Final Notice on Ending the “Hold-Harmless” Policy in Calculating Section 8 Income Limits Under the United States Housing Act of 1937, 27564-27572 [2010-11638]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 75, Number 94 (Monday, May 17, 2010)]
[Notices]
[Pages 27564-27572]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-11638]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5323-N-03]


Final Notice on Ending the ``Hold-Harmless'' Policy in 
Calculating Section 8 Income Limits Under the United States Housing Act 
of 1937

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

ACTION: Final notice.

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SUMMARY: Today's notice announces that HUD will allow Section 8 income 
limits to decrease beginning with the Fiscal Year (FY) 2010 income 
limits, but will limit all annual decreases to no more than 5 percent 
and limit all annual increases to 5 percent or twice the change in 
national median family income, whichever is greater. This notice 
follows notices of September 14, 2009, and October 7, 2009, that 
solicited public comment on HUD's proposal to discontinue its ``hold-
harmless'' policy. HUD's hold-harmless policy maintained Section 8 
income limits for certain areas at previously published levels when 
reductions would otherwise have resulted from changes in median family 
income estimates, housing cost adjustment data, median family income 
update methodology, income limit methodology, or metropolitan area 
definitions. HUD has also decided that rents used in its HOME 
Investment Partnerships program (HOME) will continue to be held 
harmless and that income limits for rural housing programs will 
continue their current hold-harmless policy, based on different area 
definitions.

DATES: Effective Date: May 17, 2010.

FOR FURTHER INFORMATION CONTACT: For technical information on the 
methodology used to develop income limits and median family income 
estimates, please call the HUD USER information line at 800-245-2691 or 
access the information on the HUD Web site, https://www.huduser.org/portal/datasets/il.html. That Web site lists current and historical 
income limits. Furthermore, HUD maintains an interactive on-line 
documentation system for income limits and median family income 
estimates. The documentation system provides interested users with 
their income limits prior to the application of the hold-harmless 
policy in areas currently being held harmless. The FY 2009 
documentation system may be accessed at https://www.huduser.org/portal/datasets/il/index_il2009.html. Questions may be addressed to Mark 
Stanton or Marie Lihn, Economic and Market Analysis Division, Office of 
Economic Affairs, Office of Policy Development and Research, telephone 
number 202-708-0590. 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. Electronic Data 
Availability: This Federal Register notice is available electronically 
from the HUD news page: https://www.hud.gov/offices/adm/hudclips/index.cfm. Federal Register notices also are available electronically 
from the U.S. Government Printing Office Web site: https://www.gpoaccess.gov/fr/. This Federal Register notice also will 
be posted on the following HUD Web site: https://www.huduser.org/portal/datasets/il.html.

SUPPLEMENTARY INFORMATION: 

I. Background: The September 14, 2009, Notice

    On September 14, 2009, HUD published a notice in the Federal 
Register (74 FR 47016) seeking public comment on the impact of 
eliminating the hold-harmless policy for Section 8 income limits while 
continuing this policy for rents in the HOME program.\1\ In the 
September 14, 2009, notice, HUD stated that through FY 2009, it would 
continue its policy of maintaining Section 8 income limits for HUD 
rental subsidy programs at the previously published level in cases 
where HUD's estimate of area median family income or housing cost 
adjustment data, or changes in calculation methodology, would lead to a 
lower income limit than was previously published. This hold-harmless 
policy was implemented to avoid jeopardizing the financial feasibility 
of existing housing projects in instances where program rents were tied 
to Section 8 income limits. Under the hold-harmless policy, Section 8 
income limits would be maintained until such a time as income limit 
calculations produced increases.
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    \1\ Section 3(b)(2) of the United States Housing Act of 1937 (42 
U.S.C. 1437a(b)(2)) (1937 Act) provides for assisted housing for 
``low-income families'' and ``very low-income families,'' and 
defines these terms as families whose incomes are below 80 percent 
and 50 percent, respectively, of the median family income for the 
area with adjustments for family size. These income limits are 
referred to as ``Section 8 income limits'' because of the historical 
and statutory links with that program, although the same income 
limits are also used as eligibility criteria by several other 
Federal programs. The 1937 Act specifies conditions under which 
Section 8 income limits are to be adjusted either on a designated 
area basis or because of unusually high or low family incomes or 
housing-cost-to-income relationships. Section 8 income limits are 
calculated using Section 8 Fair Market Rent (FMR) area definitions, 
which in turn are based on Office of Management and Budget 
metropolitan statistical area definitions.
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    The primary Federal housing programs that rely on Section 8 income 
limits other than the Section 8 Voucher program are multifamily tax 
subsidy projects (MTSPs) financed with low-income housing tax credits 
(LIHTCs) under section 42 of the Internal Revenue Code of 1986 (IRC) 
and tax-exempt private activity bonds under section 142 of the IRC. 
Under these programs, maximum rents for units in MTSPs are generally 30 
percent of the HUD-published Section 8 income limit for a four-person 
household, adjusted by the number of bedrooms in a unit. MTSPs use of 
Section 8 income limits to determine rents was HUD's principal reason 
for establishing the hold-harmless policy; otherwise, when Section 8 
income limits fall, the maximum rent that private owners can charge 
low-income tenants in the MTSPs falls, which may place a financial 
strain on existing MTSPs. MTSP rents, however, are now protected from 
falling under the Housing and Economic Recovery Act of 2008 (Pub. L. 
110-289, approved July 30, 2008) (HERA).
    HERA eliminates the need for HUD to continue its hold-harmless 
policy for the benefit of MTSPs. Specifically, Section 3009 of HERA 
amended IRC section 142(d) (26 U.S.C. 142 (note)) by implementing a 
statutory project-level hold-harmless provision for existing MTSPs. The 
provision applies to all MTSP projects and is not limited to projects 
benefiting from the HUD hold-harmless policy. As a result of this 
provision, determinations of area median gross income with respect to 
the project may not be less than the determination with respect to the 
project made for the preceding year. Section 3009 also provides 
additional

[[Page 27565]]

relief for MTSPs in areas where HUD modified its methodology to include 
additional data in its calculation of area median gross income. For 
these ``HUD hold-harmless impacted projects,'' the area median gross 
income will be the greater of the amount determined without regard to 
this provision or the 2008 determination, plus any increase after 2008. 
MTSP income limits as specified by Section 3009 are available at https://www.huduser.org/portal/datasets/mtsp.html.
    Since other Federal programs use Section 8 income levels to 
determine program eligibility, the September 14, 2009, notice requested 
public comment on whether HUD should discontinue its hold-harmless 
policy. Other Federal programs that use the Section 8 income levels 
include, but may not be limited to, the Department of Treasury's tax-
exempt Mortgage Revenue Bond program for Homeownership Financing; the 
Department of Agriculture's Rental and Ownership Assistance programs; 
the Federal Deposit Insurance Corporation's Disposition of Multifamily 
Housing to Non-profit and Public Agencies and the Disposition of Single 
Family Housing; the Federal Housing Finance Agency's Rental Program 
Funding Priorities and Homeownership Funding Priorities; the Veterans 
Administration's Eligibility for Disability Income Support Payments; 
and the HUD-administered, governmentwide Uniform Relocation Act (42 
U.S.C. 4601, et seq.) to determine the extent of replacement housing 
assistance. Applicable income limits are modified to meet the 
requirements of each of these programs, but each starts with the 
Section 8 very low-income limit that incorporates high and low housing 
cost adjustments and the State nonmetropolitan median as the basis for 
a minimum.
    Finally, the September 14, 2009, notice stated that determinations 
of Difficult Development Areas (DDAs) under section 42 of the IRC would 
be affected by the decision to discontinue the hold-harmless policy. 
HUD also requested public comment on whether the hold-harmless policy 
should be maintained with respect to Section 8 income limits used for 
calculating HOME program rents. HUD noted that maintaining the hold-
harmless policy for HOME program rents would prevent such rents from 
falling in areas where incomes may be falling, while discontinuing the 
hold-harmless policy with respect to eligibility requirements would 
help target HOME funds for use by families with lower incomes and 
greater need.
    The September 14, 2009, notice was corrected by a notice published 
on October 7, 2009, (74 FR 51615), which also extended the public 
comment deadline to November 6, 2009. As discussed later in today's 
notice, HUD has considered the comments filed in response to these 
Federal Register publications.

II. Discussions With Federal Programs

    HUD's Office of Policy Development and Research discussed whether 
to eliminate its hold-harmless policy for Section 8 income limits with 
each HUD program director and all other Federal agencies that use 
Section 8 income limits for rent and income eligibility. For its HOME 
program, which is not included within the statutory hold-harmless 
provision provided by HERA, HUD determined that rents will be held 
harmless, but that income limits will be allowed to fluctuate with the 
market. In discussions with the Internal Revenue Service, it was 
clarified that existing MTSPs would be protected from future rent 
declines and that it was appropriate to allow declines in income 
eligibility for both multi-family and single family tax credits. The 
Department of Agriculture's Rural Housing Service requested that HUD 
continue its hold-harmless policy, which is based on some unique area 
definitions. No other Federal agency provided HUD with substantive 
comment regarding its plans to modify the hold-harmless policy. 
Additional details about the specific income limits used by each of 
these programs can be found at: https://www.huduser.org/portal/datasets/il/il09/IncomeLimitsBriefingMaterial_FY09.pdf.

III. Overview of Key Public Comment Concerns

    By the close of the public comment period on November 6, 2009, HUD 
received a total of 32 public comments. Most were opposed to the 
elimination of hold harmless for Section 8 income limits. The most 
common reason expressed for the opposition to the elimination of the 
hold-harmless policy was that many affordable housing developments use 
Section 8 income limits to set rents and the possibility of lower rents 
for these projects would be detrimental to existing and future project 
development; existing projects would be at risk for financial default, 
while future projects would have difficulty securing financing. One 
commenter noted that few tenants would benefit from discontinuing the 
hold-harmless policy, based on the impact to Section 8 tenants as cited 
by HUD in its notice. Many commenters, while preferring that HUD 
publish only one hold-harmless income limit per area, recognized the 
need for income limits that are not held harmless in programs where HUD 
provides direct rental assistance. As a result, these commenters 
recommended that HUD issue two sets of income limits; one for direct 
rental subsidies, and one for all affordable housing programs, 
regardless of the ``placed-in-service'' date. HUD considered these 
comments, but finds that it has no authority to establish income limits 
for all affordable housing programs such as those funded with city/
county levy, State housing trust funds, or other sources that may be 
contractually tied to Section 8 income limits. HUD's authority to 
produce individual program income limits covers: Section 8 programs; 
MTSP income limits for HUD Hold-Harmless Impacted Projects as defined 
in HERA; the HOME and Community Development Block Grant (CDBG) 
programs, which use parallel language in establishing income limit 
methodology, rather than incorporating Section 8 income limits by 
reference; and, through statutory consultation requirements, the 
Department of Agriculture's Rural Housing Service programs. To ensure 
clarity in future estimates, HUD will reference the specific programs 
for which the different published income limits will apply.
    Some commenters noted the impact of HUD's proposed policy on the 
purchase of single-family homes using tax-exempt mortgage revenue 
bonds. This program is governed by Section 143 of the IRC and was not 
amended by HERA. Section 8 income limits are used to determine income 
eligibility for this program. One commenter noted that this is not the 
time to limit the pool of eligible families who can take on the rigors 
of homeownership, which elimination of the hold-harmless policy may do. 
Commenters from a rural State questioned HUD's reliance on American 
Community Survey (ACS) income data, noting instances where some 
counties are not covered by the 3-year ACS data. These commenters 
assert that small rural states are disproportionately impacted by data 
changes. To address these concerns, HUD has decided to impose a cap on 
the annual decreases in income limits of a maximum of 5 percent or, in 
the case of increases, 5 percent or twice the change in national median 
family income, whichever is greater. Additionally, beginning with 
income data used to develop FY 2011 income limits, HUD will use 5-year

[[Page 27566]]

ACS, data which will cover even the smallest areas.
    Nine of the 24 comments filed by State or regional agencies or 
developers or their representatives were from the Northwest/Alaska 
region (HUD Region 10). Commenters included State housing finance 
commissions, housing and community service organizations, and legal 
service agencies. The commenters did not identify unique regional, 
State, or local programs that would be affected more than other states 
or regions. They claimed, however, that properties funded with HOME, 
CDBG, city/county levy, or State housing trust funds will face serious 
cash flow issues if the hold-harmless policy is eliminated. These 
commenters requested that HUD do whatever necessary, including seeking 
legislation, to give all these programs the same hold-harmless income 
limit, irrespective of the ``placed-in-service'' date. As noted, 
however, HUD is required to implement Section 3009 of HERA, which gives 
MTSPs different income limits based on the placed-in-service date. 
Projects that were held harmless in 2007 or 2008 are eligible for 
increases in income limits based on increases in the median family 
income. Projects that were not held harmless in 2007 or 2008 or were 
placed-in-service after that date do not qualify for this increase. 
HUD's authority to produce individual program income limits covers: 
Section 8 programs; MTSP income limits in HUD Hold-Harmless Impacted 
Projects as defined in HERA; the HOME and CDBG programs, which use 
parallel language in establishing income limit methodology rather than 
incorporating Section 8 income limits by reference; and, through 
statutory consultation requirements, the Department of Agriculture's 
Rural Housing Service programs.
    A joint comment was filed by several public interest and trade 
groups recommending that HUD delay eliminating hold harmless for the 
Section 8 income limits, because legislative and regulatory changes are 
required for programs not protected by HERA to mitigate the impact on 
the financial stability of new projects and protect those in planning 
phases. The commenters asserted that HUD must amend its regulations to 
allow rent stabilization in the HOME program. The commenters also 
stated that eliminating the hold-harmless policy would, for the 
Mortgage Revenue Bond program, which provides below-market interest 
rate mortgages to moderate-income first-time homebuyers, and the 
Neighborhood Stabilization Program (NSP), which assists households 
within a range of incomes, place grantees in violation of the 
respective programs' requirements if income limits decline. Moreover, 
the commenters noted that the elimination of hold harmless would be 
exacerbated by applying it when incomes are declining and recommended 
that HUD delay any policy change until the income data no longer 
reflect declines from the recession, which the commenters estimated 
will be by the FY 2012 income limits. As noted in this notice, however, 
HUD has determined that rents used in the HOME program will continue to 
be held harmless, precluding a need for regulatory change. The NSP 
program relies on elements of both the HOME and CDBG program for 
continued affordability. To the extent that an NSP grantee chooses to 
apply HOME rents, they will be held harmless under the HOME program. 
HUD will review issuing appropriate transition guidance for CDBG 
grantees, including NSP grantees that choose to develop their own 
continued affordability policies. The possible destabilization of 
neighborhoods that fall out of compliance when income limits fall will 
be limited by the cap of the maximum of 5 percent, and by changes in 
program implementation that limit the eligibility determination to a 
specific date, thereby preventing areas from falling out of compliance.
    Another commenter opposed the elimination of the hold-harmless 
policy because there will not be a minimal impact from the elimination 
for the Section 8 rental assistance program, as stated in the original 
and revised Federal Register notices on this policy. The commenter 
noted that changes in the boundaries of its metropolitan area magnify 
the impact of change in this change of policy. HUD will address this 
issue by the implementation of caps and floors on the annual percentage 
change in income limits.
    Several other commenters strongly supported the elimination of the 
income limits hold-harmless policy. One commenter noted that it has 
worked hard to formally decouple the LIHTC program from the HUD Section 
8 income limits. A second stated that the core users of income limits 
are Housing Choice Voucher, Section 8 project-based, and Public Housing 
programs and that this change will have little impact on these 
programs. Both commenters stated that the current hold-harmless policy 
does not protect tenants from artificially high rents and stressed that 
renters' interests also should be considered. The commenter also stated 
that income limits should be relatively stable because the ACS is 
capable of producing frequent updates. In the past, most major changes 
occurred from rebenchmarking income data from the decennial census. 
With income data collected annually by the ACS, this should not occur. 
Both commenters suggest mediating the impact of eliminating the hold-
harmless policy by limiting annual changes; one proposed a cap in 
changes of up to plus or minus 5 percent, while the second recommended 
an amount equal to double the change in the median family income.

IV. Discussion of Public Comments

    Comment: The hold-harmless policy should be eliminated because 
doing so will have little to no impact on existing program participants 
or housing providers. One commenter stated that the Housing Choice 
Voucher, Section 8 project-based, and Public Housing programs are the 
core users of the income limits, and that the only impact of the 
elimination of the hold-harmless policy on those programs will be to 
lower the eligible income eligibility for applicants being admitted to 
the program in a given year and only in those jurisdictions that 
experience a measured decline in income. It will have little to no 
impact on existing program participants or housing providers.
    HUD Response: HUD agrees that the hold-harmless policy should be 
eliminated in order to provide better income targeting for affordable 
housing.
    Comment: Eliminating the hold-harmless policy will allow target 
thresholds to be set more accurately. According to one commenter, the 
hold-harmless policy has inflated income limits making eligibility and 
targeting levels artificially high. Elimination of the policy would 
allow voucher, project-based Section 8 and public housing eligibility 
and targeting thresholds to be established more accurately, thereby 
better directing assistance to families with the income level that 
Congress intended to help.
    HUD Response: HUD agrees that elimination of the hold-harmless 
policy will allow a more accurate targeting of assistance to the 
families that Congress intends to help.
    Comment: The hold-harmless policy should be eliminated because it 
is no longer needed due to the enactment of HERA. The commenter stated 
that, given HERA, HUD's policy of maintaining artificially high income 
limits can no longer be justified. The hold-harmless policy increases 
the number of households eligible for Public Housing and Section 8 
Voucher programs, and more importantly, undercuts the statutory mandate 
that

[[Page 27567]]

these programs be targeted to those households with the lowest incomes, 
which are most in need of housing assistance. Discontinuing the hold-
harmless policy will make it more likely that Federal housing programs 
will target persons and communities with the most need as Congress has 
intended, the commenter stated.
    HUD Response: HUD agrees that HERA eliminated the principal basis 
for the income limits hold-harmless policy. It is HUD's intent to 
target affordable housing resources using the most accurate 
information. Eliminating the hold-harmless policy will prevent income 
limits in certain areas from being established at artificially high 
levels and, as a result, ensure that HUD can better target affordable 
housing resources.
    Comment: The hold-harmless policy should be eliminated because 
manipulating calculations of Area Median Income (AMI) is ill advised. 
One commenter stated that the hold-harmless policy used in calculating 
income limits under Section 8 should be eliminated because the efforts 
to mitigate the negative impacts of the use of AMI, by manipulating 
data, only serve to complicate operations unnecessarily. When the 
impact of the mitigations result in calculations of AMI that are higher 
than what is derived from the data from the Census and the ACS, low-
income tenants wind up bearing a heavier rent burden without the 
benefit of any of the artificially inflated income. These side effects 
raise serious questions about the appropriateness of the hold-harmless 
policy as a remedy, the commenter stated.
    HUD Response: HUD agrees that the hold-harmless policy can be 
detrimental to low-income renters in MTSPs where tenant rents are based 
on income limits rather than individual tenant incomes and who must pay 
rents based on artificially inflated income limits.
    Comment: The hold-harmless policy should be maintained in order to 
avoid an increased administrative burden. Several commenters stated 
that the hold-harmless policy should be maintained in order to avoid 
increased administrative burden for owners, property managers, and 
State and local agencies. If HUD discontinued the hold-harmless policy, 
projects funded from multiple sources will have two sets of income and 
rent limits. Some commenters stated that implementation of MTSP and 
HERA special income limits for tax-credit and bond-financed properties, 
and a separation from Section 8 income limits, while well intentioned, 
would create a massive administrative problem affecting public funders, 
owners, property managers, and residents of affordable housing. Another 
commenter stated that for years, housing advocates have worked to make 
other HUD programs compatible with the IRS Section 42 Tax Credit 
Program and that requiring alternative income limits would impede these 
efforts.
    HUD Response: HUD does not agree that the removal of the hold-
harmless policy would create substantially more administrative burden 
for MTSPs. Project managers and MTSP compliance monitors would still 
need to observe HUD's annual releases of new income limits to determine 
if they are eligible for income limit and rent increases. The 
comparison point will be different. Rather than looking at HUD's 
previous year's income limits for their area, project managers and MTSP 
compliance monitors will need to compare the new income limits to the 
income limits projects are operating under currently to see if they are 
eligible for an increase in income limits and rents. This information 
should be readily available. The statutory hold-harmless provision in 
HERA prevents income limits and rents from ever falling below the 
highest levels the project ever operated under. Eliminating the Section 
8 income limit hold-harmless policy does not mean that rents for MTSPs 
will decline over the life of a project.
    Comment: If the hold-harmless provision is eliminated, fewer 
affordable housing projects will be built. Several commenters stated 
that without hold-harmless protection, the result will be fewer overall 
projects being built, and an underwriting volatility that is 
counterproductive to HUD's overall mission to build affordable housing. 
Reducing the rent-supported underwriting structure of these 
developments would make it virtually impossible to finance many new 
projects. These commenters stressed that eliminating the provision will 
make it more difficult for lenders to underwrite affordable housing, 
which will reduce the amount of affordable housing, and that the hold-
harmless policy has enabled banks and investors to finance the 
development of mixed-income communities that include units to serve the 
very low-income.
    HUD Response: Maintaining Section 8 Income Limits at artificially 
high levels is not a sustainable way to encourage development of 
affordable housing. Furthermore, rents for the HOME program and rents 
for MTSPs will not be allowed to decline once the projects are placed-
in-service, so underwriters need not worry about rents decreasing in 
operating projects. Other programs with rents tied to the Section 8 
income limits will have to institute their own regulatory changes to 
prevent rent decreases over the life of a project, or will have to 
allow declines commensurate with the market. HUD will limit any decline 
in income limits to the maximum of 5 percent or, in the case of 
increase, 5 percent or twice the change in national median family 
income, whichever is greater, to reduce the potential administrative 
impact in determining income eligibility and to further provide greater 
certainty regarding revenue stream concerns.
    Comment: Eliminating the hold-harmless policy would threaten the 
economic viability of thousands of properties nationwide that have rent 
limits contractually tied to Section 8 income limits. According to 
several commenters, suspension of the hold-harmless policy for Section 
8 income limits would create unintended negative consequences for low-
income housing tax-credit, bond, and other affordable housing projects 
that mix Federal, State, and/or local funding to create affordable 
rental housing serving the lowest incomes. Several commenters stated 
that they understood HUD's reasons for changing its hold-harmless 
policy for the Section 8 program and its desire to have a separate set 
of limits for Section 8 that accurately reflect area incomes. However, 
properties funded with HOME, city and county funds, and State Housing 
Trust Funds have rent limits contractually tied to Section 8 income 
limits. CDBG affordable rent policies are set at the local level, by 
each grantee, and are likely to be tied to the Section 8 income limits. 
If HUD changes the hold-harmless policy, these commenters stated, the 
result would be decreased rental income for properties that remain tied 
to Section 8 program limits and properties using Section 8 income 
limits would face serious cash flow problems. Such a decrease in rental 
income would result in insufficient cash flow so owners will defer 
maintenance on buildings, causing the rate of foreclosure to increase.
    HUD Response: HUD has decided to hold-harmless the rents for 
properties funded with HOME, but not the income limits to determine 
eligibility. HUD will consider issuing transition guidance for CDBG 
grantees that have linked rents to Section 8 income limits. HUD's 
authority to produce individual program income limits covers Section 8 
programs; MTSP income limits in ``HUD Hold-Harmless Impacted 
Projects,'' as defined in HERA; the HOME and CDBG programs, which use 
parallel language in establishing income limit

[[Page 27568]]

methodology rather than incorporating Section 8 income limits by 
reference; and, through statutory consultation requirements, the 
Department of Agriculture's Rural Housing Service programs. 
Administrators of city, county, or State housing subsidy programs using 
Section 8 income limits to establish eligibility and/or rents should 
establish their own hold-harmless policies, if needed and desired. HUD 
wants to serve more low-income residents and target its funds 
appropriately, while serving the affordable housing market.
    Comment: Eliminating the hold-harmless policy will put many 
affordable multifamily properties that receive HOME and CDBG funds at 
risk. One commenter stated that many of the assets in the current 
housing stock of affordable multifamily properties could be put at risk 
as a result of the proposed policy change because the change would 
affect the level of income used to qualify tenants and the maximum 
rents charged in both tax-credit and other projects that receive HOME 
and CDBG funds. These projects are required to adhere to the more 
restrictive income guidelines and rent levels issued by HUD's Office of 
Community Planning and Development.
    HUD Response: HUD has evaluated the impact of this policy on its 
programs and for projects funded by HOME and CDBG funds. HUD believes 
that holding the HOME rents harmless and issuing appropriate transition 
guidance, if necessary, for CDBG projects will sufficiently protect 
these projects.
    Comment: This notice disregards the negative impact this proposal 
will have on the future development of MTSPs. Despite the fact that 
existing MTSPs are protected by HERA, the ability to develop and 
rehabilitate new housing through MTSPs will be negatively impacted by 
HUD discontinuing its hold-harmless policy, stated one commenter. 
According to the commenter, MTSP underwriting is based on the maximum 
rent potential, which is derived from the HUD very-low (50 percent) 
income limits. Currently, developers are assured that their rent 
potential will not decrease arbitrarily. Rents are also affected by 
increased utility costs. Removing the hold-harmless policy would impact 
future development and add more risk to a development scenario where 
rents often do decrease as utility costs increase.
    HUD Response: An MTSP unit determines maximum rents based on income 
limits, irrespective of the market rate for rent or utilities or the 
tenant's actual income. Currently, the rent potential is based on the 
determination of what people can afford. Incomes do go up and down and 
rents do go up and down. This is not arbitrary, but is driven by market 
forces. Utilities rates go up and down as well, though these costs may 
or may not be included in all project rents. The decrease of rents when 
utilities increase is not a certainty and is of no concern for the 
MTSPs since the rents are not based on either factor; they are based on 
incomes.
    HUD acknowledges that the uncertainty in the projected revenue 
stream is increased in the planning phase by eliminating the hold-
harmless policy. Developers will have to manage this risk. HUD will 
limit the uncertainty in the projected revenue stream by imposing a cap 
on annual decreases to the maximum of 5 percent or, in the case of 
increases, 5 percent or twice the change in national median family 
income, whichever is greater. This cap, along with the use of the 5-
year ACS data beginning with the FY 2011 Section 8 income limits, will 
dampen the annual changes and should reduce risk. Once the project is 
placed-in-service, HERA eliminates the risk of declining income limits.
    Comment: MTSP projects should be held to the same hold-harmless 
standard for both incomes and rents. New development projects are 
underwritten to the lowest rents among all proposed funding sources, 
thus no one program will benefit from having a higher hold-harmless 
rent if other program rents are not held to that same standard, stated 
two commenters. Having different income and rent standards also makes 
it more difficult for project owners and agency staff to do long-term 
compliance monitoring. For new development projects, both incomes and 
rents should be held harmless according to the limits in place when the 
reservation of tax credits or the award of Federal funds is made for 
the project, whichever is later in time, stated one commenter. Both 
commenters stated that maintaining income limits at levels in place the 
year the project is underwritten prevents projects from becoming 
infeasible, due to declines in rents that may occur between the time 
the funds are reserved for a project and the project's loan closing or 
placed-in-service date.
    HUD Response: Different income and rent standards were created by 
HERA. The hold-harmless policy HUD is instituting for HOME rents is 
comparable to MTSPs that are not HUD Hold-Harmless Impacted Projects as 
defined in HERA. These HERA-defined rents are higher, and HUD has no 
authority to go back and grant these rents to projects funded under 
HOME. HUD's authority to produce individual program income limits 
covers: Section 8 programs; MTSP income limits in HUD Hold-Harmless 
Impacted Projects as defined in HERA; the HOME and CDBG programs, which 
use parallel language in establishing income limit methodology rather 
than incorporating Section 8 income limits by reference; and, through 
statutory consultation requirements, the Department of Agriculture's 
Rural Housing Service programs. For rental housing subsidy programs 
that rely on Section 8 income limits for establishing eligibility and/
or unit rents that are administered by State and local governments, 
administrators should establish a hold-harmless policy if desirable to 
do so. While HUD agrees that it makes sense for the income/rent level 
of a new MTSP to be established at the time of the loan's closing and 
not subject to the risk of changes between the loan closing and the 
placed-in-service date, HUD has no authority over this policy. HUD 
advises developers to underwrite MTSPs under a ``worst-case scenario'' 
of a 5 percent decline from current income limits and maximum rents to 
ensure that if such a change occurs, the project will be able to go 
forward. Such an approach has the added benefit of widening the pool of 
eligible low-income renters, should the income limits either not 
decline, or decline by an amount smaller than 5 percent.
    Comment: The term ``existing MTSPs'' is unclear, and it is unclear 
if future MTSP developments will be protected by HERA. According to the 
commenter, it is not clear if the term ``existing MTSPs'' refers only 
to current developments, or if once a new MTSP is developed or 
rehabilitated, such developments are then considered ``existing'' and 
will have their income limits held harmless and not have to be 
concerned with future rent cap reductions. A second commenter asked if 
future MTSPs will be protected by HERA. The commenter saw no indication 
that future developments would be similarly protected.
    HUD Response: As new MTSPs come online, their unit rents and income 
limits are based on the currently applicable Section 8 income limits. 
For a given area, these income limits and rents may be lower than they 
were the previous year, but, going forward, a project's individual 
income limits will never decline; they will be held harmless for the 
life of the project at the highest level ever attained by the project. 
HUD views this as the clear intent of Congress in enacting the HERA 
hold-harmless provision.

[[Page 27569]]

    Comment: HUD's hold-harmless policy has provided certainty and 
predictability to housing finance agencies and programs. According to 
one commenter, an income limit decrease from one year to the next for 
single-family, first-time homebuyers served by housing finance agencies 
would be disruptive and result in confusion and misunderstanding on the 
part of homebuyers, Realtors, and originating lenders. The hold-
harmless policy has provided certainty and predictability to housing 
finance agencies and programs, stated the commenter.
    HUD Response: HUD is limiting the impact of any decrease in income 
limits to the maximum of 5 percent, to make such fluctuations less 
problematic. However, HUD is committed to removing the hold-harmless 
policy to improve targeting of all funds for affordable housing to 
those that are intended for it by Congress. Should median incomes 
continue to decline, AMIs will ultimately reach their natural level; 
HUD's current plan to cap decreases at the maximum of 5 percent only 
slows this process, it does not stop it. Housing finance agencies 
should explore their options with respect to implementing their own 
hold-harmless rent policies.
    Comment: Neither the intent nor the effect of the hold-harmless 
policy has been to maintain artificially high income limits. The hold-
harmless policy smoothes a generally upward trend of successive median 
family income estimates, preventing a pattern of temporary declines 
followed by large increases, stated a commenter. In turn, for some 
programs, this ensures that rent levels do not fluctuate significantly, 
either up or down, on a year-to-year basis, which is desirable and a 
reason to maintain the hold-harmless policy, stated the commenter.
    HUD Response: HUD agrees that the intent of its hold-harmless 
policy was not to maintain artificially high income limits, but that 
the effect, in some cases, has been just that. HUD will limit annual 
decreases to 5 percent and limit annual increases to 5 percent or twice 
the change in national median family income, whichever is greater, to 
limit changes up or down in Section 8 income limits. The current hold-
harmless policy allows for any increase, and there have been increases 
over 5 percent from time to time. Large increases are no better for the 
affordable housing program than large decreases. The use of 5-year ACS 
data beginning in FY 2011 will further smooth the trend in income limit 
changes.
    Comment: Investment in affordable housing properties will decline. 
According to some commenters, banks and investors will not invest in 
affordable housing properties where rental income may decline after 
their initial investment. Predictability and stability in income and 
expense projections are key underwriting considerations. Investors and 
lenders will not underwrite ventures where rental income may decline 
unpredictably, stated the commenters. Another commenter stated that 
without the assurance of stable rental income, banks and investors will 
no longer be willing to invest in the affordable housing industry, 
which will result in far fewer units being developed.
    HUD Response: Rental income will not decline over time; HOME and 
MTSP rents will not decline over the life of the project. HUD does not 
want to limit the production of affordable housing. HUD's goal with 
this change is to provide more manageable rent increases (by capping 
increases to the maximum of 5 percent, or twice the change in national 
median family income) and to allow decreases in income limits used to 
determine eligibility for programs (also of no more than the maximum of 
5 percent).
    Comment: Eliminating the hold-harmless policy would detrimentally 
affect the extremely poor. One commenter wrote that eliminating the 
hold-harmless policy would harm the extremely poor by causing them to 
live in a financially more tenuous and volatile project. Because 
eliminating the hold-harmless policy would put the financial stability 
of MTSPs at risk, the commenter stated, discontinuing the hold-harmless 
policy for future MTSPs would likely be disastrous for high-cost, high-
poverty cities. Another commenter stated that HUD's approach supports 
only projects that receive direct governmental rental subsidies, where 
lower incomes lead to lower tenant-share rents. In those cases, HUD 
will have to offset lower tenant share rents by larger Federal rental 
subsidies to preserve the fiscal operations and quality maintenance of 
the properties. The MTSP programs do not have such a rental subsidy 
fallback option.
    HUD Response: HUD disagrees that extremely low-income tenants 
(defined as those at 30 percent of the median family income) will be 
required to take up tenancy in financially more tenuous and volatile 
projects because extremely low-income tenants are already priced out of 
MTSPs and, for the most part, require Section 8 vouchers for 
assistance. Additionally, as already stated, MTSPs will not be made 
more tenuous or volatile by HUD's proposed policy.
    Comment: HUD cannot impose independent hold-harmless policies on 
the HOME program. Commenters stated that HUD cannot impose independent 
hold-harmless policies on rent income limitations or maximum rents in 
the HOME program without going through the official rule-making 
process. The regulations governing income targeting and maximum rent in 
rental programs for the HOME program at 24 CFR part 92 provide specific 
formulae and specific conditions under which the formulae may be 
altered, and a hold-harmless policy is not listed as legitimate grounds 
for alteration, stated a commenter.
    HUD Response: HUD does not believe that a regulatory change is 
required in order to institute a hold-harmless policy for HOME rents.
    Comment: A hold-harmless policy that is independent of the Section 
8 income limits cannot be applied to the Treasury Department's Tax-
Exempt Mortgage Revenue Bond Program without a legislative change. 
According to one commenter, allowing income limits to decline from one 
year to the next would cause problems in particular states, including 
confusion and resentment among potential buyers and administrative 
burdens for State agencies. Moreover, the commenter stated, section 
143(f) of the IRC specifies that the 115 percent limitation on incomes 
of mortgagors under the MRB program be based on area median gross 
income, taking into account the regulations prescribed under Section 8 
of the United States Housing Act of 1937. Therefore, a hold-harmless 
policy that is independent of the Section 8 income limits cannot be 
applied to the MRB program without a legislative change.
    HUD Response: This issue was discussed with the IRS, and HUD was 
advised that the intent of Congress is better followed by allowing 
Section 8 income limits to decline. Once a borrower closes a loan 
financed with bonds issued under section 143 of the IRC, the borrower 
is not subject to eligibility reconsideration, because the borrower's 
income has increased or the applicable income limit has decreased. The 
intent of this program is to target a certain income category, and the 
hold-harmless policy obfuscates this income category.
    Comment: It would be premature to remove a general hold-harmless 
policy from the income limits for the NSP. The commenter stated that 
after foreclosed properties have been purchased and repaired using NSP 
grants, these

[[Page 27570]]

properties must be used to assist households with incomes at or below 
120 percent of the area median income. There is an additional 
requirement that 25 percent of the funds be used for households with 
incomes at or below 50 percent of area median income. If income limits 
decline after the 120 percent and 50 percent criteria for the NSP 
program have been properly documented, as could happen in the absence 
of a hold-harmless policy, NSP grantees in certain areas would be in 
violation of the NSP requirements. None of the issues that a temporary 
decline in income limits would cause in the NSP have been addressed in 
Federal Register notices or materials posted on the HUD Web site, 
stated the commenter.
    HUD Response: As the commenter noted, most of this money has been 
allocated and the rest will be shortly. HUD will review issuing 
transition guidance for CDBG programs, including NSP, which will 
appropriately ensure eligibility over the life of a project to which 
assistance has already been provided.
    Comment: Small states are impacted disproportionately by data 
changes. One commenter stated that the proposed change to the hold-
harmless policy will create some unintended consequences. The commenter 
noted that the slightest change in sample sizes, counts, and 
methodological updates have a greater impact on small states, like her 
own. HUD changes its methodologies for calculating income limits with 
regularity. These changes can turn a steady stream of income levels 
into a dramatic shift, thereby lowering eligible income levels for 
housing programs from year to year, stated the commenter.
    HUD Response: A careful reading of HUD's methodology documentation 
will show that HUD is doing everything justifiable to smooth out survey 
error fluctuations in its estimation and update processes. For example, 
the ACS data used in the income limit process is generally an update 
factor. As such, large changes are already limited. A survey estimate 
must pass stringent statistical tests before it is used. In addition, 
beginning with FY 2009 income limits, 3-year ACS data is used in this 
update process, so the sample size is not that small (estimates are 
available for areas as small as 20,000 persons). For the FY 2011 income 
limits, 5-year data will be used, which will further limit any 
fluctuations and will be the most comprehensive survey covering all 
geography for which income limits are set. Also, HUD will limit annual 
decreases to the maximum of 5 percent or, in the case of increases, 5 
percent or twice the change in national median family income, whichever 
is greater, so that large changes from year to year will be extremely 
rare.
    Comment: Many State and local governments have already incorporated 
HUD's AMIs into their own programs. A commenter stated that the 
existing hold-harmless policy with respect to AMI should be maintained 
because many State and local governments have incorporated HUD's AMIs 
into their own programs. Owners sign long-term contracts to limit rents 
to specified percentages of the established AMI. According to the 
commenter, such programs were designed by cities with the understanding 
that owners would not be faced with rent rollbacks when AMI estimates 
decreased. It is not clear how such provisions, which rely on HUD AMI, 
can be adjusted for rent reductions. The simplest way to maintain 
governmentally assisted rental properties is to maintain the existing 
hold-harmless policy with respect to changes in AMI, concluded the 
commenter.
    HUD Response: State and local government program rents are 
calculated by the city or State agency that is administering the 
program. These rents can and should be held harmless for the life of a 
project, just as HUD is doing for the HOME program and HERA does for 
the MTSP program. The city or State agencies may impose their own hold-
harmless rules when calculating rents.
    Comment: HUD should ask Congress to enact legislation. Several 
commenters recommended that HUD ask Congress to enact legislation that 
would allow HUD to publish income limits that extend the hold-harmless 
provisions just granted to LIHTC projects under HERA, to all 
multifamily affordable housing units that utilize Federal funding, 
except units that receive direct HUD Section 8 rental subsidy.
    HUD Response: HUD believes that all Federal rental subsidy programs 
that set rents according to some version of the Section 8 income limits 
are covered by an appropriate hold-harmless arrangement, so that such 
legislation is not necessary. MTSP programs are covered by the hold-
harmless provisions of HERA; HUD will hold rents in HOME projects 
harmless and review issuing appropriate transition guidance for the 
CDBG program. HUD has a hold-harmless agreement with the Department of 
Agriculture's Rural Housing Service program that will continue.
    Comment: HUD should consider a policy that slows adjustments. One 
commenter stated that changes in Census geography or HUD methodology 
may still lead to significant swings in HUD's estimates of area median 
income from year to year. If HUD chooses to implement a policy to 
mediate the impact of any potential swings in income limits, the 
commenter encouraged HUD to consider a policy that slows adjustments. 
Such a policy, if properly designed, would provide owners, program 
administrators, and tenants with a measure of security. A second 
commenter stated that there is a reasonable case for special 
protections against volatility in the income limits used for certain 
purposes, such as setting HOME rent caps. The commenter encouraged HUD 
to establish balanced protections that prevent both rent declines, 
which would harm owners in the HOME program, and sharp increases, which 
would harm tenants.
    HUD Response: HUD agrees that large increases or decreases in 
Section 8 income limits should be avoided and, therefore, it will 
impose a cap on annual decreases to the maximum of 5 percent or, in the 
case of increases, 5 percent or twice the change in national median 
family income, whichever is greater. The hold-harmless policy did not 
limit large increases and this did prove harmful to tenants.
    Comment: HUD should impose only two sets of income limits. Several 
commenters suggested that if HUD will not continue to use the hold-
harmless provision, it should consider imposing two sets of income 
limits: Section 8 Rental Subsidy limits that apply only to units with 
direct rental subsidy and Multifamily Subsidy Program Limits that apply 
to all other affordable housing programs that employ the hold-harmless 
provision. Imposing two sets of limits would simplify income limits for 
residents, property managers, and developers and fulfill the purpose of 
the HERA legislation.
    HUD Response: HUD believes that the elimination of the hold-
harmless policy for Section 8 income limits does fulfill the intent of 
HERA. In HERA, it was the intent of Congress to grant MTSPs project-
level hold-harmless income limits to determine income eligibility and 
maximum rents, and it was the intent of Congress to eliminate the 
Section 8 income limit hold-harmless policy so that MTSPs that go into 
service in the future can be based on higher or lower income limits, as 
warranted by data.
    Comment: HUD should publish income limits and apply them to all 
affordable housing programs with the exception of units with Section 8 
rental subsidy. Several commenters, in connection with the previous 
comment,

[[Page 27571]]

stated that HUD should publish Multifamily Subsidy Income Limits or 
HERA HUD Hold-Harmless Impacted Projects Income Limits for any given 
county or metropolitan area and apply such limits to all affordable 
housing programs, with the exception of units with Section 8 rental 
subsidy. The commenters stated that this proposal would prevent 
properties funded with HOME, CDBG, city/county levy, State Housing 
Trust funds, and other sources contractually tied to Section 8 limits 
from facing the serious cash flow issues that will occur if HUD 
eliminates the hold-harmless policy, as currently proposed.
    HUD Response: Congress did not grant all existing and future MTSPs 
the ability to use the HERA HUD Hold-Harmless Impacted Projects income 
limits, and it is outside HUD's authority to do so. HUD has no 
authority to establish income limits specifically for use by State or 
local government rental subsidy programs. For rental housing subsidy 
programs that rely on Section 8 income limits for establishing 
eligibility and/or unit rents that are administered by State and local 
governments, administrators should establish a hold-harmless policy if 
it is desirable to do so.
    Comment: HUD should create a streamlined waiver process. One 
commenter stated that HUD should create a streamlined waiver process to 
permit HOME-participating jurisdictions to quickly re-assist projects 
in cases where lower rents necessitate that projects receive more 
subsidy to remain financially stable. Increases in operating expenses 
over time, coupled with lower rent revenues resulting from loss of 
establishing hold-harmless income limits to current and lower levels, 
may result in new projects needing more subsidies to avoid becoming a 
troubled project.
    HUD Response: The HOME rents will not decline over the life of the 
project, so this action is not necessary.
    Comment: HUD should adopt a hold-harmless policy geared to HOME 
projects, which will be harmed if the hold-harmless policy is 
eliminated. The commenter wrote that HUD should adopt a hold-harmless 
policy to ensure that HOME rental projects have adequate rental 
revenues, but still require the sponsors of these projects to target 
vacant units to those households that fall within the Section 8 income 
limits. Another commenter stated that thousands of affordable housing 
developments assisted through the HOME program would be immediately 
placed in financial jeopardy. HOME projects are contractually bound by 
long-term commitments to maintain rent at levels tied to the AMI. 
Nearly all HOME developments use the 65 percent of AMI standard to set 
maximum rents. Without the hold-harmless provision, stated the 
commenter, HOME properties face the prospect of shrinking rental income 
revenue whenever area median income estimates are reduced. Owners of 
HOME projects will find it impractical to operate such critical 
development projects with reduced rental income. This change will have 
a chilling effect on future participation in the program.
    HUD Response: Rental income for HOME projects will not decline. 
HOME rents will be held harmless over the life of the project.
    Comment: Because the impact of removing the hold-harmless policy is 
so broad, the policy should not be changed until potential problems for 
specific programs have been resolved. The programs affected by removing 
the hold-harmless policy include HOME, the Treasury Department's Tax-
exempt Mortgage Revenue Bond program, the MTSPs not covered by the 
HERA-defined ``HUD Hold-Harmless Impacted Projects'' provisions, and 
the NSP established under both HERA and the American Recovery and 
Reinvestment Act of 2009. For the potential magnitude of the impact on 
various programs, the hold-harmless policy should not be changed until 
potential problems have been fully examined and resolved, one commenter 
stated. One commenter urged HUD to eliminate the hold-harmless policy 
only for Section 8 assistance and other direct rental subsidy programs 
or to postpone any decision to eliminate the hold-harmless policy until 
there has been more opportunity to consider and address its potentially 
negative consequences. Another commenter stated that HUD should have 
published how the proposed changes would affect actual jurisdictions, 
as it did on December 16, 2005, so that a more informed comment could 
be made. A 30 percent reduction in the AMI is not a modest decrease 
that will have a minimum impact on families. The commenter urged HUD to 
continue the hold-harmless provision for areas greatly impacted.
    HUD Response: HUD has analyzed the impact of this change on the 
HOME program, the NSP program, the single-family mortgage credit 
program (Section 143 of the IRC), and the MTSPs not covered by HERA-
defined ``HUD Hold-Harmless Impacted Projects'' provisions (and this 
includes the Tax Credit Program under Section 42 and Tax-Exempt Bonds 
program for multifamily units under Section 142), and discussed the 
impact throughout this notice. In short, project rents are protected 
from declines for the life of the project. Income eligibility for these 
programs can go down each year, but by no more than the maximum of 5 
percent, or up by no more than 5 percent or twice the change in 
national median family income, whichever is greater. HUD provided a 
State-by-State listing of areas that are currently held harmless.
    Comment: There are concerns about removing the hold-harmless policy 
at this particular time. The unusual macroeconomic conditions that 
currently prevail are likely to exacerbate problems for many housing 
programs in 2011, one commenter stated. If HUD continues to apply its 
current methodology, 2010 income limits will be based on the 2006-2008 
ACS estimates, and the 2011 estimates will be based on the 2007-2009 
ACS estimates. FY 2009 was an atypical year, combining a severe 
recession with a general deflationary trend. A weak Consumer Price 
Index (CPI) adjustment, combined with new income data from a recession 
year, will likely produce widespread declines in the next release of 3-
year ACS estimates and, therefore, in 2011 income limits. As a result, 
removing the hold-harmless policy will produce large declines in 2011 
income limits that will find many industry stakeholders unprepared, the 
commenter concluded.
    HUD Response: For clarification, it should be noted that the CPI is 
only used to adjust the timing of the ACS data; update factors are not 
generated using CPI. The Census Bureau adjusts the 3-year data used in 
the FY 2010 income limits to 2008. It is assumed this is a midpoint of 
the year, so HUD adjusts the data using the CPI to make the income 
limit data represent the end of the year. The 3-year ACS data released 
in 2011 will likely show declines, since the impact of the recession in 
2009 would be an important component of that data; however, HUD will be 
using 5-year data (2005-2009) for the FY 2011 income limits, so that 
the declines from 2009 will be mitigated. In addition, HUD will impose 
a cap of the maximum of 5 percent to limit reductions from year to 
year.
    Comment: HOME Program income limits should be held harmless in 
order to maintain compatibility with MTSP program limits. On the issue 
of whether the hold-harmless policy should be maintained for HOME rents 
but discontinued for HOME eligibility requirements, HOME is often 
combined with MTSPs. Conflicting eligibility requirements between HOME 
and

[[Page 27572]]

MTSPs have a strong tendency to create confusion. HOME income limits, 
should be held harmless in order to maintain compatibility with MTSP 
income limits, stated a commenter.
    HUD Response: Because of the special provisions in HERA for HUD 
Hold-Harmless Impacted Projects, HOME income limits will not be able to 
mimic the HERA Special MTSP income limits. For new projects, income 
limits will not be held harmless for either of these programs, so 
initially, they will be the same. Going forward, projects containing 
both HOME funds and MTSP financing will have to make a determination 
about how to evaluate eligibility for both incoming families and 
ongoing eligibility. These projects should consider specifying 
eligibility rules at the outset of the project.

V. Policy Decision

    Accordingly, HUD will eliminate the hold-harmless policy in 
estimating Section 8 income limits. Decreases to the Section 8 income 
limits from FY 2010 forward will be limited to the maximum of 5 
percent; increases will be limited to 5 percent or twice the change in 
national median family income increase or decrease, whichever is 
greater. This means, for example, that if the national estimate of 
median family income increased by 3 percent from the previous year, 
local income limits could change by up to 6 percent. The income limits 
for MTSPs will continue to follow the formulas set out in HERA. 
Specifically, HERA provides that area median gross income with respect 
to any project will be held harmless and not be less than the area 
median income for the preceding calendar year for which such 
determination is made. In addition, a different income limit 
determination formula specified by HERA for projects in areas held 
harmless in calendar years 2007 or 2008 applies if these limits would 
be higher than the limits calculated for MTSPs using HUD's regular 
methodology.\2\ Rents used in the HOME program will continue to be held 
harmless, although the income limits used to determine eligibility for 
HOME projects may decrease up to the maximum of 5 percent or increase 
up to 5 percent or twice the change in national median family income, 
per year, whichever is greater. The income limits for Rural Housing 
Service programs will continue their current hold-harmless policy, 
based on different area definitions; these income limits are provided 
directly to the Department of Agriculture.
---------------------------------------------------------------------------

    \2\ For a discussion of the special methodology, please see the 
FY 2009 MTSP Briefing Materials document available at https://www.huduser.org/portal/datasets/mtsp/mtsp09/MTSP_Briefing.pdf.
---------------------------------------------------------------------------

VI. Findings and Certifications

Environmental Review

    This notice involves a discretionary establishment of income limits 
and exclusions with regard to eligibility for or calculation of HUD 
housing assistance or rental assistance which does not constitute a 
development decision affecting the physical condition of specific 
project areas or building sites. Accordingly, under 24 CFR 5019(c)(6), 
this notice is categorically excluded from environmental review under 
the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

    Dated: May 10, 2010.
Raphael W. Bostic,
Assistant Secretary for Policy Development and Research.
[FR Doc. 2010-11638 Filed 5-14-10; 8:45 am]
BILLING CODE 4210-67-P