[Federal Register Volume 70, Number 10 (Friday, January 14, 2005)]
[Notices]
[Pages 2774-2796]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-863]



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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 2005; Notice

  Federal Register / Vol. 70, No. 10 / Friday, January 14, 2005 / 
Notices  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4967-N-01]


Section 8 Housing Assistance Payments Program--Contract Rent 
Annual Adjustment Factors, Fiscal Year 2005

AGENCY: Office of the Assistant Secretary for Policy Development and 
Research, 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 for specified programs. 
These factors apply to housing assistance payment contract 
anniversaries for calendar months commencing after the date of 
publication of this notice. The AAFs are based on residential rent and 
utilities time-series cost indices from the Bureau of Labor Statistics 
Consumer Price Index (CPI) survey and from HUD's Random Digit Dialing 
(RDD) rent change surveys.

DATES: Effective Date: January 14, 2005.

FOR FURTHER INFORMATION CONTACT: David Vargas, Acting Director, Office 
of Housing Voucher Programs, Office of Public and Indian Housing, (202) 
708-2815, can respond to questions relating to the Section 8 Voucher, 
Certificate, and Moderate Rehabilitation programs; Mark Johnston, 
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. Marie L. Lihn, 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. 
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: In addition to being published in the 
Federal Register, this data will be available electronically from the 
HUD data information page: http://www.huduser.org.

I. Methodology

    AAFs are calculated using CPI data on rents and utilities for all 
metropolitan areas with metropolitan-area specific CPI estimates. AAFs 
for other areas are calculated using HUD RDD telephone and mail 
surveys. AAFs are rent change factors. Two types of AAFs are 
calculated. One type is a gross rent change factor that should be used 
when the primary utility (normally heating) is included in the rent. 
The other type is a shelter rent (i.e., rents without utilities) factor 
that should be used when the primary utility is not included in rent. 
Decennial census data are used to establish the relationship between 
gross rents and shelter rents.

Areas Covered by CPI Surveys

    For areas where CPI surveys are conducted, changes in the shelter 
rent and utilities components are calculated based on the most recent 
CPI annual average change data. In this publication, the rent and 
utility CPIs for metropolitan areas are based on changes in the index 
from 2002 to 2003. The ``Highest Cost Utility Included'' column in 
Schedule C is calculated by weighting the rent and utility change 
factors using the corresponding components of gross rent in a 
particular area as calculated in the 2000 Census. The ``Highest Cost 
Utility Excluded'' column in Schedule C is calculated by eliminating 
the utility portion of the gross rent change factor.

Areas Not Covered by CPI Surveys

    For areas without CPI surveys, HUD conducts multi-state regional 
telephone and mail RDD surveys of rents. A total of 20 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. For regional RDD survey areas, the ``Highest Cost Utility 
Included'' factor 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. The factor for the ``Highest Cost Utility Excluded'' (i.e., 
paid separately by the tenant) was calculated in a similar manner, 
after subtracting the median values of each utility cost from the gross 
rents in the two years. The median utility cost values used for each 
utility type come from a base year period in the early 1990's with 
large regional samples that have been updated each year with CPI data. 
This was done because research has shown that tenants can be unreliable 
sources of information on utility dollar amounts, which means that use 
of tenant-reported utility costs would introduce large fluctuations in 
rent change estimates unrelated to real changes. Each year a modeled 
estimate for each type of utility cost is updated with CPI factors. 
These appropriate utility costs are then added to contract rents from 
regional surveys to produce a gross rent estimate.

Geographic Areas

    The metropolitan areas that use the CPI are listed in the tables 
according to the metropolitan area. 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.
    The AAFs shown in Schedule C use the same Office of Management and 
Budget (OMB) definitions of Metropolitan Statistical Area (MSA) and 
Primary Metropolitan Statistical Area (PMSA) that are used in the 
FY2005 Fair Market Rents. HUD modified six metropolitan area 
definitions to separate out peripheral counties with significantly 
different income and rent levels, as listed below:

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           Metropolitan area                    Separated counties
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Chicago, IL............................  DeKalb, Grundy and Kendall
                                          counties in IL.
Cincinnati-Hamilton, OH-KY-IN..........  Brown County, OH; Gallatin,
                                          Grant and Pendleton counties
                                          in KY; and Ohio County, IN.
Dallas, TX.............................  Henderson County, TX.
Flagstaff, AZ-UT.......................  Kane County, UT.
New Orleans, LA........................  St. James Parish, LA.

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Washington, DC-VA-MD-WV................  Berkeley and Jefferson counties
                                          in WV; and Clarke, Culpeper,
                                          King George and Warren
                                          counties in VA.
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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.

Area Definitions in Schedule C

    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. The non-CPI metropolitan and nonmetropolitan 
counties of each state are listed after the metropolitan CPI areas (in 
those states that have such areas). 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.

II. 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 Section 8 Moderate Rehabilitation 
program.
    Category 2--The Section 8 Loan Management (LM) and Property 
Disposition (PD) programs.
    Category 3--The Section 8 Project-based Certificate (PBC) program.
    Each Section 8 program category uses the AAFs differently. The 
specific HAP contract, program regulation, program requirement, or law 
determines the application of the AAFs. Restrictions to the use of AAF 
are discussed below:
    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.
    Budget-based Rents. AAFs are not used for budget-based rent 
adjustments. For projects receiving Section 8 subsidies under the LM 
program (24 CFR part 886, subpart A) or under the 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.
    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 been 
terminated. All tenancies in the tenant-based certificate program have 
been converted to the Housing Choice Voucher Program. AAFs are still 
used for adjustment of contract rent for outstanding HAP contracts 
under the project-based certificate program.
    Moderate Rehabilitation 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.

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, 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 
the three program categories:

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 (24 CFR Part 886, Subpart A) 
and Property Disposition Program (24 CFR 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

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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

    The following procedures are used to adjust contract rent for 
outstanding HAP contracts in the Section 8 PBC 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. When To Use Reduced AAFs (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. The difference 
between Table 1 and Table 2 is that each AAF in Table 2 is 0.01 less 
than the corresponding AAF in Table 1. Where an AAF in Table 1 would 
otherwise be less than 1.0, it is held harmless at 1.0; the 
corresponding AAF in Table 2 will also be held harmless at 1.0.

V. 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.
    The applicable AAF is selected as follows:
     Determine whether Table 1 or Table 2 is applicable.
     In Table 1 or Table 2, locate the AAF for the geographic 
area where the contract unit is located.
     Determine whether the highest cost utility is or is not 
included in contract rent for the contract unit.
     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''.
    Accordingly, HUD publishes these Annual Adjustment Factors for the 
Section 8 Housing Assistance Payments programs as set forth in the 
Tables:

    Dated: January 4, 2005.
Dennis C. Shea,
Assistant Secretary for Policy Development and Research.

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[FR Doc. 05-863 Filed 1-13-05; 8:45 am]
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