Preliminary Injunction Orders HUD to Proceed with Small Area Fair Market Rents

The U.S. District Court for the District of Columbia granted a preliminary injunction against HUD on December 23, finding that HUD did not have the authority or compelling reasons to suspend implementation of the use of Small Area Fair Market Rents (Small Area FMRs or SAFMRs) for two years in 23 metropolitan areas (see Memo, 8/21/17). Concluding that HUD’s suspension was “arbitrary and capricious”, Chief Judge Beryl Howell ordered HUD to immediately reinstate the final rule published on November 16, 2016 that required public housing agencies (PHAs) in those 23 metro areas to implement Small Area FMRs on January 1, 2018.

Brief Background

Without public notice, HUD abruptly suspended the SAFMR rule on August 11, 2017 in a Memorandum from Secretary Ben Carson that was not provided to the public, as well as through an August 11, 2017 email that was distributed only to the PHAs in the 23 metro areas. HUD claimed the final rule gave it the authority to apply such a wholesale suspension.  

Five civil rights organizations representing three plaintiffs sued HUD over the suspension (see Memo, 10/30/17), asserting that suspension of the Small Area FMR rule was unlawful because HUD failed to follow Administrative Procedure Act (APA) rules requiring public comment and because HUD failed to provide sufficient justification for the suspension as specified in the SAFMR rule.  

Small Area FMRs reflect rents for U.S. Postal ZIP Codes, while traditional fair market rents (FMRs) reflect a single rent standard for an entire metropolitan region. The intent of SAFMRs is to provide voucher payment standards that are better aligned with neighborhood-scale rental markets, resulting in relatively higher subsidies in neighborhoods that have higher rents but greater opportunities and providing relatively lower subsidies in neighborhoods that have lower rents and higher concentrations of voucher households. The primary goal of SAFMRs is to help households use vouchers in areas of higher opportunity and lower poverty, thus reducing voucher concentrations high poverty areas. 

The final Small Area FMR rule was published on November 16, 2016 (see Memo, 11/21/16) after a year-and-a-half rulemaking process that included multiple rounds of comments (see Memo, 6/8/15, 7/6/15, 6/20/16 and 8/22/16).

HUD’s Authority to Suspend SAFMRs in the Final Rule

Citing case law, Chief Judge Beryl Howell wrote, “The APA generally requires a federal agency engaged in rulemaking to engage in notice and comment procedures.” The Court concluded, “HUD, however, did not delay the Rule’s implementation through notice and comment. Thus, HUD’s action was lawful only if another source of authority empowered HUD to delay the Rule’s implementation without notice or comment. HUD asserts that [the SAFMR final rule at] 24 CFR §888.113(c) conferred such authority. HUD is wrong.”

Abstract Policy Concerns or Data with Only Tenuous Relation to a Specific PHA

Secretary Carson’s August 10 Suspension Memorandum and HUD’s August 11 email to PHAs in the 23 metro areas listed three bases for suspension under the final rule’s provision allowing suspension under the category of “other events as determined by the Secretary:”

  1. An interim report on the use of Small Area FMRs in a seven-PHA demonstration project (see Memo, 11/30/12 and 8/21/17).
  2. Comments received from industry groups in response to Executive Order 13777 and HUD’s May 15, 2017 request for public input regarding existing regulations that are outdated, ineffective, or excessively burdensome (see Memo, 3/6/17, 5/8/17 and 6/19/17). HUD’s request was not specific to SAFMRs or to any particular program or policy.
  3. HUD’s failure to create Small Area FMR guidance in a timely manner.

The Court stated, “The latter two rationales have nothing to do with local rental housing market conditions in the 23 affected PHAs [areas], and so cannot independently sustain HUD’s invocation of §888.113(c)(4) third action.”

Regarding the first rationale, the Court wrote, “The Suspension Memorandum primarily relied on the Interim Report’s findings that SAFMR use caused a net loss of units available to voucher holders in the pilot PHAs.” As Memo reported (8/21/17), the Interim Report found that the net effect across the seven demonstration PHAs was a 3.4% loss of units (22,000 units). The outcomes, however, differed by PHA. For instance, there were increases of potentially available rental homes of 3.2% in Chattanooga, TN and 26% in Plano, TX. Losses ranged from 0.3% in Mamaroneck, NY to 1.7% in Cook County, IL and 13.5% in Long Beach, CA.

The Court responded to HUD’s reliance on the Interim Report noting, “The problem with HUD’s reliance on demonstration project data to justify the Rule’s delay is that HUD has failed to show that the [seven] pilot and [200+] Rule-affected PHAs share similar characteristics, such that any conclusions as to SAFMRs’ efficacy that can be extrapolated from the demonstration project’s findings apply to the Rule-affected PHAs.”

Next Steps

HUD has not indicated what action it will take in response to the preliminary injunction. The agency has 20 days to appeal. The Poverty & Race Research Action Council, however, shared a brief email sent to the PHAs in the 23 metro areas that informs the PHAs that, as a result of the court rule, the SAFMR implementation date is January 1, 2018 and they must immediately dedicate the financial and human resources to begin implementation.  The email also states that HUD will issue guidance about implementation issues, obstacles, and technical assistance as soon as possible.   

The Poverty & Race Research Action Council has relevant court papers at: