[Federal Register Volume 60, Number 190 (Monday, October 2, 1995)]
[Proposed Rules]
[Pages 51658-51662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24368]




[[Page 51657]]

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Part III





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Part 882



Section 8 Moderate Rehabilitation; Rent Adjustments; Annual and Special 
Adjustments; Comparability Studies; Rent Reductions; Proposed Rule

  Federal Register / Vol. 60, No. 190 / Monday, October 2, 1995 / 
Proposed Rules   

[[Page 51658]]


DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Public and Indian Housing

24 CFR Part 882

[Docket No. FR-3709-P-01]
RIN 2577-AB48


Section 8 Moderate Rehabilitation; Rent Adjustments; Annual and 
Special Adjustments; Comparability Studies; Rent Reductions

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would revise the current regulations on 
adjusting Section 8 Moderate Rehabilitation Contract Rents. The rule 
would modify the method used by Public Housing Agencies (PHAs) to 
determine the amount of the annual increase in the Contract Rents by 
providing for PHAs to conduct comparability studies for Moderate 
Rehabilitation projects to prevent the application of the Annual 
Adjustment Factors from resulting in a material difference between 
rents charged for assisted units and similar unassisted units. The 
proposed rule provides a substitute method of determining the initial 
difference between Moderate Rehabilitation rents and rents charged for 
comparable unassisted units, if the PHA failed to establish the amount 
of the difference when the initial Contract Rents were determined. The 
proposed rule also provides, subject to the availability of 
appropriations, for special adjustments when an exemption from real 
property tax expires under certain circumstances. The proposed rule 
also adds insurance to the categories of cost increases that may result 
in a special adjustment.

DATES: Comment Due Date: December 1, 1995.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Rules Docket Clerk, Office of General 
Counsel, room 10276, Department of Housing and Urban Development, 451 
Seventh Street SW, Washington, DC 20410. Communications should refer to 
the above docket number and title. Facsimile (FAX) comments are not 
acceptable. A copy of each communication submitted will be available 
for public inspection and copying during regular business hours.

FOR FURTHER INFORMATION CONTACT: Madeline Hastings, Rental Assistance 
Division, Room 4226, Department of Housing and Urban Development, 451 
Seventh Street SW, Washington, DC 20410; telephone (202) 708-2841 
(voice) or (202) 708-4594 (TDD). (These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act Statement

    The information collection requirements contained in this proposed 
rule have been submitted to the Office of Management and Budget (OMB) 
for review under the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-
3520). No person may be subjected to a penalty for failure to comply 
with these information collection requirements until they have been 
approved and assigned an OMB control number. The OMB control number, 
when assigned, will be announced by separate notice in the Federal 
Register.
    The public reporting burden for each of these collections of 
information is estimated to include the time for reviewing and 
instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
collection of information. Information on the estimated public 
reporting burden is provided under the preamble heading, Other Matters.
    Send comments regarding this burden estimate or any other aspect of 
this collection of information, including suggestions for reducing this 
burden, to the Department of Housing and Urban Development, Rules 
Docket Clerk, 451 Seventh Street SW, Room 10276, Washington, DC 20410; 
and to the Office of Information and Regulatory Affairs, Office of 
Management and Budget, Attention Desk Officer for HUD, Washington, DC 
20503. At the end of the public comment period on this rule, the 
Department may amend the information collection requirements set out in 
this rule to reflect public comments or OMB comments received 
concerning the information collection.

II. Background

A. Applicability

    This proposed rule would be applicable to all projects which are 
currently, or will be in the future, under a Section 8 Moderate 
Rehabilitation Housing Assistance Payments (HAP) Contract, as provided 
in the regular Section 8 Moderate Rehabilitation Program, and the 
Section 8 Moderate Rehabilitation Single Room Occupancy (SRO) Program 
for Homeless Individuals. This rule proposes to revise the current 
regulations in 24 CFR part 882, subpart D, that govern the special 
procedures for adjusting Contract Rents of regular and SRO Moderate 
Rehabilitation projects during the term of the HAP Contract. The 
procedures for both annual and special rent adjustments would be 
revised by the rule. These are the only upward adjustments to the 
initial base and Contract Rents set forth in the HAP Contract that are 
allowed during the term of the HAP Contract. Downward adjustments due 
to changes in project financing are also permitted during the term of 
the HAP Contract.
    Regulations governing annual and special rent adjustments for the 
other Section 8 Programs have been and will be addressed by separate 
rulemaking. A proposed rule, entitled ``Annual Adjustments of Contract 
Rents for Section 8 Assisted Housing; Comparability Studies,'' was 
published in the Federal Register on October 29, 1992 (57 FR 49120). 
The Department received considerable public comment on the October 29, 
1992 proposed rule, and, as a result of this public comment, is further 
considering its October 29, 1992 proposal. Accordingly, the language of 
this proposed rule which is limited to the Section 8 Moderate 
Rehabilitation Program and which would make similar amendments to those 
amendments proposed to be made by the October 29, 1992 rule is not 
based on the language of the October 29, 1992 proposed rule.
    Additionally, the Department notes that 24 CFR part 888, subpart B, 
does not apply to the process utilized under the Section 8 Moderate 
Rehabilitation Program. Although subpart B currently applies to all 
Section 8 Housing Assistance Programs, its scope is limited to the 
Automatic Annual Adjustment factors. The Section 8 Moderate 
Rehabilitation Program does not utilize automatic adjustments and, 
therefore, adjustments will be made in accordance with Sec. 882.410, 
not 24 CFR part 888, subpart B.1

    \1\ Another proposed rule applicable to the section 8 
regulations and entitled ``Section 8 Certificate and Voucher 
Programs Conforming Rule'' was published on February 24, 1993 (58 FR 
11292).
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B. Comparability Studies

    This proposed rule would implement section 801(c) of the Department 
of Housing and Urban Development Reform Act of 1989 (Pub. L. 101-235, 
approved December 15, 1989) (HUD Reform Act), by providing for PHAs to 
conduct comparability studies for Moderate Rehabilitation projects to 
prevent a material difference between 

[[Page 51659]]
rents charged for assisted units and similar unassisted units. The rule 
also would revise 24 CFR 882.410 to provide that upon request to the 
PHA by the Moderate Rehabilitation owner (Owner) to the PHA for an 
annual adjustment, a comparability study may be conducted to ensure 
that the application of the Annual Adjustment Factor (AAF) would not 
result in a new Contract rent that is materially different from the 
rents charged for comparable unassisted units. HUD will prescribe 
procedures on how a comparable rent shall be determined.
    Under the proposed rule, when the application of the AAF to the 
base rent, plus the monthly rehabilitation debt service and utility 
allowance, produces an amount which is 110 percent or more of the most 
recently published Fair Market Rents (FMRs) for Existing Housing or 
exception rent approved by HUD, a comparability study would be 
conducted by the PHA. The Owner would be given notice of the PHA's 
intent to conduct a comparability study within a limited timeframe. 
Where the results of the PHA's comparability study show that a material 
difference would result between the adjusted Contracts Rents and rents 
being charged for similar unassisted units, allowing for any difference 
which may have existed with respect to the initial Contract Rent (see 
Section D of this preamble), the Contract rent would be set at the 
maximum allowable Contract rent (which will be defined later in this 
preamble). However, the Contract Rent would be reduced below its 
current level based upon the comparability study.
    A material difference between the assisted and comparable 
unassisted rents exists if the adjusted base rent is greater than the 
maximum allowable Contract rent plus any amount attributable to an 
initial difference. The maximum allowable base rent is a dollar amount 
equal to 105 percent of the comparable rent.
    The rule also would provide that Contract Rents will never be 
reduced as a result of a comparability study. Contract rents may be 
reduced when the project has been refinanced in such a manner that the 
periodic payment of the Owner has been reduced. The Owner is required 
to notify the PHA of any refinancing that occurs during the term of the 
HAP Contract.

C. Initial Difference

    In determining whether a material difference exists, the PHA must 
allow for any difference which may have existed with respect to the 
initial Contract Rent. The initial difference is defined as a dollar 
amount equal to the difference between the original comparable rent at 
the time the unit went under HAP contract and the initial Contract 
Rent. In many cases, however, PHAs never established the initial 
difference. The Regular Moderate Rehabilitation rent formula is based 
on a cost approach and therefore in most instances PHAs neglected to 
perform a comparability analysis. Because of the nature of the Moderate 
Rehabilitation program, the Department will assume that in most cases 
an initial difference actually existed between comparable unassisted 
rents and initial Contract Rents.
    For those contracts where an initial difference was never 
established, the Department has created a substitute method to allow 
for the initial difference. Where an initial difference was never 
established, the initial difference will be assumed to be ten percent 
of the initial Contract Rent, unless an owner can document that the 
initial difference was greater.
    Providing for a substitute method that assumes the initial 
difference is ten percent if it was never established is consistent 
with HUD's procedures established for Section 8 New Construction and 
Substantial Rehabilitation Properties where current contract rents are 
above the published FMRs. In a direct issuance to HUD's Field Offices 
(Notice H-95-12, issued March 7, 1995), HUD stated: ``In order to 
provide a fair number to owners who may not be able to show proof of 
the initial difference which existed in the initial Section 8 contract 
rents, HUD will use 10% of the initial Section 8 contract rent (plus 
the Financial Adjustment Factor, if applicable) where evidence of the 
initial difference cannot be provided by the owner.'' (Page 4 of Notice 
H-95-12). Accordingly, HUD's use of the 10 percent initial difference 
in this rule is to maintain consistency and uniformity, to the extent 
possible, in its Section 8 programs.

D. Special Adjustments

    This proposed rule would clarify and expand the availability of 
special rent adjustments. Special adjustments may not be approved 
because of cost increases particular to operation of the individual 
Owner or project, but only may be granted for ``general increases'' 
that affect operation of housing in the community. The proposed rule 
would provide that these special adjustments may only be approved to 
reflect ``substantial general'' increases in ``actual and necessary'' 
expenses of owning and maintaining the dwelling unit. The Owner does 
not have a contractual or regulatory right to receive the special 
adjustment. HUD ``may approve'' a special adjustment, and the PHA ``may 
make'' a special adjustment. A special adjustment must be determined in 
accordance with HUD procedures and be approved by HUD.
    The proposed rule would implement section 142 of the Housing and 
Community Development Act of 1992 (Pub.L. 102-550, approved October 28, 
1992). Section 142 allows HUD to give a special adjustment, subject to 
the availability of appropriations, to the extent HUD determines such 
adjustments are necessary to reflect increases in the actual and 
necessary expenses of owning and maintaining the units that have 
resulted from the expiration of a real property tax exemption. In 
addition, the proposed rule would include insurance in the categories 
of cost increases that may result in a special adjustment, provided 
that the insurance cost increases are actual and necessary expenses 
which have resulted from substantial general increases in insurance 
costs. Special adjustments are currently limited by the regulations 
pertaining to real property taxes or special assessments, and increases 
of utility rates or cost of utilities not covered by regulated rates.
    On September 16, 1994 (59 FR 47772), HUD published a final rule 
that implements section 542 of the Cranston-Gonzalez National 
Affordable Housing Act of 1990 (Pub.L. 101-625, approved November 28, 
1990). Consistent with section 542, the September 16, 1994 final rule 
provides for PHAs to recommend, and HUD to approve, subject to the 
availability of appropriations, a special adjustment, on a project by 
project basis, to reflect substantial increases in operating, 
maintenance and capital repair costs primarily due to the general 
prevalence in the community of drug-related criminal activity. The 
authority for this special adjustment is strictly subject to the 
availability for appropriations for this purpose.
    The September 16, 1994 final rule codified the section 542 special 
rent adjustments provisions in Sec. 882.410(a)(2). This proposed rule 
would move these provisions to Sec. 882.410(d), and would make some 
organizational and minor clarifying language changes. However, the 
substance of the special rent adjustment provisions as implemented in 
Sec. 882.410(a)(2) in the September 16, 1994 final rule, remains the 
same as in Sec. 882.410(d)(1),(2),(4) and (6) of this proposed rule. 

[[Page 51660]]


III. Other Matters

Executive Order 12866

    This proposed rule was reviewed by the Office of Management and 
Budget (OMB) under Executive Order 12866 on Regulatory Planning and 
Review, issued by the President on September 30, 1993. Any changes made 
in this proposed rule as a result of that review are clearly identified 
in the docket file, which is available for public inspection in the 
office of the Department's Rules Docket Clerk, Room 10276, 451 Seventh 
Street, SW, Washington, DC.

Environmental Impact

    With respect to the rule's proposal to implement the comparability 
studies provision of the HUD Reform Act, an environmental assessment is 
unnecessary since statutorily required establishment and review of rent 
schedules that do not constitute a development decision affecting the 
physical condition of specific project areas or buildings sites is 
categorically excluded from HUD's National Environmental Policy Act 
(NEPA) procedures under 24 CFR 50.20(l). With respect to the proposed 
rule's special rent adjustment provision, a Finding of No Significant 
Impact with respect to the environment has been made in accordance with 
HUD regulations at 24 CFR part 50, which implements section 102(2)(C) 
of NEPA in connection with development of the September 16, 1994 final 
rule that implements section 542 of the NAHA, and which provides for 
special rent adjustments certain operating and maintenance costs 
incurred as a result of a general prevalence of drug-related criminal 
activity in the community. That Finding of No Significant Impact is 
applicable to this proposed rule available for public inspection 
between 7:30 a.m. and 5:30 p.m. weekdays in the Office of the Rules 
Docket Clerk, Office of the General Counsel, Department of Housing and 
Urban Development Room 10276, 451 Seventh Street, SW, Washington, DC 
20410.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official for HUD under 
section 6(a) of Executive Order 12612, Federalism, has determined that 
the policies contained in this proposed rule do not have federalism 
implications and, thus, are not subject to review under the order. The 
rule is limited to revising the regulations applicable to the Section 8 
Moderate Rehabilitation Program on the matter of adjustment of Contract 
Rents.

Executive Order 12606, the Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this proposed rule would 
not have potential for significant impact on family formation, 
maintenance, and general well-being, and, thus, is not subject to 
review under the order. The rents paid by families in housing governed 
under this rule are based on the income of the families, and not on the 
Contract Rents affected by this rule. Therefore, the proposed rule is 
not subject to review under that order.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this proposed rule before publication and 
by approving it certifies that this proposed rule would not have a 
significant economic impact on a substantial number of small entities. 
Specifically, the rule would modify the procedures for adjusting 
Contract Rents in the Section 8 Moderate Rehabilitation Program.

Paperwork Reduction Act Statement

    The information collection requirements contained in this rule have 
been submitted to the Office of Management and Budget for approval 
under the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3520). The 
following provisions of the rule have been determined by the Department 
to contain collection of information requirements:

----------------------------------------------------------------------------------------------------------------
                                                                 Number                                         
                                                  Number of    responses      Total      Hours per              
            Submission requirements             rrespondents      per         annual      response   Total hours
                                                               respondent   responses                           
----------------------------------------------------------------------------------------------------------------
PHAs complete study...........................           130            1          130           20         2600
Notify owners of results where it is found                                                                      
 that a material difference exists............            65            1           65            1           65
Owner appeal of results.......................            22            1           22            8          176
PHA process appeal............................            22            1           22            4           88
Owner final appeal............................             4            1            4            4           16
HUD review of final appeal and notify owner of                                                                  
 result.......................................             4            1            4            4           16
Owner submit request for special rent                                                                           
 adjustment due to expiration of real property                                                                  
 tax exemption................................           100            1          100           10         1000
PHA process owner request for special rent                                                                      
 adjustment due to expiration of real property                                                                  
 tax exemption................................           100            1          100            8          800
HUD review request for special rent adjustment                                                                  
 due to expiration of real property tax                                                                         
 exemption....................................            75            1           75            8          600
Owner submit request for special rent                                                                           
 adjustment due to increases in insurance                                                                       
 costs........................................           100            1          100           10         1000
PHA process owner request for special rent                                                                      
 adjustment due to increases in insurance                                                                       
 costs........................................           100            1          100            8          800
HUD review request for special rent adjustment                                                                  
 due to increases in insurance costs..........            75            1           75            8          600
                                               -----------------------------------------------------------------
      Total...................................         7,761                                                    
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List of Subjects in 24 CFR Part 882

    Grant programs--housing and community development, Homeless, Lead 
poisoning, Manufactured homes, Rent subsidies, Reporting and 
recordkeeping requirements.

    Accordingly, 24 CFR part 882, subpart D is proposed to be amended 
as follows:

PART 882--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM--EXISTING 
HOUSING

    1. The authority citation for part 882 continues to read as 
follows:


[[Page 51661]]

    Authority: 42 U.S.C. 1437a, 1437c, 1437f, and 3535(d). Subpart H 
is also issued under 42 U.S.C. 11361 and 11401.

    2. Section 882.410 is revised to read as follows:


Sec. 882.410  Rent adjustments.

    (a) Annual adjustments. (1) Contract Rents will be adjusted 
annually as provided in paragraph (a) of this section upon submittal to 
the PHA by the Owner of a revised schedule of Contract Rents, provided 
that the unit is in decent, safe, and sanitary condition and that the 
Owner is otherwise in compliance with the terms of the Lease and 
Contract. The Annual Adjustment Factors (AAFs) which are published 
annually by HUD (see Schedule C, 24 CFR part 888) will be utilized.
    (2) On or after each annual anniversary date of the Contract, the 
Contract Rents may be adjusted in accordance with this paragraph and 
other established HUD procedures. Contract Rents will only be adjusted 
for housing assistance payments for the months commencing 60 days after 
the PHA receives the Owner's revised schedule of Contract Rents. 
Contract Rents will not be adjusted retroactively or cumulatively. The 
annual adjustment with respect to any anniversary date must be 
requested prior to the next annual anniversary date.
    (3) The adjusted Contract Rents cannot exceed the amount 
established by multiplying the applicable AAF by the base rents then 
adding the monthly rehabilitation debt service.
    (4) Rents to be adjusted by the AAF must then be examined in 
accordance with paragraphs (b) and (c) of this section and may be 
adjusted accordingly.
    (b) Overall limitation.  (1) Notwithstanding any other provisions 
of this part, adjustments as provided in this section must not result 
in material differences between the rents charged for assisted and 
unassisted units of similar age, quality, and type in the same market 
area, as determined by the PHA (and approved by HUD in the case of 
adjustments under paragraph (d) of this section). A material difference 
between the assisted and comparable unassisted rent is determined to 
exist if the adjusted Contract rent is greater than the maximum 
allowable Contract rent plus any difference which may have existed 
initially. The maximum allowable base rent is a dollar amount equal to 
105 percent of the comparable rent.
    (2) In determining whether a material difference exists, the PHA 
must allow for any difference which may have existed with respect to 
the initial Contract Rent. If the PHA did not establish an initial 
difference at the time the HAP contract was executed, ten percent of 
the initial Contract Rent shall be used as a substitute, unless an 
owner can document that the initial difference was greater.
    (c) Comparability Studies. (1) A comparability study will be 
conducted for the purpose of determining whether a material difference, 
as described in paragraph (b) of this section, will result from 
application of the AAF. The PHA will notify the Owner in writing of its 
intention to conduct a comparability study.
    (2) If the Contract rent, as adjusted by the AAF, plus the utility 
allowance, is less than 110 percent of the current Existing Housing FMR 
or exception rent (if granted for a geographical area in accordance 
with Sec. 882.408(b)), the adjusted Contract Rent for the project shall 
be approved by the PHA in accordance with HUD prescribed procedures and 
the PHA shall not conduct a comparability study.
    (3) If the Contract rent, adjusted by the AAF, plus the utility 
allowance, is 110 percent or more of the current Existing Housing FMR 
or if an exception rent limit (if granted for a geographical area in 
accordance with Sec. 882.408(b)), the PHA will conduct a comparability 
study to determine and approve an adjusted base rent that is not 
materially different from rents charged for comparable unassisted 
units.
    (4)(i) In conducting a comparability study, the project's Contract 
rents, as adjusted by the AAFs, will be compared to rents charged for 
unassisted units of similar quality, type and age in the same market 
area.
    (ii) Comparability studies will be conducted by PHA staff. PHA 
staff conducting the comparability studies will make adjustments 
necessary to accommodate any difference between the comparables and the 
assisted project that significantly affect the amount of rent charged 
(including, without limitation, adjustments for utility charges).
    (5) If it is determined by the comparability study that a material 
difference would result (as provided in paragraph (b) of this section) 
from application of the full AAF, a notice showing the results of the 
study will be provided to the Owner within 30 business days of receipt 
of the Owner's request for a rent increase. The Contract Rent will be 
set at the maximum allowable Contract rent (as defined in paragraph (b) 
of the section). However, the Contract Rent will never be reduced as a 
result of a comparability study.
    (6) Where the results of a comparability study show that a material 
difference would not result from application of the full AAF, the base 
rent will be adjusted by the full AAF to determine the new Contract 
Rent.
    (7)(i) Appeals of the decision to disapprove a full adjustment 
under the AAF must be made to the appropriate PHA within 30 business 
days from the date of the notice as required in paragraph (c)(5) of 
this section. Sufficient documentation must be provided of any 
objections to the decision.
    (ii) The PHA will review the appeal within 30 business days from 
receipt of the documentation.
    (8) Final appeals of the PHA decision may be made to the 
appropriate HUD Field Office.
    (d) Special adjustments. (1) A special adjustment, to the extent 
determined by HUD to reflect increases in the actual and necessary 
expenses of owning and maintaining the unit which are not adequately 
compensated for by annual adjustments under this part, and which have 
resulted from substantial general increases in real property taxes, 
assessments, utility rates, utilities not covered by regulated rates, 
or increases in insurance costs, may be recommended by the PHA for 
approval by HUD.
    (2) Subject to the availability of appropriations for the purpose 
specified in paragraph (d)(2) of this section, a special adjustment may 
be recommended by the PHA for approval by HUD when HUD determines, 
based upon a clear demonstration by the Owner, that a project is 
located in a community where drug-related criminal activity is 
generally prevalent, and not specific to a particular project, and the 
project's operating, maintenance, and capital repair expenses have 
substantially increased primarily as a result of the prevalence of such 
drug-related activity.
    (i) HUD may, on a project-by-project basis, provide adjustments to 
the maximum monthly rents to a level no greater than 120 percent of the 
current gross rents for each unit size under a Housing Assistance 
Payments Contract to cover the costs of maintenance, security, capital 
repairs and reserves required for the Owner to carry out a strategy 
acceptable to HUD for addressing the problem of drug-related criminal 
activity.
    (ii) Where the strategy involves physical improvements, HUD will 
perform an environmental review to the extent required under HUD's 
environmental regulations at 24 CFR 

[[Page 51662]]
part 50 prior to approving the special adjustment.
    (3) Subject to the availability of appropriations, a special 
adjustment also may be recommended by the PHA for approval by HUD when 
and to the extent HUD determines such adjustments are necessary to 
reflect increases in such actual and necessary expenses that have 
resulted from expiration of an exemption from real property tax.
    (4) The special rent adjustments described in paragraph (d) of this 
section only will be approved if and to the extent the Owner clearly 
demonstrates that these general increases have caused increases in the 
Owner's operating costs which are not adequately compensated for by 
annual adjustments.
    (5) Special adjustments are a separate component of the Contract 
Rent and are never added to the Base Rent for the purpose of 
calculating annual rent adjustments.
    (6) The Owner must submit financial information to the PHA which 
clearly supports the increase. For Contracts of more than twenty units, 
the Owner must submit audited financial information.
    (e) Effective date of special adjustments. The effective date of 
the adjusted Contract Rent will be the first day of the month following 
the actual increase, or the first day of the month after the Owner's 
written request for the special adjustment, whichever is later. Special 
adjustments for security will not be made retroactively.
    (f) Term of special adjustments. (1) The term of a special rent 
adjustment will be coterminous with the period of the increased cost to 
the Owner, subsequent to its effective date. HUD will approve the term 
of the special adjustment and the special adjustment must be terminated 
at the end of the specified term. The special adjustment must be 
reviewed annually by the PHA to determine whether it is still 
justifiable. The PHA may request and HUD may approve a decrease or an 
increase in the term.
    (2) Special adjustments are removed from the Contract Rent at the 
end of the approved term. The removal of a special adjustment from the 
Contract Rent at the end of the approved term is not and will not be 
considered a reduction of Contract Rents.
    (g) Rent reductions. Contract Rents will never be reduced as a 
result of a comparability study, but may be reduced when the project 
has been refinanced in such a manner that the periodic payment of the 
Owner has been reduced. The Owner is required to notify the PHA of any 
refinancing that occurs during the term of the HAP Contract. When the 
property acquisition portion of a loan has been refinanced, procedures 
prescribed by HUD will be utilized to recompute the base rents in 
relation to AAFs. Such procedures shall not be applicable to projects 
under subpart H of this part.

    Editorial Note: This document was received at the Office of the 
Federal Register on September 26, 1995.

    Dated: December 1, 1994.
Joseph Shuldiner,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 95-24368 Filed 9-29-95; 8:45 am]
BILLING CODE 4210-33-P