[Federal Register Volume 75, Number 95 (Tuesday, May 18, 2010)]
[Notices]
[Pages 27808-27812]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-11731]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5413-N-01]


Section 8 Housing Choice Voucher Program--Demonstration Project 
of Small Area Fair Market Rents in Certain Metropolitan Areas for 
Fiscal Year 2011

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

ACTION: Notice of Demonstration Project of Small Area Fair Market Rents 
(FMRs) in Selected Metropolitan Areas for Fiscal Year (FY) 2011.

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SUMMARY: Section 8(c)(1) of the United States Housing Act of 1937 
(USHA) requires the Secretary to publish FMRs periodically, but not 
less than annually, adjusted to be effective on October 1 of each year. 
The primary uses of FMRs are to determine payment standard amounts for 
the Housing Choice Voucher (HCV) program, to determine initial renewal 
rents for some expiring project-based Section 8 contracts, to determine 
initial rents for housing assistance payment (HAP) contracts in the 
Moderate Rehabilitation Single Room Occupancy program (Mod Rehab), and 
to serve as a rent ceiling in the HOME rental assistance program. 
Today's notice announces a demonstration project that will set small 
area FMRs for the HCV program within certain metropolitan areas, and 
requests comments on several topics related to small area FMRs, 
including how these small areas should be defined. Small area FMRs 
calculated for the Demonstration projects will be used only in the 
Section 8 HCV program and will not affect rents in any other HUD or 
other federal program. HUD expects that small area FMRs will provide 
Section 8 tenants with greater ability to move into opportunity areas 
where jobs, transportation, and educational opportunities exist, and 
prevent undue subsidy in lower-rent areas.

DATES: Comments Due Date: July 19, 2010.

ADDRESSES: Interested persons are invited to submit comments regarding 
HUD's small area FMR demonstration, as announced in this notice, to the 
Office of General Counsel, Rules Docket

[[Page 27809]]

Clerk, Department of Housing and Urban Development, 451 Seventh Street, 
SW., Room 10276, Washington, DC 20410-0001. Communications should refer 
to the above docket number and title and should contain the information 
specified in the ``Request for Comments'' of this notice.
    Submission of Hard Copy Comments. To ensure that the information is 
fully considered by all of the reviewers, each commenter submitting 
hard copy comments, by mail or hand delivery, should submit comments or 
requests to the address above, addressed to the attention of the Rules 
Docket Clerk. Due to security measures at all Federal agencies, 
submission of comments or requests by mail often result in delayed 
delivery. To ensure timely receipt of comments, HUD recommends that any 
comments submitted by mail be submitted at least 2 weeks in advance of 
the public comment deadline.
    Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
http://www.regulations.gov. HUD strongly encourages commenters to 
submit comments electronically. Electronic submission of comments 
allows the commenter maximum time to prepare and submit a comment, 
ensures timely receipt by HUD, and enables HUD to make them immediately 
available to the public. Comments submitted electronically through the 
http://www.regulations.gov Web site can be viewed by interested members 
of the public. Commenters should follow instructions provided on that 
site to submit comments electronically.
    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Comments. All comments submitted to HUD 
regarding this notice will be available, without charge, for public 
inspection and copying between 8 a.m. and 5 p.m. weekdays at the above 
address. Due to security measures at the HUD Headquarters building, an 
advance appointment to review the documents must be scheduled by 
calling the Regulations Division at 202-708-3055 (this is not a toll-
free number). Copies of all documents submitted are available for 
inspection and downloading at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: For technical information on the 
methodology used to develop small area FMRs, please contact Peter B. 
Kahn or Marie L. Lihn, Economic and Market Analysis Division, Office of 
Economic Affairs, Office of Policy Development and Research, telephone 
number 202-708-0590 (this is not a toll-free number). Persons with 
hearing or speech impairments may access this number through TTY by 
calling the toll-free Federal Information Relay Service at 800-877-
8339. (Other than the HUD USER information line and TTY numbers, 
telephone numbers are not toll free.)

SUPPLEMENTARY INFORMATION: 

I. Background

    Section 8 of the USHA (42 U.S.C. 1437f) authorizes housing 
assistance to aid lower-income families in renting safe and decent 
housing. Housing assistance payments are limited by FMRs established by 
HUD for different areas. In the HCV program, the FMR is the basis for 
determining the ``payment standard amount'' used to calculate the 
maximum monthly subsidy for an assisted family (see 24 CFR 982.503). In 
general, the FMR for an area is the amount that would be needed to pay 
the gross rent (shelter rent plus utilities) of privately owned, 
decent, and safe rental housing of a modest (nonluxury) nature with 
suitable amenities. In addition, all rents subsidized under the HCV 
program must meet reasonable rent standards.
    Currently FMRs are calculated for all nonmetropolitan counties and 
metropolitan areas. The same FMR is available throughout a 
nonmetropolitan county or a metropolitan area, which is generally 
comprised of several metropolitan counties. FMRs in a metropolitan area 
represent the 40th-percentile (or in special circumstances the 50th-
percentile) gross rent of the entire HUD-defined metropolitan area. 
Public housing agencies (PHAs) may set a payment standard within 90 
percent to 110 percent of the FMR. PHAs may determine that payment 
standards that are higher than 110 percent, or lower than 90 percent, 
are needed to make the voucher program work in subareas of their 
market; in this instance, a PHA would request HUD approval for payment 
standards below 90 percent or exception payment standards above 110 
percent. These requests cannot represent more than 50 percent of the 
population of the area (see 24 CFR 982.503).
    In the past, HUD has not had the means to maintain and update a 
small area FMR system. In late 2010, the Census Bureau will make 
publicly available the data it collected over the first 5 years of the 
American Community Survey (ACS) in 5-year aggregations for the areas 
with population of less than 20,000. With these data, HUD will be able 
to update FMR estimates in smaller geographic areas than is currently 
possible using ACS data at one-year or 3-year aggregations. HUD intends 
to use this data to establish a program of smaller area FMRs for 
metropolitan areas. To determine how best to implement a comprehensive 
small area FMR program, HUD will operate small area FMR demonstration 
projects for the HCV program using 2000 Census data to determine FMRs 
for smaller areas. HUD expects that small area FMRs will provide 
Section 8 tenants with greater ability to move into opportunity areas, 
where jobs, transportation and educational opportunities exist, and 
prevent undue subsidy in lower-rent areas. Small area FMRs will alter 
some administrative responsibilities of PHAs that administer housing 
voucher programs, but it is unclear what the net effect will be. For 
example, small area FMRs are likely to reduce the time needed to 
determine whether rents are reasonable. (Rent reasonableness tests 
reflect the conditions and characteristics of units relative to others 
in the area, as well as market rents in the immediate area of the 
units). While the requirement to determine rent reasonableness based on 
the condition and characteristics of individual units will remain, less 
comparative data may be needed, since local area baseline rents will 
largely be embedded in the small area FMR. Small area FMRs will also 
increase the number of payment standards used in a metropolitan area. 
The small area FMR demonstration projects will provide HUD with insight 
into the administration of small area FMRs before implementing such a 
program nationwide.
    The first demonstration projects will begin October 1, 2010 (the 
beginning of FY2011), with others being added prior to the beginning of 
Calendar Year 2011. Small area FMRs would be rolled out to all 
metropolitan areas at a later date, provided that the small area FMR 
demonstration project shows that voucher program operation using small 
area FMRs is feasible.
    For illustrative purposes, the following Web site provides 
hypothetical Small Area FMRs that are based on the current FY2010 FMRs: 
http://www.huduser.org/portal/datasets/fmr.html. Comments may be 
provided on these FMRs.
    Electronic Data Availability: This Federal Register notice is 
available electronically from the HUD Web site at http://www.hudclips.org. Federal Register notices also are available 
electronically from the U.S. Government Printing Office Web site, 
http://www.gpoaccess.gov/fr/index.html.

[[Page 27810]]

II. Methodology for Small Area FMRs

    Currently, FMRs are determined based on Office of Management and 
Budget (OMB) Core Based Statistical Areas (CBSAs), with some 
modifications based on pre-FY2006 FMR area definitions for metropolitan 
areas. For nonmetropolitan areas, the basic unit of geography is at the 
county level.\1\ The standards for definition of CBSAs are based on a 
review of journey-to-work data, or commuting patterns, as the basis for 
grouping counties together to form CBSAs.\2\
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    \1\ In some sparsely populated counties where statistically 
reliable information was not available from the 2000 Decennial 
Census, county groups are used instead.
    \2\ OMB published a Federal Register notice (65 FR 82228), 
available at http://www.whitehouse.gov/omb/fedreg/metroareas122700.pdf, that outlined its decisions for how to create 
CBSAs and responses to public comments concerning the formation of 
CBSAs.
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    Use of metropolitan area-wide FMRs allows HUD's Section 8 Voucher 
tenants access to different parts of a metropolitan area; however, 
because FMRs generally are set at the 40th percentile of the 
metropolitan rent distribution, certain neighborhoods may not have many 
units available in the FMR range. That is why HUD has an exception 
payment standard policy that allows payments standards to be set much 
higher than the FMR, but the policy is dependent on a showing of 
program need in terms of whether or not suitable housing is available. 
To make a broader range of neighborhoods accessible to its clients, HUD 
is researching ways to set FMRs at a more localized level. Currently, 
HUD is focusing on a methodology that would use small areas, defined by 
U.S. Postal Service ZIP codes, as the basis for FMRs in metropolitan 
areas. For nonmetropolitan areas, counties would continue to be used as 
the basis for FMRs.
    The most recent data regarding rents, incomes, and other socio-
economic information collected by the U.S. Census Bureau comes from the 
ACS. At this time, only 1-year and 3-year ACS tables are available. ACS 
5-year data are expected to have sufficient data at the small area 
level available to permit the calculation of statistically reliable 
FMRs for many ZIP codes in metropolitan areas. However, the first 
publication of 5-year ACS data does not begin until after October 1, 
2010, so for the FY2011 small area FMR demonstration projects, HUD will 
have to use a different data source; HUD will use data from the 2000 
Decennial Census to estimate the rent relationship (rental rate ratio) 
between the OMB-defined CBSA and each ZIP code within the given 
metropolitan area.\3\ The individual ZIP code-level 2-bedroom FMR for 
each part of the FMR area is the product of the rental rate ratio and 
the 2-bedroom FMR for that area's CBSA as calculated using methods 
employed for past metropolitan area FMR estimates.
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    \3\ Note that some ZIP codes span metropolitan area boundaries 
so that a ZIP code may contain parts of a metropolitan area and one 
(or more) nonmetropolitan county (counties), or part of another 
metropolitan CBSA. As in current FMR policy, nonmetropolitan 
counties would not be broken along ZIP code or any other lines under 
the small area FMR policy. ZIP codes that span more than one 
metropolitan CBSA would have different FMRs in each CBSA as they do 
under current metropolitan FMR policy.
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    Before a rent relationship can be determined, HUD first eliminates 
any records where there were no units with occupants paying cash rent. 
HUD then aggregates these rental distribution data for each CBSA and 
calculates a median (50th-percentile) gross rent across all bedroom 
sizes. These CBSA median gross rents serve as the denominator in the 
rent relationship calculation. HUD then aggregates the rental 
distributions for each ZIP code within a given CBSA (ZIP codes can 
cross county boundaries; therefore, there may be multiple records for 
each ZIP code within a single CBSA, and HUD aggregates these multiple 
records). A median gross rent is calculated for each ZIP code (or ZIP 
code part for ZIP codes spanning CBSA boundaries). HUD restricts the 
use of ZIP code level median gross rents to those areas that have at 
least 1,000 cash rental unit observations. HUD anticipates that the set 
of ZIP codes with at least 1,000 cash renter-occupied units in the 2000 
Decennial Census will be representative of the set of ZIP codes with 
statistically valid 5-year ACS data that can be used to set small area 
FMRs.
    The rent relationship is calculated in the following manner for 
those ZIP codes within the metropolitan area that have 1,000 or more 
cash rental units:

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

    The rent relationship is capped at 150 percent for areas that would 
otherwise be greater. If the ZIP code within the CBSA does not have 
1,000 cash rental units, then the rent relationship is calculated as:

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

where STCO is the county within the state containing the ZIP 
code.\4\ For metropolitan areas, FMRs will be calculated and 
published for each small area. ZIP codes were chosen because they 
localize rental rates and a unit's ZIP code is easily identified 
both by PHAs and by tenants.

    \4\ For ZIP codes with fewer than 1000 cash rental units that 
cross county boundaries, the median gross rent in the numerator is 
calculated as the rental unit weighted average of the median gross 
rents for each county containing the ZIP code.
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    As previously stated, the individual ZIP code level 2-bedroom FMR 
for each part of the FMR area is the product of the rental rate ratio 
and the 2-bedroom FMR for that area's CBSA, as calculated using methods 
employed for past metropolitan area FMR estimates. To set the floor for 
small area FMRs in a metropolitan area, this product is then compared 
to the state nonmetropolitan minimum 2-bedroom rent for the state the 
area is located in and, if the ZIP code rent determined using the 
rental rate ratio is less than the minimum, the ZIP code rent is set at 
the nonmetropolitan minimum for that state. The relationship between 2-
bedroom units and other bedroom sizes has been estimated from Decennial 
Census data and then held constant until superseded by more recent 
data. Small area FMRs for other bedroom sizes will be calculated based 
on the bedroom-size relationships estimated for the large area of 
geography. HUD anticipates updating the bedroom rental rate ratios with 
the release of 5-year ACS data (covering 2005 though 2009), and then 
once every 5 years when the 5-year ACS sample is completely 
replaced.\5\ The final calculated rents are then rounded to the nearest 
$25.
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    \5\ The current decennial data is not robust enough to lead HUD 
to believe that updating bedroom ratios on a more frequent basis 
would provide many changes. The current bedroom ratios are 
constrained by ranges that reflect the average relationship of a 
given bedroom size to the 2-bedroom rent, and, for the 3-bedroom and 
4-bedroom rents, bonuses have been added to assist with the 
operation of the Section 8 program.
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    Small area FMRs for all metropolitan areas are available for 
viewing and download on the Internet at http://www.huduser.org/portal/datasets/fmr.html. These will be updated using FY2011 FMRs and posted 
on the Web site when the proposed FY2011 FMR notice is published. Small 
area FMRs calculated for the demonstration projects will be used only 
in the Section 8 HCV program and will not affect rents in any other HUD 
or other federal program. PHAs in small area FMR demonstration sites 
will be empowered to renew pre-existing HAP contracts based on payment 
standards outside the new basic range (90 to 110 percent of the small 
area FMR) for tenants who wish to remain in their existing units and 
whose existing payment standards would otherwise fall outside the new 
basic range due to the

[[Page 27811]]

implementation of the small area FMR demonstration project.

III. Requirements for Participation in the Small Area FMR Demonstration 
Project

    The small area FMR demonstration project is intended to cover a 
limited set of FMR areas so that HUD can provide adequate technical 
assistance to the participating PHAs and monitor the effects and 
effectiveness of the policy. At the same time, HUD seeks to have all 
PHAs in small area FMR demonstration project areas firmly committed to 
implementing the program to achieve its stated goals. HUD will apply 
three principles for selecting participating FMR areas if participation 
needs to be limited because too many areas volunteer: (1) The 
participant area is large enough that small area FMRs will result in 
substantial variation in rents, (2) the greatest possible proportion of 
voucher tenants are served by PHAs that are willing participants in the 
demonstration, and (3) the PHAs in the area have demonstrated previous 
commitment, within the flexibilities available in the voucher program, 
to set voucher payment standards at varying and appropriate levels.
    Larger FMR areas provide the greatest potential benefit from the 
small area FMR proposal in that they are likelier to have a wider array 
of market rents that can be captured by the proposed methodology. HUD 
may therefore limit participation in the small area FMR demonstration 
project to FMR areas meeting the size (100 or more census tracts) and 
affordable housing concentration (in less than 70 percent of their 
census tracts containing 10 or more rental units, at least 30 percent 
of rental units rent for the 40th-percentile two-bedroom FMR or less) 
criteria for eligibility for the 50th-percentile FMR at 24 CFR 888.113.
    The small area FMR demonstration project will not be effective 
unless the PHAs that operate voucher programs covering the vast 
majority of voucher tenants in a metropolitan area agree to participate 
and abide by the small area rents. Therefore, HUD is requiring that 
PHAs requesting participation in the small area FMR demonstration 
project must account for at least 80 percent of the voucher tenants in 
that metropolitan area. If the PHAs represent a smaller percentage of 
the voucher tenant population, they will not be able to participate. 
HUD will consider as evidence a joint letter requesting participation 
in the small area FMR demonstration project, signed by the Executive 
Director and/or Board Chair of each PHA in the metropolitan area 
jointly making the request. HUD will verify, using data for Calendar 
Year 2009, that the signatories represent at least 80 percent of the 
voucher tenants residing in each nominated metropolitan area. HUD will 
notify the PHAs if they are found to represent fewer than 80 percent of 
voucher tenants in the metropolitan area, so that they may enlist 
participation by additional PHAs in the metropolitan area.
    Applicants who provide evidence that they are using multiple 
payment standards or that use exception payment standards may be given 
priority for participating in the demonstration project. Through their 
current operating procedures, these applicants are already showing the 
ability and willingness to administer the project using multiple rent 
structures and are likely able to provide HUD with valuable feedback on 
the small area FMRs HUD calculates and provides.

IV. Request for Public Comment on Small Area FMRs and Demonstration 
Eligibility Criteria

    Before HUD institutes the small area FMR demonstration project, HUD 
would like to solicit comments on the implementation of small area 
FMRs. The following is a list of issues that maybe addressed in 
comments:
    <bullet> Should HUD institute caps and floors on small area FMRs? 
As proposed, the current cap is 150 percent of the metropolitan FMR, 
and the current floor is the state nonmetropolitan minimum FMR. Are 
these appropriate, or should they be changed or eliminated? What is an 
appropriate amount or percentage for caps and floors?
    <bullet> The use of small area FMRs in metropolitan areas will 
result in no areas being big enough to qualify for 50th-percentile 
FMRs. (The goal of the 50th-percentile FMR policy should be more 
efficiently addressed through the use of small area FMRs.) Should HUD 
revise the 50th-percentile FMR policy or eliminate it, and why?
    <bullet> The exception payment standard policy, which is based on a 
relationship like that used to set the small area FMRs, will generally 
be redundant and could therefore be eliminated if the small area FMR 
policy is adopted. Are there any instances where an exception payment 
standard policy might still be useful? Such instances could include, 
for example, areas where rents have changed so rapidly due to 
extraordinary circumstances (such as natural disasters, or rapid 
economic change) that existing statistical methods cannot determine 
accurate rents, but PHAs can show that their voucher program operations 
have been impacted. If the exception payment standard policy remains in 
effect, should the exceptions be continued for nonmetropolitan counties 
only, or for larger areas within a metropolitan area?
    <bullet> Do small area FMRs increase the administrative burden of 
PHAs, and if so, how can this be reduced?
    <bullet> Is the proposed rounding protocol of $25 appropriate, or 
should small area FMRs be rounded to a larger or smaller amount?
    <bullet> Should state minimums be rounded both up and down? Should 
they be rounded before comparison with a ZIP code rent?
    In addition, comments may discuss the proposed HUD methodology for 
the small area FMRs that would be used for the demonstration project, 
including the use of 2000 Census data for the demonstration projects 
and the anomalies created by that data; using 5-year ACS data and 
implementing small area FMRs in metropolitan areas only; addressing the 
need, if it exists, for small area FMRs in nonmetropolitan counties; 
and addressing the general need for and implementation of a small area 
FMR demonstration project.
    HUD also seeks comments on the eligibility criteria for the small 
area FMR demonstration project. Should the demonstration be open to 
smaller metropolitan areas than those meeting the size criterion for 
50th-percentile FMR eligibility? Should, or should not, the affordable 
housing concentration criterion be a consideration in selecting 
participating areas? Is the 80 percent-of-voucher-tenants standard 
appropriate? Is there a better way for PHAs to demonstrate commitment 
to the demonstration project than a joint letter to HUD? Is 
demonstrated past use of multiple payment standards an appropriate 
criterion for participation?

V. Implementation of the Small Area FMR Demonstration Program

    The first small area FMR demonstration projects for the HCV program 
are expected to be put in place on October 1, 2010, after a review of 
all comments, when FY2011 FMRs become effective. Other demonstration 
areas may be added between this date and the beginning of Calendar Year 
2011. For illustrative purposes, hypothetical small area FMRs that are 
based on the current FY2010 FMRs are available for review on the HUD 
USER Web site at http://www.huduser.org/portal/datasets/fmr.html. The 
Federal Register notice on proposed FY2011 FMRs will include an update 
of these potential small area FMRs and the selection criteria for areas

[[Page 27812]]

interested in being a part of the demonstration project. The 
demonstration project will operate for approximately one year before a 
complete national implementation of small area FMRs will be proposed. 
The timing of full implementation will be determined based on the 
outcomes of the demonstrations.

    Dated: May 12, 2010.
Raphael W. Bostic,
Assistant Secretary for Policy Development and Research.
[FR Doc. 2010-11731 Filed 5-17-10; 8:45 am]
BILLING CODE 4210-67-P