[Federal Register Volume 69, Number 156 (Friday, August 13, 2004)]
[Notices]
[Pages 50208-50209]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-18502]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4728-N-04]


Notice of Certain Operating Cost Adjustment Factors for 2005

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Publication of the 2005 Operating Cost Adjustment Factors 
(OCAFs) for Section 8 rent adjustments at contract renewal under 
section 524 of the Multifamily Assisted Housing Reform and 
Affordability Act of 1997 (MAHRA), as amended by the Preserving 
Affordable Housing for Senior Citizens and Families into the 21st 
Century Act of 1999, and under the Low-Income Housing Preservation and 
Resident Homeownership Act of 1990 (LIHPRHA) Projects assisted with 
Section 8 Housing Assistance Payments.

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SUMMARY: This notice establishes annual factors used in calculating 
rent adjustments under section 524 of MAHRA as amended by the 
Preserving Affordable Housing for Senior Citizens and Families into the 
21st Century Act of 1999, and under LIHPRHA.

EFFECTIVE DATE: February 11, 2005.

FOR FURTHER INFORMATION CONTACT: Regina Aleksiewicz, Housing Project 
Manager, Office of Housing Assistance and Grant Administration, 
Department of Housing and Urban Development, Office of Multifamily 
Housing, 451 Seventh Street, SW., Washington, DC 20410-8000; telephone 
(202) 708-3000; extension 2600 (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 800-877-
8339.

SUPPLEMENTARY INFORMATION:

I. Operating Cost Adjustment Factors (OCAFs)

    Section 514(e)(2) of the FY 1998 HUD Appropriations Act, requires 
HUD to establish guidelines for rent adjustments based on an operating 
cost adjustment factor (OCAF). 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. 
HUD has therefore developed a single factor to be applied uniformly to 
all projects utilizing OCAFs as the method by which rents are adjusted.
    Additionally, section 524 of the Act gives HUD broad discretion in 
setting OCAFs--referring simply to ``operating cost factors established 
by the Secretary.'' The sole exception to this grant of authority is a 
specific requirement that application of an OCAF shall not result in a 
negative rent adjustment. 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.
    An analysis of cost data for FHA-insured projects showed that their 
operating 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. 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.
    States are the lowest level of geographical aggregation at which 
there are enough projects to permit statistical analysis. Additionally, 
no data were available for the Western Pacific Islands. Data for Hawaii 
was therefore 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

[[Page 50209]]

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 2002). The data 
sources for the nine cost indicators selected were as follows:
    Labor Costs--3/03 to 3/04 Bureau of Labor Statistics (BLS), 
Employment Cost Index, Private Sector Wages and Salaries Component at 
the National Level.
    Employment Benefit Costs--3/03 to 3/04 BLS Employment Cost Index, 
Employee Benefits at the National Level.
    Property Taxes--3/03 to 3/04 BLS Consumer Price Index, All Items 
Index.
    Goods, Supplies, Equipment--3/03 to 3/04 BLS Producer Price Index, 
Finished Goods Less Food and Energy.
    Insurance--3/03 to 3/04 BLS Consumer Price Index, Tenant and 
Household Residential Insurance Index.
    Fuel Oil--Energy Information Agency, consumption-weighted 2002 to 
2003 year-end annual average state prices for 2 distillate 
residential fuel oil (U.S. average change was used for states with too 
little fuel oil consumption to have values).
    Electricity--Energy Information Agency, consumption-weighted 2002 
to 2003 year-end annual average residential electric prices per 
Kilowatt-hour.
    Natural Gas--Energy Information Agency, consumption-weighted 2002 
to 2003 year-end annual average natural gas prices.
    Water and Sewer--3/03 to 3/04 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 June 2003 to June 2004, the wage increase 
component of the Virginia OCAF for 2005 would be 2.0 percent (4% x 
50%). This 2.0 percent would then be added to the increases for the 
other eight expense categories to calculate the 2005 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.

II. MAHRA and LIHPRHA OCAF Procedures

    MAHRA (Title V of Pub. L. 105-65, approved October 7, 1997; 42 
U.S.C. 1437f note) as amended by the Preserving Affordable Housing for 
Senior Citizens and Families into the 21st Century Act of 1999, created 
the Mark-to-Market Program to reduce the cost of federal housing 
assistance, enhance HUD's administration of such assistance, and 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 projects. For Section 8 Moderate Rehabilitation 
projects, other than single room occupancy projects (SROs) under the 
Stewart B. McKinney Homeless Assistance Act (McKinney Act, 42 U.S.C. 
11301 et seq.), that are eligible for renewal under section 524(b)(3) 
of MAHRA, the renewal rents are required to be set at the lesser of: 
(1) The existing rents under the expiring contract, as adjusted by the 
OCAF; (2) fair market rents (less any amounts allowed for tenant-
purchased utilities); or (3) comparable market rents for the market 
area.
    LIHPRHA (see, in particular, section 222(a)(2)(G)(i) of LIHPRHA, 12 
U.S.C. 4112(a)(2)(G)(i) and the regulations at 24 CFR 248.145(a)(9)(i)) 
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.

III. Findings and Certifications

Environmental Impact

    This issuance sets forth rate determinations and related external 
administrative requirements and procedures that do not constitute a 
development decision affecting the physical condition of specific 
project areas or building sites. Accordingly, under 24 CFR 50.19(c)(6), 
this notice is categorically excluded from environmental review under 
the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

Catalog of Federal Domestic Assistance Number

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

    Dated: August 3, 2004.
John C. Weicher,
Assistant Secretary for Housing--Federal Housing Commissioner.

               Operating Cost Adjustment Factors for 2005
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                                                                 Percent
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Alabama.......................................................       2.6
Alaska........................................................       4.1
Arizona.......................................................       2.0
Arkansas......................................................       2.9
California....................................................       2.7
Colorado......................................................       3.5
Connecticut...................................................       4.3
Delaware......................................................       2.5
Dist. of Columbia.............................................       3.3
Florida.......................................................       3.1
Georgia.......................................................       3.1
Hawaii........................................................       3.2
Idaho.........................................................       1.9
Illinois......................................................       3.8
Indiana.......................................................       3.0
Iowa..........................................................       3.7
Kansas........................................................       3.3
Kentucky......................................................       3.2
Louisiana.....................................................       3.9
Maine.........................................................       3.6
Maryland......................................................       2.9
Massachusetts.................................................       4.0
Michigan......................................................       3.2
Minnesota.....................................................       3.9
Mississippi...................................................       2.8
Missouri......................................................       2.8
Montana.......................................................       4.5
Nebraska......................................................       3.1
Nevada........................................................       1.9
New Hampshire.................................................       3.5
New Jersey....................................................       3.7
New Mexico....................................................       2.7
New York......................................................       3.7
N. Carolina...................................................       2.4
N. Dakota.....................................................       3.6
Ohio..........................................................       3.0
Oklahoma......................................................       3.6
Oregon........................................................       2.2
Pennsylvania..................................................       2.8
Rhode Island..................................................       3.7
S. Carolina...................................................       2.6
S. Dakota.....................................................       3.8
Tennessee.....................................................       2.6
Texas.........................................................       4.5
Utah..........................................................       2.6
Vermont.......................................................       2.5
Virginia......................................................       3.1
Washington....................................................       2.4
W. Virginia...................................................       2.3
Wisconsin.....................................................       3.3
Wyoming.......................................................       3.3
Pacific Islands...............................................       3.4
Puerto Rico...................................................       2.6
Virgin Islands................................................       2.7
U.S. Average..................................................       3.3
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[FR Doc. 04-18502 Filed 8-12-04; 8:45 am]
BILLING CODE 4210-27-P