (TANF) or subsequent program), State, or local welfare 
programs and includes only cash maintenance payments designed to meet a 
family's ongoing basic needs. Welfare assistance does not include:
    (i) Nonrecurrent, short-term benefits that:
    (A) Are designed to deal with a specific crisis or episode of need;
    (B) Are not intended to meet recurrent or ongoing needs; and,
    (C) Will not extend beyond four months;
    (ii) Work subsidies (i.e., payments to employers or third parties 
to help cover the costs of employee wages, benefits, supervision, and 
training);
    (iii) Supportive services such as child care and transportation 
provided to families who are employed;
    (iv) Refundable earned income tax credits;
    (v) Contributions to, and distributions from, Individual 
Development Accounts under TANF;
    (vi) Services such as counseling, case management, peer support, 
child care information and referral, financial empowerment, 
transitional services, job retention, job advancement, and other 
employment-related services that do not provide basic income support;
    (vii) Amounts solely directed to meeting housing expenses;
    (viii) Amounts for health care;
    (ix) Supplemental Nutrition Assistance Program and emergency rental 
and utilities assistance;
    (x) Supplemental Security Income, Social Security Disability 
Income, or Social Security; and
    (xi) Child-only or non-needy TANF grants made to or on behalf of a 
dependent child solely on the basis of the child's need and not on the 
need of the child's current non-parental caretaker.


Sec.  984.104   Basic requirements of the FSS program.

    (a) An FSS program established under this part shall be operated in 
conformity with the requirements of this part, including the Action 
Plan at Sec.  984.201, and:
    (1) As applicable to voucher program participants:

[[Page 30050]]

    (i) HCV regulations at 24 CFR part 982, for HCV program 
participants; and
    (ii) Project-based voucher (PBV) regulations at 24 CFR part 983, 
for PBV program participants; and
    (iii) HCV Homeownership regulations at 24 CFR 982.625 through 
982.643, for HCV homeownership participants;
    (2) As applicable to Mod Rehab and Mod Rehab SRO participants, 24 
CFR part 882;
    (3) As applicable to public housing program participants, the 
applicable public housing regulations, including the regulations in 24 
CFR parts 5, subpart F, 960, and 966; and,
    (4) The applicable nondiscrimination and equal opportunity 
requirements including, but not limited to, those set forth in 24 CFR 
part 5.
    (b) [Reserved]


Sec.  984.105   Minimum program size.

    (a) FSS program size--(1) Minimum program size requirement. A PHA 
must operate an FSS program of the minimum program size determined in 
accordance with paragraph (b) of this section.
    (2) Exceptions to program operation requirement or to operate a 
smaller mandatory program. Paragraph (c) of this section states when 
HUD may grant an exception to the program operation requirement, and 
paragraph (d) of this section states when an exception may be granted 
to operate a program that is smaller than the minimum program size.
    (3) Option to operate larger FSS program. A PHA may choose to 
operate an FSS program larger than the minimum program size.
    (b) How to determine FSS minimum program size--(1) General 
requirement. Each PHA that was required to administer an FSS program on 
May 24, 2018 (enactment date of the Economic Growth, Regulatory Relief, 
and Consumer Protection Act), shall continue to operate such program 
for, at a minimum, the total number of families the PHA was required by 
statute to serve as of May 24, 2018, subject only to the availability 
of sufficient amounts for housing assistance under appropriations acts 
and the provisions of paragraph (b)(2) of this section.
    (2) Reduction of minimum program size. The minimum program size for 
a PHA's FSS program is reduced by one slot for each family from any 
rental assistance program (public housing or Section 8, including 
multifamily assisted housing) for which the PHA administers FSS under 
this section and that graduates from the FSS program by fulfilling its 
FSS CoP on or after October 21, 1998. If an FSS slot is vacated by a 
family that has not completed its FSS CoP obligations, the slot must be 
filled by a replacement family which has been selected in accordance 
with the FSS family selection procedures set forth in Sec.  984.203.
    (c) Exception to program operation. (1) Upon approval by HUD, a PHA 
will not be required to carry out an FSS program if the PHA provides to 
HUD a certification, as defined in Sec.  984.103, that the operation of 
such an FSS program is not feasible because of local circumstances, 
which may include, but are not limited to, the following:
    (i) Lack of supportive services accessible to eligible families, 
including insufficient availability of resources for programs under 
title I of the Workforce Innovation and Opportunity Act (29 U.S.C. 3111 
et seq.);
    (ii) Lack of funding for reasonable administrative costs;
    (iii) Lack of cooperation by other units of State or local 
government; or,
    (iv) Lack of interest in participating in the FSS program on the 
part of eligible families.
    (2) A program operation exception will not be granted if HUD 
determines that local circumstances do not preclude the PHA from 
effectively operating an FSS program that is smaller than the minimum 
program size.
    (d) Exception to operate a smaller mandatory program. Upon approval 
by HUD in its full discretion, a PHA may be permitted to operate an FSS 
program that is smaller than the minimum program size if the PHA 
requests an exception and provides to HUD a certification, as defined 
in Sec.  984.103, that the operation of an FSS program of the minimum 
program size is not feasible because of local circumstances, which may 
include, but are not limited to:
    (1) Decrease in or lack of supportive services available to 
eligible families, including insufficient availability of resources for 
programs under title I of the Workforce Innovation and Opportunity Act 
(29 U.S.C. 3111 et seq.);
    (2) Decrease in or lack of funding for reasonable administrative 
costs;
    (3) Decrease in or lack of cooperation by other units of State or 
local government; or
    (4) Decrease in or lack of interest in participating in the FSS 
program on the part of eligible families.
    (e) Expiration of exception. A full or partial exception to the FSS 
minimum program size requirement (approved by HUD in accordance with 
paragraph (c) or (d) of this section) expires five (5) years from the 
date of HUD approval of the exception. If circumstances change and a 
HUD-approved exception is no longer needed, the PHA is not required to 
effectuate the exception for the full term of the exception. If a PHA 
seeks to continue an exception after its expiration, the PHA must 
submit a new request and certification to HUD for consideration.
    (f) Review of certification records. HUD reserves the right to 
examine, during its management review of the PHA, or at any time, the 
documentation and data that a PHA relied on in certifying to the 
unfeasibility of its establishing and operating an FSS program, or of 
operating one of less than minimum program size.


Sec.  984.106   Cooperative Agreements.

    (a) A PHA may enter into a Cooperative Agreement with one or more 
owners to voluntarily make an FSS program available to the owner's 
multifamily assisted housing tenants.
    (b) A PHA and owner that enter into a Cooperative Agreement to make 
an FSS program available pursuant to paragraph (a) of this section, are 
subject to this part and the following requirements:
    (1) The PHA must open its FSS waiting list to any eligible family 
residing in the multifamily assisted housing covered by the Cooperative 
Agreement.
    (2) The owner must provide, at the request of the PHA, information 
on escrow amounts for participating multifamily assisted housing 
tenants. The Cooperative Agreement must provide that the owner is 
responsible for managing the escrow account for participating 
multifamily assisted housing tenants, including calculating and 
tracking of escrow in accordance with Sec.  984.305. The Cooperative 
Agreement must set forth the procedures that will be in place for the 
exchange of escrow information between the PHA and the owner.
    (3) The PHA may count multifamily assisted housing families served 
pursuant to a Cooperative Agreement under this subpart as part of the 
calculation of the FSS award under Sec. Sec.  984.107 and 984.302.
    (4) The PHA may use FSS appropriated funds to serve multifamily 
assisted housing tenants subject to a Cooperative Agreement under this 
section.
    (5) The Cooperative Agreement must clearly specify the terms and 
conditions of such agreement, including the requirements of this 
section, and it must include a process for entities for PHAs and owners 
to communicate with each other about changes in their Action Plan.

[[Page 30051]]

Sec.  984.107   FSS award funds formula.

    The Secretary may establish a formula by which funds for 
administration of the FSS program are awarded consistent with 42 U.S.C. 
1437u(i), which provides the following:
    (a) Base award. A PHA or owner serving 25 or more participants in 
the FSS program is eligible to receive an award equal to the costs, as 
determined by the Secretary, of 1 full-time family self-sufficiency 
coordinator position. The Secretary may, by notice (including a Notice 
of Funding Opportunity (NOFO)), determine the policy concerning the 
award for an eligible entity serving fewer than 25 such participants, 
including providing prorated awards or allowing such entities to 
combine their programs under this section for purposes of employing a 
coordinator.
    (b) Additional award. A PHA or owner that meets performance 
standards set by the Secretary is eligible to receive an additional 
award sufficient to cover the costs of filling an additional FSS 
coordinator position if such entity has 75 or more participating 
families, and an additional coordinator for each additional 50 
participating families, or such other ratio as may be established by 
the Secretary based on the award allocation evaluation under section 
23(i)(2)(E) of the U.S. Housing Act of 1937.
    (c) State and regional entities. For purposes of calculating the 
award under this section, HUD may treat each administratively distinct 
part of a State or regional entity as a separate entity.
    (d) Determination of number of coordinators. In determining whether 
a PHA or owner meets a specific threshold for funding pursuant to this 
section, the Secretary shall consider the number of participants 
enrolled by the PHA or owner in its FSS program as well as other 
criteria determined by the Secretary.
    (e) Renewals and allocation. FSS awards shall be allocated, as 
established by the Secretary, in the following order of priority:
    (1) First priority. Renewal of the full cost of all FSS 
coordinators in the previous year at each PHA or owner with an existing 
FSS program that meets applicable performance standards set by the 
Secretary. If this first priority cannot be fully satisfied, the 
Secretary may prorate the funding for each PHA or owner, as long as:
    (i) Each PHA or owner that has received funding for at least 1 
part-time coordinator in the prior fiscal year is provided sufficient 
funding for at least 1 part-time coordinator as part of any such 
proration; and
    (ii) Each PHA or owner that has received funding for at least 1 
full-time coordinator in the prior fiscal year is provided sufficient 
funding for at least 1 full-time coordinator as part of any such 
proration.
    (2) Second priority. New or incremental coordinator funding.
    (f) Recapture or offset. Any FSS awards allocated under this 
section by the Secretary in a fiscal year that have not been spent by 
the end of the subsequent fiscal year or such other time period as 
determined by the Secretary may be recaptured by the Secretary and 
shall be available for providing additional awards pursuant to 
paragraph (b) of this section, or may be offset as determined by the 
Secretary.
    (g) Incentives for innovation and high performance. The Secretary 
may reserve up to 5 percent of the appropriated FSS funds to provide 
support to or reward FSS programs based on the rate of successful 
completion, increased earned income, or other factors as may be 
established by the Secretary.

Subpart B--Program Development and Approval Procedures


Sec.  984.201   Action Plan.

    (a) Requirement for Action Plan. A PHA or owner must have a HUD-
approved Action Plan that complies with the requirements of this 
section before the PHA or owner operates an FSS program, whether the 
FSS program is a mandatory or voluntary program.
    (b) Development of Action Plan. The Action Plan shall be developed 
by the PHA or owner in consultation with the chief executive officer of 
the applicable unit of general local government and the Program 
Coordinating Committee. Consultation for the Action Plan by the PHA or 
owner shall also include representatives of current and prospective FSS 
program participants, any local agencies responsible for programs under 
title I of the Workforce Innovation and Opportunity Act (29 U.S.C. 3111 
et seq.), other appropriate organizations (such as other local welfare 
and employment or training institutions, child care providers, 
financial empowerment providers, nonprofit service providers, and 
private businesses), and any other public and private service providers 
affected by the operation of the PHA's or owner's program.
    (c) Plan submission--(1) Voluntary program. The PHA or owner must 
submit its Action Plan and obtain HUD approval of the plan before the 
PHA or owner carries out a voluntary FSS program, including a program 
that exceeds the minimum size for a mandatory program, regardless of 
whether the voluntary program receives HUD funding.
    (2) Revision. Following HUD's initial approval of the Action Plan, 
no further approval of the Action Plan is required unless the PHA or 
owner proposes to make policy changes to the Action Plan or increase 
the size of a voluntary program; or HUD requires other changes. In such 
cases, the PHA or owner must submit such changes to the Action Plan to 
HUD for approval.
    (d) Contents of Plan. The Action Plan shall describe the policies 
and procedures for the operation of a PHA's or owner's FSS program, and 
shall contain, at a minimum, the following information:
    (1) Family demographics. A description of the number, size, 
characteristics, and other demographics (including racial and ethnic 
data), and the supportive service needs of the families expected to 
participate in the FSS program;
    (2) Estimate of participating families. A description of the number 
of eligible FSS families who can reasonably be expected to receive 
supportive services under the FSS program, based on available and 
anticipated Federal, tribal, State, local, and private resources;
    (3) Eligible families from other self-sufficiency programs. If 
applicable, the number of families, by program type, who are 
participating in other local self-sufficiency programs and are expected 
to agree to execute an FSS CoP;
    (4) FSS family selection procedures. A statement indicating the 
procedures to be utilized to select families for participation in the 
FSS program, subject to the requirements governing the selection of FSS 
families, set forth in Sec.  984.203. This statement must include a 
description of how the selection procedures ensure that families will 
be selected without regard to race, color, religion, sex (including 
actual or perceived gender identity and sexual orientation), 
disability, familial status, or national origin;
    (5) Incentives to encourage participation. A description of the 
incentives that will be offered to eligible families to encourage their 
participation in the FSS program (incentives plan). The incentives plan 
shall provide for the establishment of the FSS escrow account in 
accordance with the requirements set forth in Sec.  984.305, and other 
incentives, if any. The incentives plan shall be part of the Action 
Plan;
    (6) Outreach efforts. A description of:
    (i) The efforts, including notification and outreach efforts, to 
recruit FSS participants from among eligible families; and,

[[Page 30052]]

    (ii) The actions to be taken to assure that both minority and non-
minority groups are informed about the FSS program, and how this 
information will be made available;
    (7) FSS activities and supportive services. A description of the 
activities and supportive services to be coordinated on behalf of 
participating FSS families and identification of the public and private 
resources which are expected to provide the supportive services;
    (8) Method for identification of family support needs. A 
description of how the FSS program will identify the needs and 
coordinate the services and activities according to the needs of the 
FSS families;
    (9) Program termination; withholding of services; and available 
grievance procedures. A description of all policies concerning 
termination of participation in the FSS program, or withholding of 
coordination of supportive services, on the basis of a family's failure 
to comply with the requirements of the CoP; and the grievance and 
hearing procedures available for FSS families;
    (10) Assurances of non-interference with rights of non-
participating families. An assurance that a family's election not to 
participate in the FSS program will not affect the family's admission 
to public housing or to the Section 8 program or the family's right to 
occupancy in accordance with its lease;
    (11) Timetable for program implementation. A timetable for 
implementation of the FSS program, as provided in Sec.  984.301(a)(1), 
including the schedule for filling FSS slots with eligible FSS 
families, as provided in Sec.  984.301;
    (12) Certification of coordination. A certification that 
development of the services and activities under the FSS program has 
been coordinated with programs under title I of the Workforce 
Innovation and Opportunity Act (29 U.S.C. 3111 et seq.), and other 
relevant employment, child care, transportation, training, education, 
and financial empowerment programs in the area, and that implementation 
will continue to be coordinated, in order to avoid duplication of 
services and activities; and
    (13) Optional additional information. Such other information that 
would help HUD determine the soundness of the proposed FSS program. 
This may include, and is not limited to:
    (i) Policies related to the modification of goals in the ITSP;
    (ii) The circumstances in which an extension of the Contract of 
Participation may be granted;
    (iii) Policies on the interim disbursement of escrow, including 
limitations on the use of the funds (if any);
    (iv) Policies regarding eligible uses of forfeited escrow funds by 
families in good standing;
    (v) Policies regarding the re-enrollment of previous FSS 
participants, including graduates and those who exited the program 
without graduating;
    (vi) Policies on requirements for documentation for goal 
completion;
    (vii) Policies on documentation of the household's designation of 
the ``head of FSS family;'' and
    (viii) Policies for providing an FSS selection preference for 
porting families (if the PHA elects to offer such a preference).
    (e) Eligibility of a combined program. A PHA or owner that wishes 
to operate a joint FSS program with a PHA or owner may combine its 
resources with one or more PHAs or owners to deliver supportive 
services under a joint Action Plan that will provide for the 
coordination of a combined FSS program that meets the requirements of 
this part.
    (f) Single Action Plan. A PHA or owner may submit one Action Plan 
that covers all applicable rental assistance programs (Section 8 
vouchers, PBRA, Mod Rehab, and public housing) served by the FSS 
program.


Sec.  984.202   Program Coordinating Committee (PCC).

    (a) General. Each participating PHA (or joint FSS program) must 
establish a PCC whose functions will be to assist the PHA in securing 
commitments of public and private resources for the operation of the 
FSS program within the PHA's jurisdiction, including assistance in 
developing the Action Plan and in operating the program.
    (b) Membership--(1) Required membership. The PCC must include 
representatives of the PHA, including one or more FSS Program 
Coordinators, and one or more participants from each HUD rental 
assistance program served by the PHA's FSS program. The PHA may seek 
assistance from the following groups in identifying potential PCC 
members:
    (i) An area-wide or city-wide resident council, if one exists;
    (ii) If the PHA operates in a specific public housing development, 
the resident council or resident management corporation, if one exists, 
of the public housing development where the public housing FSS program 
is to be carried out; or
    (iii) Any other resident group, which the PHA believes is 
interested in the FSS program and would contribute to the development 
and coordination of the FSS program (such as the Resident Advisory 
Board or tenant association, as applicable).
    (2) Recommended membership. Membership on the PCC may include 
representatives of the unit of general local government served by the 
PHA, local agencies (if any) responsible for carrying out programs 
under title I of the Workforce Innovation and Opportunity Act (29 
U.S.C. 3111 et seq.), and other organizations, such as other State, 
local, or tribal welfare and employment agencies, public and private 
primary, secondary, and post-secondary education or training 
institutions, child care providers, financial empowerment 
organizations, nonprofit service providers, private businesses, and any 
other public and private service providers with resources to assist the 
FSS program.
    (c) Alternative committee. The PHA may, in consultation with the 
chief executive officer of the unit of general local government served 
by the PHA and one or more residents of each HUD-assisted program 
served by the FSS program, utilize an existing entity as the PCC if the 
membership of the existing entity consists, or will consist of, the 
individuals identified in paragraph (b)(1) of this section, and it may 
also include individuals from the same or similar organizations 
identified in paragraph (b)(2) of this section.


Sec.  984.203  FSS family selection procedures.

    (a) Preference in the FSS selection process. A PHA has the option 
of selecting eligible families for up to fifty (50) percent of its FSS 
slots in accordance with a written policy, provided in the PHA's FSS 
Action Plan, who have one or more family members currently enrolled in 
an FSS related service program or on the waiting list for such a 
program. The PHA may limit the selection preference given to 
participants in, and applicants for, FSS related service programs to 
one or more eligible FSS related service programs. A PHA that chooses 
to exercise the selection preference option must include the following 
information in its Action Plan:
    (1) The percentage of FSS slots, not to exceed fifty (50) percent 
of the total number of FSS slots, for which it will give a selection 
preference;
    (2) The FSS related service programs to which it will give a 
selection preference to the programs' participants and applicants; and
    (3) The method of outreach to, and selection of, families with one 
or more

[[Page 30053]]

members participating in the identified programs.
    (b) Selection among families with preference. The PHA may use 
either of the following to select among applicants on the FSS waiting 
list with the same preference status:
    (1) Date and time of application to the FSS program; or,
    (2) A drawing or other random choice technique.
    (c) FSS selection without preference. For those FSS slots for which 
a selection preference is not applicable, the FSS slots must be filled 
with eligible families in accordance with an objective selection 
system, such as a lottery, the length of time living in subsidized 
housing, or the date the family expressed an interest in participating 
in the FSS program. The objective system to be used by the PHA must be 
described in the PHA's Action Plan.
    (d) Motivation as a selection factor--(1) General. A PHA may screen 
families for interest, and motivation to participate in the FSS 
program, provided that the factors utilized by the PHA are those which 
solely measure the family's interest and motivation to participate in 
the FSS program.
    (2) Permissible motivational screening factors. Permitted 
motivational factors include requiring attendance at FSS orientation 
sessions or preselection interviews and assigning certain tasks which 
indicate the family's willingness to undertake the obligations which 
may be imposed by the FSS CoP. Any tasks assigned shall be those which 
may be readily accomplishable by the family, based on the family 
members' educational level, capabilities, and disabilities, if any. 
Reasonable accommodations and modifications must be made for 
individuals with disabilities, including, e.g., mobility, manual, 
sensory, speech, mental, intellectual, or developmental disabilities, 
consistent with applicable Federal civil rights and nondiscrimination 
laws.
    (3) Prohibited motivational screening factors. Prohibited 
motivational screening factors include the family's educational level, 
educational or standardized motivational test results, previous job 
history or job performance, credit rating, marital status, number of 
children, or other factors, such as sensory or manual skills, and any 
factors which may result in the exclusion, application of different 
eligibility requirements, or other discriminatory treatment or effect 
on the basis of race, color, national original, sex (including actual 
or perceived gender identity and sexual orientation), religion, 
familial status, or disability.


Sec.  984.204   On-site facilities.

    Each PHA or owner may, subject to the approval of HUD, make 
available and utilize common areas or unoccupied dwelling units in 
properties owned by the entity to provide or coordinate supportive 
services under any FSS program.

Subpart C--Program Operations


Sec.  984.301   Program implementation.

    (a) Voluntary program implementation. Unless otherwise required 
under a funding notice, there is no deadline for implementation of a 
voluntary program. A voluntary program, however, may not be implemented 
before the requirements of Sec.  984.201 have been satisfied.
    (b) Program administration. A PHA may employ appropriate staff, 
including a service coordinator or FSS Program Coordinator to 
administer its FSS program, and may contract with an appropriate 
organization to establish and administer all or part of the FSS 
program, including the FSS escrow account, as provided by Sec.  
984.305.


Sec.  984.302   FSS funds.

    (a) Public housing program. Subject to 42 U.S.C. 1437g, 24 CFR part 
990, and appropriations by Congress, PHAs may use funds provided under 
42 U.S.C. 1437g to cover reasonable and eligible administrative costs 
incurred by PHAs in carrying out the FSS program.
    (b) Section 8 program. Subject to 42 U.S.C. 1437f, 24 CFR part 982, 
and appropriations by Congress, PHAs may use the administrative fees 
paid to PHAs for costs associated with operation of an FSS program.
    (c) FSS funds. FSS funds associated with operation of an FSS 
program are established by the Congress and subject to appropriations. 
FSS appropriated funds will be awarded to and used by PHAs or owners 
for costs associated with families who are enrolled in an FSS program 
under this part, including when an owner operates an FSS program 
through a Cooperative Agreement or on its own.


Sec.  984.303   Contract of Participation (CoP).

    (a) General. Each eligible family that is selected to participate 
in an FSS program must enter into a CoP with the PHA or owner that 
operates the FSS program in which the family will participate. There 
will be no more than one CoP at any time for each family. There may be 
an ITSP for as many members of the family as wish to participate. The 
CoP shall be signed by a representative of the PHA or the owner and the 
head of FSS family, as designated by the family. This head of FSS 
family does not have to be the same as the official head of household 
for rental assistance purposes.
    (b) Form and content of contract--(1) General. The CoP, which 
incorporates the ITSP(s), shall set forth the principal terms and 
conditions governing participation in the FSS program. These include 
the rights and responsibilities of the FSS family and of the PHA or 
owner, the services to be provided to, and the activities to be 
completed by, each adult member of the FSS family who elects to 
participate in the program.
    (2) FSS family goals. The ITSP, incorporated in the CoP, shall 
establish specific interim and final goals by which the PHA or owner, 
and the family, measures the FSS family's progress towards fulfilling 
its obligations under the CoP and becoming self-sufficient. For any FSS 
family that is a recipient of welfare assistance at the outset of the 
CoP or that receives welfare assistance while in the FSS program, the 
PHA or owner must establish as a final goal for each FSS participant 
that every member of the family become independent from welfare 
assistance before the expiration of the term of the CoP, including any 
extension thereof. Also, see the employment obligation described in 
paragraph (b)(4) of this section. Aside from the goals specifically 
required in this section, PHAs or owners must work with each 
participant to establish realistic and individualized goals and may not 
include additional mandatory goals or mandatory modifications of the 
two mandatory goals.
    (3) Compliance with lease terms. The CoP shall provide that one of 
the obligations of the FSS family is to comply with the terms and 
conditions of the respective public housing or Section 8 lease. 
However, all considerations allowed for other assisted residents for 
repayment agreements, etc., shall also be allowed for FSS participants.
    (4) Employment obligation--(i) Minimum requirement. Although all 
members of the FSS family may seek and maintain suitable employment 
during the term of the contract, only the head of FSS family shall be 
required under the CoP to seek and maintain suitable employment during 
the term of the contract and any extension thereof.
    (ii) Seek employment. The obligation to seek employment means 
searching for jobs, applying for employment, attending job interviews, 
and otherwise following through on employment opportunities.
    (iii) Determination of suitable employment. A determination of

[[Page 30054]]

suitable employment shall be made by the PHA or owner, with the 
agreement of the affected participant, based on the skills, education, 
job training, and receipt of other benefits of the household member, 
and based on the available job opportunities within the jurisdiction 
served by the PHA or in the community where the PBRA property is 
located.
    (5) Consequences of noncompliance with the contract. The CoP shall 
specify the consequences of noncompliance with the CoP as described in 
paragraph (i) of this section.
    (c) Contract of Participation term. The CoP shall state that each 
FSS family will be required to fulfill CoP obligations no later than 5 
years after the first re-examination of income after the execution date 
of the CoP.
    (d) Contract of Participation extension. The PHA or owner shall, in 
writing, extend the term of the CoP for a period not to exceed two (2) 
years for any FSS family that requests, in writing, an extension of the 
contract, provided that the PHA or owner finds that good cause exists 
for granting the extension. The family's written request for an 
extension must include a description of the need for the extension. 
Extension of the CoP will entitle the FSS family to continue to have 
amounts credited to the family's FSS escrow account in accordance with 
Sec.  984.304. As used in this paragraph (d), good cause means:
    (1) Circumstances beyond the control of the FSS family that impede 
the family's ability to complete the CoP obligations, as determined by 
the PHA or owner, such as a serious illness or involuntary loss of 
employment;
    (2) Active pursuit of a current or additional goal that will result 
in furtherance of self-sufficiency during the period of the extension 
(e.g., completion of a college degree during which the participant is 
unemployed or under-employed, credit repair towards being homeownership 
ready, etc.) as determined by the PHA or owner; or
    (3) Any other circumstance that the PHA or owner determines 
warrants an extension, as long as the PHA or owner is consistent in its 
determination as to which circumstances warrant an extension.
    (e) Unavailability of supportive services--(1) Good-faith effort to 
replace unavailable services. If a social service agency fails to 
deliver the supportive services identified in an FSS family member's 
ITSP, the PHA or owner shall make a good faith effort to obtain these 
services from another agency.
    (2) Assessment of necessity of services. If the PHA or owner is 
unable to obtain the services from another agency, the PHA or owner 
shall reassess the family member's needs and determine whether other 
available services would achieve the same purpose. If other available 
services would not achieve the same purpose, the PHA or owner and the 
family shall determine whether the unavailable services are integral to 
the FSS family's advancement or progress toward self-sufficiency. If 
the unavailable services are:
    (i) Determined not to be integral to the FSS family's advancement 
toward self-sufficiency, the PHA or owner shall revise the ITSP to 
delete these services, and modify the CoP to remove any obligation on 
the part of the FSS family to accept the unavailable services, in 
accordance with paragraph (f) of this section; or,
    (ii) Determined to be integral to the FSS family's advancement 
toward self-sufficiency, the PHA or owner shall terminate the CoP and 
follow the requirements in paragraph (k) of this section regarding FSS 
escrow disbursement.
    (f) Modification. The PHA or owner and the FSS family may mutually 
agree to modify the CoP with respect to the ITSP and/or the contract 
term in accordance with paragraph (d) of this section, and/or 
designation of the head of FSS family. Modifications must be in 
writing.
    (g) Completion of the contract. The CoP is considered to be 
completed, and a family's participation in the FSS program is 
considered to be concluded when the FSS family has fulfilled all of its 
obligations under the CoP, including all family members' ITSPs, on or 
before the expiration of the contract term, including any extension 
thereof.
    (h) Termination of the contract. The CoP shall be terminated if the 
family's housing assistance is terminated in accordance with HUD 
requirements. The CoP may be terminated before the expiration of the 
contract term, and any extension thereof, by:
    (1) Mutual consent of the parties;
    (2) The failure of the FSS family to meet its obligations under the 
CoP without good cause. This includes an FSS family who has moved out 
of multifamily assisted housing and families receiving tenant-based 
assistance under section 8(o) of the 1937 Act who fail to comply with 
the contract requirements because the family has moved outside the 
jurisdiction of the PHA, and the PHA has not determined that there is 
good cause terminate the CoP with FSS escrow disbursement in accordance 
with paragraph (k)(1)(iii) of this section;
    (3) The family's withdrawal from the FSS program;
    (4) Such other act as is deemed inconsistent with the purpose of 
the FSS program; or
    (5) Operation of law.
    (i) Option to terminate FSS participation or withhold the 
coordination of supportive service assistance. The PHA or owner may 
withhold the coordination of supportive services or terminate the FSS 
family's participation in the FSS program, if the PHA or owner 
determines, in accordance with the FSS Action Plan hearing procedures, 
that the FSS family has failed to comply without good cause with the 
requirements of the CoP in accordance with this section.
    (j) Transitional supportive service assistance. A PHA or owner may 
continue to offer to a former FSS family that has completed its CoP, 
appropriate coordination of those FSS supportive services needed to 
become self-sufficient if the family still resides in public housing or 
Section 8 housing. If the family no longer resides in public housing, 
Section 8, or other assisted housing, then a PHA or owner may continue 
to coordinate supportive services for a former FSS family that 
completed its CoP using only funding sources that are not HUD funds or 
HUD-restricted funds.
    (k) Termination with FSS escrow disbursement. (1) The CoP is will 
be terminated with FSS disbursement when:
    (i) Services that the PHA or owner and the FSS family have agreed 
are integral to the FSS family's advancement towards self-sufficiency 
are unavailable, as described in paragraph (e) of this section;
    (ii) The head of the FSS family becomes permanently disabled and 
unable to work during the period of the contract, unless the PHA or 
owner and the FSS family determine that it is possible to modify the 
contract to designate a new head of the FSS family; or
    (iii) An FSS family in good standing moves outside the jurisdiction 
of the PHA (in accordance with portability requirements at Sec.  
982.353 of this chapter) for good cause, as determined by the PHA, and 
continuation of the CoP after the move, or completion of the CoP prior 
to the move, is not possible. PHAs must be consistent in their 
determinations of whether a family has good cause for a termination 
with FSS escrow disbursement under this paragraph (k).
    (2) Upon termination of a CoP pursuant to paragraph (k)(1) of this

[[Page 30055]]

section, escrow funds must be handled consistent with Sec.  984.305.


Sec.  984.304   Amount of rent paid by FSS family and increases in 
family income.

    (a) Amount of rent paid by FSS family. The amount of rent paid by 
an FSS family is determined in accordance with the requirements of the 
applicable housing assistance program as specified in paragraphs (a)(1) 
and (2) of this section.
    (1) Public housing program: Calculation of total tenant payment. 
Total tenant payment for an FSS family participating in the FSS program 
is determined in accordance with the regulations set forth in 24 CFR 
part 5, subpart F.
    (2) Section 8 programs: Calculation of rent. (i) For the HCV 
program, rent is determined in accordance with 24 CFR part 982, subpart 
K; and
    (ii) For the PBV program, rent is determined in accordance with 24 
CFR part 983, subpart G.
    (b) Increases in FSS family income. Any increase in the earned 
income of an FSS family during its participation in an FSS program may 
not be considered as income or an asset for purposes of eligibility of 
the FSS family under any other program administered by HUD.


Sec.  984.305   FSS escrow account.

    (a) Establishment of FSS escrow account--(1) General. The PHA or 
owner shall deposit the FSS escrow account funds of all families 
participating in an FSS program into a single interest-bearing 
depository account. The PHA or owner must deposit the FSS escrow 
account funds in one or more of the HUD-approved investments. The 
depository account may be part of the PHA's or owner's overall accounts 
or a separate account, as long as it is in compliance with paragraph 
(a)(2) of this section. During the term of the CoP, the FSS escrow 
account credit amount shall be determined in accordance with paragraph 
(b) of this section at each re-examination of income occurring after 
the effective date of the CoP. Such escrow credit amount must be 
deposited each month by the PHA or owner to each family's FSS escrow 
account within the PHA's or owner's depository account.
    (2) Accounting for FSS escrow account funds--(i) Accounting 
records. The total of the combined FSS escrow account funds will be 
supported in the accounting records by a subsidiary ledger showing the 
balance applicable to each FSS family.
    (ii) Proration of investment income. The investment income for 
funds in the FSS escrow account must be prorated and credited to each 
family's FSS escrow account based on the balance in each family's FSS 
escrow account at the end of the period for which the investment income 
is credited.
    (iii) Reduction of amounts due by FSS family. If the FSS family has 
not paid the family contribution towards rent, or other amounts, if 
any, due under the public housing or Section 8-assisted lease, the 
balance in the family's FSS account shall be reduced by that amount (as 
determined by the owner or reported by the owner to the PHA in the 
Section 8(o) programs) at the time of final disbursement of FSS escrow 
funds in accordance with paragraph (c) of this section. If the FSS 
family has been found to have under-reported income after the baseline 
annual earned income was set, the amount credited to the FSS escrow 
account will be based on the income amounts originally reported by the 
FSS family. If the FSS family is found to have under-reported income in 
the re-examination used to set the baseline, the escrow for the entire 
period of the CoP will be re-calculated using the correct income to set 
the baseline and then calculate subsequent escrow amounts.
    (3) Reporting on FSS escrow account. Each PHA or owner will be 
required to make a report, at least once annually, to each FSS family 
on the status of the family's FSS escrow account. At a minimum, the 
report will include:
    (i) The balance at the beginning of the reporting period;
    (ii) The amount of the family's rent payment that was credited to 
the FSS escrow account, during the reporting period;
    (iii) Any deductions made from the account at the time of final 
disbursement of FSS escrow funds (see paragraphs (a)(2)(iii) and (c) of 
this section) for amounts due the PHA or owner;
    (iv) The amount of interest earned on the account during the year; 
and
    (v) The total in the account at the end of the reporting period.
    (b) FSS credit--(1) Determining the family's baseline information. 
When determining the family's baseline annual earned income and the 
baseline monthly rent amounts for purposes of computing the FSS escrow 
credit, the PHA or owner must use the amounts on the family's last 
income re-examination.
    (2) Computation of amount. The FSS credit amount shall be the lower 
of:
    (i) Thirty (30) percent of one-twelfth (\1/12\) (i.e., two and a 
half (2.5) percent) of the amount by which the family's current annual 
earned income exceeds the family's baseline annual earned income; or
    (ii) The increase in the family's monthly rent. The increase in the 
family's monthly rent shall be the lower of:
    (A) The amount by which the family's current monthly rent exceeds 
the family's baseline monthly rent;
    (B) For HCV families, the difference between the baseline monthly 
rent and the current gross rent (i.e., rent to owner plus any utility 
allowance) or the payment standard, whichever is lower; or
    (C) For PBV, Mod Rehab, including Mod Rehab SRO, and PBRA families, 
the difference between the baseline monthly rent and the current gross 
rent (i.e., rent to owner or contract rent, as applicable, plus any 
utility allowance).
    (3) Ineligibility for FSS credit. FSS families who are not low-
income families (i.e., whose adjusted annual income exceeds eighty (80) 
percent of the area median income) shall not be entitled to any FSS 
credit.
    (4) Cessation of FSS credit. The PHA or owner shall not make 
additional credits to the FSS family's FSS escrow account:
    (i) When the FSS family has completed the CoP, as described in 
Sec.  984.303(g);
    (ii) When the CoP is terminated; or
    (iii) During the time an HCV family is in the process of moving to 
a new unit, in accordance with HCV program requirements in part 982 of 
this title, and is not under a lease.
    (c) Disbursement of FSS escrow account funds--(1) General. The 
amount in an FSS escrow account in excess of any amount owed to the PHA 
or owner by the FSS family, as provided in paragraph (a)(2)(iii) of 
this section, shall be paid to the head of FSS family when the CoP has 
been completed as provided in Sec.  984.303(g), and if, at the time of 
contract completion, the head of FSS family submits to the PHA or owner 
a certification, as defined in Sec.  984.103, that to the best of his 
or her knowledge and belief, no member of the FSS family is a recipient 
of welfare assistance.
    (2) Disbursement before expiration of contract term. (i) If the PHA 
or owner determines that the FSS family has fulfilled its obligations 
under the CoP before the expiration of the contract term, and the head 
of FSS family submits a certification that, to the best of his or her 
knowledge, no member of the FSS family is a recipient of welfare 
assistance, the amount in the family's FSS escrow account, in excess of 
any amount owed to the PHA or owner by the FSS family, as provided in

[[Page 30056]]

paragraph (a)(2)(iii) of this section, shall be paid to the head of FSS 
family.
    (ii) If the PHA or owner determines that the FSS family has 
fulfilled certain interim goals established in the CoP and needs a 
portion of the FSS escrow account funds for purposes consistent with or 
in support of the CoP, such as completion of higher education (i.e., 
college, graduate school), job training, or to meet start-up expenses 
involved in creation of a small business, the PHA or owner may, at the 
PHA's or owner's sole discretion, disburse a portion of the funds from 
the family's FSS escrow account to assist the family in paying those 
expenses. Unless the interim disbursement was made based on fraudulent 
information from the family, the family is not required to repay such 
interim disbursements if the family does not complete the CoP.
    (3) Disbursement in cases of termination of the CoP with 
disbursement of escrow. The PHA or owner must disburse to the family 
its FSS escrow account funds in excess of any amount owed to the PHA or 
owner by the FSS family, as provided in paragraph (a)(2)(iii) of this 
section, under circumstances in which HUD has determined good cause is 
warranted. HUD determines that there is good cause when a CoP is 
terminated in accordance with Sec.  984.303(k). Therefore, if the CoP 
is terminated in accordance with Sec.  984.303(k), the PHA or owner 
must disburse to the family its FSS escrow account funds in excess of 
any amount owed to the PHA or owner by the FSS family, as provided in 
paragraph (a)(2)(iii) of this section, as of the effective date of the 
termination of the contract.
    (4) Verification of family certification. Before disbursement of 
the FSS escrow account funds to the family, the PHA or owner may verify 
that the FSS family is no longer a recipient of welfare assistance by 
requesting copies of any documents which may indicate whether the 
family is receiving any welfare assistance and by contacting welfare 
agencies.
    (d) Succession of FSS escrow account. If the head of FSS family 
ceases to reside with other family members in the public housing or the 
Section 8-assisted unit, the remaining members of the FSS family, after 
consultation with the PHA or owner, shall have the right to take over 
the CoP or designate another family member to receive the funds in 
accordance with paragraph (c) of this section.
    (e) Use of FSS escrow account funds for homeownership. An FSS 
family may use disbursed FSS escrow account funds, in accordance with 
Sec.  984.305(c), after final disbursement for the purchase of a home, 
including the purchase of a home under one of HUD's homeownership 
programs, or other Federal, State, or local homeownership programs, 
unless such use is prohibited by the statute or regulations governing 
the particular homeownership program.
    (f) Forfeiture of FSS escrow account funds--(1) Conditions for 
forfeiture. Amounts in the FSS escrow account shall be forfeited upon 
the occurrence of the following:
    (i) The CoP is terminated, as provided in Sec.  984.303(h); or,
    (ii) The CoP is completed by the family, as provided in Sec.  
984.303(g), but the FSS family is receiving welfare assistance at the 
time the CoP term expires, including any extension thereof.
    (2) Treatment of forfeited FSS escrow account funds. FSS escrow 
account funds forfeited by the FSS family must be used by the PHA or 
owner for the benefit of the FSS participants.
    (i) Specifically, such funds may be used for the following eligible 
activities:
    (A) Support for FSS participants in good standing, including, but 
not limited to, transportation, child care, training, testing fees, 
employment preparation costs, and other costs related to achieving 
obligations outlined in the CoP;
    (B) Training for FSS Program Coordinator(s); or
    (C) Other eligible activities as determined by the Secretary.
    (ii) Such funds may not be used for salary and fringe benefits of 
FSS Program Coordinators; general administrative costs of the FSS 
program, for housing assistance payments (HAP) expenses or public 
housing operating funds; or any other activity determined ineligible by 
the Secretary.


Sec.  984.306   HCV portability requirements for FSS participants.

    (a) Initial period of CoP--(1) First 12 months. During the first 12 
months after the effective date of the FSS CoP, an FSS family may not 
move outside the jurisdiction of the PHA that first enrolled the family 
in the FSS program. However, the PHA may approve an FSS family's 
request to move outside of its jurisdiction under portability (in 
accordance with Sec.  982.353 of this chapter) during this period. This 
paragraph (a)(1) applies to a former PBV family who received tenant-
based rental assistance in accordance with Sec.  983.261 of this 
chapter and exercised their right to move.
    (2) After the first 12 months. After the first 12 months of the FSS 
CoP, the FSS family with a tenant-based voucher may move outside the 
initial PHA jurisdiction under portability regulations (in accordance 
with Sec.  982.353 of this chapter). This paragraph (a)(2) applies to 
former PBV families who received tenant-based rental assistance in 
accordance with Sec.  983.261 of this chapter and exercised their right 
to move.
    (b) An FSS family moves to the jurisdiction of a receiving PHA that 
administers an FSS program. (1) Whether the receiving PHA bills the 
initial PHA or absorbs the FSS family into its HCV program, the 
receiving PHA must enroll an FSS family in good standing in its FSS 
program; unless
    (i) The receiving PHA is already serving the number of FSS families 
identified in its FSS Action Plan and determines that it does not have 
the resources to manage the FSS contract; or
    (ii) The receiving PHA and the initial PHA agree to the FSS 
family's continued participation in the initial PHA's FSS program. 
Prior to the PHAs agreeing to the continued participation, the initial 
PHA must determine that the relocating FSS family has demonstrated 
that, notwithstanding the move, it will be able to fulfill its 
responsibilities under the initial or a modified CoP at its new place 
of residence. For example, the FSS family may be able to commute to the 
supportive services specified in the CoP, or the family may move to 
obtain employment as specified in the contract.
    (2) Where continued FSS participation is not possible in accordance 
with paragraph (b)(1) of this section, the initial PHA must clearly 
discuss the options that may be available to the family, depending on 
the family's specific circumstances, which may include, but are not 
limited to, modification of the FSS contract, termination of the FSS 
contract and forfeiture of escrow, termination with FSS escrow 
disbursement in accordance with Sec.  984.303(k)(1)(iii), or locating a 
receiving PHA that has the capacity to enroll the family into its FSS 
program.
    (c) An FSS family moves to the jurisdiction of a receiving PHA that 
does not administer an FSS program. If the receiving PHA does not 
administer an FSS program, the FSS family may not continue 
participation in the FSS program. The initial PHA must clearly discuss 
the options that may be available to the family, depending on the 
family's specific circumstances, which may include, but are not limited 
to, modification of the FSS contract, termination with FSS escrow 
disbursement in accordance with Sec.  984.303(k)(1)(iii), termination 
of the FSS contract and forfeiture of escrow, or

[[Page 30057]]

locating a receiving PHA that administers an FSS program.
    (d) Single FSS escrow account. Regardless of whether the FSS family 
remains in the FSS program of the initial PHA or is enrolled in the FSS 
program of the receiving PHA, the family will have only one FSS escrow 
account. If the receiving PHA is billing the initial PHA, the account 
will be maintained by the initial PHA. If an FSS family will be 
absorbed by the receiving PHA, the initial PHA will transfer the 
family's FSS escrow account funds to the receiving PHA and the 
receiving PHA will maintain the funds in its FSS account.
    (e) FSS program termination; loss of FSS escrow account. (1) If an 
FSS family relocates to another jurisdiction, as provided under this 
section, and is unable to fulfill its obligations under the CoP (or any 
modifications thereto), the PHA, which is a party to the CoP, must 
terminate the FSS family from the FSS program, and the family's FSS 
escrow account will be forfeited. Termination of FSS program 
participation and forfeiture of FSS escrow must be used only as a last 
resort, after the PHA determines, in consultation with the family, that 
the family would be unable to fulfill its obligations under the CoP 
after the move, that the current CoP cannot be modified to allow for 
graduation prior to porting, and that the current CoP cannot be 
terminated with FSS escrow disbursement in accordance with Sec.  
984.303(k)(1)(iii). When termination is the only option, the PHA must 
clearly notify the family that the move will result in the loss of 
escrow funds.
    (2) In the event of forfeiture of the family's FSS escrow account 
funds, the FSS escrow account funds will revert to the PHA maintaining 
the FSS escrow account for the family.
    (f) Contract of Participation (CoP). (1) If the FSS family enrolls 
in the receiving PHA's FSS program pursuant to this section, the 
receiving PHA will enter into a new CoP with the FSS family for the 
term remaining on the contract with the initial PHA. The initial PHA 
will terminate its CoP with the family.
    (2) If the FSS family remains in the FSS program of the initial 
PHA, pursuant to this section, the CoP executed by the initial PHA will 
remain as the contract in place.
    (g) New FSS enrollment into the receiving PHA's FSS program--(1) 
Billing. If the receiving PHA bills the initial PHA, the receiving PHA 
may, consistent with the receiving PHA's FSS enrollment policies, 
enroll a family that was not an FSS participant at the initial PHA into 
its FSS program, provided that the initial PHA manages an FSS program 
and agrees to such enrollment. If the receiving PHA bills the initial 
PHA, but the initial PHA does not manage an FSS program, the family may 
not enroll in the receiving PHA's FSS program.
    (2) Absorption. If the receiving PHA absorbs the family into its 
HCV program, the receiving PHA may, consistent with the receiving PHA's 
FSS enrollment policies, enroll a family that was not an FSS 
participant at the initial PHA into its FSS program.

Subpart D--Reporting


Sec.  984.401   Reporting.

    Each PHA or owner that carries out an FSS program shall submit to 
HUD, in the form prescribed by HUD, a report regarding its FSS program. 
The report shall include the following information:
    (a) A description of the activities carried out under the program;
    (b) A description of the effectiveness of the program in assisting 
families to achieve economic independence and self-sufficiency, 
including the number of families enrolled and graduated and the number 
of established escrow accounts and positive escrow balances;
    (c) A description of the effectiveness of the program in 
coordinating resources of communities to assist families to achieve 
economic independence and self-sufficiency; and
    (d) Any recommendations by the PHA or owner or the appropriate 
local Program Coordinating Committee for legislative or administrative 
action that would improve the FSS program and ensure the effectiveness 
of the program.

Marcia L. Fudge,
Secretary.
[FR Doc. 2022-09528 Filed 5-16-22; 8:45 am]
BILLING CODE 4210-67-P


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