[Federal Register Volume 66, Number 227 (Monday, November 26, 2001)]
[Rules and Regulations]
[Pages 59052-59078]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-29172]



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Part II





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 2002; Final Rule

  Federal Register / Vol. 66 , No. 227 / Monday, November 26, 2001 / 
Rules and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 888

[Docket No. FR-4715-N-01]


Section 8 Housing Assistance Payments Program--Contract Rent 
Annual Adjustment Factors, Fiscal Year 2002

AGENCY: Office of the Secretary, HUD.

ACTION: Notice of revised contract rent annual adjustment factors.

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SUMMARY: This Notice announces revised Annual Adjustment Factors (AAFs) 
for adjustment of Section 8 contract rents on housing assistance 
payment contract anniversaries from October 1, 2001. The AAFs are based 
on a formula using data on residential rent and utility cost changes 
from the most current Bureau of Labor Statistics Consumer Price Index 
(CPI) survey and from HUD's Random Digit Dialing (RDD) rent change 
surveys.

EFFECTIVE DATE: October 1, 2001.

FOR FURTHER INFORMATION CONTACT: Gerald Benoit, Director, Real Estate 
and Housing Performance Division, Office of Public and Assisted Housing 
Delivery, can respond to 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; and Beverly 
Miller, Director, Office of Multifamily Asset Management, Office of 
Housing (202) 708-3730 for questions relating to all other Section 8 
programs. Lynn A. Rodgers, Economic and Market Analysis Division, 
Office of Policy Development and Research (202) 708-0590, is the 
contact for technical information regarding the development of the 
schedules for specific areas or the methods used for calculating the 
AAFs. The mailing address for the above person is: 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: This Notice explains how AAFs are applied to 
various Section 8 programs. The first section of the Notice identifies 
to which programs and under what circumstances AAFs apply. The second 
section explains when and how to apply the statutory 1 percent 
reduction to AAFs. The third section describes the actual adjustment 
procedures. Next the Notice explains the content and applicability of 
the two AAF tables included in this Notice and provides detailed 
information on the geographical coverage of each AAF area. The Notice 
closes with a brief explanation of how HUD calculates AAFs.

I. Section 8 Programs That Use the AAFS

    AAFs established by this Notice are used to adjust contract rents 
for units assisted in certain Section 8 housing assistance payments 
programs, during the term of the HAP contract. Two categories of 
Section 8 program use the AAFs:
    Category 1--The Section 8 new construction and substantial 
rehabilitation programs and the moderate rehabilitation program.
    Category 2--The Section 8 loan management (LM) and property 
disposition (PD) programs.
    Category 3--The Section 8 project-based certificate program (for 
outstanding pre-conversion HAP contracts).
    Each Section 8 program category uses the AAFs differently. The 
specific application of the 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 AAFs are not used to determine renewal rents 
after expiration of the original Section 8 project-based 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.
     Voucher Program AAFs are not used for any purpose in the 
Section 8 voucher program.
     Budget-based Rents 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.
     Certificate Program In the past, AAFs were used to adjust 
contract rent in the tenant-based certificate program (including 
manufactured home space rentals in the certificate program). However, 
this program has now been terminated. All tenancies have now been 
converted to the Voucher Program. AAFs are still used for adjustment of 
contract rent for outstanding HAP contracts under the project-based 
certificate program executed before conversion to the voucher 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 AAF to the base rent component of the 
contract rent, not the full contract rent. For the other covered 
programs, the AAF is applied to the whole amount of the pre-adjustment 
contract rent.

II. 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 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).

    To implement the law, HUD publishes two separate AAF Tables, 
contained in Schedule C, Tables 1 and 2 of this notice. Each AAF in 
Table 2 has been computed by subtracting 0.01 from the annual 
adjustment factor in Table 1.

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III. Adjustment Procedures

    This section of the notice is intended to provide a broad 
description of adjustment procedures. Technical details and 
requirements are described in HUD notices. The notices are 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 project-based certificate [PBC] program (where the AHAP was 
entered prior to January 16, 2001).

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-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 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 Project-Based Certificate Program

    The following procedures are used to adjust contract rent for 
outstanding pre-conversion HAP contracts in the Section 8 Project-based 
Certificate program:

--The Table 2 AAF is always used; the Table 1 AAF is not used.
--The Table 2 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 AAF, the comparable rent level will be the new rent to 
owner.
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--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.
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 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 and 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

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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.
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.
    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.
    Accordingly, the Department publishes these Annual Adjustment 
Factors for the Section 8 Housing Assistance Payments Programs as set 
forth in the following Tables:

    Dated: November 6, 2001.
Mel Martinez,
Secretary.

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[FR Doc. 01-29172 Filed 11-23-01; 8:45 am]
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