[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]]
_______________________________________________________________________
Part IV
Department of Housing and Urban Development
_______________________________________________________________________
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.
-----------------------------------------------------------------------
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
------------------------------------------------------------------------
Total
State (percent)
------------------------------------------------------------------------
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
------------------------------------------------------------------------
[FR Doc. 99-13076 Filed 5-21-99; 8:45 am]
BILLING CODE 4210-32-P