1. 1 Chapter 5. Calculation Problem Areas

2. 2 Chapter 5. Section 1. Introduction Learning Objective Understand and address those difficult aspects of rent calculation where errors are most likely to occur

3. 3 Introduction In this session, we will focus on the error- prone components of income and rent determination –Identified in HUD’s Policy Development and Research report, “Quality Control for Rental Assistance Subsidies Determinations” –Emphasized in RIM reviews

4. 4 Introduction Purpose of the chapter –Identify common errors –Examine reasons for errors –Practice the more difficult calculations We will not cover every facet of rent calculation

5. 5 Introduction Review of problem areas: –Employment income –Training program income –The earned income disallowance (EID) –Assets and asset income –Public housing rent calculation

6. 6 References Appendix A –Web Addresses (page A-1) –Training Program Income Notice (page A-5 through A-24) Appendix B –Regulation Excerpts (page B-1 through B-20) –PH Occupancy Guidebook Excerpts (page B- 21 through B-75)

7. 7 Chapter 5. Section 2. Employment Income

8. 8 Employment Income PD&R report found a 68% error rate for families with earned income (employment income) –88% for families with more than 1 source of earned income –Employment income is single strongest predictor of errors in rent calculation

9. 9 Employment Income Annual income from employment includes full amount, before payroll deductions, of: –Wages and salaries –Overtime pay, commissions, fees, tips and bonuses –Other compensation for personal services

10. 10 Employment Income Reported income will usually be in amounts over a period of time that are less than annual (hourly, weekly, bi-weekly, semi-monthly, monthly, etc.) –Hourly/full time: rate X 2080 –Weekly: amount X 52 –Semi-monthly: amount X 24 –Bi-weekly: amount X 26 –Monthly: amount X 12

11. 11 Verification Issues Most errors are caused by lack of adequate verification Either PHAs do not obtain third-party employment verification, or the verification is received but not used –Rent calculated using pay stubs –File not documented as to why third party was not available

12. 12 Verification Issues Learning Activity 5-1: (Page 5-5) Paystubs vs. Employer Statement? Purpose: Discrepancy Awareness –Part 1: Calculate annual income using paystubs (page 5-5 through 5-8) –Part 2: Re-calculate (page 5-8) using third- party verification completed by employer (page 5-9) –Part 3: Group discussion

13. 13 Unreported and Underreported Income Some families fail to report or underreport employment income –One common form of underreporting: reporting net earnings, not gross Use UIV to identify unreported employment Inform applicants and tenants of UIV sources to be checked –Encourages more accurate reporting

14. 14 Sporadic Income Temporary, nonrecurring, or sporadic income (including gifts) is not included in annual income Sporadic income is income that is neither reliable nor periodic

15. 15 Sporadic Income Example Daniel Morgan – receives Social Security Disability plus works as handyman occasionally Claims only worked a couple times last year (no documentation) Answer the three questions.

16. 16 Answer: Sporadic Income Does this fit description of sporadic income? –Yes, his earnings fit the category of nonrecurring, sporadic income How do you handle his working income? –Don’t include in annual income –Tell Mr. Morgan he must report any regular work or steady jobs he takes What type of documentation should the PHA have in Daniel’s file to support its decision? –Note in file explaining situation and its decision –UIV documentation if PHA has access

17. 17 Seasonal Employment People in some occupations regularly work less than 12 months per year –School employees –Agricultural workers –Construction trades There are 2 acceptable calculation methods

18. 18 Seasonal Employment Method 1: Annualize current income –Conduct interim reexam when income changes Method 2: Calculate anticipated income from all known sources for the entire year –No interim reexam –History of income from past years is needed Not useful when future income source is “unknown” or “none”

19. 19 Seasonal Employment: Example Marcy Walsh is currently employed as a tile setter with ABC Construction, earning $1000 per month For the last 4 years, she has worked this job for 6 months per year during the construction season During the other 6 months of each year, she works part-time at Domino’s Pizza, earning $400 per month

20. 20 Calculation: Sample Method 1 Multiply current income ($1000/month) times 12 months –$12,000 per year When the construction season ends, conduct an interim reexam –Multiply income from Domino’s ($400/month) times 12 months –$4800 per year

21. 21 Calculation: Method 2 Calculate anticipated income from all known sources for the entire year –ABC Construction: $1000 x 6 months = $6000 –Domino’s Pizza $ 400 x 6 months = +$2400 –TOTAL: $8400 NOTE: There is no interim reexam when Ms. Walsh changes jobs

22. 22 Incorrect Calculation of Method 1 If the PHA counted only the current income ($1000/month) times the anticipated length of the job (6 months), annual income would be calculated as $6000 –Family would pay less than TTP required by regulations –Common error

23. 23 Seasonal Employment PHA needs a written policy for this situation –Policy should be implemented consistently –Families with seasonal employment should be informed of policy If PHA adopts Method 1, family needs to know interim reexam will be conducted If PHA adopts Method 2, family needs to know interim reexam will not be conducted

24. 24 Chapter 5. Section 3. Training Program Income See Appendix for Training Program Income Notice (A-5) and CFR (B-15)

25. 25 Training Program Income HUD-Funded Training Program  Exclude all amounts received under the training program

26. 26 HUD-Funded Training The head of a tenant family receives $500 mo. in TANF. She enrolls in a HUD-funded training program operated by the PHA. TANF benefits stop. She receives $600 mo. while in the training program. Upon completion, she receives a job at the PHA earning $700 per month. What monthly income is counted during training? What is counted after completion? How long is income excluded? None $700 (All) During training only

27. 27 Other Training Program Income 5.609(c)(8)(v) –Exclude all incremental earnings and benefits resulting from participation in a qualifying State or local employment training program includes programs not affiliated with a local government no specific employment training programs cited

28. 28 Training Program Income To qualify, an employment training program must have clearly defined goals and objectives. PHAs may adopt written policies that establish standards for these programs.

29. 29 Training Program Income Training may include –Occupational classroom training –Subsidized on-the-job training –Basic education

30. 30 Training Program Income Incremental income: Increase in total amount of welfare, benefits, and earnings of family member after enrollment in training program as compared to income before enrollment Only the incremental increase is excluded.

31. 31 Training Program Income 5.609(c)(8)(v) –Exclude incremental earnings and benefits only while the family member participates in the employment training program

32. 32 Example of Other Training Program Income A family head receives $400 per month in TANF. He then enrolls in a qualified State employment training program and receives $550 per month in training income. TANF benefits stop. What income is counted? How long will income be excluded? $400 - the extra $150 is not counted While he remains in the training program

33. 33 Training Program Income Issues When new employment is reported, PHA needs to determine whether employment is part of a training program Notice PIH 2001-15 identified frequent errors in this component –Recommends educating tenants on eligible types of training programs Check data-gathering forms for questions

34. 34 Chapter 5. Section 4. Earned Income Disallowance See Appendix A for Website Address For FAQs on EID

35. 35 Earned Income Disallowance Effective 10/01/99 Final Rule –Effective date 4/28/00 Regulations: 24 CFR 960.255

36. 36 EID The EID calls for the exclusion of increases in income attributable to new employment or increased earnings over income received prior to qualifying for the disallowance. To qualify for the EID, a family must be receiving assistance under the PH program. –Applicant families are not eligible for the EID

37. 37 EID Qualifications Family must experience an increase in annual income as a result of one of the following 3 events...

38. 38 1.Employment by a family member who –Was “previously unemployed”* for one or more years prior to employment * definition includes a person who has earned not more than could be earned working 10 hrs/week, 50 wks/year, at established minimum wage OR…... Qualifications

39. 39 2. Increased earnings by a family member: –Whose increased earnings occurred during* member’s participation in an: economic self-sufficiency program job-training program * The increase in earnings must occur while the individual is enrolled in the program. Earned Income Disallowance

40. 40 HUD Definition of Economic Self-Sufficiency Program Any program designed to encourage, assist, train or facilitate economic independence of assisted families or to provide work for such families.

41. 41 HUD Definition of Economic Self-Sufficiency Program Economic self-sufficiency programs can include: job training employment counseling work placement basic skills training education English proficiency workfare financial or household mgmt apprenticeship activity necessary for work OR……...

42. 42 3. New employment or increased earnings by a family member who has received TANF benefits or services within past 6 months No minimum amount if TANF is received in form of monthly maintenance If TANF is received in form of one-time payments, wage subsidies, or transportation assistance, total received over 6 month period must be at least $500 EID Qualifications

43. 43 During initial 12 month exclusion period: –Exclude the full amount of increase in income attributable to employment or increased earnings Initial full exclusion period begins on the date qualified family member is: employed; or first experiences increase in income due to employment Initial full exclusion extends for a total of 12 cumulative months (don’t have to be consecutive months) EID Initial 12-Month Exclusion

44. 44 Determining The Incremental Increase Determine the annual income of the EID- qualified person prior to the qualifying change (earned and/or unearned) Calculate the annual income of the EID- qualified person after the qualifying change The difference is the incremental increase

45. 45 Example #1 Mary Jones had $4000 in TANF benefits at the time she became employed. She is earning $12,400 at her new job, and her TANF benefits have stopped. How much is the incremental increase?

46. 46 Example 1: Think it Through TANF$4000 Empl$___0 Total$4000 TANF$0 Empl$12,400 TOTAL$12,400 Did we exclude all of her earned income? How much did we exclude? Why didn’t we exclude the $12,400? No $8400 Only the amount which exceeds the baseline is excluded

47. 47 Example #2 John Smith had no income at the time he became employed at $12,400 per year. How much is the incremental increase?

48. 48 Example 2: Think it Through Other Inc$ 0 Empl$___0 Total$ 0 Other Inc$0 Empl$12,400 TOTAL$12,400 Did we exclude all of his earned income? How much did we exclude? Why? Yes $12,400 The baseline is zero

49. 49 Exclusion is reduced to 50% of the increase attributable to employment or increased earnings Second 12 month exclusion period begins after qualified family member has received 12 cumulative months of full exclusion Phase-in period extends for a total of 12 cumulative months (not needed to be consecutive months) EID Second 12-Month Exclusion and Phase-In

50. 50 4 year lifetime maximum disallowance period –Starts at beginning of initial exclusion period and ends exactly 48 months later –No exclusion may be given after this lifetime limit has been reached EID Maximum 4 Year Disallowance

51. 51 EID Maximum 4 Year Disallowance EID regulations call for a maximum of 12 cumulative months for each of the two exclusion periods –Thus, an individual can “max out” after receiving the EID for only two years 12 consecutive full-exclusion months followed by 12 consecutive phase-in exclusion months

52. 52 Remember, the disallowance does not apply for purposes of admission to the PH program To ensure that every PH tenant who is eligible for EID receives it and it is calculated properly, PHA must consider: 1. How will you document – what evidence will you provide: A. That the family is a “qualified family”? B. The income exclusion in the family’s file? EID Issues

53. 53 2. How will you track the number of months income has been excluded and when the exclusion must end? EID Issues

54. 54 EID Issues Tracking can be complex –In an ideal world, a person who qualifies for the EID will receive: The full exclusion for 12 consecutive months The phase-in exclusion for the next 12 consecutive months –Tracking would be easy

55. 55 In an Ideal World 12243648 100% of increase 50% of increase Count all income 1224

56. 56 EID Issues Tracking –In reality, the exclusion may stop and start more than once, making it a challenge to figure out how much to disallow when there is a break during an exclusion period.

57. 57 Reality may be…. 9 months 6 months 9 months 100% 50% It’s over… 12243648

58. 58 EID Issues Tracking –Or... The four-year maximum may be reached before the full 12 months of phase-in (or even initial full exclusion) have been “used up.”

59. 59 Or…….Reality may be 9 months 3 months 100% 50% It’s over… 2 months 12243648

60. 60 EID Issues Complexity of the regulation contributes to rent determination errors –Per HUD’s PD&R report Difficulty in tracking exclusion periods –PHA needs standardized system

61. 61 EID Issues Calculation of “incremental increase” –May necessitate conducting interim reexams throughout phase-in period Regardless of PHA’s interim policy To simplify matters, PHA may align reexam date to coincide with the beginning of the phase-in period Best source for answers: –RHIIP: www.hud.gov/offices/pih/programs/ph/rhiip/faq.cfm –EID: www.hud.gov/offices/pih/phr/about/ao_faq.cfmwww.hud.gov/offices/pih/phr/about/ao_faq.cfm

62. 62 Earned Income Disallowance Learning Activity 5-2: EID Calculation Read the case study Part 1: Calculate the prequalifying income and the exclusion amount and wages for EID member Parts 2-4: Recalculate for changes

63. 63 Answers: Baseline Income Katie’s prequalifying (baseline) income is: $5,000

64. 64 Part I, Step 1 A. Earned income of EID family member B. Other income of EID family member C. Total annual income of EID family member (A + B) D. Prequalifying income of EID family member E. Full exclusion (C - D, but no more than A) F. 50% exclusion during phase-in period, if applicable (E x 0.50) N/A Step 1: Calculate EID family member’s exclusion amount. $ 9,500 $ 5,000 $14,500 $ 5,000 $ 9,500

65. 65 Part I, Step 2 G. EID family member’s earnings (HUD-50058, 7d) H. Exclusion (E or F, as applicable) (HUD-50058, 7e) I. EID family member’s earned income after exclusions (G – H) (HUD-50058, 7f) $ 9,500 $ 0 Step 2: Determine EID family member’s wages after exclusion.

66. 66 Part I, HUD 50058 Form HUD-50058 7a. Family member name No.7b. Income Code 7c. Calculation (PHA use) 7d. Dollars per year 7e. Income Exclusions 7f. Income after exclusions (7d minus 7e) Katie1N 1W 7g. Total $5,000 $ 9,500 0 $ 5,000

67. 67 Part 2, Step 1 A. Earned income of EID family member B. Other income of EID family member C. Total annual income of EID family member (A + B) D. Prequalifying income of EID family member E. Full exclusion (C - D, but no more than A) F. 50% exclusion during phase-in period, if applicable (E x 0.50) N/A Step 1: Calculate EID family member’s exclusion amount. $ 9,500 $ 2,000 $11,500 $ 5,000 $ 6,500

68. 68 Part 2, Step 2 G. EID family member’s earnings (HUD-50058, 7d) H. Exclusion (E or F, as applicable) (HUD-50058, 7e) I. EID family member’s earned income after exclusions (G – H) (HUD-50058, 7f) $ 9,500 $ 6,500 $ 3,000 Step 2: Determine EID family member’s wages after exclusion.

69. 69 Part 2, HUD 50058 Form HUD-50058 7a. Family member name No.7b. Income Code 7c. Calculation (PHA use) 7d. Dollars per year 7e. Income Exclusions 7f. Income after exclusions (7d minus 7e) Katie1N 1W 7g. Total $2,000 $ 9,500$ 6,500$ 3,000 $ 5,000

70. 70 Part 3, Step 1 A. Earned income of EID family member B. Other income of EID family member C. Total annual income of EID family member (A + B) D. Prequalifying income of EID family member E. Full exclusion (C - D, but no more than A) F. 50% exclusion during phase-in period, if applicable (E x 0.50) N/A Step 1: Calculate EID family member’s exclusion amount. $ 9,500 $ 6,000 $15,500 $ 5,000 $ 9,500

71. 71 Part 3, Step 2 G. EID family member’s earnings (HUD-50058, 7d) H. Exclusion (E or F, as applicable) (HUD-50058, 7e) I. EID family member’s earned income after exclusions (G – H) (HUD-50058, 7f) $ 9,500 $ 0 Step 2: Determine EID family member’s wages after exclusion.

72. 72 Part 3, HUD 50058 Form HUD-50058 7a. Family member name No.7b. Income Code 7c. Calculation (PHA use) 7d. Dollars per year 7e. Income Exclusions 7f. Income after exclusions (7d minus 7e) Katie1N 1W 7g. Total $6,000 $ 9,500 0 $ 6,000

73. 73 Part 4, Step 1 A. Earned income of EID family member B. Other income of EID family member C. Total annual income of EID family member (A + B) D. Prequalifying income of EID family member E. Full exclusion (C - D, but no more than A) F. 50% exclusion during phase-in period, if applicable (E x 0.50) Step 1: Calculate EID family member’s exclusion amount. $ 9,500 $ 6,000 $15,500 $ 5,000 $ 9,500 $ 4,750

74. 74 Part 4, Step 2 G. EID family member’s earnings (HUD-50058, 7d) H. Exclusion (E or F, as applicable) (HUD-50058, 7e) I. EID family member’s earned income after exclusions (G – H) (HUD-50058, 7f) $ 9,500 $ 4,750 Step 2: Determine EID family member’s wages after exclusion.

75. 75 Part 4, HUD 50058 Form HUD-50058 7a. Family member name No.7b. Income Code 7c. Calculation (PHA use) 7d. Dollars per year 7e. Income Exclusions 7f. Income after exclusions (7d minus 7e) Katie1N 1W 7g. Total $6,000 $ 9,500$ 4,750 $ 10,750

76. 76 EID Calculation Chart: Learning Activity 5-2

77. 77 Applying the EID Rules In this section, we’ll walk you step-by-step through an in-depth example of the complexities that can arise in the application of the EID rules.

78. 78 Challenges for PHA Management Since EID is a statutory requirement and a major source of rent errors, management must take seriously the responsibility of ensuring that staff can apply the EID rules correctly. Rectifying a failure to provide this benefit when a family is entitled to it can be costly for a PHA. So can providing excess subsidy!

79. 79 Challenges for PHA Staff Staff may be puzzled or confused by the results of correctly applying the EID rules such as families with these circumstances: –Family who has significant increase in earned income without having any increase in rent –Family who has decreases in other income with no equivalent decreases in rent

80. 80 Challenges for PHA Staff Other confusing areas –Explaining to families why their rent is going up or down as a result of the EID rules –Difficulty tracking a family’s EID benefit as time passes and family circumstances change

81. 81 Purpose of Effective Tracking System Public housing residents must benefit only for the number of months for which they qualify PHA does not become liable for excess subsidy

82. 82 In-Depth Example Franklin Family –One member will become eligible for EID and will progress through two 12 month exclusion periods –Case study will help us track the two exclusion periods as well as the 4-year maximum benefit period Time is divided into 4 12-month blocks See time lines (page 5-35)

83. 83 In-Depth Example Franklin Family Scenario (page 5-36)

84. 84 In-Depth Example For each scenario, we will follow these 3 steps: 1.Calculate the EID exclusion amount 2.Calculate the family member’s wages after exclusion 3.Complete Form HUD-50058 entries

85. 85 Part I, Step 1 A. Earned income of EID family member 8,450 B. Other income of EID family member 2,600 C. Total annual income of EID family member (A + B) 11,050 D. Prequalifying income of EID family member 4,680 E. Full exclusion (C - D, but no more than A) 6,370 F. 50% exclusion during phase-in period, if applicable (E x 0.50) N/A Step 1: Calculate EID family member’s exclusion amount.

86. 86 Part I, Step 2 G. EID family member’s earnings (HUD-50058, 7d) 8,450 H. Exclusion (E or F, as applicable) (HUD-50058, 7e) 6,370 I. EID family member’s earned income after exclusions (G – H) (HUD-50058, 7f) 2,080 Step 2: Determine EID family member’s wages after exclusion.

87. 87 Part I, HUD 50058

88. 88 Part 2, Step 1 A. Earned income of EID family member 13,520 B. Other income of EID family member 2,600 C. Total annual income of EID family member (A + B) 16,120 D. Prequalifying income of EID family member 4,680 E. Full exclusion (C - D, but no more than A) 11,440 F. 50% exclusion during phase-in period, if applicable (E x 0.50) N/A Step 1: Calculate EID family member’s exclusion amount.

89. 89 Part 2, Step 2 G. EID family member’s earnings (HUD-50058, 7d) 13,520 H. Exclusion (E or F, as applicable) (HUD-50058, 7e) 11,440 I. EID family member’s earned income after exclusions (G – H) (HUD-50058, 7f) 2,080 Step 2: Determine EID family member’s wages after exclusion.

90. 90 Part 2, HUD 50058

91. 91 Part 3, Step 1 A. Earned income of EID family member 10,140 B. Other income of EID family member 2,600 C. Total annual income of EID family member (A + B) 12,740 D. Prequalifying income of EID family member 4,680 E. Full exclusion (C - D, but no more than A) 8,060 F. 50% exclusion during phase-in period, if applicable (E x 0.50) N/A Step 1: Calculate EID family member’s exclusion amount.

92. 92 Part 3, Step 2 G. EID family member’s earnings (HUD-50058, 7d) 10,140 H. Exclusion (E or F, as applicable) (HUD-50058, 7e) 8,060 I. EID family member’s earned income after exclusions (G – H) (HUD-50058, 7f) 2,080 Step 2: Determine EID family member’s wages after exclusion.

93. 93 Part 3, HUD 50058

94. 94 Part 4, Step 1 A. Earned income of EID family member 10,140 B. Other income of EID family member 2,600 C. Total annual income of EID family member (A + B) 12,740 D. Prequalifying income of EID family member 4,680 E. Full exclusion (C - D, but no more than A) 8,060 F. 50% exclusion during phase-in period, if applicable (E x 0.50) 4,030 Step 1: Calculate EID family member’s exclusion amount.

95. 95 Part 4, Step 2 G. EID family member’s earnings (HUD-50058, 7d) 10,140 H. Exclusion (E or F, as applicable) (HUD-50058, 7e) 4,030 I. EID family member’s earned income after exclusions (G – H) (HUD-50058, 7f) 6,110 Step 2: Determine EID family member’s wages after exclusion.

96. 96 Part 4, HUD 50058

97. 97 Part 5, Step 1 A. Earned income of EID family member 0 B. Other income of EID family member 2,600 C. Total annual income of EID family member (A + B) 2,600 D. Prequalifying income of EID family member 4,680 E. Full exclusion (C - D, but no more than A) 0 F. 50% exclusion during phase-in period, if applicable (E x 0.50) 0 Step 1: Calculate EID family member’s exclusion amount.

98. 98 Part 5, Step 2 G. EID family member’s earnings (HUD-50058, 7d) 0 H. Exclusion (E or F, as applicable) (HUD-50058, 7e) 0 I. EID family member’s earned income after exclusions (G – H) (HUD-50058, 7f) 0 Step 2: Determine EID family member’s wages after exclusion.

99. 99 Part 6: Annual Reexams For the Franklin family’s next 3 annual reexaminations, there is no change in family circumstances. –June 1, 2005 –June 1, 2006 –June 1, 2007

100. 100 Part 7, Step 1 A. Earned income of EID family member 17,680 B. Other income of EID family member 2,600 C. Total annual income of EID family member (A + B) 20,280 D. Prequalifying income of EID family member 4,680 E. Full exclusion (C - D, but no more than A) 15,600 F. 50% exclusion during phase-in period, if applicable (E x 0.50) 7,800 Step 1: Calculate EID family member’s exclusion amount.

101. 101 Part 7, Step 2 G. EID family member’s earnings (HUD-50058, 7d) 17,680 H. Exclusion (E or F, as applicable) (HUD-50058, 7e) 7,800 I. EID family member’s earned income after exclusions (G – H) (HUD-50058, 7f) 9,880 Step 1: Calculate EID family member’s exclusion amount.

102. 102 Part 7, HUD 50058

103. 103 Part 7: After Exclusions End

104. 104 Chapter 5. Section 5. Assets and Asset Income

105. 105 Assets and Asset Income Value of assets may affect family’s annual income PHA must: – Identify assets – Verify market value of asset – Convert from market to cash value

106. 106 Assets and Asset Income To determine cash value of asset, start with the fair market value. Then subtract: – Any expenses involved in converting assets to cash: Broker fees Legal fees Settlement costs Penalty for early withdrawal –Any money owed on the asset, such as the mortgage balance

107. 107 What Assets Include Savings and checking accounts –PHAs establish policies for determining value of accounts –May elect to count current balances or average balances for a given period (2 months, 6 months, etc.)

108. 108 What Assets Include Accessible amount of trusts available to family Stock, bonds, money market funds Equity in real property, other capital investments Retirement savings accounts

109. 109 What Assets Include Contributions to company retirement/pension funds –Before retirement, count only amounts family can withdraw without retiring or quitting –After retirement, count regular periodic payments as income

110. 110 What Assets Include Assets held in the name of more than one person that allow unrestricted access Lump sum receipts which are retained and verifiable – Inheritances, capital gains, lottery winnings – Social security & SSI lump sum payments

111. 111 What Assets Include Personal property held as investment – gems, jewelry – coin collections Surrender value of life insurance policies

112. 112 Assets Disposed of For Less Than Fair Market Value Imputed Assets: Assets disposed of within two years prior examination or reexamination for less than fair market value

113. 113 Assets Disposed of For Less Than Fair Market Value Cash value of an imputed asset is the difference between the actual cash value of the asset and the amount received for it Example: Home market value = $ 155,000 –Fees incurred 5,000 Actual Cash value $150,000 -Amount received 100,000 Imputed Cash Value $ 50,000

114. 114 Assets Disposed of For Less Than Fair Market Value PHA can establish a minimum threshold for counting assets disposed of for less than fair value Threshold of $1,000 would be reasonable

115. 115 Assets Disposed of For Less Than Fair Market Value Generally NOT considered are those assets disposed of due to: – divorce or separation – bankruptcy – foreclosure PHA should develop applicant/tenant certification form for verifying assets disposed of for less than fair market value

116. 116 Assets Disposed of For Less Than Fair Market Value Learning Activity 5-3: Assets disposed of for less than fair market value (page 5-50)

117. 117 Income from Assets Market value of asset is used to determine anticipated income from asset – Formula to determine anticipated income from interest bearing accounts: Market value x interest rate = anticipated income What is the market value of a $4,000 savings account?

118. 118 Income from Assets Learning Activity 5-4: Interest Income from Assets (page 5-52)

119. 119 Section 6: Assets Edith1Savings400 x.023 400 9 028 0 9 9

120. 120 Imputed Asset Income Income that would be received from an asset if it were converted to cash and the cash were placed in a savings account earning a HUD-determined passbook rate. The cash value of an asset is used to determine the imputed income from the asset.

121. 121 Imputed Asset Income Remember, when calculating the cash value of an asset, PHAs must take into account the expenses involved in converting the asset to cash such as: –Penalties for early withdrawal –Broker or legal fees –Closing costs (for real estate)

122. 122 Imputed Asset Income Imputed asset income comes into play on the HUD 50058 only when the total cash value of all assets is greater than $5000.

123. 123 Imputed Asset Income When total cash value of all assets is $5000 or less, use the actual income from assets

124. 124 Imputed Asset Income If the total cash value of all assets exceeds $5,000 must use the greater of: –actual income from assets –imputed income from assets (HUD passbook rate times total cash value of all assets)

125. 125 Assets and Asset Income Learning Activity 5-5: Assets and Asset Income (page 5-56)

126. 126 Section 6: Assets Edith1Savings 400 5920 129.0225 133 9 Edith1 Stocks6000-4805520120 6000 x.020

127. 127 What Assets Do Not Include Necessary items of personal property such as furniture and automobiles Assets not accessible to the family Interest in Indian Trust lands

128. 128 Asset Issues Staff should know that market value is used to calculate actual income on certificate of deposits and other instruments that carry a penalty for early withdrawal –Cash value is used to determine imputed asset income only if total cash value of all assets exceeds $5000

129. 129 Asset Issues The actual anticipated income from an interest-bearing asset (savings account) is based on the interest rate actually paid by the bank or other institution where the account is located. –The HUD-determined passbook rate is not used to determine actual income. –The HUD-determined passbook rate is used only to determine imputed interest on assets totaling more than $5000.

130. 130 Asset Issues PHA staff should be reminded that: –All assets count, regardless of their value –Assets may have a cash value and produce no actual income –There is no maximum asset limit for applicants or tenants PHA may not pass cost of asset verification to families –Bank verifications –Appraisals

131. 131 Chapter 5. Section 6. PH Rent Calculation

132. 132 Definitions Tenant rent is the amount payable monthly by the family as rent to the PHA Total tenant payment (TTP) is the amount the tenant pays toward rent plus any utility allowance Utility reimbursement is the amount, if any, by which the utility allowance for the unit exceeds the family’s TTP –Not used for a family paying flat rent

133. 133 Income-Based Rent Tenant rent is the TTP minus the utility allowance If the utility allowance exceeds the TTP, the PHA must pay the excess amount either to the family or directly to the utility supplier on behalf of the family –Must notify the family of the amount paid to the utility supplier

134. 134 Ceiling Rents PHAs with ceiling rents that were authorized and established before 10/1/99 were allowed to retain them until 10/1/02 After that, PHAs were required to adjust ceiling rents to the level required for flat rents Ceiling rents subject to: –Annual reexamination requirements –Limitation that tenant rent plus utility allowance may not exceed TTP Tenant rent will be the lower of the TTP or the ceiling rent minus any utility allowance

135. 135 Flat Rents For each public housing unit, a PHA must establish a flat rent based on the market rent charged for comparable units in the unassisted rental market PHA must use a reasonable method to determine flat rent, taking into consideration: –Location, quality, size, unit type, age of unit, amenities, housing services, maintenance and utilities provided by the PHA

136. 136 Flat Rents Example: if a comparable unit rents for $400 and the PHA pays utilities averaging $50 a month, PHA should use $450 as the flat rent Flat rent encourages self-sufficiency

137. 137 Flat Rents PHA must maintain records that: –Document method used to determine flat rents –Show how flat rents are determined in accordance with this method –Document flat rents offered to families under this method For family that chooses flat rent, the PHA must conduct a reexamination at least once every three years If family chooses flat rent, there is no utility allowance

138. 138 Ceiling Rents and Flat Rents A PHA may have ceiling rents and flat rents at the same time Ceiling rents are a function of the formula- based rent –When the PHA establishes ceiling rents, the family is charged the lesser of the TTP or the ceiling rent The PHA will determine the lesser, and then gives the family the choice of the “formula rent” or the flat rent

139. 139 Family Choice of Rent PHAs must give families choice between income-based rent and flat rent once a year PHAs must provide families with enough information to make an informed choice, including: –PHA’s policies on switching type of rent in case of financial hardship –Dollar amount of tenant rent for family under each option

140. 140 Family Choice of Rent If family chooses flat rent one year, a PHA is required to provide the amount of income-based rent for the subsequent rent only under either of the following conditions: –It is the year the PHA is conducting an income reexamination –The family requests the information and submits updated income information

141. 141 Family Choice of Rent For a family that chooses flat rent, the PHA must conduct a reexamination of family income at least once every three years The PHA must conduct a reexamination of family composition at least annually

142. 142 Switching Because of Hardship A PHA must adopt written policies for determining when payment of flat rent is a hardship for a family

143. 143 Switching Because of Hardship Policies must include the following situations as well as any others the PHA determines appropriate: –Family has experienced a decrease in income because of changed circumstances, including loss or reduction of employment, death in the family, or reduction in or loss of earnings or other assistance –Family has experienced an increase in expenses for medical costs, child care, transportation, education, or similar items

144. 144 Switching Because of Hardship A family paying flat rent may at any time request a switch due to financial hardship If the PHA determines that the family is unable to pay flat rent because of financial hardship, PHA must immediately allow the switch to income-based rent The PHA must make a determination within a reasonable time after the request

145. 145 Switching Because of Hardship When establishing policies, a PHA should indicate the time frame in which family must notify the PHA of a financial hardship and the need to switch rent options The PHA should be able to act within 30 days –Includes verifying the financial hardship Once a family switches to income-based rent because of financial hardship, the family must wait until its next annual reexamination to switch back

146. 146 Learning Objective Understand and address those difficult aspects of rent calculation where errors are most likely to occur