[Federal Register Volume 63, Number 185 (Thursday, September 24, 1998)]
[Rules and Regulations]
[Pages 51224-51247]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25568]



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Part V





Department of Housing and Urban Development





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24 CFR Part 888



Section 8 Housing Assistance Payments Program: Contract Rent Annual 
Adjustment Factors, Fiscal Year 1999; Final Rule

  Federal Register / Vol. 63, No. 185 / Thursday, September 24, 1998 / 
Rules and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 888

[Docket No. FR-4379-N-01]


Section 8 Housing Assistance Payments Program--Contract Rent 
Annual Adjustment Factors, Fiscal Year 1999

AGENCY: Office of the Secretary, HUD.

ACTION: Notice of Revised Contract Rent Annual Adjustment Factors.

-----------------------------------------------------------------------

SUMMARY: The United States Housing Act of 1937 requires that assistance 
contracts signed by owners participating in the Department's Section 8 
housing assistance payments programs provide for annual adjustment in 
the monthly rentals for units covered by the contract. This notice 
announces revised Annual Adjustment Factors (AAFs) for adjustment of 
contract rents on assistance contract anniversaries from October 1, 
1998. The factors are based on a formula using data on residential rent 
and utilities cost changes from the most current Bureau of Labor 
Statistics Consumer Price Index (CPI) survey and from HUD Random Digit 
Dialing (RDD) rent change surveys.

EFFECTIVE DATE: October 1, 1998.

FOR FURTHER INFORMATION CONTACT: Gerald J. Benoit, Rental Assistance 
Division, Office of Public and Indian Housing [(202) 708-0477], for 
questions relating to the Section 8 Voucher, Certificate, and Moderate 
Rehabilitation programs; Allison Manning, Office of Special Needs 
Assistance Programs, Office of Community Planning and Development, 
[(202) 708-1234] for questions regarding the Single Room Occupancy 
Moderate Rehabilitation program; Frank M. Malone, Acting Director, 
Office of Asset Management and Disposition, Office of Housing [(202) 
708-3730], for questions relating to all other Section 8 programs; and 
Alan Fox, Economic and Market Analysis Division, Office of Policy 
Development and Research [(202) 708-0590; e-mail [email protected]], 
for technical information regarding the development of the schedules 
for specific areas or the methods used for calculating the AAFs. 
Mailing address for above persons: Department of Housing and Urban 
Development, 451 Seventh Street, SW, Washington, DC 20410. Hearing-or 
speech-impaired persons may contact the Federal Information Relay 
Service at 1-800-877-8339 (TTY). (Other than the ``800'' TTY number, 
the above-listed telephone numbers are not toll-free.)

SUPPLEMENTARY INFORMATION:

Applicability of AAFs to Various Section 8 Programs

    AAFs established by this Notice are used to adjust contract rents 
for units assisted in the Section 8 housing assistance payments 
programs. However, the specific application of the AAFs is determined 
by the law, the HAP contract, and appropriate program regulations or 
requirements.
    AAFs are not used for the Section 8 voucher program or for over-FMR 
tenancy (OFTO) in the Section 8 certificate program.
    AAFs are not used for budget-based rent adjustments. Contract rents 
for projects receiving Section 8 subsidies under the loan management 
program (24 CFR part 886, subpart A) and for projects receiving Section 
8 subsidies under the property disposition program (24 CFR part 886, 
subpart C) are adjusted, at HUD's option, either by applying the AAFs 
or by budget-based adjustments in accordance with 24 CFR 207.19(e). 
Budget-based adjustments are used for most Section 8/202 projects.
    Under the Section 8 moderate rehabilitation program (both the 
regular program and the single room occupancy program), the public 
housing agency (PHA) applies the AAF to the base rent component of the 
contract rent, not the full contract rent.

Use of Reduced AAF

    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 AAF is reduced by .01:

--For regular tenancy in the Section 8 certificate program, for all 
units.
--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).

    This statutory language is now permanent law. Section 2004 of the 
Balanced Budget Act of 1997 (Pub. L. 105-33, approved August 5, 1997) 
provides that these provisions are in effect through fiscal year 1999 
and thereafter.
    To implement the law, HUD is again publishing two separate AAF 
Tables, contained in Schedule C, Tables 1 and 2 of this notice. Each 
AAF in Table 2 is computed by subtracting 0.01 from the annual 
adjustment factor in Table 1.

Adjustment Procedures

    The discussion in this Federal Register Notice is intended to 
provide a broad orientation on adjustment procedures. Technical details 
and requirements will be described in HUD notices (issued by the Office 
of Housing and the Office of Public and Indian Housing).
    Because of statutory and structural distinctions among the various 
Section 8 programs, there are separate rent adjustment procedures for 
three program categories:

--The Section 8 new construction and substantial rehabilitation 
programs (including the Section 8 state agency program); and the 
moderate rehabilitation programs (including the moderate rehabilitation 
single room occupancy program).
--The Section 8 loan management (LM) Program (Part 886, Subpart A) and 
property disposition (PD) Program (Part 886 Subpart C).
--The Section 8 certificate program (including the project-based 
certificate (PBC) program).

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

    In the Section 8 New Construction and Substantial Rehabilitation 
programs, the published AAF factor is applied to the pre-adjustment 
contract rent. In the Section 8 Moderate Rehabilitation program, the 
published AAF is applied to the pre-adjustment base rent.
    For category 1 programs, the Table 1 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 FMR.
    If the comparable rent level (plus any initial difference) is lower 
than the contract rent as adjusted by application of the Table 1 AAF, 
the comparable rent level (plus any initial difference) will be the new 
contract rent. However, the pre-

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adjustment contract rent will not be decreased by application of 
comparability.
    In all other cases (i.e., unless contract rent is reduced by 
comparability):

--The Table 1 AAF is used for a unit occupied by a new family since the 
last annual contract anniversary.
--The Table 2 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 (LM; Part 886, Subpart A) and 
Property Disposition Program (PD; Part 886 Subpart C)

    At this time, rent adjustment by the AAF in the Category 2 programs 
is 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 AAF is determined as follows:

--The Table 1 AAF is used for a unit occupied by a new family since the 
last annual contract anniversary.
--The Table 2 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 Certificate Program

    The same adjustment procedure is used for rent adjustment in both 
the tenant-based and project-based certificate programs. The following 
procedures are used:

--The Table 2 AAF is always used in the Section 8 certificate program; 
the Table 1 AAF is not used in this program.
--The Table 2 AAF is always applied before determining comparability 
(rent reasonableness).
--Comparability always applies. If the comparable rent level is lower 
than the contract rent as adjusted by application of the Table 2 AAF, 
the comparable rent level will be the new contract rent.

    (This adjustment procedure does not apply to an over-FMR (OFTO) 
tenancy in the Section 8 certificate program.)

AAF Tables

    The AAFs are contained in Schedule C, Tables 1 and 2 of this 
notice. There are two columns in each table. The first column is used 
to adjust contract rent for units where the highest cost utility is 
included in the contract rent. 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.

AAF Areas

    Each AAF applies to a specified geographic area and to units of all 
bedroom sizes. AAFs are provided:

--For the metropolitan parts of the ten HUD regions exclusive of CPI 
areas;
--For the nonmetropolitan parts of these regions; and
--For 99 separate metropolitan AAF areas for which local CPI survey 
data are available.

    With the exceptions discussed below, the AAFs shown in Schedule C 
use the Office of Management and Budget's (OMB) most current 
definitions of metropolitan areas. HUD uses the OMB Metropolitan 
Statistical Area (MSA) and Primary Metropolitan Statistical Area (PMSA) 
definitions for AAF areas because of their close correspondence to 
housing market area definitions.
    The exceptions are for certain large metropolitan areas, where HUD 
considers the area covered by the OMB definition to be larger than 
appropriate for use as a housing market area definition. In those 
areas, HUD has deleted some of the counties that OMB had added to its 
revised definitions. The following counties are deleted from the HUD 
definitions of AAF areas.

------------------------------------------------------------------------
             Metropolitan area                    Deleted counties
------------------------------------------------------------------------
Chicago, IL...............................  DeKalb, Grundy and Kendall
                                             Counties.
Cincinnati-Hamilton, OH-KY-IN.............  Brown County, Ohio;
                                             Gallatin, Grant and
                                             Pendleton Counties in
                                             Kentucky; and Ohio County,
                                             Indiana.
Dallas, TX................................  Henderson County.
Flagstaff, AZ-UT..........................  Kane County, UT.
New Orleans, LA...........................  St. James Parish.
Washington, DC-VA-MD-WV...................  Berkeley and Jefferson
                                             Counties in West Virginia;
                                             and Clarke, Culpeper, King
                                             George and Warren Counties
                                             in Virginia.
------------------------------------------------------------------------

    Separate AAFs are listed in this publication for the above 
counties. They and the metropolitan area of which they are a part are 
identified with an asterisk (*) next to the area name. The asterisk 
indicates that there is a difference between the OMB metropolitan area 
and the HUD AAF area definition for these areas.
    To make certain that they are using the correct AAFs, users should 
refer to the area definitions section at the end of Schedule C. For 
units located in metropolitan areas with a local CPI survey, AAFs are 
listed separately. For units located in areas without a local CPI 
survey, the appropriate HUD regional Metropolitan or Nonmetropolitan 
AAFs are used.
    The AAF area definitions shown in Schedule C are listed in 
alphabetical order by State. The associated HUD region is shown next to 
each State name. Areas whose AAFs are determined by local CPI surveys 
are listed first. All metropolitan CPI areas have separate AAF 
schedules and are shown with their corresponding county definitions or 
as metropolitan counties. Listed after the metropolitan CPI areas (in 
those states that have such areas) are the non-CPI metropolitan and 
nonmetropolitan counties of each State. In the six New England States, 
the listings are for counties or parts of counties as defined by towns 
or cities.
    Puerto Rico and the Virgin Islands use the Southeast AAFs. All 
areas in Hawaii use the 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 Pacific/Hawaii 
Nonmetropolitan AAFs. The Anchorage metropolitan area uses the AAFs 
based on the local CPI survey; all other areas in Alaska use the 
Northwest/Alaska Nonmetropolitan AAFs.

Section 8  Certificate Program AAFs for Manufactured Home Spaces

    The AAFs in this publication identified as ``Highest Cost Utility 
Excluded'' are to be used to adjust manufactured home space contract 
rents. The applicable AAF is determined by reference to the geographic 
listings contained in Schedule C, as described in the preceding 
section.

How Factors Are Calculated

For Areas With CPI Surveys

    (1) Changes in the shelter rent and utilities components were 
calculated based on the most recent CPI annual average change data.
    (2) The ``Highest Cost Utility Included'' column in Schedule C was 
calculated by weighting the rent and utility components with the 
corresponding components from the 1990 Census.
    (3) The ``Highest Cost Utility Excluded'' column in Schedule C was 
calculated by eliminating the effect of heating costs that are included 
in the rent of some of the units in the CPI surveys.

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For Areas Without CPI Surveys

    (1) HUD used random digit dialing (RDD) regional surveys to 
calculate AAFs. The RDD survey method is based on a sampling procedure 
that uses computers to select a statistically random sample of rental 
housing, dial and keep track of the telephone calls, and process the 
responses. RDD surveys are conducted to determine the rent change 
factors for the metropolitan parts (exclusive of CPI areas) and 
nonmetropolitan parts of the 10 HUD regions, a total of 20 surveys.
    (2) The change in rent with the highest cost utility included in 
the rent was calculated using the average of the ratios of gross rent 
in the current year RDD survey divided by the previous year's for the 
respective metropolitan or nonmetropolitan parts of the HUD region.
    (3) The change in rent with the highest cost utility excluded 
(i.e., paid separately by the tenant) was calculated in the same 
manner, after subtracting the median values of utilities costs from the 
gross rents in the two years. The median cost of utilities was 
determined from the units in the RDD sample which reported that all 
utilities were paid by the tenant.

Other Matters

Environmental Impact

    An environmental assessment is unnecessary, since revising Annual 
Adjustment Factors is categorically excluded from the Department's 
National Environmental Policy Act procedures under 24 CFR 50.19(c)(6).

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this Notice do not have federalism implications and, thus, 
are not subject to review under the Order. The Notice merely announces 
the adjustment factors to be used to adjust contract rents in the 
Section 8 Housing Assistance Payment programs, as required by the 
United States Housing Act of 1937.
    The Catalog of Federal Domestic Assistance program number for Lower 
Income Housing Assistance programs (Section 8) is 14.156.
    Accordingly, the Department publishes these Annual Adjustment 
Factors for the Section 8 Housing Assistance Payments Programs as set 
forth in the following Tables:

    Dated: September 17, 1998.
Andrew Cuomo,
Secretary.

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[FR Doc. 98-25568 Filed 9-23-98; 8:45 am]
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