Federal Register, Volume 76 Issue 51 (Wednesday, March 16, 2011)

[Federal Register Volume 76, Number 51 (Wednesday, March 16, 2011)]
[Notices]
[Pages 14421-14424]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-6065]

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5489-N-01]

Section 8 Housing Assistance Payments Program--Contract Rent
Annual Adjustment Factors (AAFs), Fiscal Year 2011

AGENCY: Office of the Assistant Secretary for Policy Development and
Research, HUD.

ACTION: Notice.

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SUMMARY: The United States Housing Act of 1937 requires that assistance
contracts signed by owners participating in the Department's Section 8
housing assistance payment programs provide annual adjustment to
monthly rentals for units covered by the contract. This Notice
announces revised Contract Rent AAFs for adjustment of contract rents
on assistance contract anniversaries. The factors are based on a
formula using residential rent and utility cost changes from the most
current annual Bureau of Labor Statistics Consumer Price Index (CPI)
survey. These factors are applied at Housing Assistance Payment (HAP)
contract anniversaries for those calendar months commencing after the
effective date of this Notice. HUD will publish ``Renewal Funding
AAFs,'' in a separate Notice, to be used exclusively for renewal
funding of tenant-based rental assistance, if so required in the fiscal
year (FY) 2011 HUD Budget.

DATES: Effective Date: March 16, 2011.

FOR FURTHER INFORMATION CONTACT: Contact Danielle Bastarache, Director,
Housing Voucher Management, Office of Public Housing and Voucher
Programs, Office of Public and Indian Housing, 202-708-1380, for
questions relating to the Project-Based Certificate and Moderate
Rehabilitation programs (non Single Room Occupancy); Ann Oliva,
Director, Office of Special Needs Assistance Programs, Office of
Community Planning and Development, 202-708-4300, for questions
regarding the Single Room Occupancy (SRO) Moderate Rehabilitation
program; Willie Spearmon, Director, Office of Housing Assistance and
Grant Administration, Office of Housing, 202-708-3000, for questions
relating to all other Section 8 programs; and Marie L. Lihn, Economist,
Economic and Market Analysis Division, Office of Policy Development and
Research, 202-708-0590, for technical information regarding the
development of the schedules for specific areas or the methods used for
calculating the AAFs. Mailing address for the above persons: Department
of Housing and Urban Development, 451 7th Street, SW., Washington, DC
20410. Hearing- or speech-impaired persons may contact the Federal
Information Relay Service at 800-877-8339 (TTY). (Other than the
``800'' TTY number, the above-listed telephone numbers are not toll
free.)

SUPPLEMENTARY INFORMATION: Tables showing Contract Rent AAFs will be
available electronically from the HUD data information page at http://www.huduser.org/portal/datasets/aaf.html/FY2011_CR_tables.pdf.

I. Applying Contract Rent AAFs to Various Section 8 Programs

Contract Rent AAFs established by this Notice are used to adjust
contract rents for units assisted in certain Section 8 housing
assistance payment programs during the initial (i.e., pre-renewal) term
of the HAP contract and for all units in the Project-Based Certificate
program. There are three categories of Section 8 programs that use the
Contract Rent AAFs:
Category 1--The Section 8 New Construction and Substantial
Rehabilitation programs and the Section 8 Moderate Rehabilitation
program.
Category 2--The Section 8 Loan Management (LM) and Property
Disposition (PD) programs.
Category 3--The Section 8 Project-Based Certificate (PBC) program.
Each Section 8 program category uses the Contract Rent AAFs
differently. The specific application of the Contract Rent AAFs is
determined by the law, the HAP contract, and appropriate program
regulations or requirements.
AAFs are not used in the following cases:
Renewal Rents. With the exception of the Project-Based Certificate
program, Contract Rent AAFs are not used to determine renewal rents
after expiration of the original Section 8 HAP contract (either for
projects where the Section 8 HAP contract is renewed under a
restructuring plan adopted under 24 CFR part 401; or renewed without
restructuring under 24 CFR part 402). In general, renewal rents are
based on the applicable State-by-State operating cost adjustment factor
(OCAF) published by HUD; the OCAF is applied to the previous year's
contract rent minus debt service.
Budget-Based Rents. Contract Rent AAFs are not used for budget-
based rent adjustments. For projects receiving Section 8 subsidies
under the LM program (24 CFR part 886, subpart A) and for projects
receiving Section 8 subsidies under the PD program (24 CFR part 886,
subpart C), contract rents are adjusted, at HUD's option, either by
applying the Contract Rent AAFs or by budget-based adjustments in
accordance with 24 CFR 886.112(b) and 24 CFR 886.312(b). Budget-based
adjustments are used for most Section 8/202 projects.
Certificate Program. In the past, Contract Rent AAFs were used to
adjust the contract rent (including manufactured home space rentals) in
both the tenant-based and project-based certificate programs. The
tenant-based certificate program has been terminated and all tenancies
in the tenant-based certificate program have been converted

[[Page 14422]]

to the Housing Choice Voucher Program, which does not use Contract Rent
AAFs to adjust rents. All tenancies remaining in the project-based
certificate program continue to use Contract Rent AAFs to adjust
contract rent for outstanding HAP contracts.
Voucher Program. Contract Rent AAFs are not used to adjust rents in
the Tenant-Based or the Project-Based Voucher programs.
Moderate Rehabilitation Program. Under the Section 8 Moderate
Rehabilitation program (both the regular program and the single room
occupancy program), the public housing agency (PHA) applies the
Contract Rent AAF to the base rent component of the contract rent, not
the full contract rent.

II. Adjustment Procedures

This section of the Notice provides a broad description of
procedures for adjusting the contract rent. Technical details and
requirements are described in HUD notices H 2002-10 (Section 8 New
Construction and Substantial Rehabilitation, Loan Management, and
Property Disposition) and PIH 97-57 (Moderate Rehabilitation and
Project-Based Certificates).
Because of statutory and structural distinctions among the various
Section 8 programs, there are separate rent adjustment procedures for
the three program categories:

Category 1: Section 8 New Construction, Substantial Rehabilitation, and
Moderate Rehabilitation Programs

In the Section 8 New Construction and Substantial Rehabilitation
programs, the published Contract Rent AAF factor is applied to the pre-
adjustment contract rent. In the Section 8 Moderate Rehabilitation
program, the published Contract Rent AAF is applied to the pre-
adjustment base rent.
For Category 1 programs, the Table 1 Contract Rent AAF factor is
applied before determining comparability (rent reasonableness).
Comparability applies if the pre-adjustment gross rent (pre-adjustment
contract rent plus any allowance for tenant-paid utilities) is above
the published Fair Market Rent (FMR).
If the comparable rent level (plus any initial difference) is lower
than the contract rent as adjusted by application of the Table 1
Contract Rent AAF, the comparable rent level (plus any initial
difference) will be the new contract rent. However, the pre-adjustment
contract rent will not be decreased by application of comparability.
In all other cases (i.e., unless the contract rent is reduced by
comparability):
The Table 1 Contract Rent AAF is used for a unit occupied
by a new family since the last annual contract anniversary.
The Table 2 Contract Rent AAF is used for a unit occupied
by the same family as at the time of the last annual contract
anniversary.

Category 2: The Loan Management Program (24 CFR Part 886, Subpart A)
and Property Disposition Program (24 CFR Part 886, Subpart C)

At this time Category 2 programs are not subject to comparability.
(Comparability will again apply if HUD establishes regulations for
conducting comparability studies under 42 U.S.C. 1437f(c)(2)(C).).
Rents are adjusted by applying the full amount of the applicable AAF
under this Notice.
The applicable Contract Rent AAF is determined as follows:
The Table 1 Contract Rent AAF is used for a unit occupied
by a new family since the last annual contract anniversary.
The Table 2 Contract Rent AAF is used for a unit occupied
by the same family as at the time of the last annual contract
anniversary.

Category 3: Section 8 Project-Based Certificate Program

The following procedures are used to adjust contract rent for
outstanding HAP contracts in the Section 8 PBC program:
The Table 2 Contract Rent AAF is always used. The Table 1
Contract Rent AAF is not used.
The Table 2 Contract Rent AAF is always applied before
determining comparability (rent reasonableness).
Comparability always applies. If the comparable rent level
is lower than the rent to owner (contract rent) as adjusted by
application of the Table 2 Contract Rent AAF, the comparable rent level
will be the new rent to owner.
The new rent to owner will not be reduced below the
contract rent on the effective date of the HAP contract.

III. When To Use Reduced AAFs (From AAF Table 2)

In accordance with Section 8(c)(2)(A) of the United States Housing
Act of 1937 (42 U.S.C. 1437f(c)(2)(A)), the Contract Rent AAF is
reduced by 0.01:
For all tenancies assisted in the Section 8 Project-Based
Certificate program.
In other Section 8 programs, for a unit occupied by the
same family at the time of the last annual rent adjustment (and where
the rent is not reduced by application of comparability (rent
reasonableness)).

The law provides that:

Except for assistance under the certificate program, for any
unit occupied by the same family at the time of the last annual
rental adjustment, where the assistance contract provides for the
adjustment of the maximum monthly rent by applying an annual
adjustment factor and where the rent for a unit is otherwise
eligible for an adjustment based on the full amount of the factor,
0.01 shall be subtracted from the amount of the factor, except that
the factor shall not be reduced to less than 1.0. In the case of
assistance under the certificate program, 0.01 shall be subtracted
from the amount of the annual adjustment factor (except that the
factor shall not be reduced to less than 1.0), and the adjusted rent
shall not exceed the rent for a comparable unassisted unit of
similar quality, type and age in the market area. 42 U.S.C.
1437f(c)(2)(A).

Legislative history for this statutory provision states that ``the
rationale [for lower AAFs for non-turnover units is] that operating
costs are less if tenant turnover is less * * *.'' Department of
Veteran Affairs and Housing and Urban Development, and Independent
Agencies Appropriations for 1995, Hearings Before a Subcommittee of the
Committee on Appropriations 103d Cong., 2d Sess. 591 (1994). The
Congressional Record also states the following:

Because the cost to owners of turnover-related vacancies,
maintenance, and marketing are lower for long-term stable tenants,
these tenants are typically charged less than recent movers in the
unassisted market. Since HUD pays the full amount of any rent
increases for assisted tenants section 8 projects and under the
Certificate program, HUD should expect to benefit from this ``tenure
discount.'' Turnover is lower in assisted properties than in the
unassisted market, so the effect of the current inconsistency with
market-based rent increases is exacerbated. (140 Cong. Rec. 8659,
8693 (1994)).

To implement the law, HUD publishes two separate Contract Rent AAF
Tables, Tables 1 and 2. The difference between Table 1 and Table 2 is
that each Contract Rent AAF in Table 2 is 0.01 less than the
corresponding Contract Rent AAF in Table 1. Where a Contract Rent AAF
in Table 1 would otherwise be less than 1.0, it is set at 1.0, as
required by statute; the corresponding Contract Rent AAF in Table 2
will also be set at 1.0, as required by statute.

IV. How To Find the AAF

Tables 1 and 2 that show Contract Rent AAFs are posted on the HUD
User Web site at http://www.huduser.org/portal/datasets/aaf.html/FY2011_CR_tables.pdf. There are two columns in each table. The first
column is used to adjust contract rent for rental units where the
highest cost utility is

[[Page 14423]]

included in the contract rent, i.e., where the owner pays for the
highest cost utility. The second column is used where the highest cost
utility is not included in the contract rent, i.e., where the tenant
pays for the highest cost utility.
The applicable Contract Rent AAF is selected as follows:
Determine whether Table 1 or Table 2 is applicable. In
Table 1 or Table 2, locate the Contract Rent AAF for the geographic
area where the contract unit is located.
Determine whether the highest cost utility is or is not
included in contract rent for the contract unit.
If highest cost utility is included, select the Contract
Rent AAF from the column for ``highest cost included.'' If highest cost
utility is not included, select the Contract Rent AAF from the column
for ``utility excluded.''

V. Methodology

Contract Rent AAFs are rent inflation factors. Two types of rent
inflation factors are calculated for Contract Rent AAFs: gross rent
factors and shelter rent factors. The gross rent factor accounts for
inflation in the cost of both the rent of the residence and the
utilities used by the unit; the shelter rent factor accounts for the
inflation in the rent of the residence, but does not include any change
in the cost of utilities. The gross rent inflation factor is designated
as ``Highest Cost Utility Included'' and the shelter rent inflation
factor is designated as ``Highest Cost Utility Excluded''.
Contract Rent AAFs are calculated using CPI data on ``rent of
primary residence'' and ``fuels and utilities''.\1\ The CPI inflation
index for rent of primary residence measures the inflation of all
surveyed units regardless of whether utilities are included in the rent
of the unit or not. In other words, it measures the inflation of the
``contract rent'' which includes units with all utilities included in
the rent, units with some utilities included in the rent and units with
no utilities included in the rent. In producing a gross rent inflation
factor and a shelter rent inflation factor, HUD decomposes the contract
rent CPI inflation factor into parts to represent the gross rent change
and the shelter rent change. This is done by applying the percentage of
renters who pay for heat (a proxy for the percentage renters who pay
shelter rent) from the Consumer Expenditure Survey (CEX) and American
Community Survey (ACS) data on the ratio of utilities to rents.\2\
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\1\ CPI indexes CUUSA103SEHA and CUSR0000SAH2 respectively.
\2\ The formulas used to produce these factors can be found in
the Annual Adjustment Factors overview and in the FMR documentation
at http://www.HUDUSER.org.
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Survey Data Used to Produce Contract Rent AAFs

In this publication, the rent and fuel and utilities inflation
factors for large metropolitan areas and Census regions are based on
changes in the rent of primary residence and fuels and utilities CPI
indices from 2008 to 2009. The CEX data used to decompose the contract
rent inflation factor into gross rent and shelter rent inflation
factors come from a special tabulation of 2008 CEX survey data produced
for HUD for the purpose of computing Contract Rent AAFs. The utility-
to-rent ratio used to produce Contract Rent AAFs comes from 2008 ACS
median rent and utility costs.

Geographic Areas

Contract Rent AAFs are produced for all Class A CPI cities (CPI
cities with a population of 1.5 million or more) and for the four
Census Regions. They are applied to core-based statistical areas
(CBSAs), as defined by the Office of Management and Budget (OMB),
according to how much of the CBSA is covered by the CPI city-survey. If
more than 75 percent of the CBSA is covered by the CPI city-survey, the
Contract Rent AAF that is based on that CPI survey is applied to the
whole CBSA and to any HUD-defined metropolitan area, called ``HUD Metro
FMR Area'' (HMFA), within that CBSA. If the CBSA is not covered by a
CPI city-survey, the CBSA uses the relevant regional CPI factor. Almost
all non-metropolitan counties use regional CPI factors.\3\ For areas
assigned the Census Region CPI factor, both metropolitan and non-
metropolitan areas receive the same factor.
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\3\ There are four non-metropolitan counties that continue to
use CPI city updates: Ashtabula County, OH, Henderson County, TX,
Island County, WA, and Lenawee County, MI. BLS has not updated the
geography underlying its survey for new OMB metropolitan area
definitions and these counties, are no longer in metropolitan areas,
but they are included as parts of CPI surveys because they meet the
75 percent standard HUD imposes on survey coverage. These four
counties are treated the same as metropolitan areas using CPI city
data.
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Each metropolitan area that uses a local CPI update factor is
listed alphabetically in the tables, by State and each HMFA is listed
alphabetically within its respective CBSA. Each Contract Rent AAF
applies to a specified geographic area and to units of all bedroom
sizes. Contract Rent AAFs are provided:
For separate metropolitan areas, including HMFAs and
counties that are currently designated as non-metropolitan, but are
part of the metropolitan area defined in the local CPI survey.
For the four Census Regions for those metropolitan and
non-metropolitan areas that are not covered by a CPI city-survey.
The Contract Rent AAFs shown at http://www.huduser.org/portal/datasets/aaf.html/FY2011_CR_tables.pdf use the same OMB metropolitan
area definitions, as revised by HUD, that are used in the FY 2011 FMRs.

Area Definitions

To make certain that they are using the correct Contract Rent AAFs,
users should refer to the Area Definitions Table section at http://www.huduser.org/portal/datasets/aaf.html/FY2011_AreaDef.pdf. For units
located in metropolitan areas with a local CPI survey, Contract Rent
AAF areas are listed separately. For units located in areas without a
local CPI survey, the metropolitan or nonmetropolitan counties receive
the regional CPI for that Census Region.
The Area Definitions Table at http://www.huduser.org/portal/datasets/aaf.html/FY2011_AreaDef.pdf lists areas in alphabetical order
by State. The associated CPI region is shown next to each State name.
Areas whose Contract Rent AAFs are determined by local CPI surveys are
listed first. All metropolitan areas with local CPI surveys have
separate Contract Rent AAF schedules and are shown with their
corresponding county definitions or as metropolitan counties. In the
six New England States, the listings are for counties or parts of
counties as defined by towns or cities. The remaining counties use the
CPI for the Census Region and are not specifically listed in the Area
Definitions Table at http://www.huduser.org/portal/datasets/aaf.html/FY2011_AreaDef.pdf.
Puerto Rico and the Virgin Islands use the South Region Contract
Rent AAFs. All areas in Hawaii use the Contract Rent AAFs identified in
the Table as ``STATE: Hawaii,'' which are based on the CPI survey for
the Honolulu metropolitan area. The Pacific Islands use the West Region
Contract Rent AAFs.
Accordingly, HUD publishes these Annual Adjustment Factors for the
Section 8 Housing Assistance Payments programs as set forth in the
Contract Rent AAF Tables posted at http://www.huduser.org/portal/datasets/aaf.html/FY2011_CR_tables.pdf.

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Dated: March 7, 2011.
Raphael W. Bostic,
Assistant Secretary for Policy Development and Research.
[FR Doc. 2011-6065 Filed 3-15-11; 8:45 am]
BILLING CODE 4210-67-P