Court Orders HUD to Mandatorily Implement Small Area FMRs by Jan. 1, 2018

On December 23, the United States District Court for the District of Columbia ordered HUD to implement the mandatory components of the Small Area FMR rule on January 1, 2018 (preliminarily enjoined HUD’s suspension of mandatory FMRs). Those PHAs that are in one of the twenty-four designated metropolitan areas must implement Small Area FMRs. Previously, HUD had suspended the mandatory implementation of Small Area FMRs citing concerns about  the potential harm Small Area FMRs will have on vulnerable households from a recently published Interim Report on the Small Area FMR Demonstration (which was testing the efficacy of Small Area FMRs), among other reasons.

Moving forward, NAHRO will take a two-pronged approach on this issue. First, NAHRO will work with HUD to help PHAs implement Small Area FMRs as quickly as possible. Second, NAHRO will explore options to grant PHAs greater flexibility in serving vulnerable households with respect to this and other issues.

Additional information on the court’s reasoning can be found by clicking on the link below.

For a court to grant a preliminary injunction, it must find–among other factors–that the party asking for the injunction is likely to prevail on the merits of the case. In this case, the court found that those asking for a preliminary injunction to implement the Small Area FMR rule by January 1, 2018 were likely to succeed on the merits of the case. Below is a brief discussion of the merits of the case. The other factors needed for a preliminary injunction are omitted because they are beyond the scope of this brief blog post.

Those asking for mandatory implementation of Small Area FMRs made two arguments about why the suspension of the mandatory imposition of Small Area FMRs should be revoked. First, they argued that HUD failed to adhere to the requirements of the informal rulemaking process (i.e,  the notice-and-comment rulemaking process) in suspending the mandatory imposition of Small Area FMRs. Second, they argued that the suspension was arbitrary and capricious.

HUD Failed to Adhere to the Requirements of the Informal Rulemaking Process

The court found that HUD lacked the authority to delay the rule’s implementation. For HUD to have the authority to delay the rule’s implementation, it would either have to change the rule through the notice-and-comment process or it would have to rely on a provision already in the Small Area FMR rule that allowed it to suspend the implementation of Small Area FMRs. HUD did not alter the rule through the notice-and comment process, but instead relied on a provision in the rule which allowed it to “suspend a Small Area FMR designation . . . when HUD by notice makes a documented determination that such action is warranted.” The rule further states that “[a]ctions that may serve as the basis of a suspension” include “[o]ther events as determined by the [HUD] Secretary.” The court found that this language did not allow for a broad suspension, but instead that “HUD may justify a particular SAFMR designation’s suspension . . . only through a localized determination that conditions in a particular affected area . . . warrant such action.”

Since the court found that a Small Area FMR designation could only be suspended through a localized determination based on the conditions of a particular area, it found that HUD’s reliance on the Interim Report’s findings to not be a localized determination. The court found that the Interim Report’s sample areas were not representative of the areas where PHAs would be mandated to use Small Area FMRs. In particular, the court found one PHA that participated in the Demonstration that had a large net decrease in rental housing would not have been required to implement Small Area FMRs mandatorily. The court found that HUD did not show that conclusions from the Interim Report could be extrapolated to “the specific Rule-affected areas.”

The Suspension was Arbitrary and Capricious

Those who want to rescind the suspension argued that the suspension was arbitrary and capricious (i.e., HUD suspended the mandatory implementation without properly articulating its reasons). As stated in the above reasoning, the court found that HUD was required to “identify adverse rental housing market conditions local to a particular area . . to justify suspending an [sic] SAFMR designation.” Since the court rejected the findings of the Interim Evaluation could be extrapolated to apply to the areas where Small Area FMRs were to be mandated, the court found the suspension to be arbitrary and capricious.

The full opinion can be found here.

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