[Federal Register Volume 77, Number 72 (Friday, April 13, 2012)]
[Notices]
[Pages 22340-22343]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-8971]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5620-N-01]


Section 8 Housing Assistance Payments Program-Annual Adjustment 
Factors, Fiscal Year 2012

AGENCY: Office of the Secretary, HUD.

ACTION: Notice of Fiscal Year (FY) 2012 Annual Adjustment Factors 
(AAFs).

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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 adjustments to 
monthly rentals for units covered by the contracts. This notice 
announces FY 2012 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 recent 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. For FY 2011 and FY 2010, these AAFs were 
designated as ``Contract Rent'' AAFs, to differentiate them from 
``Renewal Funding'' AAFs that were used exclusively for renewal funding 
of tenant-based rental assistance. Renewal Funding AAFs are being 
replaced by an inflation factor established by the Secretary, so there 
is no need to differentiate the AAF by use. A separate Federal Register 
Notice will be published that will identify the inflation factors that 
will be used to adjust tenant-based rental assistance funding for FY 
2012.

DATES: Effective Date: April 13, 2012.

FOR FURTHER INFORMATION CONTACT: Michael S. Dennis, Director, Housing 
Voucher Programs, Office of Public Housing and Voucher Programs, Office 
of Public and Indian Housing, 202-708-1380, 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-
708-4300, for questions regarding the Single Room Occupancy (SRO) 
Moderate Rehabilitation program; Catherine Brennan, Acting Director, 
Office of Housing Assistance and Grant Administration, Office of 
Housing, 202-708-3000, for questions relating to all other Section 8 
programs; and Geoffrey Newton, Economist, Economic and Market Analysis 
Division, Office of Policy Development and Research, 202-402-6058, for 
technical information regarding the development of the schedules for 
specific areas or the methods used for calculating the AAFs. The 
mailing address for these individuals is: 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.)

[[Page 22341]]


SUPPLEMENTARY INFORMATION: The tables showing AAFs are available 
electronically from the HUD data information page at http://www.huduser.org/portal/datasets/aaf/FY2012_tables.pdf.

I. 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 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 AAFs:
    Category 1--The Section 8 New Construction, Substantial 
Rehabilitation, and Moderate Rehabilitation programs.
    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 application of the 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, 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. 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 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.
    Tenant-based Certificate Program. In the past, 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 AAFs to adjust 
rents. All tenancies remaining in the project-based certificate program 
continue to use AAFs to adjust contract rent for outstanding HAP 
contracts.
    Voucher Program. AAFs are not used to adjust rents in the Tenant-
Based or the Project-Based Voucher programs.

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 AAF is applied to the pre-adjustment contract 
rent (the contract rent in effect prior to the application of the AAF). 
In the Section 8 Moderate Rehabilitation program (both the regular 
program and the single room occupancy program) the published AAF is 
applied to the pre-adjustment base rent (the base rent in effect prior 
to the application of the AAF).
    For Category 1 programs, the Table 1 AAF is applied before 
determining comparability (for purposes of determining 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 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: Section 8 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).)
    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 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.
     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 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

[[Page 22342]]

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 * * *'' (see 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 the 
unassisted market. Since HUD pays the full amount of any rent 
increases for assisted tenants in 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 AAF Tables, Tables 
1 and 2. 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 set at 1.0, as 
required by statute; the corresponding AAF in Table 2 will also be set 
at 1.0, as required by statute.

IV. How To Find the AAF

    AAF Tables 1 and 2 are posted on the HUD User Web site at http://www.huduser.org/portal/datasets/aaf/FY2012_tables.pdf. There are two 
columns in each AAF 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 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 Utility Included.'' If highest cost 
utility is not included, select the AAF from the column for ``Highest 
Cost Utility Excluded.''

V. Methodology

    AAFs are rent inflation factors. Two types of rent inflation 
factors are calculated for 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 reflect 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.''
    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 data from the Consumer 
Expenditure Survey (CEX) on the percentage of renters who pay for heat 
(a proxy for the percentage of renters who pay shelter rent) and also 
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 www.HUDUSER.org.
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Survey Data Used To Produce AAFs

    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 2009 to 
2010. 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 2009 CEX survey data produced for HUD for the purpose of 
computing AAFs. The utility-to-rent ratio used to produce AAFs comes 
from 2009 ACS median rent and utility costs.

Geographic Areas

    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 AAF that is based on that 
CPI survey is applied to the whole CBSA and to any HUD-defined 
metropolitan area, called the ``HUD Metro FMR Area'' (HMFA), within 
that CBSA. If the CBSA is not covered by a CPI city-survey, the CBSA 
uses the relevant regional CPI factor. Almost all non-metropolitan 
counties use 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 
75 percent 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 and each HMFA is listed 
alphabetically within its respective CBSA. Each AAF applies to a 
specific geographic area and to units of all bedroom sizes. 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 (to be used for those 
metropolitan and non-metropolitan areas that are not covered by a CPI 
city-survey).
    AAFs use the same OMB metropolitan area definitions, as revised by 
HUD, that are used for the FY 2012 FMRs.

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Area Definitions

    To make certain that they are using the correct AAFs, users should 
refer to the Area Definitions Table section at http://www.huduser.org/portal/datasets/aaf/FY2012_AreaDef.pdf. The Area Definitions Table 
lists CPI areas in alphabetical order by state, and the associated 
Census region is shown next to each state name. Areas whose AAFs are 
determined by local CPI surveys are listed first. All metropolitan 
areas with local CPI surveys have separate 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/FY2012_AreaDef.pdf.
    Puerto Rico and the Virgin Islands use the South Region AAFs. All 
areas in Hawaii use the AAFs listed next to ``Hawaii'' in the Tables 
which are based on the CPI survey for the Honolulu metropolitan area. 
The Pacific Islands use the West Region AAFs.

    Dated: April 3, 2012.
Raphael W. Bostic,
Assistant Secretary for Policy Development and Research.
[FR Doc. 2012-8971 Filed 4-12-12; 8:45 am]
BILLING CODE 4210-67-P