[Federal Register Volume 75, Number 27 (Wednesday, February 10, 2010)]
[Notices]
[Pages 6685-6688]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-2991]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5391-N-01]


Section 8 Housing Assistance Payments Program--Contract Rent 
Annual Adjustment Factors, Fiscal Year 2010

AGENCY: Office of the Secretary, HUD.

ACTION: Notice of Revised Contract Rent Annual Adjustment Factors 
(AAF).

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SUMMARY: The United States Housing Act of 1937 requires that assistance 
contracts signed by owners participating in the Department's Section 8 
housing assistance payment programs provide annual adjustment to 
monthly rentals for units covered by the contract. This notice 
announces revised Contract Rent AAFs for adjustment of contract rents 
on assistance contract anniversaries. The factors are based on a 
formula using residential rent and utility cost changes from the most 
current annual Bureau of Labor Statistics Consumer Price Index (CPI) 
survey. These factors are applied at Housing Assistance Payment (HAP) 
contract anniversaries for those calendar months commencing after the 
effective date of this notice. In a separate notice, HUD will publish 
``Renewal Funding AAFs'' to be used exclusively for renewal funding of 
tenant-based rental assistance, reflecting the more recent CPI data.

DATES: Effective Date: February 10, 2010

FOR FURTHER INFORMATION: Contact David Vargas, Associate Deputy 
Assistant Secretary for Office of Public Housing and Voucher Programs, 
Office of Public and Indian Housing, 202-708-2815, for questions 
relating to the Project-Based Certificate and Moderate Rehabilitation 
programs (non Single Room Occupancy); Ann Oliva, Director, Office of 
Special Needs Assistance Programs, Office of Community Planning and 
Development, 202-708-

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4300, for questions regarding the Single Room Occupancy (SRO) 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; and Marie L. 
Lihn, Economist, Economic and Market Analysis Division, Office of 
Policy Development and Research, 202-708-0590, for technical 
information regarding the development of the schedules for specific 
areas or the methods used for calculating the AAFs. Mailing address for 
the above persons: Department of Housing and Urban Development, 451 7th 
Street, SW., Washington, DC 20410. Hearing- or speech-impaired persons 
may contact the Federal Information Relay Service at 800-877-8339 
(TTY). (Other than the ``800'' TTY number, the above-listed telephone 
numbers are not toll free.)

SUPPLEMENTARY INFORMATION: Tables showing Contract Rent AAFs will be 
available electronically from the HUD data information page at http://www.huduser.org/portal/datasets/aaf.html/FY2010_CR_tables.pdf.

I. Applying Contract Rent AAFs to Various Section 8 Programs

    Contract Rent AAFs established by this Notice are used to adjust 
contract rents for units assisted in certain Section 8 housing 
assistance payment programs during the initial (i.e., pre-renewal) term 
of the HAP contract and for all units in the Project-Based Certificate 
program. There are three categories of Section 8 programs that use the 
Contract Rent 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 Contract Rent AAFs 
differently. The specific application of the Contract Rent AAFs is 
determined by the law, the HAP contract, and appropriate program 
regulations or requirements.
    AAFs are not used in the following cases:
    Renewal Rents. With the exception of the Project-Based Certificate 
program, Contract Rent 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 
based on the applicable state-by-state operating cost adjustment factor 
(OCAF) published by HUD; the OCAF is applied to the previous year's 
contract rent minus debt service.
    Budget-based Rents. Contract Rent 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) and for projects 
receiving Section 8 subsidies under the PD program (24 CFR part 886, 
subpart C), contract rents are adjusted, at HUD's option, either by 
applying the Contract Rent AAFs or by budget-based adjustments in 
accordance with 24 CFR 886.112(b) and 24 CFR 886.312(b). Budget-based 
adjustments are used for most Section 8/202 projects.
    Certificate Program. In the past, Contract Rent AAFs were used to 
adjust the contract rent (including manufactured home space rentals) in 
both the tenant-based and project-based certificate programs. The 
tenant-based certificate program has been terminated and all tenancies 
in the tenant-based certificate program have been converted to the 
Housing Choice Voucher Program, which does not use Contract Rent AAFs 
to adjust rents. All tenancies remaining in the project-based 
certificate program continue to use Contract Rent AAFs to adjust 
contract rent for outstanding HAP contracts.
    Voucher Program. Contract Rent AAFs are not used to adjust rents in 
the Tenant-Based or the Project-Based Voucher programs.
    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 
Contract Rent AAF to the base rent component of the contract rent, not 
the full contract rent.

II. 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 H 2002--10 (Section 8 New 
Construction and Substantial Rehabilitation, Loan Management, and 
Property Disposition) and PIH 97--57 (Moderate Rehabilitation and 
Project-Based Certificates).
    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 Contract Rent AAF factor is applied to the pre-
adjustment contract rent. In the Section 8 Moderate Rehabilitation 
program, the published Contract Rent AAF is applied to the pre-
adjustment base rent.
    For Category 1 programs, the Table 1 Contract Rent 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 Fair Market Rent (FMR).
    If the comparable rent level (plus any initial difference) is lower 
than the contract rent as adjusted by application of the Table 1 
Contract Rent 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 Contract Rent AAF is used for a unit occupied 
by a new family since the last annual contract anniversary.
     The Table 2 Contract Rent 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 Category 2 programs are 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 Contract Rent AAF is determined as follows:
     The Table 1 Contract Rent AAF is used for a unit occupied 
by a new family since the last annual contract anniversary.
     The Table 2 Contract Rent 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 Project-Based Certificate Program

    The following procedures are used to adjust contract rent for 
outstanding HAP contracts in the Section 8 PBC program:

[[Page 6687]]

     The Table 2 Contract Rent AAF is always used. The Table 1 
Contract Rent AAF is not used.
     The Table 2 Contract Rent 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 Contract Rent AAF, the comparable rent level 
will be the new rent to owner.
     The new rent to owner will not be reduced below the 
contract rent on the effective date of the HAP contract.

III. When to Use Reduced Contract Rent AAFs (From Contract Rent 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 Contract Rent 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).

    Legislative history for this statutory provision states that ``the 
rationale [for lower AAFs for non-turnover units is] that operating 
costs are less if tenant turnover is less * * *''. Department of 
Veteran Affairs and Housing and Urban Development, and Independent 
Agencies Appropriations for 1995, Hearings Before a Subcommittee of the 
Committee on Appropriations 103d Cong., 2d Sess. 591 (1994). The 
Congressional Record also states the following:

    Because the cost to owners of turnover-related vacancies, 
maintenance, and marketing are lower for long-term stable tenants, 
these tenants are typically charged less than recent movers in 
unassisted market. Since HUD pays the full amount of any rent 
increases for assisted tenants section 8 projects and under the 
Certificate program, HUD should expect to benefit from this `tenure 
discount.' Turnover is lower in assisted properties than in the 
unassisted market, so the effect of the current inconsistency with 
market-based rent increases is exacerbated. (140 Cong. Rec. 8659, 
8693 (1994)).

    To implement the law, HUD publishes two separate Contract Rent AAF 
Tables, Tables 1 and 2. The difference between Table 1 and Table 2 is 
that each Contract Rent AAF in Table 2 is 0.01 less than the 
corresponding Contract Rent AAF in Table 1. Where a Contract Rent AAF 
in Table 1 would otherwise be less than 1.0, it is set at 1.0, as 
required by statute; the corresponding Contract Rent AAF in Table 2 
will also be set at 1.0, as required by statute.

IV. How to Find the Contract Rent AAF

    Tables 1 and 2 that show Contract Rent AAFs are posted on the HUD 
User Web site at http://www.huduser.org/portal/datasets/aaf.html/FY2010_CR_tables.pdf. There are two columns in each table. The first 
column is used to adjust contract rent for rental 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 Contract Rent AAF is selected as follows:
     Determine whether Table 1 or Table 2 is applicable. In 
Table 1 or Table 2, locate the Contract Rent 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 Contract 
Rent AAF from the column for ``highest cost included.'' If highest cost 
utility is not included, select the Contract Rent AAF from the column 
for ``utility excluded.''

V. Methodology

    Contract Rent AAFs are rent inflation factors. Two types of rent 
inflation factors are calculated for Contract Rent AAFs: Gross rent 
factors and shelter rent factors. The gross rent factor accounts for 
inflation in the cost of both the rent of the residence and the 
utilities used by the unit; the shelter rent factor accounts for the 
inflation in the rent of the residence, but does not include any change 
in the cost of utilities. The gross rent inflation factor is designated 
as ``Highest Cost Utility Included'' and the shelter rent inflation 
factor is designated as ``Highest Cost Utility Excluded''.
    Contract Rent AAFs are calculated using CPI data on ``rent of 
primary residence'' and ``fuels and utilities''.\1\ The CPI inflation 
index for rent of primary residence measures the inflation of all 
surveyed units regardless of whether utilities are included in the rent 
of the unit or not. In other words, it measures the inflation of the 
``contract rent'' which includes units with all utilities included in 
the rent, units with some utilities included in the rent and units with 
no utilities included in the rent. In producing a gross rent inflation 
factor and a shelter rent inflation factor, HUD decomposes the contract 
rent CPI inflation factor into parts to represent the gross rent change 
and the shelter rent change. This is done by applying the percentage of 
renters who pay for heat (a proxy for the percentage renters who pay 
shelter rent) from the Consumer Expenditure Survey (CEX) and American 
Community Survey (ACS) data on the ratio of utilities to rents.\2\
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    \1\ CPI indexes CUUSA103SEHA and CUSR0000SAH2 respectively.
    \2\ The formulas used to produce these factors can be found in 
the Annual Adjustment Factors overview and in the FMR documentation 
at http://www.HUDUSER.org
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Survey Data Used to Produce Contract Rent AAFs

    In this publication, the rent and fuel and utilities inflation 
factors for large metropolitan areas and Census regions are based on 
changes in the rent of primary residence and fuels and utilities CPI 
indices from 2007 to 2008. The CEX data used to decompose the contract 
rent inflation factor into gross rent and shelter rent inflation 
factors come from a special tabulation of 2007 CEX survey data produced 
for HUD for the purpose of computing Contract Rent AAFs. The utility-
to-rent ratio used to produce Contract Rent AAFs comes from 2007 ACS 
median rent and utility costs.

Geographic Areas

    Contract Rent AAFs are produced for all Class A CPI cities (CPI 
cities with a population of 1.5 million or more) and for the four 
Census Regions. They are applied to core-based statistical areas 
(CBSAs), as defined by the Office of Management and Budget (OMB), 
according to how much of the CBSA is covered by the CPI city-survey. If 
more than 75 percent of the CBSA is covered by the CPI city-survey, the 
Contract Rent AAF that is based on that CPI survey is applied to the 
whole CBSA and to any

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HUD-defined metropolitan area, called ``HUD Metro FMR Area'' (HMFA), 
within that CBSA. If the CBSA is not covered by a CPI city-survey, the 
CBSA is assigned the relevant regional CPI factor. Almost all non-
metropolitan counties are assigned regional CPI factors.\3\ For areas 
assigned the Census Region CPI factor, both metropolitan and non-
metropolitan areas receive the same factor.
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    \3\ There are four non-metropolitan counties that continue to 
use CPI city updates: Ashtabula County, OH, Henderson County, TX, 
Island County, WA, and Lenawee County, MI. BLS has not updated the 
geography underlying its survey for new OMB metropolitan area 
definitions and these counties, are no longer in metropolitan areas, 
but they are included as parts of CPI surveys because they meet the 
75percent standard HUD imposes on survey coverage. These four 
counties are treated the same as metropolitan areas using CPI city 
data.
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    Each metropolitan area that uses a local CPI update factor is 
listed alphabetically in the tables by state and each HMFA is listed 
alphabetically within its respective CBSA. Each Contract Rent AAF 
applies to a specified geographic area and to units of all bedroom 
sizes. Contract Rent AAFs are provided:
     For separate metropolitan areas, including HMFAs and 
counties that are currently designated as non-metropolitan, but are 
part of the metropolitan area defined in the local CPI survey.
     For the four Census Regions for those metropolitan and 
non-metropolitan areas that are not covered by a CPI city-survey.
    The Contract Rent AAFs shown at http://www.huduser.org/portal/datasets/aaf.html/FY2010_CR_tables.pdf use the same OMB metropolitan 
area definitions, as revised by HUD, that are used in the FY 2010 FMRs.

Area Definitions

    To make certain that they are using the correct Contract Rent AAFs, 
users should refer to the Area Definitions Table section at http://www.huduser.org/portal/datasets/aaf.html/FY2010_AreaDef.pdf. For units 
located in metropolitan areas with a local CPI survey, Contract Rent 
AAF areas are listed separately. For units located in areas without a 
local CPI survey, the metropolitan or nonmetropolitan counties receive 
the regional CPI for that Census Region.
    The Area Definitions Table at http://www.huduser.org/portal/datasets/aaf.html/FY2010_AreaDef.pdf lists areas in alphabetical order 
by state. The associated CPI region is shown next to each state name. 
Areas whose Contract Rent AAFs are determined by local CPI surveys are 
listed first. All metropolitan areas with local CPI surveys have 
separate Contract Rent AAF schedules and are shown with their 
corresponding county definitions or as metropolitan counties. In the 
six New England states, the listings are for counties or parts of 
counties as defined by towns or cities. The remaining counties use the 
CPI for the Census Region and are not specifically listed in the Area 
Definitions Table at http://www.huduser.org/portal/datasets/aaf.html/FY2010_AreaDef.pdf.
    Puerto Rico and the Virgin Islands use the South Region Contract 
Rent AAFs. All areas in Hawaii use the Contract Rent 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 West Region 
Contract Rent AAFs.
    Accordingly, HUD publishes these Annual Adjustment Factors for the 
Section 8 Housing Assistance Payments programs as set forth in the 
Contract Rent AAF Tables posted at http://www.huduser.org/portal/datasets/aaf.html/FY2010_CR_tables.pdf.

    Dated: February 4, 2010.
Raphael W. Bostic,
Assistant Secretary for Policy Development and Research.
[FR Doc. 2010-2991 Filed 2-9-10; 8:45 am]
BILLING CODE 4210-67-P