[Federal Register Volume 71, Number 190 (Monday, October 2, 2006)]
[Notices]
[Pages 57991-57993]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-16182]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5103-N-01]


Notice of Certain Operating Cost Adjustment Factors for 2007

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

ACTION: Publication of the 2007 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 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).

DATES: Effective Date: February 11, 2007.

FOR FURTHER INFORMATION CONTACT: Stan Houle, Housing Project Manager, 
Office of Housing Assistance and Grant Administration, Office of 
Multifamily Housing, Department of Housing and Urban Development, 451 
Seventh Street, SW., Washington, DC 20410; telephone (202) 708-3000; 
extension 2572 (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 MAHRA 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

[[Page 57992]]

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 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 2003).
    In prior years, OCAF adjustments have used either the overall 
Consumer Price Index (CPI) change or the Residential Property Tax index 
from the Census Consumer Expenditure Survey (CES) as a surrogate for 
property tax increases. In 2007, the surrogate is the Census Quarterly 
Summary of State and Local Government Tax Revenue--Table 1. Based on a 
review of available data, HUD has determined that continued use of the 
overall CPI index as a surrogate measure of property tax changes has 
become inappropriate. The most current CES data available for this 
analysis is from 2004; therefore, the information lags current market 
trends. Average property tax increases have been higher in recent 
years, and in limited instances are known to be much higher. Although 
the Census of Local Governments property tax revenues adjusted for 
revenue units is an inexact measure of residential property tax 
increases, it is the best such national measure found to date.
    The data sources for the nine cost indicators selected used were as 
follows:
    Labor Costs--3/2005 to 3/2006 Bureau of Labor Statistics (BLS), 
``Employment Cost Index, Private Sector Wages and Salaries Component at 
the National Level.''
    Employment Benefit Costs--3/2005 to 3/2006 Bureau of Labor 
Statistics (BLS) ``Employment Cost Index, Employee Benefits at the 
National Level.''
    Property Taxes--2004-2005 Census Quarterly Summary of State and 
Local Government Tax Revenue--Table 1.
    Goods, Supplies, Equipment--3/2005 to 3/2006 Bureau of Labor 
Statistics (BLS) ``Producer Price Index, Consumer Goods Less Food and 
Energy.''
    Insurance--3/2005 to 3/2006 Bureau of Labor Statistic (BLS) 
``Consumer Price Index, Tenant and Household Residential Insurance 
Index.''
    Fuel Oil--Energy Information Agency, 2004 to 2005 consumption-
weighted annual average State prices for 2 residential fuel 
oil (Department of Energy multi-state fuel oil grouping averages used 
for the States with too little fuel oil consumption to have values).
    Electricity--Energy Information Agency, February 2006 ``Electric 
Power Monthly'' report, Table 5.6.B.
    Natural Gas--Energy Information Agency, Natural Gas, Residential 
Energy Price, 2004-2005 annual cost in dollars per 1,000 cubic feet 
(monthly data are so erratic that annual averages offer a more reliable 
measure).
    Water and Sewer--3/2005 to 3/2006 Consumer Price Index, ``All Urban 
Consumers, Water and Sewer and Trash Collection Services.''
    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 March 2004 to March 2005, the wage increase 
component of the Virginia OCAF for 2006 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 2006 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, 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 to 
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 
McKinney-Vento 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.
    The Low-Income Housing Preservation and Resident Homeownership Act 
of 1990 (``LIHPRHA'') (see, in particular, section 222(a)(2)(G)(i) of 
LIHPRHA, 12 U.S. 4112 (a)(2)(G) and the regulations at 24 CFR 
248.145(a)(9) 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

[[Page 57993]]

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).

Executive Order 13132, Federalism

    This notice does not have federalism implications and does not 
impose substantial direct compliance costs on State and local 
governments or preempt State law within the meaning of Executive Order 
13132 (entitled ``Federalism'').

Catalog of Federal Domestic Assistance Number

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

    Dated: September 22, 2006.
Brian D. Montgomery,
Assistant Secretary for Housing-Federal Housing Commissioner.

               Operating Cost Adjustment Factors for 2007
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                                                                Percent
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ALABAMA......................................................        3.2
ALASKA.......................................................        5.6
ARIZONA......................................................        3.0
ARKANSAS.....................................................        4.1
CALIFORNIA...................................................        3.7
COLORADO.....................................................        3.6
CONNECTICUT..................................................        6.3
DELAWARE.....................................................        4.4
DIST.OF COLUMBIA.............................................        3.8
FLORIDA......................................................        3.9
GEORGIA......................................................        3.8
HAWAII.......................................................        4.4
IDAHO........................................................        3.1
ILLINOIS.....................................................        4.3
INDIANA......................................................        4.1
IOWA.........................................................        4.9
KANSAS.......................................................        3.3
KENTUCKY.....................................................        3.3
LOUISIANA....................................................        4.1
MAINE........................................................        5.1
MARYLAND.....................................................        4.0
MASSACHUSETTS................................................        5.9
MICHIGAN.....................................................        4.7
MINNESOTA....................................................        4.6
MISSISSIPPI..................................................        4.0
MISSOURI.....................................................        3.2
MONTANA......................................................        4.0
NEBRASKA.....................................................        3.9
NEVADA.......................................................        3.4
NEW HAMPSHIRE................................................        4.6
NEW JERSEY...................................................        3.9
NEW MEXICO...................................................        3.4
NEW YORK.....................................................        5.8
N. CAROLINA..................................................        3.0
N. DAKOTA....................................................        4.7
OHIO.........................................................        4.7
OKLAHOMA.....................................................        5.0
OREGON.......................................................        3.1
PENNSYLVANIA.................................................        3.9
RHODE ISLAND.................................................        6.7
S. CAROLINA..................................................        3.1
S. DAKOTA....................................................        4.9
TENNESSEE....................................................        3.4
TEXAS........................................................        5.8
UTAH.........................................................        3.2
VERMONT......................................................        4.0
VIRGINIA.....................................................        3.5
WASHINGTON...................................................        3.1
W. VIRGINIA..................................................        3.1
WISCONSIN....................................................        4.3
WYOMING......................................................        3.4
PACIFIC ISLANDS..............................................        3.8
PUERTO RICO..................................................        2.6
VIRGIN ISLANDS...............................................        2.0
U.S. AVERAGE.................................................        4.3
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 [FR Doc. E6-16182 Filed 9-29-06; 8:45 am]
BILLING CODE 4210-67-P