Can Virginia Housing Development Authority staff own rental property leased through the federal Section 8 voucher program?

Plain-English summary

In May 2013, the Chairman of VHDA's Board of Commissioners asked the AG whether VHDA's officers and employees could lease rental property they personally owned to tenants in the federal Housing Choice Voucher (HCV) program, given that VHDA itself administered the program in Virginia. The Chairman framed the inquiry around Virginia's State and Local Government Conflict of Interests Act (COIA) and asked, in the alternative, whether disclosure or recusal might cure any conflict. The AG concluded the prohibition was absolute under both COIA and the program's own regulations.

The HCV program (Section 8) provides rental subsidies for low- and moderate-income households. VHDA receives federal funds from HUD under annual contracts and pays monthly rental subsidies directly to landlords on behalf of qualifying tenants. The monthly amount paid to the landlord is based on a formula involving the tenant's income and the local "payment standard."

The AG analyzed three potential paths around COIA's general prohibition on officers and employees having personal interests in contracts with their own agency (other than their employment contract):

1. The "uniform rate" exception in § 2.2-3110(A)(8), which exempts grants or payments where uniform rates are established solely by the agency. The AG concluded this exception did not apply. Although VHDA's payment formula was uniform in its mechanics, the actual payment to a landlord depended on the rent the landlord charged, which can vary unit by unit. Landlords can charge less than the HUD payment standard, and the rent has to pass a "reasonableness" review by the administrative agent. That subjective component means the payments are not "uniform" in COIA's sense.

2. The "sale, lease or exchange of real property" exception in § 2.2-3110(A)(1), which exempts certain real estate transactions where the officer does not participate in the transaction in their official capacity. The AG concluded this did not fit either. The HCV contract between VHDA and the landlord is not a sale, lease, or exchange of real property. The lease in the HCV scheme is between the tenant and the owner; the VHDA-owner contract (the Housing Assistance Payments contract, or HAP) is a separate agreement to subsidize that lease, not a lease itself.

3. Disclosure or recusal cure. The Chairman had asked, in the alternative, whether disclosure or abstention might cure the conflict. But the contract prohibition carries only the listed exceptions, none of which fit, so there was no disclosure-or-recusal path around it. The answer was a flat no.

The AG also pointed out that this same conclusion was already reached, independently, by both federal regulation (24 C.F.R. § 982.161) and VHDA's own regulation. Those regulations bar present and former VHDA officers, employees who formulate policy or influence program decisions, public officials with HCV functions, and current members of Congress from participating as owners in the program. The regulatory bar applies during tenure and for one year after.

The Chairman's request had stipulated that the rental payments and ownership interest values would exceed $10,000 annually (which establishes a "personal interest"). With that interest established, the contract prohibition applied absent an exception, and no exception fit.

Currency note

This opinion was issued in 2013. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

The State and Local Government Conflict of Interests Act (COIA) sets baseline ethics rules for Virginia state and local officers and employees. The prohibition at issue is the contractual one: no officer or employee of a state governmental agency "shall have a personal interest in a contract with the governmental agency of which he is an officer or employee, other than his own contract of employment . . . ."

COIA lists carve-outs. § 2.2-3110(A)(1) covers sales, leases, and exchanges of real property between officers and agencies where the officer does not participate in the transaction officially. § 2.2-3110(A)(8) covers grants or payments under programs with uniform agency-set rates.

In the federal Housing Choice Voucher program, 24 C.F.R. § 982.161 disqualifies certain insiders from program participation as owners. The Virginia regulations mirror the federal scheme and explicitly bar VHDA officers, certain key employees, and former officers within one year of tenure.

The HCV payment formula depends on (a) the tenant's contribution (capped at 30% of adjusted monthly income), (b) the local payment standard set by VHDA, and (c) the actual gross rent (rent plus tenant-paid utilities). The subsidy is essentially the difference between the lesser of the payment standard or gross rent, and the tenant's contribution.

Common questions

Q: Can a VHDA employee own a rental property and lease it to a Section 8 voucher holder?
A: No, per this opinion. COIA bars officers and employees from having a personal interest in a contract with their own agency. The HCV payment contract counts as a "contract" with VHDA, and no exception fits. Federal and state regulations independently bar this for officers and policy-influencing employees.

Q: Does it matter if the employee doesn't directly handle HCV policy?
A: For COIA purposes, no. The contract prohibition applies to all officers and employees, not just program staff. The federal regulation (24 C.F.R. § 982.161) and VHDA's regulation target a narrower group, but COIA reaches everyone.

Q: Why doesn't the 'uniform rate' exception apply?
A: Because the rent the landlord charges, which feeds the formula, is not set by VHDA. Different landlords can charge different rents, subject to a 'reasonableness' review. The formula mechanics are uniform but the inputs vary, so the payments are not uniform in COIA's sense.

Q: Could the employee fix this by recusing from the contract?
A: No. COIA's contract prohibition carries only the listed exceptions, none of which fit here. It does not offer a general disclosure-or-recusal cure for the underlying contract.

Q: What about former VHDA officers?
A: The federal regulation (24 C.F.R. § 982.161), mirrored in VHDA's own regulation, bars former officers from participating as owners for one year after tenure. COIA's contract prohibition is keyed to current officers and employees, but the regulatory bar continues after tenure ends.

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2013/12-015_McConnell.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Kenneth T. Cuccinelli, II
Attorney General

May 3, 2013

900 East Main Street
Richmond, Virginia 23219
804-786-2071
FAX 804-786-1991
Virginia Relay Services
800-828-1120
7-1-1

The Honorable Charles McConnell
Chairman, Board of Commissioners
Virginia Housing Development Authority
601 South Belvidere Street
Richmond, Virginia 23220

Dear Mr. McConnell:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issue Presented

You inquire whether the State and Local Government Conflict of Interests Act ("COIA") prohibits officers and employees of the Virginia Housing Development Authority ("VHDA") from participating as owners in the federal Housing Choice Voucher program ("HCV") administered by VHDA. You further inquire whether, if not prohibited from participating, those employees and officers must make any disclosures or abstain from participating in HCV transactions.

Response

It is my opinion that officers and employees of VHDA are prohibited by COIA from participating as owners in the federal HCV program administered by VHDA. Furthermore, I note that the current regulations governing the program expressly bar officers and certain employees of VHDA from participating in the program as owners.

Background

You state that the HCV program provides rental subsidies for low and moderate income persons and families. VHDA receives federal funds for the HCV program from the United States Department of Housing and Urban Development ("HUD") pursuant to annual contracts between VHDA and HUD. Both HUD and VHDA have adopted regulations governing the administration of the program.

You further state that the monthly rental assistance payments are paid by VHDA to the owners of the rental properties on behalf of the low-income persons or families participating in the HCV program. The monthly payments to owners are determined by a formula that calculates the amount the participating family will pay for rent with VHDA paying the remainder to the owner pursuant to a contract between VHDA and the owner.

You request that it is assumed, for the purposes of this Opinion, that the amount of rental payments made to any participating VHDA officers and employees would exceed $10,000 annually, and that the value of their ownership interest in the dwelling units leased under the HCV program would exceed $10,000.

Applicable Law and Discussion

Your inquiry focuses on any prohibition that COIA may impose on officers and employees of VHDA, but I first note that the regulations governing the program prohibit officers and at least some employees of the authority from participating in the program as owners. Specifically, the relevant regulations provide that

[p]ersons holding the following offices and positions may not participate as owners in the program during their tenure and for one year thereafter because their relationship with the authority or the program would constitute a prohibited interest under the ACC and HAP contracts: (i) present or former members or officers of the authority or the administrative agent, (ii) employees of the authority or the administrative agent who formulate policy or influence decisions with respect to the program, and (iii) public officials or members of a governing body or state or local legislators who exercise functions or responsibilities with respect to the program. In addition, current members of or delegates to the Congress of the United States of America or resident commissioners are not eligible to participate in the programs as owners.

This language essentially tracks the language of 24 C.F.R § 982.161, which provides that certain people are not eligible to participate as owners in the program due to a conflict of interests. Accordingly, by regulation, all officers and former officers within one year of their respective tenures at VHDA are barred from participating in the program as owners. Similarly, certain employees of VHDA who are involved in formulating policy or influencing decisions regarding the program may not participate in the program as owners.

Turning to your specific inquiry, COIA prohibits officers and employees of state government agencies from having personal interests in contracts, other than their employment contracts, with the government agency by which they are employed. The payments pursuant to the HCV program you describe would constitute "contracts" as defined in COIA.

Nonetheless, grants or other payments under any program wherein uniform rates for, or the amounts paid to, all qualified applicants are established solely by the administering governmental agency are exempt from the prohibition in COIA. Thus, whether such payments are exempt from COIA turns on whether the payments to owners are made pursuant to a uniform schedule.

The payments you describe are partially set by a formula in accordance with VHDA guidelines and apply equally to all HCV program participants. A prior COIA opinion of this office concluded that the formula represented a "uniform rate," and therefore, fell within the COIA exemption. However, the formula described in your letter does not actually set the payments because one element of the formula, the rental price of the property at issue, is utilized in the formula but is not actually set by the formula.

Specifically, based on your letter, payments to owners under the program are determined by subtracting the lessee's share (which is determined by a formula tied to the lessee's income) from the lesser of a payment standard established by VHDA for the rental unit or the gross rent, which is defined as the rent payable to the owner plus utilities paid by the lessee. Thus, the amount paid to an owner depends on the gross rent paid by the lessee or the payment standard that VHDA sets for the particular dwelling unit.

The regulations governing the program indicate that there can be differences in the payment standards set by VHDA or the gross rent charged by an owner. For example, the rent for a property "must normally not exceed the fair market rent established by HUD for the area . . . ," suggesting there are circumstances when the rent may exceed the HUD established rate. Furthermore, the regulations setting forth the duties of an administrative agent for the program specify that it is the administrative agent's responsibility to "[r]eview the leases proposed by owners; determine rent reasonableness; and inspect the rental housing units." Given the inherent subjectivity in determining whether rent is reasonable, it appears that there is some discretion as to what rents are acceptable.

The federal regulations governing the program also recognize that the rents charged may vary from the payment standard set by HUD. The relevant regulation provides that "the subsidy is based on a local 'payment standard' that reflects the cost to lease a unit in the local housing market. If the rent is less than the payment standard, the family generally pays 30 percent of adjusted monthly income for rent. If the rent is more than the payment standard, the family pays a larger share of the rent."

Because the regulations allow an owner to charge less than the payment standard set by HUD, the amount that owners of similar properties will receive from the program can vary, and thus, cannot be considered "uniform." To the extent that this is the case, payments under the program do not fall within the exemption found in § 2.2-3110(A)(8).

Given the facts specified in your request, the only other COIA exemption that might be applicable is found in § 2.2-3110(A)(1), which provides an exemption for contracts related to

[t]he sale, lease or exchange of real property between an officer or employee and a governmental agency, provided the officer or employee does not participate in any way as such officer or employee in such sale, lease or exchange, and this fact is set forth as a matter of public record by the governing body of the governmental agency or by the administrative head thereof . . . .

To fall within this exemption, the contract between VHDA and the owner who is also an officer or employee of VHDA would have to constitute a "sale, lease or exchange of real property between an officer or employee and a governmental agency . . . ." Here, the contract between VHDA and the officer or employee would not constitute the sale or exchange of real property because the officer or employee would continue to own the property.

Furthermore, while the program does require a lease between the tenant and the owner, the contract between the owner and VHDA is not a lease of real property, but rather is a separate agreement that does not create a leasehold. The federal regulations that govern the HVC program define a lease as a "written agreement between an owner and a tenant for the leasing of a dwelling unit to the tenant." The definition continues, noting the purpose of a lease and distinguishing it from the contract between a property owner and an authorized housing agency. Specifically, the definition concludes by noting that a "lease establishes the conditions for occupancy of the dwelling unit by a family with housing assistance payments under a HAP contract between the owner and the [authorized housing agency]."

Because the contract between a property owner and VHDA under the HVC program is not the "sale, lease or exchange of real property between an officer or employee and a governmental agency . . .," the exemption found in § 2.2-3110(A)(1) does not apply. Given that no COIA exemption applies, the general prohibition that "[n]o officer or employee of any governmental agency of state government . . . shall have a personal interest in a contract with the governmental agency of which he is an officer or employee, other than his own contract of employment . . ." applies. Accordingly, I conclude that, even absent the prohibition found in the state and federal regulations governing the HVC program, COIA prevents officers and employees of VHDA from being an owner in the HVC program under the factual assumptions contained in your request.

Conclusion

Accordingly, it is my opinion that officers and employees of VHDA are prohibited by COIA from participating as owners in the federal HCV program administered by VHDA. Furthermore, I note that, even absent COIA's restrictions, the current regulations governing the program expressly bar officers and at least certain employees of VHDA from participating in the program as owners.

With kindest regards, I am

Very truly yours,

Kenneth T. Cuccinelli, II
Attorney General