[Federal Register Volume 71, Number 3 (Thursday, January 5, 2006)]
[Notices]
[Pages 602-617]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-59]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5016-N-02]


Public Housing Operating Fund Variable Coefficients for Public 
Housing Operating Fund Project Expense Levels; Correction

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Notice; correction.

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SUMMARY: On December 28, 2005, HUD published a notice to provide 
supplemental information to public housing agencies (PHAs) and members 
of the public regarding HUD's method of calculating public housing 
operating subsidy in accordance with the Public Housing Operating Fund 
Program regulation at 24 CFR part 990. HUD inadvertently left out 
appendices A-C from that publication. This notice republishes the 
December 28, 2005, notice in its entirety and includes the appendices.

DATES: Effective Date: January 27, 2006.

FOR FURTHER INFORMATION CONTACT: The Office of Public and Indian 
Housing, Real Estate Assessment Center (PIH-REAC), Attention: Wanda 
Funk, Department of Housing and Urban Development, Real Estate 
Assessment Center, 550 Twelfth Street, SW., Suite 100, Washington, DC 
20410; telephone the PIH-REAC Technical Assistance Center at (888) 245-
4860 (this is a toll free number). Persons with hearing or speech 
impairments may access this number through TTY by calling the toll-free 
Federal Information Relay Service at (800) 877-8339. Additional 
information is available from the PIH-REAC Web site at http://www.hud.gov/reac/.

SUPPLEMENTARY INFORMATION: On December 28, 2005, HUD published (70 FR 
76964) a notice to provide supplemental information to public housing 
agencies (PHAs) and members of the public regarding HUD's method of 
calculating public housing operating subsidy in accordance with the 
Public Housing Operating Fund Program regulation at 24 CFR part 990. 
HUD inadvertently left out appendices A-C from that publication. This 
correction notice republishes the December 28, 2005, notice in its 
entirety and includes appendices A, B, and C.

    Dated: December 29, 2005.
Aaron Santa Anna,
Assistant General Counsel for Regulations.

Department of Housing and Urban Development

[Docket No. FR-5016-N-01]

Public Housing Operating Fund; Variable Coefficients for Public Housing 
Operating Fund Project Expense Levels

    Agency: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.
    Action: Notice.
    Summary: This notice provides supplemental information to public 
housing agencies (PHAs) and members of the public regarding HUD's 
method of calculating public housing operating subsidy in accordance 
with the Public Housing Operating Fund Program regulation at 24 CFR 
part 990. Subpart C of the final rule describes how formula expenses 
will be calculated under the new Operating Fund Formula. This notice 
explains the computation of the project expense level (PEL), which is 
one factor in the formula expenses component of the Operating Fund 
Formula.
    Date:
    Effective Date: January 27, 2006.
    For Further Information Contact:
    The Office of Public and Indian Housing, Real Estate Assessment 
Center (PIH-REAC), Attention: Wanda Funk, Department of Housing and 
Urban Development, Real Estate Assessment Center, 550 Twelfth Street, 
SW., Suite 100, Washington, DC 20410; telephone the PIH-REAC Technical 
Assistance Center at (888) 245-4860 (this is a toll free number). 
Persons with hearing or speech impairments may access this number 
through TTY by calling the toll-free Federal Information Relay Service 
at (800) 877-8339. Additional information is available from the PIH-
REAC Web site at http://www.hud.gov/reac/.
    Supplementary Information:

Purpose of the Notice

    The purpose of this notice is to provide additional information 
about the computation of the operating subsidy under the revised 
Operating Fund Program rule. HUD published a final rule, Revisions to 
the Public Housing Operating Fund Program (79 FR 54983), in the Federal 
Register on September 19, 2005, revising the Department's Public 
Housing Operating Fund Program regulation at 24 CFR part 990 and 
adopting a final Operating Fund Formula for determining the

[[Page 603]]

payment of operating subsidies to PHAs. The final rule, developed 
through negotiated rulemaking conducted in 2004, became effective 
November 18, 2005.
    The new Operating Fund Formula for calculating operating subsidy is 
comprised of three major components. These three components are: 
eligible unit months, formula expenses, and formula income. The formula 
expense component, as described in subpart C of the final rule, 
consists of the project expense level (PEL), the utility expense level, 
and other formula expenses (add-ons). This notice provides a step-by-
step description of the computation of the PEL. In the event that 
insufficient funds are available, as noted in the final rule at 24 CFR 
990.210(c), HUD shall have discretion to revise, on a pro rata basis, 
the amounts of operating subsidy to be paid to PHAs.

Variables and Coefficient Values

    In accordance with 24 CFR 990.165 of the final rule, HUD will 
calculate the PEL for each public housing project using the ten 
variables and associated coefficients from the Harvard University 
Graduate School of Design Cost Model (cost model). The PEL will be 
expressed as a per unit per month (PUM) amount.
    The coefficient for each of the ten formula variables that 
determine a PEL is expressed in percentage terms. The proper 
coefficients applied to a particular variable for a project depend on 
the physical, demographic, or geographic characteristics of the 
project. Therefore, the coefficient that will be applied for each of 
the variables depends upon the characteristics of the project. The ten 
variables are listed in Table 1:

                  Table 1.--Operating Subsidy Variables
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               No.                               Variables
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1................................  Size of Project.
2................................  Age of Property.
3................................  Unit Size (Bedroom Mix).
4................................  Building Type.
5................................  Occupancy Type.
6................................  Location.
7................................  Neighborhood Poverty Rate.
8................................  Percent of Households Assisted.
9................................  Ownership Type.
10...............................  Geographic.
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    The coefficient values for variables one through nine are set forth 
in Appendix A. The value for the tenth coefficient, Geographic, is set 
forth in Appendix B.
    In addition to the ten variables described above, the PEL 
calculation includes the application of what are called ``cost 
adjustments.'' There are four cost adjustments and they are:
    (1) A national floor of $200 PUM for elderly projects and of $215 
PUM for family projects.
    (2) A national ceiling of $420 PUM for all projects, except for 
projects owned by the New York City Housing Authority (NYCHA), which 
have a ceiling of $480 PUM.
    (3) When the calculated PEL is over $325 PUM, the result is reduced 
by 4 percent, but it will not be reduced to less than $325 PUM. Note: 
This step does not apply to NYCHA properties.
    (4) The reduction in the amount of audit costs as a PUM reported 
for FY 2003.
    All of the variables and the cost adjustments will yield a PEL for 
a project in year 2000 dollars. After the PEL in year 2000 dollars is 
created, it will be inflated using the HUD-determined annual inflation 
factor on Line A7 of the form HUD-52723, Operating Fund Calculation of 
Operating Subsidy, OMB Approval Number 2577-0029, expires June 30, 
2006, from 2001, 2002, 2003, and 2004, to arrive at the initial PEL in 
year 2004 dollars. The initial PEL in 2004 dollars then will be 
adjusted annually beginning in 2005 by the HUD-determined local 
inflation factor (see 24 CFR 990.165).

Determination of Coefficients

    For each PEL calculation, the proper coefficient for each variable 
will be determined as follows:
     Size of Project. The size of project is the total number 
of ACC units in the project.
     Age of Property. The age of the project is determined by 
the difference between the Date of Full Availability (DOFA) and 
December 31, 2000. When different projects are combined or buildings 
from different projects are combined to form a ``new project,'' the age 
of the property will be the weighted average age of the different 
buildings in the new project based on their number of units (unit 
weighted average).
     Unit Size (Bedroom Mix). The unit size of a project is 
determined by the percentage of two, three, and four or more bedroom 
units in that project.
     Building Type. The building type is determined by the type 
of structure(s) that comprise the project. For example, a single family 
home is a detached/semi-detached building type. When there are 
different building types in one project (e.g., detached and row/
townhouses), the building type is determined by the majority of the 
units in that project.
     Occupancy Type. The occupancy type is determined by the 
percentage of efficiency and one bedroom units in the project. If there 
are more than 50 percent efficiencies and one bedroom units, the 
project is considered senior. All other properties are considered 
family properties. When different projects are combined, or buildings 
from different projects are combined to form a ``new project,'' the 
occupancy type will be the weighted average occupancy type of the 
different buildings in the new project based on their number of units 
(unit weighted average).
     Location. The location variable is based on the property 
census tract. The property is classified as within the central city of 
a Metropolitan Statistical Area (MSA), a non-central city area of an 
MSA, or a rural area.
     Neighborhood Poverty Rate. The neighborhood poverty rate 
for each project is taken from the 1990 Census, using the project 
address to determine the census tract. If buildings in a project are in 
different census tracts, the tract with the highest number of units 
determines the neighborhood poverty rate.
     Percent of Households Assisted. Although there are five 
categories within the cost model for the percentage of units within a 
project that are assisted, for purposes of the PEL calculations for 
public housing, all PHA projects will be considered to be 100 percent 
assisted.
     Ownership Type. The ownership type for all public housing 
projects is non-profit.
     Geographic. The geographic coefficient is taken from the 
table in Appendix A that provides a coefficient for each area listed.

The PEL Calculation Process

    HUD will calculate the PEL for each project using the following 
steps in the order presented.
    Step 1: For a given project, the proper coefficient for each of the 
ten variables from which the cost model is constructed is determined 
using Appendices A and B. The proper coefficient to be applied for each 
variable depends on the physical, demographic, or geographic 
characteristics of the project.
    Step 2: Sum the coefficient values identified in step 1 for the 
following eight variables:
     Size of Project
     Age of Property
     Building Type
     Occupancy Type
     Location
     Neighborhood Poverty Rate
     Percent of Households Assisted

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     Geographic
    Step 3: Determine the coefficient value of the Unit Size (Bedroom 
Mix) variable by calculating the percentage of two, three, and four or 
more bedroom units in the property. The percentage of two, three, and 
four or more bedrooms units in the property is then multiplied by the 
applicable coefficient.
     The percentage of 2 bedroom units is multiplied by 17.61 
percent, the coefficient for 2 bedroom units.
     The percentage of 3 bedroom units is multiplied by 37.65 
percent, the coefficient for 3 bedroom units.
     The percentage of 4 or more bedroom units is multiplied by 
48.73 percent, the coefficient for 4 bedroom units.
    The resulting values for each bedroom size are then summed.
    Step 4: Add the totals of steps 2 and 3 to 520.18 percent, the 
formula constant.
    Step 5: Compute the exponent of the result of step 4. In Microsoft 
(MS) Excel, the formula for determining the exponent is: EXP (sum of 
coefficients). For example, if the result in step four is 575.6 
percent, in MS Excel the exponent is determined by EXP (575.6 percent). 
For this example, the exponent would be 316.08 and it would be 
expressed as a dollar amount.
    Step 6: Multiply the result from step 5 by the product of one plus 
the coefficient value of the Ownership Type variable. Because the 
ownership type of public housing is non-profit, the product of one plus 
the coefficient value of the Ownership Type variable (i.e., non-profit 
adjustment) is 110 percent, or 1.10. This result is also expressed as a 
dollar amount.
    Step 7: When the result of step 6 is greater than $325, the result 
is reduced by 4 percent, but it will not be reduced to less than $325. 
Note: This step does not apply to NYCHA properties. The dollar amount 
that results from step 7 represents the PEL before the floor and 
ceiling cost adjustments and before the application of the inflation 
factor.
    Step 8: Apply the following floor and ceiling cost adjustments, as 
necessary:
     If the result of step 7 is less than $200 and the project 
Occupancy Type is identified as senior, the result is raised to $200.
     If the result of step 7 is less than $215 and the project 
Occupancy Type is identified as family, the result is raised to $215.
     If the result of step 7 is greater than $420 and the 
project is not owned by the NYCHA, nor is the project NYCHA mixed 
finance rental housing, the result is decreased to $420.
     If the result of step 7 is greater than $480 and the 
project is either owned by the NYCHA, or is NYCHA mixed finance rental 
housing, the result is decreased to $480.
    Step 9: Subtract the PUM cost of the audit expenses for FY 2003 
from the result of step 8. To determine the initial PEL, the PUM audit 
expenses are taken from Line A12 of the PHA's 2003 form HUD-52723, 
Operating Fund Calculation of Operating Subsidy, OMB Approval Number 
2577-0029, expires June 30, 2006.
    Step 10: Inflate the initial PEL from year 2000 dollars to 2004 
dollars by multiplying the result of step 9 by the local annual 
inflation factors for the four intervening years (2001, 2002, 2003 and 
2004) and round the result to the nearest penny from the third decimal 
place with a half a penny or more rounded up (e.g., all values between 
$206.005 and $206.014, inclusive, would be rounded to $206.01, and all 
values between $206.015 and $206.024, inclusive, would be rounded to 
$206.02). The local annual inflation factors are found on Line 7 of the 
HUD-52723, Operating Fund Calculation of Operating Subsidy, OMB 
Approval Number 2577-0029, expires June 30, 2006, forms for those 
years. For example: assume the 2000 PEL is $397.85 and the 2001 
inflation factor is 1.019, the 2002 inflation factor is 1.023, the 2003 
inflation factor is 1.015, and the 2004 inflation factor is 1.031.
    (1) Multiply: 1.019 times 1.023 times 1.015 times 1.031. This 
equals 1.090874.
    (2) Multiply: $398.77 times 1.090874. This equals 435.0078.
    (3) Round the result to the nearest penny. This equals $435.01, 
which is the initial PEL in 2004 dollars.
    The initial PEL in year 2004 dollars then will be adjusted annually 
by the HUD-determined local inflation factor beginning in FY 2005.

PHA PEL Calculation FFY 2007

    In FFY 2007, HUD will fund operating subsidy at the PHA level by 
calculating a PHA's PEL using a weighted average of the PELs for each 
project in the PHA based on the number of units. Accordingly, in FFY 
2007, the three following steps will be added to the ten steps 
described above in order to arrive at the PHA weighted average PEL.
    Step 11: Multiply each project PEL by the number of ACC units in 
that property.
    Step 12: Sum the amounts calculated in step 11 and divide that 
number by the total number of units in the PHA. The result is the 
weighted average 2004 PHA PEL that HUD will use to determine the 
transition funding for each PHA.
    Step 13: The PHA PEL for 2006 will be calculated by multiplying the 
2004 PHA PEL by the HUD inflation factors for 2005, 2006, and 2007.

PHA PEL Calculation FFY 2008 and After

    Beginning in FY 2008 and every fiscal year thereafter, HUD will 
calculate a PEL for each project and fund PHA operating subsidy on a 
project-by-project basis. Accordingly, beginning in FY 2008, the result 
in step 10 will be the PEL for each project.

PELs for ``New'' Asset Management Projects

    For purposes of asset management, in accordance with subpart H of 
24 CFR part 990 of the final rule, PHAs may either combine existing 
developments, divide existing developments, or combine some or all of 
the buildings from more than one existing development to create a new 
project. After these changes are made, HUD will calculate a PEL for the 
new project and, when applicable, for any existing developments based 
on the remaining buildings.
    A. For each new project, the Age of Property variable will be a 
unit weighted average age of the buildings from the different 
developments. To determine the unit weighted average age of the 
buildings, HUD will:
    (1) Calculate the age of each building in days from DOFA until 
December 31, 2000, using a 360-day year where each month has 30 days.
    (2) Calculate the unit days for each building by multiplying the 
number of units in each building by the age in days for that building.
    (3) Total the unit days for all buildings.
    (4) Divide the total unit days by the total number of units in all 
of the buildings in the new project. Divide the result by 360 and round 
to the nearest whole number.
    HUD will use the result as the applicable age coefficient for that 
project in accordance with the steps described, above, and shown in 
Appendix C. Further guidance on grouping projects for purpose of asset 
management will be provided through a PIH notice.
    B. For each new project, the Occupancy Type variable will be a unit 
weighted average occupancy type of the different buildings in the 
project. HUD will:
    (1) Compute the proportion of units that are in senior buildings by 
dividing the number of units in the senior

[[Page 605]]

buildings by the total number of units in the new project;
    (2) Multiply the result by the senior property coefficient, i.e., -
5.83; and
    (3) Round the result to the nearest hundredth.
    HUD will use the result as the occupancy type coefficient for the 
new project in accordance with the steps described, above, and shown in 
Appendix C.

Moving-to-Work PHAs

    For the PHAs that are participating in the Moving-to-Work (MTW) 
Demonstration authorized under section 204 of the Omnibus Consolidated 
Rescissions and Appropriations Act of 1996, PELs will be determined in 
accordance with the steps set forth above. However, pursuant to 24 CFR 
990.165(f), these PHAs may receive operating subsidy as provided in 
Attachment A of their MTW Agreements executed prior to November 18, 
2005, the effective date of the rule.

Mixed Finance Developments

    For mixed finance developments that have either closed prior to 
November 18, 2005, or for which the PHA has filed documents in 
accordance with 24 CFR 941.606 (as amended prior to such date), the 
operating subsidy will be funded based on the higher of the new PEL or 
the former allowable expense level under the regulation that was in 
effect prior to November 18, 2005.

Example

    A step-by-step example of a project PEL calculation and a PHA PEL 
calculation is set forth in Appendix C.

Data Used for Calculations

    The project characteristics that HUD will use to calculate the PELs 
for all PHA properties in year 2000 dollars will be based on the 
Development field information in the Public and Indian Housing 
Information Center (PIC) database. The date upon which HUD will extract 
the data from PIC for each year's subsidy calculation will be provided 
in an annual PIH notice.

Environmental Impact

    This notice provides operating instructions and procedures in 
connection with activities under 24 CFR part 990 of the final rule, 
which has previously been subject to a required environmental review. 
Accordingly, under 24 CFR Sec.  50.19(c)(4), this notice is 
categorically excluded from environmental review under the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321).

Dated: December 9, 2005.

Orlando J. Cabrera,
Assistant Secretary for Public and Indian Housing.
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[FR Doc. 06-59 Filed 1-4-06; 8:45 am]
BILLING CODE 4210-33-C