In 1998, Congress passed the Quality Housing and Work Responsibility Act, which aimed to improve the performance of Public Housing Authorities, alleviate poverty, and increase economic mobility for residents of public housing and Housing Choice Voucher recipients.
Now, a little-known provision within the legislation - the Earned Income Disallowance - is undergoing a makeover and HUD is expected to unveil a replacement later this year that could help low-income residents of public housing. This rule, known as EID, was designed to allow eligible tenants to increase their income through employment without triggering rent increases. Under the original statute, residents of public housing and Housing Choice Voucher holders with a disability could save or redirect more of their money as their earnings rise, they complete job-training programs, or they get a job or a raise while receiving Temporary Assistance for Needy Family benefits.
How the Earned Income Disallowance Works
Due to complications with implementing the original EID provisions, the regulation has gone through several iterations, including one to prohibit increases on the share of rent paid by certain residents of public housing or HCV holders due to increased earnings the first 12 months of employment. In this case, Public Housing Authorities – or PHAs – excluded 100% of income increases from rent calculations, which would otherwise track with income levels.
After those first 12 months, PHAs were required to exclude 50% of any income increase to employment over the family's baseline income. This tiered approach applied to any adult, 18 or over, living in the household. Alternatively, PHAs could take the money for the increased share of rent paid by residents and deposit it into an escrow account for the resident. EID was also employed for income calculations used by the HOME Investment Partnerships and Housing Opportunities for Persons with AIDS programs, Family Self Sufficiency, Jobs Plus, and supportive housing programs.
What Does EID Have to do With Economic Mobility?
An effective EID would promote wealth-building for low-income residents of federally assisted housing by allowing them to capture increases in earnings.
Economic security remains out of reach for many Americans, especially for people of color, who research shows are more vulnerable than their white counterparts to ending up worse off economically than their parents. Black families' median and mean wealth is less than 15% that of white families, according to the Federal Reserve Board’s analysis of its 2019 Survey of Consumer Finances. An analysis of U.S. Census data illustrates that white children in the lowest fifth of the national income distribution are more than three times more likely to move to the top fifth than Native American children and four times more likely to make that move than Black children. With these facts in mind, Enterprise has identified Upward Mobility as one of the strategic pillars guiding our work on affordable housing.
Where Do We Go from Here?
EID has a complex history. Section 102 of the Housing Opportunity Through Modernization Act of 2016 (HOTMA) eliminated the EID due to its complexity, but also provided the HUD Secretary with the authority to effectively continue the practice by determining the amount of earned income that could be disallowed when income changes.
HUD issued a proposed rule on Section 102 of HOTMA in September 2019 and gathered public comments on it in November 2019. HUD’s HOTMA final rule covering the types of income certification and rent considerations that EID addressed was recently released, aiming for implementation in 2024. This rule does not directly address EID or the implications of its removal for participants of FSS. HUD has indicated that it would consult with members of the FSS team to ensure that participants would not be harmed by the new rule’s guidelines. Enterprise encourages HUD to address that impact in a supplemental final rule to be released later this year. In the meantime, PHAs continue to operate based on the most recent version of EID as they await implementation of the new rule.
Stay tuned for developments on the EID.