Chapter I: General Information


Section F: Payment Standards (PS)

1. Overview

Payment standards are used to calculate the HAP MSHDA pays to the owner on behalf of the participant leasing the unit. Each PHA has latitude in establishing its schedule of PS amounts by bedroom size. The range of possible PS amounts is based on HUD’s published FMR schedule for the FMR area in which MSHDA has jurisdiction. FMRs are based on either the 40th or 50th percentile of rents charged for standard rental housing in the FMR area. MSHDA may set its PS amounts from 90 to 110% of the published FMRs, and may set them higher or lower with HUD approval.

The level at which the PS amount is set directly affects the amount of subsidy a participant will receive, and the amount of rent paid by program tenants.

If the participant leases a unit with a gross rent at or below the PS for the family size, the participant’s share of the rent will be its TTP. If the gross rent for the unit is higher than the PS, the participant’s share will be higher than the TTP.

If the PS amount is too low:

  1. Participants may need to pay more than they can afford; or
  2. Participants may have a hard time finding acceptable units or units in more desirable areas;
  3. Housing choices will be narrowed and MSHDA’s efforts to affirmatively further fair housing will be undermined.

If the PS amount is too high, owners may be encouraged to ask for higher than reasonable rents.

Payment standard amounts should be high enough to allow families a reasonable selection of modest, decent, safe, and sanitary housing in a range of neighborhoods in MSHDA’s jurisdiction. To meet that objective and to support families wishing to move to areas with lower concentration of poor and minority households, MSHDA may establish higher PS schedules for certain areas within its jurisdiction so that program families can rent units in more desirable areas.

MSHDA’s procedures for establishing and revising its PS schedule are set forth in its Administrative Plan.

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2. Establishing Payment Standard Amounts

MSHDA is required to establish PS amounts for each unit size in an FMR area. The PS amounts may be within several ranges depending on facts about the rental market. Payment standard amounts may be established:

  • Within the “basic range”, which is between 90 and 110% of the 40th percentile FMR;
  • Between 90 and 110% of the 50th percentile FMR if MSHDA operates within a 50th percentile FMR area;
  • Between 90 and 110% of the 50th percentile rent if MSHDA has obtained HUD approved “success rate” PS amounts; or
  • As exception PS amounts below 90 or above 110% of the 40th or 50th percentile FMR with HUD approval.
  1. Payment Standard Amounts within the Basic Range
    • Most PHAs will establish PS amounts within the basic range; the other options for setting these amounts are made available as tools for PHAs with special market problems.
    • Within the basic range, the PS is set between 90 and 110% of the 40th percentile FMR. Whenever the FMR increases or decreases, MSHDA must ensure that its PS amounts remain within the basic range.
  2. Payment Standard Amounts Based on the 50th Percentile FMR: Housing Choice
    • Payment standards based on the 50th percentile FMR are made available to PHAs in FMR areas where higher PS amounts are necessary to increase housing choice throughout a metropolitan area.
    • To increase housing choice throughout a metropolitan area, HUD will increase FMRs to the 50th percentile in metropolitan areas that meet the following criteria:
      1. The FMR area contains at least 100 census tracts;
      2. 70% or fewer of the census tracts with at least 10 two-bedroom rental units are census tracts in which at least 30% of the two bedroom rental units have gross rents at or below the two bedroom FMR set at the 40th percentile rent; and
      3. Twenty-five percent or more of the tenant-based rental program participants in the FMR area reside in the five percent of the census tracts within the FMR area that have the largest number of program participants.
    • In those areas where HUD has published 50th percentile FMRs, MSHDA may establish its PS amounts between 90 and 110% of the 50th percentile FMR. All PHAs must use the published FMR or request an exception PS (see below).
    • A PHA that sets a PS amount at more than 100% of the 50th percentile FMR will be measured under SEMAP to determine its performance in achieving de-concentration.
  3. Requesting HUD Approval of Exception Payment Standard Amounts
    • A PHA may request HUD approval of PS amounts higher or lower than the established 40th or 50th percentile FMR for designated parts of the FMR area (the “exception areas”). The exception PS amounts may be for all units in the exception areas, or for all units of a given bedroom size in these areas. Any PHA with jurisdiction in the exception areas may use the HUD-approved exception PS amounts without requesting specific HUD approval.
      1. Requests for exception PS amounts from 110 to 120% of FMR must be supported by the median rent method or the 40th or 50th percentile method discussed below.
      2. HUD will only approve exception PS amounts if these exception amounts are needed to help participants find housing outside areas of high poverty concentrations, or because voucher holders have trouble finding housing to lease under the program within the voucher term.
      3. The total population of all HUD-approved exception areas may not include more than 50% of the population of the FMR area.
  4. Requesting HUD Approval of Exception Payment Standard Amounts over 120% of the FMR
    • A PHA may request HUD approval to adopt exception PS amounts above 120% of the published FMRs for the same area, but not until at least six months from the date of HUD’s approval of a 120% exception PS.
      1. The exceptions must be necessary to prevent financial hardship for participants.
      2. The Assistant Secretary for Public and Indian Housing must approve requests for exception PS amounts over 120% of the published FMR.
  5. Establishing the Payment Standard Schedule
    • A PHA initially establishes the PS amounts on the PS schedule at 90 to 110% of the published FMR. Like the FMR, the PS schedule is established by bedroom size category. The PS schedule applies to all voucher units administered by the PHA regardless of the source of funding (e.g. formula allocation, or vouchers targeted to specific groups of recipients) or the date on which the vouchers were awarded by HUD.
    • The PHA may establish one or more separate PS amounts within the basic range for designated parts of an FMR area. This may be appropriate where a PHA has determined that its general PS are too low to allow families seeking housing in areas with low concentrations of poverty and minority families to lease in these areas.
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3. Revising the Payment Standard

Prior to the effective date of any new FMRs, the PHA must review its PS schedule and amend it as needed to ensure that the amounts remain within the basic range (90 to 110% of the new FMR). If the FMR increases, the PHA must be sure that the PS amounts for each unit size are at least 90% of the new FMR. Similarly, if the FMR decreases, the PHA must be sure that the PS amounts are not more than 110% of the new FMR.

PHAs will likely increase PS amounts as FMRs increase, to help voucher holders find units and current participants to continue to afford the units they have selected. However, the PHA is not required to increase payment standards when FMRs increase so long as the PS is from 90 to 110% of the new FMR.

  1. Annual Review of Payment Standard Amounts

    At least annually, generally prior to the preparation of its HCV program budget, the PHA should review its PS amounts to determine whether adjustments are needed for some or all unit sizes. In reviewing the adequacy of its PS amounts, the PHA should consider the following:

    1. Assisted Families’ Rent burdens: the PHA should review the percentage of income voucher families use to pay rent to determine the extent to which rent burdens exceed 30% of income due to the fact that gross rent levels are above the PHA’s PS amounts.
    2. Availability of Suitable Vacant Units with Rents Below the Payment Standard Amounts: The PHA should review its rent reasonableness data, vacancy rate data, and other relevant information to determine whether there is an ample supply of vacant units with rents below the PS amounts, particularly in areas with low concentrations of poor and minority families.
    3. Size and Quality of Units Selected: The PHA should review the size and quality of units selected by assisted families before concluding that there is a need for a change in the PS amounts. Payment standard amount increases should be made only when they are needed to reach units of adequate size and quality in the mid-range of the market.
    4. Time to Locate Housing: The PHA should review the average time required for voucher holders to find units. If the PHA determines that the amount of time required is excessive (i.e. 90 days or more), an increase in the PS amount may be needed.
    5. Vouchers Expired without Leasing: The PHA should also review the number of voucher holders whose vouchers expire without having leased a unit. While some voucher drop-out is to be expected, a substantial number of participants unable to lease units with assistance under the HCV program suggest that PS amounts may be too low.
    6. Large Numbers of Participants Moving Out of the PHA’s Jurisdiction: The PHA should review the number of participants exercising the portability option to lease in other jurisdictions. Again, while some exercise of portability is to be expected, and may in fact indicate that the PHA is meeting its objectives in expanding housing opportunities for participating tenants, an excessively high number of families moving out may indicate that the PHA’s PS amounts are too low.

    SEMAP Indicator 7, Expanding Housing Opportunities, further requires a PHA to identify and provide information to voucher holders about housing opportunities outside areas of poverty and minority concentration in their jurisdiction. The PHA is required to look at difficulties experienced by voucher holders in finding housing in these areas, and, if appropriate, to seek HUD approval of exception PS amounts for these areas.

  2. Lowering the Payment Standard Amount
    • The PHA’s analysis may indicate that the PS amount is too high, in which case the PHA should lower its PS to an appropriate amount within the basic range. The lower PS amount will not apply for participants who have already leased units under the higher standard until they move to a new unit or have a change in their family size or composition, or at the second annual re-examination after the PHA lowers its PS.
  3. File Documentation
    • The PHA should retain documentation of its review of its PS schedule to support its determination to change or not to change the PS.
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4. Applying the Payment Standard

The PS is used to calculate the monthly HAP for participants under the HCV program. The HAP is arrived at by taking the lower of the:

  • Payment standard minus the TTP or
  • Gross rent for the unit minus the TTP.

Under the HCV program, if the gross rent for the unit is lower than the PS, the family will pay the full TTP. If the gross rent for the unit is higher than the PS, the family will pay the TTP plus the amount by which the gross rent exceeds the PS.

If during the term of the HAP contract the owner lowers the rent for a unit, the HAP will be recalculated using the lower of the initial PS or the lower gross rent for the unit.

  1. Payment Standard Amount for a Participant

    The PS amount for a family is the lower of:

    • Payment standard amount for the participant unit size, or
    • Payment standard amount for the size of the unit leased by the participant.

    If the unit is located in an exception area, the PHA must use the appropriate PS amount for the exception area.

  2. When the Payment Standard Increases:
    • The PS in place on the effective date of the HAP contract remains in place for the duration of the contract term unless the PHA increases or decreases it. If a PS is increased, the higher PS is first used in calculating the HAP at the time of the participant’s regular (annual) re-examination. Participants requiring or requesting interim re-examinations will not have their HAP payments calculated using the higher PS until their next annual re-examination.
  3. When the Payment Standard Decreases:
    • If the PHA lowers its PS amounts, the PS in effect on the effective date of the HAP contract will remain in effect until the participant moves to another unit, has a change in its family size or composition, or until the second annual re-examination after the PHA decreases its PS.
    • Decreases in the applicable PS due to changes in family size or composition, are effective as of the next regular (annual) re-examination following the change. At that time, the new family size will be used to determine the PS.
  4. Higher Payment Standard Amount as a Reasonable Accommodation:
    • Although the HCV program does not generally allow unit-by-unit exceptions, a PHA may establish a higher PS amount within the basic range as a reasonable accommodation for a family member with disabilities.
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