[Federal Register Volume 68, Number 14 (Wednesday, January 22, 2003)]
[Notices]
[Pages 3116-3140]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-1273]



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Part IV





Department of Housing and Urban Development





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Section 8 Housing Assistance Payments Program--Contract Rent Annual 
Adjustment Factors, Fiscal Year 2003; Notice

  Federal Register / Vol. 68, No. 14 / Wednesday, January 22, 2003 / 
Notices  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4803-N-01]


Section 8 Housing Assistance Payments Program--Contract Rent 
Annual Adjustment Factors, Fiscal Year 2003

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 for calendar months commencing after the 
date of publication of this Notice. The AAFs 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's Random Digit Dialing (RDD) rent change surveys.

EFFECTIVE DATE: January 22, 2003.

FOR FURTHER INFORMATION CONTACT: Gerald Benoit, Director, Housing 
Voucher Management Operations Division, Office of Housing Voucher 
Program, Office of Public and Indian Housing, (202) 708-0477 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; Willie Spearmon, Director, 
Office of Housing Assistance and Grant Administration, Office of 
Housing, (202) 708-3000, 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. Mailing address for above persons: Department of Housing and 
Urban Development, 451 Seventh Street, SW., Washington, DC 20410-0500. 
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: The sections of this Notice explain how AAFs 
are applied to various Section 8 programs:
    [sbull] Section 1--How AAFs are used in particular Section 8 
project-based assistance programs.
    [sbull] Section 2--When and how to apply the statutory 1 percent 
reduction to AAFs.
    [sbull] Section 3--Procedures for adjusting rent in three section 8 
program categories.
    [sbull] Section 4--How to find the applicable AAF.
    [sbull] Section 5--Geographic Areas.
    [sbull] Section 6--How HUD calculates AAFs.

I. Applying AAFs to Various Section 8 Programs

    AAFs established by this Notice are used to adjust contract rents 
for units assisted in certain Section 8 housing assistance payments 
programs, during the original (i.e., pre-renewal) term of the Housing 
Assistance Payments (HAP) contract. Three categories of Section 8 
programs 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.
    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 voucher program, or to determine renewal 
rents or budget-based rents.
    [sbull] Renewal Rents. AAFs are not used to determine renewal rents 
after expiration of the original Section 8 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 
determined by applying a state-by-state operating cost adjustment 
factor (OCAF) published by HUD.
    [sbull] Voucher Program. AAFs are not used for any purpose in the 
Section 8 voucher program.
    [sbull] Budget-based Rents. AAFs are not used for budget-based rent 
adjustments. For projects receiving Section 8 subsidies under the loan 
management (LM) program (24 CFR part 886, subpart A) or under the 
property disposition (PD) program (24 CFR part 886, subpart C), 
contract rents 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.
    [sbull] Certificate Program. In the past, AAFs were used to adjust 
the contract rent (including manufactured home space rentals) in the 
tenant-based certificate program. However, this program has now been 
terminated. All tenancies in the tenant-based certificate program have 
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.

How AAF Is Applied in the Moderate Rehabilitation Programs

    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. When To Use Reduced AAF (From AAF Table 2)

    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 0.01:

--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

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from the annual adjustment factor in Table 1.

III. Adjustment Procedures

    This section of the notice provides a broad description of 
procedures for adjusting the contract rent. 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 Section 8 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-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 Certificate Project-based Certificate Program 
(PBC: Part 983)

    The following procedures are used to adjust contract rent for 
outstanding 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.

IV. How to Find the AAF

    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.
    [sbull] The applicable AAF is selected as follows:
    [sbull] Determine whether Table 1 or Table 2 is applicable.
    [sbull] In Table 1 or Table 2, locate the AAF for the geographic 
area where the contract unit is located.
    [sbull] Determine whether the highest cost utility is or is not 
included in contract rent for the contract unit.
    [sbull] If highest cost utility is included, select the AAF from 
the column for ``highest cost included''. If highest cost utility is 
not included, select the AAF from the column for ``utility excluded'.

V. 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                    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.
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    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.

VI. How HUD Calculates AAFS

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 Tables.

    Dated: January 9, 2003.
Mel Martinez,
Secretary.

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[FR Doc. 03-1273 Filed 1-21-03; 8:45 am]
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