[Federal Register Volume 64, Number 99 (Monday, May 24, 1999)]
[Notices]
[Pages 28078-28079]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13076]



[[Page 28077]]

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Part IV





Department of Housing and Urban Development





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Certain Operating Cost Adjustment Factors; Notice

  Federal Register / Vol. 64, No. 99 / Monday, May 24, 1999 / Notices  

[[Page 28078]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4435-N-01]


Notice of Certain Operating Cost Adjustment Factors

AGENCY: Office of the Secretary, HUD.

ACTION: Notice.

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SUMMARY: This notice establishes factors used in rent adjustments under 
section 524 of the Multifamily Assisted Housing Reform and 
Affordability Act of 1997 (MAHRA) and the Low-Income Housing 
Preservation and Resident Homeownership Act of 1990 (LIHPRHA).

EFFECTIVE DATE: May 24, 1999.

FOR FURTHER INFORMATION CONTACT: Peter Giaquinto, Office of Multifamily 
Housing Business Products, Department of Housing and Urban Development, 
451 Seventh Street, SW, Washington, DC 20410; telephone (202) 708-2526; 
(This is not a toll-free number). Hearing or speech-impaired 
individuals may access this number via TTY by calling the toll-free 
Federal Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION

I. Operating Cost Adjustment Factors (OCAFs)

    Various statutes provide for rents under section 8 project-based 
assistance contracts to be determined using OCAFs. The legislation 
requiring HUD to establish OCAFs for LIHPRHA projects and projects with 
contract renewals under section 524 of MAHRA is similar in wording and 
intent, and HUD has developed factors that will be applied to both 
programs. The methodology used is an improvement over that used to date 
to provide LIHPRHA factors in that it covers a wider range of operating 
costs and provides more localized data.
    An analysis of operating cost data for FHA-insured projects showed 
that their expenses could be grouped into nine categories: wages, 
employee benefits, property taxes, insurance, supplies and equipment, 
fuel oil, electricity, natural gas, and water and sewer. States are the 
lowest level of geographical aggregation at which there are enough 
projects to permit statistical analysis. Based on an analysis of these 
data, HUD derived estimates of the percentage of routine operating 
costs that were attributable to each of these nine expense categories. 
Data for projects with unusually high or low expenses due to unusual 
circumstances were deleted from analysis. No data were available for 
the Western Pacific Islands, and data for Hawaii was used to generate 
OCAFs for these areas.
    The best current measures of cost changes for the nine cost 
categories were selected. The only categories for which current data 
are available at the State level are for fuel oil, electricity, and 
natural gas. Current price change indices for the other six categories 
are only available at the national level. The Department had the choice 
of using dated State-level data or relatively current national data. It 
opted to use national data rather than data that would be two or more 
years older (e.g., the most current local wage data are for 1996). The 
data sources for the nine cost indicators selected used were as 
follows:
    Labor Costs--Bureau of Labor Statistics (BLS) Employment Cost 
Index.
    Employee Benefit Costs--BLS Employment Cost Index.
    Property Taxes--BLS Consumer Price Index, All Items index.
    Goods, Supplies, Equipment--BLS Producer Price Index, Consumer 
Goods Less Food and Energy.
    Insurance--BLS Consumer Price Index, residential insurance index.
    Fuel Oil--U.S. Department of Energy, average State prices for #2 
residential fuel oil (U.S. average change was used for the States with 
too little fuel oil consumption to have values).
    Electricity--U.S. Department of Energy, ``Electric Power Monthly'' 
reports.
    Natural Gas--U.S. Department of Energy, ``Natural Gas Monthly'' 
average annual change (monthly data are available, but are so erratic 
that annual averages offer a more reliable measure).
    Water and Sewer--BLS Consumer Price Index Detailed Report.
    The sum of the nine cost components equals 100 percent of operating 
costs for purposes of OCAF calculations. To calculate the OCAFs, the 
selected inflation factors are multiplied by the relevant State-level 
operating cost percentages derived from the previously referenced 
analysis of FHA insured projects. For instance, if wages in Virginia 
comprised 50 percent of total operating cost expenses and wages 
increased by 4 percent from March 1997 to March 1998, the wage increase 
component of the Virginia OCAF for FY 1999 would be 2.0 percent (4%  x  
50%). This 2.0 percent then be added to the increases for the other 
eight expense categories to calculate the FY 1999 OCAF for Virginia. 
These types of calculations were made for each State for each of the 
nine cost components, and are included as the Appendix to this notice.
    OCAFs are to be applied uniformly to all projects utilizing OCAFs 
as the method by which rents are adjusted upon expiration of the term 
of the contract. OCAFs are applied to project contract rent less debt 
service. Except for renewals under section 524(a)(2) of MAHRA: rents 
will not be permitted to exceed comparable market rent and HUD reserves 
the right to require owners to provide a rent comparability study 
before approving future rent increases. This method is to be applied to 
projects covered by LIHPRHA, MAHRA and Section 8 contract renewals.

II. LIHPRHA Rent Adjustment Procedures

A. OCAF Contract Rent Increases

    The Low-Income Housing Preservation and Resident Homeownership Act 
of 1990 (``LIHPRHA'') (see, in particular, section 222(a)(2)(G)(i) of 
LIHPRHA, 12 U.S.C. 4112(a)(2)(G) and the regulations at 24 CFR 
248.145(a)(9)) requires that future rent adjustments for LIHPRHA 
projects be made by applying an annual factor to be determined by the 
Secretary to the portion of project rent attributable to operating 
expenses for the project and, where the owner is a priority purchaser, 
to the portion of project rent attributable to project oversight costs. 
The Secretary has determined to use the Operating Cost Adjustment 
Factor (OCAF) as the annual factor. HAP renewals for LIHPRHA will 
follow the standard OCAF application methodology outlined above.

B. Budget-Based Method of Calculating Contract Rent Increases

    If an owner believes that the contract rents approved by the 
Secretary pursuant to the OCAF are not adequate, an owner may request 
that its contract rent increase be calculated using the budget-based 
method pursuant to Section 222(a)(2)(G)(ii) of LIHPRHA. Owners shall: 
(1) submit documentation to HUD pursuant to the procedures in Chapter 7 
of HUD Handbook 4350.1, Insured Project Servicing Handbook, and (2) 
demonstrate that an increase in contract rents above that provided by 
the OCAF is necessary to reflect extraordinary necessary expenses of 
owning and maintaining the housing. If the Secretary determines that 
the project rents pursuant to the OCAF are insufficient to cover 
project operating expenses, the Secretary may increase contract rents 
in excess of the amount determined pursuant to the OCAF to reflect 
extraordinary necessary expenses of owning and maintaining the project.

[[Page 28079]]

Rents will not be permitted to exceed comparable market rent. Any 
contract rent increase resulting from using the budget-based method 
shall be effective for the year approved.

III. MAHRA OCAF Procedure

    The Multifamily Assisted Housing Reform and Affordability Act of 
1997, title V of Pub. L. 105-65 (approved October 27, 1997), 42 U.S.C. 
1437f note (MAHRA), created the Mark-to-Market Program to reduce the 
cost of Federal housing assistance, enhance HUD's administration of 
such assistance, and to ensure the continued affordability of units in 
certain multifamily housing projects. Section 524 of MAHRA authorizes 
renewal of section 8 project-based assistance contracts for projects 
without Restructuring Plans under the Mark-to-Market Program, including 
renewals that are not eligible for Plans and those for which the owner 
does not request Plans. Renewals must be at rents not exceeding 
comparable market rents except for certain exception projects. Section 
524(a)(2) of MAHRA authorizes renewals for these exception projects at 
rent levels that are the lesser of existing rents adjusted by an OCAF 
or a level that provides income sufficient to support a budget-based 
rent.

A. Projects Eligible for OCAF

    Renewals under section 524(a)(2) of MAHRA can be selected only at 
the request of the owner for the following classes of ``exception 
projects'':
    (1) A project for which the primary financing or mortgage insurance 
was provided by a unit of State government or a unit of general local 
government (or an agency or instrumentality of either) and was not 
insured under the National Housing Act, 12 U.S.C. 1702 et seq., (NHA);
    (2) A project for which the primary financing was provided by a 
unit of State government or a unit of general local government (or an 
agency or instrumentality of either) and the financing involved 
mortgage insurance under the NHA, such that the implementation of a 
Restructuring Plan under MAHRA is in conflict with applicable law or 
agreements governing such financing;
    (3) A project for the elderly financed under section 202 of the 
Housing Act of 1959 or section 515 of the Housing Act of 1949;
    (4) A project that has an expiring contract section 8 moderate 
rehabilitation contract for single room occupancy dwellings; or
    (5) A project that does not qualify as an eligible project under 
section 512(2) of MAHRA (i.e., because rents do not exceed comparable 
market rents or because there is no HUD-insured or HUD-held mortgage).

B. Method for Applying OCAF

    Projects subject to MAHRA that are eligible for OCAFs may request 
contract rents based on published HUD OCAFs. The factors apply to 
approved total contract rents less debt service.

IV. Findings and Certifications

Environmental Impact

    In accordance with 24 CFR 50.19(c)(6) of the HUD regulations, the 
policies and procedures contained in this notice set forth rate 
determinations and related external administrative requirements and 
procedures which do not constitute a development decision that affects 
the physical condition of specific project areas or building sites, and 
therefore are categorically excluded from the requirements of the 
National Environmental Policy Act.

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 will not have substantial direct effects on 
States or their political subdivisions, or the relationship between the 
Federal government and the States, or on the distribution of power and 
responsibilities among the various levels of government. As a result, 
the notice is not subject to review under the Order. This notice 
pertains to Operating Cost Adjustment Factors (OCAFs), to be used for 
rent increases under LIHPRHA, and does not substantially alter the 
established roles of the Department, the States, and local governments.

Catalog of Federal Domestic Assistance Number

    The Catalog of Federal Domestic Assistance Number for this program 
is 14.187.

    Dated: May 18, 1999.
Andrew Cuomo,
Secretary.

   Appendix--FY 1999 Operating Cost Adjustment Factors (OCAF) for Rent
          Adjustments at Section 8 and LIHPRHA Contract Renewal
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                                                                Total
                           State                              (percent)
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Alabama....................................................          3.1
Alaska.....................................................          2.0
Arizona....................................................          2.3
Arkansas...................................................          3.1
California.................................................          2.8
Colorado...................................................          3.1
Connecticut................................................          2.1
Delaware...................................................          3.6
Dist. of Columbia..........................................          2.6
Florida....................................................          3.1
Georgia....................................................          3.1
Hawaii.....................................................          3.3
Idaho......................................................          2.3
Illinois...................................................          3.1
Indiana....................................................          3.2
Iowa.......................................................          3.1
Kansas.....................................................          2.9
Kentucky...................................................          3.3
Louisiana..................................................          2.8
Maine......................................................          2.5
Maryland...................................................          2.8
Massachusetts..............................................          3.0
Michigan...................................................          2.7
Minnesota..................................................          2.7
Mississippi................................................          2.9
Missouri...................................................          3.0
Montana....................................................          3.2
Nebraska...................................................          3.3
Nevada.....................................................          2.6
New Hampshire..............................................          3.3
New Jersey.................................................          2.9
New Mexico.................................................          3.9
New York...................................................          2.5
N. Carolina................................................          2.8
N. Dakota..................................................          2.7
Ohio.......................................................          3.2
Oklahoma...................................................          3.2
Oregon.....................................................          2.3
Pennsylvania...............................................          3.1
Rhode Island...............................................          3.3
S. Carolina................................................          2.8
S. Dakota..................................................          2.9
Tennessee..................................................          2.8
Texas......................................................          2.7
Utah.......................................................          3.1
Vermont....................................................          2.7
Virginia...................................................          3.2
Washington.................................................          2.6
W. Virginia................................................          2.3
Wisconsin..................................................          2.6
Wyoming....................................................          3.2
Pacific Islands............................................          3.1
Puerto Rico................................................          2.9
Virgin Islands.............................................          2.4
U.S. Average...............................................          2.8
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[FR Doc. 99-13076 Filed 5-21-99; 8:45 am]
BILLING CODE 4210-32-P