[Federal Register Volume 77, Number 194 (Friday, October 5, 2012)]
[Notices]
[Pages 61158-61227]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-24618]



[[Page 61157]]

Vol. 77

Friday,

No. 194

October 5, 2012

Part V





Department of Housing and Urban Development





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Final Fair Market Rents for the Housing Choice Voucher Program and 
Moderate Rehabilitation Single Room Occupancy Program Fiscal Year 2013; 
Notice

  Federal Register / Vol. 77 , No. 194 / Friday, October 5, 2012 / 
Notices  

[[Page 61158]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5648-N-02]


Final Fair Market Rents for the Housing Choice Voucher Program 
and Moderate Rehabilitation Single Room Occupancy Program Fiscal Year 
2013

AGENCY: Office of the Assistant Secretary for Policy Development and 
Research, HUD.

ACTION: Notice of Final Fiscal Year (FY) 2013 Fair Market Rents (FMRs).

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SUMMARY: Section 8(c)(1) of the United States Housing Act of 1937 
(USHA) requires the Secretary to publish FMRs periodically, but not 
less than annually, adjusted to be effective on October 1 of each year. 
This notice publishes the FMRs for the Housing Choice Voucher, the 
Moderate Rehabilitation, the project-based voucher, and any other 
programs requiring their use. Today's notice provides final FY 2013 
FMRs for all areas that reflect the estimated 40th and 50th percentile 
rent levels trended to April 1, 2013. The FY 2013 FMRs are based on 
using 5-year, 2006-2010 data collected by the American Community Survey 
(ACS). These data are updated by one-year recent-mover 2010 ACS data 
using areas where statistically valid one-year ACS data are available. 
The Consumer Price Index (CPI) rent and utility indexes are used to 
further update the data from 2010 to the end of 2011. HUD continues to 
use ACS data in different ways depending on the availability of two-
bedroom standard-quality and recent-mover sample data for its FMR area 
or a larger geographic area such as the Core-Based Statistical Area 
(CBSA) or state nonmetropolitan area.
    The final FY 2013 FMR areas are based on current Office of 
Management and Budget (OMB) metropolitan area definitions and include 
HUD modifications that were first used in the determination of FY 2006 
FMR areas. Changes to the OMB metropolitan area definitions through 
December 2009 are incorporated; there have been no further changes to 
metropolitan area definitions. OMB has announced that new metropolitan 
area definitions will be released in 2013. HUD will incorporate these 
changes during the process to calculate proposed FMRs following the 
release of the new definitions.
    The final FY 2013 FMRs in this notice reflect two changes in the 
methodology used to calculate FMRs. First, HUD has updated the bedroom 
ratios used to calculate 0, 1, 3 and 4 bedroom FMRs based on the two-
bedroom FMR. Bedroom ratios were last updated using the decennial 2000 
Census. Because the 2010 Census did not collect rents, the new bedroom 
ratios are constructed using 2006-2010 5 year ACS data. The methodology 
for calculating the bedroom ratios is very similar to the method used 
when the bedroom ratios were based on 2000 decennial Census long-form 
data. Second, a new trend factor calculation methodology has been used 
for the FY 2013 FMRs, which HUD stated would be implemented in its 
proposed FY 2012 FMR publication on August 19, 2011 (76 FR 52058). This 
trend factor is based on national gross rent data and will change 
annually.

DATES: Effective Date: The FMRs published in this notice are effective 
on October 1, 2012.

FOR FURTHER INFORMATION CONTACT: For technical information on the 
methodology used to develop FMRs or a listing of all FMRs, please call 
the HUD USER information line at 800-245-2691 or access the information 
on the HUD USER Web site http://www.huduser.org/portal/datasets/fmr.html. FMRs are listed at the 40th or 50th percentile in Schedule B. 
For informational purposes, 40th percentile recent-mover rents for the 
areas with 50th percentile FMRs will be provided in the HUD FY 2013 FMR 
documentation system at http://www.huduser.org/portal/datasets/fmr/fmrs/docsys.html&data=fmr13 and 50th percentile rents for all FMR areas 
will be published at http://www.huduser.org/portal/datasets/50per.html 
after publication of final FY 2013 FMRs.
    Questions related to use of FMRs or voucher payment standards 
should be directed to the respective local HUD program staff. Questions 
on how to conduct FMR surveys or concerning further methodological 
explanations may be addressed to Marie L. Lihn or Peter B. Kahn, 
Economic and Market Analysis Division, Office of Economic Affairs, 
Office of Policy Development and Research, telephone 202-708-0590. 
Persons with hearing or speech impairments may access this number 
through TTY by calling the toll-free Federal Relay Service at 800-877-
8339. (Other than the HUD USER information line and TDD numbers, 
telephone numbers are not toll-free.)

SUPPLEMENTARY INFORMATION:

I. Background

    Section 8 of the USHA (42 U.S.C. 1437f) authorizes housing 
assistance to aid lower-income families in renting safe and decent 
housing. Housing assistance payments are limited by FMRs established by 
HUD for different geographic areas. In the HCV program, the FMR is the 
basis for determining the ``payment standard amount'' used to calculate 
the maximum monthly subsidy for an assisted family (see 24 CFR 
982.503). In general, the FMR for an area is the amount that would be 
needed to pay the gross rent (shelter rent plus utilities) of privately 
owned, decent, and safe rental housing of a modest (non-luxury) nature 
with suitable amenities. In addition, all rents subsidized under the 
HCV program must meet reasonable rent standards. HUD's regulations at 
24 CFR 888.113 permit it to establish 50th percentile FMRs for certain 
areas.
    Electronic Data Availability: This Federal Register notice is 
available electronically from the HUD User page at http://www.huduser.org/datasets/fmr.html. Federal Register notices also are 
available electronically from http://www.gpoaccess.gov/fr/index.html, 
the U.S. Government Printing Office Web site. Complete documentation of 
the methodology and data used to compute each area's final FY 2013 FMRs 
is available at http://www.huduser.org/portal/datasets/fmr/fmrs/docsys.html&data=fmr13. Final FY 2013 FMRs are available in a variety 
of electronic formats at http://www.huduser.org/portal/datasets/fmr.html. FMRs may be accessed in PDF format as well as in Microsoft 
Excel. Small Area FMRs based on final FY 2013 Metropolitan Area Rents 
are available in Microsoft Excel format at the same web address. Please 
note that these Small Area FMRs are for reference only, except where 
they are used by PHAs participating in the Small Area FMR 
demonstration.

II. Procedures for the Development of FMRs

    Section 8(c) of the USHA requires the Secretary of HUD to publish 
FMRs periodically, but not less frequently than annually. Section 8(c) 
states, in part, as follows:

    Proposed fair market rentals for an area shall be published in 
the Federal Register with reasonable time for public comment and 
shall become effective upon the date of publication in final form in 
the Federal Register. Each fair market rental in effect under this 
subsection shall be adjusted to be effective on October 1 of each 
year to reflect changes, based on the most recent available data 
trended so the rentals will be current for the year to which they 
apply, of rents for existing or newly constructed rental dwelling 
units, as the case may be, of various sizes and types in this 
section.

    HUD's regulations at 24 CFR part 888 provide that HUD will develop 
proposed FMRs, publish them for public comment, provide a public 
comment

[[Page 61159]]

period of at least 30 days, analyze the comments, and publish final 
FMRs. (See 24 CFR 888.115.) For FY 2013 FMRs, HUD has considered all 
comments submitted in response to its August 3, 2012 (77 FR 46447) 
proposed FY 2013 FMRs and provides its responses later in this 
preamble.
    In addition, HUD's regulations at 24 CFR 888.113 set out procedures 
for HUD to assess whether areas are eligible for FMRs at the 50th 
percentile. Minimally qualified areas \1\ are reviewed each year unless 
not qualified to be reviewed. Areas that currently have 50th percentile 
FMRs are evaluated for progress in voucher tenant concentration after 
three years in the program. Continued eligibility is determined using 
HUD administrative data that show levels of voucher tenant 
concentration. The levels of voucher tenant concentration must be above 
25 percent and show a decrease in concentration since the last 
evaluation. At least 85 percent of the voucher units in the area must 
be used to make this determination. Areas are not qualified to be 
reviewed if they have been made a 50th-percentile area within the last 
three years or have lost 50th-percentile status for failure to de-
concentrate within the last three years.
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    \1\ As defined in 24 CFR 888.113(c), a minimally qualified area 
is an area with at least 100 Census tracts where 70 percent or fewer 
of the Census tracts with at least 10 two-bedroom rental units are 
Census tracts in which at least 30 percent of the two bedroom rental 
units have gross rents at or below the two bedroom FMR set at the 
40th percentile rent. This continues to be evaluated with 2000 
Decennial Census information. Although the 2006-2010 5-year ACS 
tract level data is available, HUD's administrative data on tenant 
locations (used in the calculation of concentration) has not yet 
been updated to use the 2010 Census Tract area definitions. Once 
this administrative data is updated, HUD will implement the 5-year 
ACS data as the basis for determining if areas are minimally 
qualified for 50th percentile status.
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    In FY 2012 there were 21 areas using 50th-percentile FMRs. Of these 
21 areas, 19 were allowed to continue as 50th percentile FMR areas. The 
two areas that are no longer in the 50th percentile program are Grand 
Rapids, MI and Washington, DC. The evaluation of Grand Rapids, MI 
showed that the concentration of HCV tenants fell below what is 
eligiblfor a 50th percentile FMR. This area may be re-evaluated next 
year. The Washington, DC area failed to deconcentrate which means that 
it is not eligible for a 50th percentile FMR program for a three-year 
period. PHAs in the Washington, DC area may seek payment standard 
protection under 24 CFR 982.503(f) from the HUD Field Office is the PHA 
scored the maximum number of points on the deconcentration bonus 
indicator in the prio year, or in two or the last three years.
    Those eligible to continue are listed below:

              FY 2013 Continuing 50th-Percentile FMR Areas
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Austin-Round Rock-San Marcos, TX MSA        Baltimore-Towson, MD MSA.
Bergen-Passaic, NJ HMFA \2\                 Fort Lauderdale, FL HMFA.
Fort Worth-Arlington, TX HMFA               Hartford-West Hartford-East
                                             Hartford, CT HMFA.
Honolulu, HI MSA                            Houston-Baytown-Sugar Land,
                                             TX HMFA.
Las Vegas-Paradise, NV MSA                  New Haven-Meriden, CT HMFA.
North Port-Bradenton-Sarasota, FL MSA       Orange County, CA HMFA.
Philadelphia-Camden-Wilmington, PA-NJ-DE-   Phoenix-Mesa-Glendale, AZ
 MD MSA                                      MSA.
Riverside-San Bernardino-Ontario, CA HMFA   Sacramento--Arden-Arcade--
                                             Roseville, CA HMFA.
Tucson, AZ MSA                              Virginia Beach-Norfolk-
                                             Newport News, VA-NC MSA.
West Palm Beach-Boca Raton, FL HMFA.        ............................
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    In addition, Richmond, VA, an area that graduated from the 50th 
percentile program in FY 2012, re-enters the program in FY 2013. In 
summary, there will be 20 50th-percentile FMR areas in FY 2013. These 
areas are indicated by an asterisk in Schedule B, where all FMRs are 
listed by state.
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    \2\ HMFA stands for HUD Metropolitan FMR Area.
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III. Proposed FY 2013 FMRs

    On August 3, 2012 (77 FR 46447), HUD published proposed FY 2013 
FMRs with a comment period that ended September 4, 2012. HUD has 
considered all public comments received and HUD provides responses to 
these comments later in this preamble. HUD does not specifically 
identify each commenter, but all comments are available for review on 
the Federal Government's Web site for capturing comments on proposed 
regulations and related documents (Regulations.gov--http://www.regulations.gov/#!docketDetail;dct=N%252BO%252BSR%252BPS;rpp=25;po=0;D=HUD-2012-0090).

IV. FMR Methodology

    This section provides a brief overview of how the FY 2013 FMRs are 
computed. For complete information on how FMR areas are determined, and 
on how each area's FMRs are derived, see the online documentation at 
http://www.huduser.org/portal/datasets/fmr/fmrs/docsys.html&data=fmr13.
    The FY 2013 FMRs are based on current OMB metropolitan area 
definitions and standards that were first used in the FY 2006 FMRs. OMB 
changes to the metropolitan area definitions through December 2009 are 
incorporated. There have been no area definition changes published by 
OMB since the publication of the FY 2012 FMRs; therefore, the FY 2013 
area definitions are the same as those used in FY 2012. HUD anticipates 
that OMB will publish new area definitions in 2013. Depending on the 
timing of this release, HUD will incorporate the new area definitions 
into either the FY 2014 or FY 2015 proposed FMRs.

A. Base Year Rents

    The U.S. Census Bureau provided special tabulations of 5-year ACS 
data collected between 2006 through 2010 to HUD in early to mid-2012. 
For FY 2013 FMRs, HUD used the 2006-2010 5-year ACS data to update the 
base rents set in FY 2012 using the 2005-2009 5-year ACS data.\3\
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    \3\ The only difference in survey data between the 2005-2009 5-
year ACS data and the 2006-2010 5-year ACS data is the replacement 
of 2005 survey responses with survey responses collected in 2010. 
The 2006, 2007, 2008, and 2009 survey responses remain intact.
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    FMRs are historically based on gross rents for recent movers (those 
who have moved into their current residence in the last 24 months). 
However, due to the way the 5-year ACS data are constructed, HUD 
developed a new methodology for calculating recent-mover FMRs in FY 
2012. As in FY 2012, all areas are assigned as a base rent the 
estimated two-bedroom standard quality 5-year gross rent from the 
ACS.\4\

[[Page 61160]]

Because HUD's regulations mandate that FMRs must be published as recent 
mover gross rents, HUD continues to apply a recent mover factor to the 
standard quality base rents assigned from the 5-year ACS data. 
Calculation of the recent mover factor is described in section B. 
below.
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    \4\ For areas with a two-bedroom standard quality gross rent 
from the ACS that have a margin of error greater than the estimate 
or no estimate due to inadequate sample in the 2010 5-year ACS, HUD 
uses the two-bedroom state non-metro rent for non-metro areas.
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    No local area rent surveys were conducted in 2011 or 2012 by HUD or 
PHAs, but the surveys conducted in 2010, for Williamsport, PA and Pike 
County, PA supersede the 2006-2010 ACS data.

B. Recent Mover Factor

    Following the assignment of the standard quality two-bedroom rent 
described above, HUD applies a recent mover factor to these rents. In 
preparation for calculating the proposed FY 2013 FMRs, the department 
reviewed the methodology for calculating the recent mover factor from 
the FY 2012 process and made several improvements. The primary change 
is that HUD no longer compares the standard quality gross rent to the 
recent mover gross rent to determine if the two statistics are 
significantly different.\5\ For the FY 2012 FMRs, if the two rents were 
determined to be statistically different the recent mover factor was 
calculated as the percentage increase of the recent mover gross rent 
over the standard quality gross rent. In cases where the two gross 
rents were not statistically different, the recent mover factor was set 
to one. As described below, HUD calculates a similar percentage 
increase as the FY 2013 factor using data from the smallest geographic 
area containing the FMR area where the recent mover gross rent is 
statistically reliable.\6\ The following describes the process 
determining the appropriate recent mover factor. The revised recent 
mover factor process results in 91 percent of the FMR areas having a 
recent mover factor greater than one in FY 2013 compared with only 38 
percent in FY 2012.
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    \5\ The statistical comparison test used, the z-test, assumes 
that the samples from which the two statistics are calculated are 
independent. Because recent mover responders are also part of the 
standard quality responders, the two samples are not independent.
    \6\ For the purpose of the recent mover factor calculation, 
statistically reliable is where the recent mover gross rent has a 
margin of error that is less than the estimate itself. For example, 
if the estimate was 500 and the margin of error was 501, that 
estimate would not be used.
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    In general, HUD uses the 1 year ACS based two-bedroom statistically 
reliable recent mover gross rent estimate from the smallest geographic 
area encompassing the FMR area to calculate the recent mover factor. 
Some areas' recent mover factors will be calculated using data 
collected just for the FMR area. Other areas' recent mover factor will 
be based on larger geographic areas. For metropolitan areas that are 
subareas of larger metropolitan areas, the order is subarea, 
metropolitan area, state metropolitan area, and state. Metropolitan 
areas that are not divided follow a similar path from FMR area, to 
state metropolitan areas, to state. In nonmetropolitan areas the recent 
mover factor is based on the FMR area, the state nonmetropolitan area, 
or if that is not available, on the basis of the whole state. The 
recent mover factor is calculated as the percentage change between the 
5-year 2006-2010 two-bedroom gross rent and the 1 year 2010 recent 
mover two-bedroom gross rent for the recent mover factor area. Recent 
mover factors are not allowed to lower the standard quality base rent; 
therefore, if the 5-year standard quality rent is larger than the 
comparable 1 year recent mover rent, the recent mover factor is set to 
1. The process for calculating each area's recent mover factor is 
detailed in the FY 2013 Final FMR documentation system available at: 
http://www.huduser.org/portal/datasets/fmr/fmrs/docsys.html&data=fmr13.
    This process produces an ``as of'' 2010 recent mover two-bedroom 
base gross rent for the FMR area.\7\
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    \7\ The Pacific Islands (Guam, Northern Marianas and American 
Samoa) as well as the U.S. Virgin Islands are not covered by ACS 
data. As part of the 2010 Decennial Census, these areas were covered 
by a long-form survey. The results gathered by this long form survey 
are not expected to be available until later in 2012. Therefore, HUD 
uses the national change in gross rents, measured between 2009 and 
2010 to update last year's FMR for these areas. Puerto Rico is 
covered by the Puerto Rico Community Survey within the American 
Community Survey; however, the gross rent data produced by the 2006-
2010 ACS are not sufficient to adequately house voucher holders in 
Puerto Rico. This is due to the limited ability to eliminate units 
that do not pass the voucher program's housing quality standards. 
Consequently, HUD is updating last year's FMRs for Puerto Rico using 
the change in rents measured from all of Puerto Rico measured 
between the 2009 and 2010. For details behind these calculations, 
please see HUD's Final FY 2013 FMR documentation system available 
at: http://www.huduser.org/portal/datasets/fmr/fmrs/docsys.html&data=fmr13.
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C. Updates From 2010 to 2011

    The ACS based ``as of'' 2010 rent is updated through the end of 
2011 using the annual change in CPI from 2010 to 2011. As in previous 
years, HUD uses Local CPI data for FMR areas with at least 75 percent 
of their population within Class A metropolitan areas covered by local 
CPI data. HUD uses Census region CPI data for FMR areas in Class B and 
C size metropolitan areas and nonmetropolitan areas without local CPI 
update factors. Following the application of the appropriate CPI update 
factor, HUD converts the ``as of'' 2011 CPI adjusted rents to ``as of'' 
December 2011 rents by multiplying each rent by the national December 
2011 CPI divided by the national annual 2011 CPI value. HUD does this 
in order to apply an exact amount of the annual trend factor to place 
the FY 2013 FMRs as of the mid-point of the 2013 fiscal year.

D. Trend From 2011 to 2013

    On March 9, 2011 (76 FR 12985), HUD published a notice requesting 
public comment regarding the manner in which it calculates the trend 
factor used in determining FMR estimates to meet the statutory 
requirement that FMRs be ``trended so the rentals will be current for 
the year to which they apply''. HUD's notice provided several proposed 
alternatives to the current trend factor and requested comments on the 
alternatives as well as suggestions of other ideas. In its publication 
of the proposed FY 2012 FMRs on August 19, 2011, (76 FR 52058) HUD 
discussed these comments and announced that a new trend factor would be 
used in the FY 2013 FMRs. HUD calculates the trend factor as the 
annualized change in median gross rents as measured between the 1 year 
2005 ACS and the 1 year 2010 ACS. The median gross rent was $728 in 
2005 and $855 in 2010. The overall change is 17.45 percent and the 
annualized change is 3.27%. Over a 15-month time period, the effective 
trend factor is 4.1 percent.

E. Bedroom Rent Adjustments

    HUD calculates the primary FMR estimates for two-bedroom units. 
This is generally the most common sized rental unit and, therefore, the 
most reliable to survey and analyze. Formerly, after each decennial 
Census, HUD calculated rent relationships between two-bedroom units and 
other unit sizes and used them to set FMRs for other units. HUD did 
this because it is much easier to update two-bedroom estimates annually 
and to use pre-established cost relationships with other bedroom sizes 
than it is to develop independent FMR estimates for each bedroom size. 
For FY 2013 FMRs, HUD has updated the bedroom ratio adjustment factors 
using 2006-2010 5-year ACS data using similar methodology to what was 
implemented when calculating bedroom ratios using 2000 Census data to 
establish rent ratios. HUD again made adjustments to the bedroom ratios 
using 2006-2010 5-year ACS data for areas

[[Page 61161]]

with local bedroom-size intervals above or below what are considered 
reasonable ranges, or where sample sizes are inadequate to accurately 
measure bedroom rent differentials. Experience has shown that highly 
unusual bedroom ratios typically reflect inadequate sample sizes or 
peculiar local circumstances that HUD would not want to utilize in 
setting FMRs (e.g., luxury efficiency apartments that rent for more 
than typical one-bedroom units). HUD established bedroom interval 
ranges based on an analysis of the range of such intervals for all 
areas with large enough samples to permit accurate bedroom ratio 
determinations. These ranges are: Efficiency FMRs are constrained to 
fall between 0.59 and 0.81 of the two-bedroom FMR; one-bedroom FMRs 
must be between 0.74 and 0.84 of the two-bedroom FMR; three-bedroom 
FMRs must be between 1.15 and 1.36 of the two-bedroom FMR; and four-
bedroom FMRs must be between 1.24 and 1.64 of the two-bedroom FMR. HUD 
adjusts bedroom rents for a given FMR area if the differentials between 
bedroom-size FMRs were inconsistent with normally observed patterns 
(i.e., efficiency rents are not allowed to be higher than one-bedroom 
rents and four-bedroom rents are not allowed to be lower than three-
bedroom rents).
    Following the same methodology as was used when bedroom ratios were 
calculated using 2000 decennial Census long-form data, HUD continues to 
adjust the rents for three-bedroom and larger units to reflect HUD's 
policy to set higher rents for these units than would result from using 
unadjusted market rents. This adjustment is intended to increase the 
likelihood that the largest families, who have the most difficulty in 
leasing units, will be successful in finding eligible program units. 
The adjustment adds bonuses of 8.7 percent to the unadjusted three-
bedroom FMR estimates and adds 7.7 percent to the unadjusted four-
bedroom FMR estimates. The FMRs for unit sizes larger than four 
bedrooms are calculated by adding 15 percent to the four-bedroom FMR 
for each extra bedroom. For example, the FMR for a five-bedroom unit is 
1.15 times the four-bedroom FMR, and the FMR for a six-bedroom unit is 
1.30 times the four-bedroom FMR. FMRs for single-room occupancy units 
are 0.75 times the zero-bedroom (efficiency) FMR.
    For low-population, nonmetropolitan counties with small or 
statistically insignificant 2006-2010 5-year ACS gross rents, HUD uses 
state non-metropolitan data to determine bedroom ratios for each 
bedroom size. HUD made this adjustment to protect against 
unrealistically high or low FMRs due to insufficient sample sizes.

V. Manufactured Home Space Surveys

    The FMR used to establish payment standard amounts for the rental 
of manufactured home spaces in the HCV program is 40 percent of the FMR 
for a two-bedroom unit. HUD will consider modification of the 
manufactured home space FMRs where public comments present 
statistically valid survey data showing the 40th-percentile 
manufactured home space rent (including the cost of utilities) for the 
entire FMR area.
    All approved exceptions to these rents that were in effect in FY 
2012 were updated to FY 2013 using the same data used to estimate the 
HCV program FMRs. If the result of this computation was higher than 40 
percent of the new two-bedroom rent, the exception remains and is 
listed in Schedule D. No additional exception requests were received in 
the comments to the FY 2013 FMRs. The FMR area definitions used for the 
rental of manufactured home spaces are the same as the area definitions 
used for the other FMRs.

VI. Small Area Fair Market Rents

    Public housing authorities that operate in the Dallas, TX HMFA 
continue to manage their voucher programs using Small Area Fair Market 
Rents (SAFMRs). The updated SAFMRs for Dallas are listed in Schedule B 
Addendum.
    SAFMRs are calculated using a rent ratio determined by dividing the 
median gross rent across all bedrooms for the small area (a ZIP code) 
by the similar median gross rent for the metropolitan area of the ZIP 
code. This rent ratio is multiplied by the current two- bedroom rent 
for the entire metropolitan area containing the small area to generate 
the current year two-bedroom rent for the small area. In small areas 
where the median gross rent is not statistically reliable, HUD 
substitutes the median gross rent for the county containing the ZIP 
code in the numerator of the rent ratio calculation. All other aspects 
of the methodology are consistent with the FMR methodology. The recent 
mover and bedroom ratio changes made to the area-wide FMRs were also 
made to the SAFMRs. In addition, the new trend factor is applied to the 
SAFMRs as well. For FY 2013 SAFMRs, HUD has implemented two changes to 
the rent ratio calculation methodology. First, HUD has updated the 
2005-2009 5-year ACS based ZIP code median gross rent data with 2006-
2010 5-year ZIP Code Tabulation Area (ZCTA) median gross rent data. The 
use of the more current ACS data is consistent with the update process 
in the FMR methodology. However, the change from ZIP code to ZCTA was a 
change that the Bureau of the Census made for its aggregation process; 
HUD has no control over the decision by Census to use ZCTA data instead 
of ZIP code data. Second, HUD expanded the criteria for determining the 
statistical reliability of the small area rent data in order to ensure 
that more SAFMRs are based on the data for the small area as opposed to 
using data from the parent county as a proxy. This change is consistent 
with the changes in the FMR methodology that eliminated the use of the 
statistical Z-test.\8\
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    \8\ HUD has provided numerous detailed accounts of the 
calculation methodology used for Small Area Fair Market Rents. 
Please see our Federal Register notice of April 20, 2011 (76 FR 
22125) for more information regarding the calculation methodology. 
Also, HUD's Final FY 2013 FMR documentation system available at 
(http://www.huduser.org/portal/datasets/fmr/fmrs/docsys.html&data=fmr13) contains detailed calculations for each ZIP 
code area in the Dallas, TX HMFA.
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VII. Public Comments

A. Overview

    A total of 75 comments were received and posted on the 
regulations.gov site (http://www.regulations.gov/#!docketDetail;dct=N%252BO%252BSR%252BPS;rpp=25;po=0;D=HUD-2012-0090 
which is also linked on the HUD User FMR page http://www.huduser.org/portal/datasets/fmr.html). Most comments contested FMR reductions 
compared with the FY 2012 FMR and some contested reductions since the 
FY 2011 FMRs or earlier. These comments covered areas for all of North 
Dakota, most of Connecticut and New York, the San Francisco, Oakland 
and San Jose areas of California, the Bergen-Passaic, Newark and Ocean 
City areas of New Jersey, Anchorage and several non-metropolitan areas 
of Alaska, Dallas, TX and Burlington, VT. Other areas, some with modest 
increases in the two-bedroom FMR, contested decreases in 0-bedroom and 
1-bedroom rents. These areas include Middlesex, NJ, Kansas City, MO, 
Williamsport, PA, Choctaw County, OK and Pender County, NC. Other 
areas, despite modest increases for the FY 2013 FMRs are still not back 
to their FY 2011 levels and continue to express a program need for 
higher FMRs, in areas such as Minneapolis, MN, St. Mary's County, MD, 
Summit County, UT, Hale County, TX and nonmetropolitan mining counties 
in Nevada. Some areas could not handle the modest decreases in the FMRs 
for smaller bedroom sizes coupled with increases for larger bedroom 
sizes.

[[Page 61162]]

These areas include Springfield, MO and several nonmetropolitan 
counties in Missouri and Nebraska. A small town in Maine and a 
nonmetropolitan county in Texas wanted to receive rents closer to their 
neighboring metropolitan area. Agencies in Montgomery County, MD and 
the District of Columbia protested the decline in the FMR resulting 
from the loss of the 50th percentile FMR.
    Several comments requested that HUD hold the FY 2013 FMRs harmless, 
that is they wanted the FMR to remain at the FY 2012 level, or the FY 
2011 level if it would otherwise be lower. In addition to or instead of 
imposing hold harmless, several comments asked HUD to limit annual 
increases and decreases of FMRs to five percent. While HUD has been 
able to use such measures in limiting income limit increases and 
decreases, HUD is specifically precluded from incorporating these 
changes into the FMR methodology by the statutory language governing 
FMRs that requires the use of the most recent data. HUD is required to 
use the most recent available data and FMRs must increase or decrease 
based on this data. Ignoring decreases or phasing decreases or 
increases in over several years would not fully implement FMRs based on 
the most recent available data. This statutory language also applies to 
SAFMRs and the incorporation of new area definitions. Area definitions 
use the most current definitions available which were formulated using 
the 2000 decennial Census long-form data as their basis. The Department 
cannot return to area definitions based on 1990 decennial Census long-
form data. Adjusted area definitions based on a combination of 2010 
decennial Census and 5-year ACS data are expected in late 2013. HUD 
will review and incorporate these changes at that time.
    Many of the comments also identified the lower rents for zero-
bedroom and one-bedroom units in many areas. The development of new 
bedroom ratios means that some areas will have lower relationships to 
the two-bedroom FMR than they did in the past. Some areas with lower 
zero-bedroom and one-bedroom ratios had the FY 2013 FMR for these units 
decline, while the two-bedroom FMR increased. For the voucher program, 
the only relief from the decrease would be for PHAs to request 
exception payment standards for these smaller bedroom sizes. HUD is 
aware that the decreases in the zero-bedroom and one-bedroom FMRs have 
a disproportionate impact on homeless and elderly programs but there is 
no action HUD may take under current statute to provide relief for 
these programs. HUD also received several comments opposed to the large 
increases in the three-bedroom FMRs. The PHAs making these comments did 
not suggest that HUD revisit its national policy of including bonuses 
for large bedroom sized units, but were concerned with serving the same 
number of families while the FMRs for these bedroom sizes increased 
more than 10 percent. HUD cannot hold the FY 2013 FMRs harmless at the 
FY 2012 FMR levels for the bedroom ratio changes or incorporate caps 
and floors to phase in increases or decreases due to statutory 
limitations.
    Several areas that experienced a decline in the FMR requested that 
HUD survey its area. HUD was unable to conduct any surveys in 2011 
because the Department was studying the methodology used to conduct 
local area market rent surveys, and has very limited resources to 
conduct surveys in 2012. Therefore, HUD is choosing to focus its survey 
resources on areas without statistically significant one-year ACS local 
data. Areas considered for HUD funded surveys must also have large 
enough rental markets so that the new mail-based survey methodology is 
likely to capture significant results (please see section VIII of this 
notice for further information regarding the survey methodology). Based 
on the testing performed in 2011 and 2012, markets should typically 
contain at least 30,000 housing units. County groups can be assembled 
in non-metropolitan areas for the purposes of surveys, but these 
counties must have similar economic conditions and no county in a 
county group can have its published FMR be based on the state minimum 
FMR. HUD has experience conducting surveys in areas with low or no 
vacancy rates and this experience has shown that it is extremely 
difficult to capture gross rent levels that depict such tight markets. 
For that reason, HUD will provide emergency exception payment standards 
up to 135 percent of the FMR for the Section 8 voucher program in areas 
impacted by natural resource exploration. PHAs interested in applying 
for these emergency payment standards should contact their local HUD 
field office. Additionally, while FMRs cannot be held harmless, the 
HOME program does have a hold harmless provision for its rents. Other 
programs that use FMRs will have to pursue similar strategies such as 
exception payment standards or hold harmless provisions within the 
statutory and regulatory framework governing those programs.

B. Issues Raised in Comments and HUD Responses

    In accordance with 24 CFR 888.115, HUD has reviewed the public 
comments that have been submitted by the due date and has determined 
that there are no comments with ``statistically valid rental survey 
data that justify the requested changes.'' The following are HUD's 
responses to all known comments received by the comment due date and a 
part of the notice record at http://www.regulations.gov/#!docketDetail;dct=N%252BO%252BSR%252BPS;rpp=25;po=0;D=HUD-2012-0090.
FMRs Should Be Held Harmless at the FY 2012 Levels
    Several comments requested that FMRs not be allowed to decline from 
their FY 2012 level. Some of these comments asked HUD to delay 
implementation of FY 2013 FMRs for their area to allow local housing 
authorities to complete a rent survey, or until HUD completes a survey 
for them.
    HUD Response: HUD cannot ignore the more current 2010 American 
Community Survey (ACS) data and allow FMRs to stay the same as they 
were for FY 2012, which were based on gross rents from the 2009 ACS, 
except for two areas where there was a HUD-sponsored survey. By statute 
(42 USC 1437f(c)(1)(B)) and regulation (24 CFR 888.113(e)), HUD is 
required to use the most current data available. While rent surveys 
conducted either by HUD or a PHA would provide more current data than 
the ACS, these surveys take about two months to complete and can be 
quite expensive. HUD does not have the funds to conduct many surveys 
and HUD cannot delay the implementation of FY 2013 FMRs while new 
surveys are being conducted. Areas with relatively short-term market 
tightening are not easily measured by rent surveys. Based on past 
experience, HUD finds that an area must have rent increases or declines 
for a period of at least two years before changes can be measured by 
HUD or privately funded surveys. However, HUD will determine how many 
surveys can be administered based on its ongoing funding levels and 
will evaluate these survey results as quickly as possible. Should the 
survey results show market conditions that are statistically different 
from the published FMRs, HUD will revise the Final FY 2013 FMRs. If HUD 
is unable to complete a survey in a particular area and a local Housing 
Authority or other entity decides to undertake such a survey, HUD 
recommends following the survey guidance available at http://

[[Page 61163]]

www.huduser.org/portal/datasets/fmr.html. Just as with a HUD funded 
survey, HUD will review the results of these private surveys and will 
revise the Final FY 2013 FMRs if warranted.
Market Rents Did Not Decrease in the Past Year and Neither Should FMRs
    Several comments were received that stated that market rents did 
not decrease over the past year and so FMRs also should not decrease.
    HUD Response: FMRs should not be considered a time series of rent 
data for each market in which FMRs are published. FMR data cannot 
justify claims that rents in a particular area are increasing, 
decreasing, or unchanged. The FMR process is designed to develop the 
best estimate of rents for a particular area using the timeliest 
available data covering the entire market area; this process does not 
take into account whether previous FMRs make sense in light of new 
data, and no attempt is made to revise past FMR estimates. Therefore, 
year-over-year FMR changes can sometimes seemingly conflict with 
perceived market trends.
    Annual revisions are now possible with the 5-year ACS data. Because 
of the nature of the ACS 5-year tabulations, however, 80 percent of the 
survey observations will remain the same from one year to the next.\i\ 
Also, many small FMR areas rely on update factors based on survey 
results from a larger, encompassing geographic area (for example, 
state-based update factors used for nonmetropolitan counties). Even if 
the base rent is not adjusted, therefore, the annual changes do not 
necessarily reflect the housing market conditions for the smaller area 
but still represent HUD's best estimate of 40th-percentile gross rents 
in the FMR area.
FMR Decreases Do Not Reflect the Annual or Recent Change in Rents for 
an Area
    Some comments provided apartment project rent data (many 
representing less than 30 percent of the rental market) that show that 
the rents for their area increased in the past year, while the FY 2013 
FMRs show a decline from the FY 2012 FMRs.
    HUD Response: FMRs are estimated rents, and can change from year-
to-year in ways that are different from market rent changes or economic 
activity. First, as one commenter noted, when economic activity 
decreases, rents don't necessarily decrease and some increased economic 
activity that might put pressure on rents cannot be measured in real 
time. HUD is required to use the most current data available. HUD is 
also precluded from using sources of data that are not statistically 
significant. Rent reasonableness studies are not subject to the same 
constraints on statistical reliability and cannot be used to alter 
FMRs. Surveys of apartment projects provide indications of where the 
market is going, but do not account for the roughly one-third of the 
market made up of single family homes and attached, but small apartment 
projects (0-5 units). Much of the apartment project data was for larger 
apartment projects and represented less than 20 percent of the rental 
market.
The New Bedroom Ratios for Efficiencies and One-Bedroom Units Are Too 
Low
    Several comments were received that noted that the efficiency and 
one-bedroom FMRs decreased substantially despite only a modest decrease 
or even a modest increase in the two-bedroom FMR.
    HUD Response: HUD calculates the primary FMR estimates for two-
bedroom units, generally the most common rental unit size and, 
therefore, the most reliable to survey and analyze. Formerly, after 
each decennial census, HUD calculated rent relationships between two-
bedroom units and other unit sizes and used them to set FMRs for other 
units. HUD bases the calculations this way because it is much easier to 
update two-bedroom estimates and to use established rent relationships 
with other unit sizes than it is to develop independent FMR estimates 
for each unit size. HUD last updated bedroom-rent relationships using 
2000 Census data. The 2006-2010 5 Year ACS data were the first 
publication of ACS data to use the 2010 Decennial census for geographic 
boundaries. Consequently, HUD implemented new bedroom ratios based on 
this 5-year ACS data to remove this tie to 2000 decennial Census based 
results. HUD developed new bedroom ratios based on the 5-year ACS data 
with the release of the 2010 ACS.
    New bedroom ratios were calculated for each area using the same 
methodology as previously, with the exception that margin of error 
ratios were evaluated to select the bedroom ratio at the smallest area 
of encompassing geography with statistically reliable results. For 
example, a non-metropolitan county without many cases of efficiency 
rents and with a margin of error ratio of greater than one would use 
the state non-metro efficiency ratio instead of its own. However, most 
of the comments received on the decrease in the zero-bedroom and one-
bedroom ratios covered areas where the bedroom ratios were based on 
data for their own area and all had very low margins of error.
HUD Should Not Punish High Cost Areas by Imposing Caps on Bedroom 
Ratios
    HUD Response: HUD has always imposed national caps and floors on 
bedroom ratios based on the tenth and ninetieth percentile of the 
distribution of rents by bedroom size. The 2010 ACS data for one-
bedroom rents resulted in a reduction in the one-bedroom cap from 0.90 
percent of the two-bedroom FMR (based on the 2000 decennial census 
data) to 0.84 percent based on the 2010 ACS data. HUD cannot hold 
harmless its caps (and floors) for the reasons discussed above.
The Reduction in the Zero-Bedroom and One-Bedroom FMR Creates an Unfair 
Preference for Families Over Single Residents
    HUD Response: HUD revised the bedroom ratios based on more current 
data; it is not establishing a new policy. These new bedroom ratios 
create new caps floors for the zero-bedroom and one-bedroom units that 
are lower than what were created using the 2000 decennial Census data. 
The methodology used to create the caps and floors is unchanged. The 
difference in the caps and floors is the use of 2010 ACS data versus 
the 2000 decennial Census data. HUD cannot go back to using the older 
data for the reasons discussed above.
The Decrease in the FMR for Smaller Bedroom Sizes Has a 
Disproportionate Impact on Elderly, Disabled and Homeless Programs
    HUD Response: HUD recognizes that the reduction in efficiency and 
one-bedroom FMRs impacts these programs and is working to develop new 
tools or use existing ones that can alleviate program problems. PHAs 
may use Exception Payment Standards at 24 CFR 982.503(c), or Success 
Rate Payment Standards 24 CFR 982.503(e) for certain bedroom sizes, to 
the extent allowed.
The 2006-2010 ACS Data Is Not Current Enough for Small Metropolitan and 
Non-Metropolitan Counties in a Fast Growing Economy
    A comment was received that suggested that only HUD surveys would 
provide the data necessary for an area without its own CPI area data.
    HUD Response: The most significant factor driving FMRs changes in 
the area that provided this comment was the reduction in the recent 
mover adjustment factor from 1.26 percent in FY 2012 to about 1.10 
percent for FY

[[Page 61164]]

2013. Both the FY 2012 and FY 2013 recent mover adjustment factors are 
large compared to other areas across the country. Base rents, however 
have changed very little and a majority of the FMR areas covered by 
this comment are areas where the Proposed FMR was increased by the 
state minimum rent. This means they are receiving a FMR higher than 
what the ACS would provide based on their own rents. Such areas cannot 
be surveyed because their own base rent starts out lower than what is 
used in the FMR. HUD has limited funds to conduct rent surveys and 
cannot survey an entire state, individually or as a group. Natural 
resource production issues affect most of the rents in this state and, 
for operation of the voucher program in these areas HUD instituted 
special exception payment standards of up to 135 percent for areas with 
vacancy rates at or near zero.
The Reduction in the Recent Mover Adjustment Factor Caused a Reduction 
in FMRs
    HUD Response: While the recent mover adjustment factor cannot be 
below one, it can increase or decrease from year to year, just like the 
base rent for the FMR. This factor cannot be held harmless for the 
reasons discussed above.
FMR Areas Are Too Large and Do Not Reflect the Local Real Estate Market
    The data and technology is available to determine FMRs by subsets 
of diverse counties.
    HUD Response: For metropolitan areas, HUD has purchased special 
tabulations of median gross rent data from the Census by ZIP Code 
Tabulation Area (ZCTA). This data is not available for nonmetropolitan 
areas. HUD is currently conducting a demonstration program whereby PHAs 
run their voucher program using the small area FMRs (SAFMRs) the 
Department developed using this data. Originally HUD requested 
volunteers for this program, but no additional funds were available to 
help with the administration of the program. There were few volunteers, 
and several of these PHAs removed themselves from consideration during 
the vetting process. With limited funds available to help defray the 
additional administrative costs of operating the voucher program using 
SAFMRs, several randomly selected housing agencies have been selected 
and agreed to participate in a demonstration to use SAFMRs. The Dallas 
area continues to use SAFMRs as part of a court settlement.
FMRs Cannot Decrease in Economic Growth Areas; Some of These Areas 
Cannot Manage the Voucher Program Even With Modest FMR Increases
    Several comments, even pertaining to FMR areas with decreases below 
5 percent, or with modest increases, pressed for higher FMRs FY 2013 
FMRs. Some of these areas had very tight markets and some of these 
areas already used payment standards at 110 percent of the FMRs.
    HUD Response: For rent data, the ACS provides the most current 
data, and the 5-year 2006-2010 data is the most current data available 
for all areas. HUD must use the most current statistically significant 
data available. None of the areas that found FMRs too low because of 
economic and population growth provided statistically valid data that 
could be use to update the FY 2013 FMRs. To help manage the program 
during times of FMR decreases, PHAs may be able to use Success Rate 
Payment Standards 24 CFR 982.503(e), or request Exception Payment 
Standards for subareas within a FMR area (not to exceed 50 percent of 
the population) at 24 CFR 982.503(c).
Vacancy Rates Are Low, Making it Impossible To Absorb FMR Decreases
    Several comments stated that low or no vacancy rates in areas with 
increased economic activity require higher FMRs so that voucher tenants 
can compete for housing. In these areas, there is not sufficient rental 
housing and generally the 2010 rental data from the ACS does not 
reflect this situation.
    HUD Response: When a market tightens rapidly, the FMRs cannot keep 
pace. The most accurate, statistically significant data available to 
HUD is lagged by two years. Even if HUD conducts surveys of these 
areas, capturing the full scope of rent increases is difficult unless 
the market condition has been going on for more than two years; 
furthermore, it is challenging to get valid results for surveys of 
relatively small housing markets (under 1,000). Most of the areas 
suffering from these market conditions meet one or both of the 
criteria. Areas with sustained extremely low vacancy rates require 
construction of additional units. Higher FMR levels will not 
necessarily encourage additional development. These areas will have to 
rely on the use of Exception Payment Standards for subareas within an 
FMR area (not to exceed 50 percent of the population) as described at 
24 CFR 982.503(c), or through the use of Success Rate Payment Standards 
available at 24 CFR 982.503(e) to alleviate market pressures. FMRs 
cannot be used to encourage building, which is what is needed.
FY 2013 FMR Decreases Reduce the Ability of Families To Find Affordable 
Housing
    Several comments stated that decreases in FMRs would negatively 
affect tenants' ability to find affordable housing. The decrease in 
FMRs from FY 2012 to FY2013 will reduce the availability of affordable 
housing in the area; landlords will be able to get higher rents from 
tenants that are not Section 8 voucher holders and so many will opt out 
of the program.
    HUD Response: FMRs must reflect the most current statistically 
valid data and this means that FMRs cannot be held harmless when this 
data shows a decline. Most of the declines in the FMRs are based on 
lower 2010 rents, in a few cases the 2010 to 2011 CPI adjustment 
reflects a decline.
FMR Reductions Will Lead to Poverty Concentration
    Decreases in the FMR, whether by loss of a 50th percentile FMR 
status or by reductions in Small Area FMRs (SAFMRs) lead to poverty 
concentration and prevent tenants from moving to areas of opportunity.
    HUD Response: HUD is required to increase or decrease FMRs (and 
SAFMRs are the FMR for Dallas) based on the most currently available 
data that meets the statistical significance tests. PHAs may use the 
Exception Payment Standard to increase payment standards for higher 
rent areas and reduce poverty concentration. PHAs may use the Exception 
Payment Standards above to reduce poverty concentration in portions of 
the FMR. Areas that lost their 50th percentile FMR, because they 
graduated from the program or failed to show measurable poverty 
deconcentration can use higher payment standards as shown at 24 CFR 
982.503(f) to mitigate FMR decreases.
A Reduction in the FMRs Puts HUD-Financed Projects and Low-Income 
Housing Tax Credit Projects at Risk
    If a current HUD Section 8 project uses rents at 110 percent of the 
FMR, a reduction in the FMR puts this project at risk. An FMR reduction 
could mean that LIHTC landlords will no longer accept Section 8 voucher 
tenants.
    HUD Response: HUD is required to increase or decrease FMRs based on 
the most currently available data that meets the statistical 
reliability tests. PHAs may use the Exception Payment Standard to 
increase payment standards for higher rent areas and reduce poverty 
concentration. While there are no

[[Page 61165]]

project-based exception areas, an area already at 110 percent of the 
FMR may be eligible for Success Rate Payment Standards or a portion of 
the FMR area may be granted exceptions above 110 percent, if warranted. 
PHAs interested in exploring this option are encouraged to review the 
FY 2013 Small Area FMRs published at http://www.huduser.org/portal/datasets/fmr.html in the section labeled ``Small Area FMRs.'' The 
manner in which SAFMRs are calculated makes them ideal to be used as in 
the ``median rent method'' section of the exception payment standard 
regulations found at 24 CFR 982.503(c)(2)(A).
FY 2013 FMR Decreases Will Require Existing Tenants To Pay a Greater 
Share of Their Income on Rents
    Several comments stated that their current tenants will have to pay 
a greater share of their income on rents, with FMR decreases.
    HUD Response: New tenants are not allowed to pay more than 40 
percent of their income on rent. Existing tenants will not have to pay 
rent based on reduced FMRs until the second anniversary of their 
Housing Assistance Payment (HAP) contract. If tenant rent burden 
increases for an area, PHAs may use this as a justification for higher 
payment standards.
Disabled and Difficult To Place Residents Suffer a Disproportionately 
Greater Impact From FMR Decreases Because They Have Fewer Housing 
Choice Options
    Disabled residents already have fewer units available to them, and 
reducing the FMR will further reduce their options. Difficult to place 
residents, because of history of late payments or other options, will 
have fewer landlords willing to rent to them if the FMR is lower.
    HUD Response: If an FMR decreases there may be fewer units 
available at or below the FMR. However, HUD must use the most current 
data available and rents may increase and decrease. The data used as 
the basis for FY 2013 FMRs is more current than what was available in 
the estimation of the 40th percentile FMRs for FY 2012, so while more 
units were available, those rents are being replaced with rents based 
on more current information. If a family has a member with a 
disability, a PHA may establish a higher payment standard for that 
family as a reasonable accommodation as discussed in 24 CFR 982.505(d).
Construction or Preservation of Affordable Housing Is Threatened by FMR 
Decreases
    In areas where affordable housing construction is increasing, a 
reduction in the FMR will reduce the benefit of existing affordable 
housing projects and may prevent additional affordable housing 
construction.
    HUD Response: Maximum allowable rents in Low-Income Housing Tax 
Credit properties are set based upon 50- or 60-percent income limit 
levels, or if the FMR is higher, this amount can be used for voucher 
holders. If the FMR is below the rent determined by the income limit 
levels, then generally the income limit rent is used. So if FMRs fall 
below the income limit rents, voucher holders would either pay more out 
of pocket for units or would be unable to use their voucher for these 
units. However, PHAs could use their authority to adjust payment 
standards where warranted, to increase FMRs so voucher holders can have 
access to these existing units. FMRs are used in the determination of 
High and Low Rent levels for HOME funded projects. However, when the 
income limit hold harmless policy was removed for the FY 2010 Income 
Limits, HUD instituted a specific hold harmless provision for HOME 
rents. A decrease in the FY 2013 FMR will not necessarily affect HOME 
rents or home project funding.
HUD Should Institute 5 Percent Caps and Floors When Incorporating new 
Area Definitions in 2013
    HUD Response: HUD recently received a decision by program counsel 
that HUD does not have the authority to institute floors or caps when 
evaluating the new area definitions. A statutory or regulatory change 
is necessary before HUD may impose caps and floors.
HUD's ``New Methodology'' for Larger Bedroom Sizes Is Inflationary and 
Usurps the PHA Roles of Rent Reasonableness Determinations
    For bedroom sizes greater than four-bedroom units, HUD provides a 
formula equal to 15 percent greater for each bedroom size, such that a 
six-bedroom unit is 1.3 times a four-bedroom unit. The difference in 
costs is actually ten percent.
    HUD Response: While the new bedroom ratios were calculated based on 
2010 ACS data and replace the bedroom ratios based on 2000 decennial 
Census long form data, the adjustment of 15 percent per bedroom for 
bedrooms greater than four-bedroom units is not new and does not 
supplant the need to conduct rent reasonable studies for units with 
more then four-bedrooms. The adjustment allows for the calculation of a 
five-bedroom or larger FMR, which is not shown on the tables in 
schedule B. It does not reflect a payment standard.
Rents Should Be More Like Neighboring Metropolitan Areas
    Two nonmetropolitan areas requested higher rents based on 
neighboring metropolitan areas.
    HUD Response: HUD will not make changes to metropolitan area 
composition until OMB publishes new metropolitan area definitions, 
which are expected sometime during 2013 (please see OMB's 2010 Federal 
Register notices on this matter available at http://www.whitehouse.gov/sites/default/files/omb/assets/fedreg_2010/06282010_metro_standards-Complete.pdf). HUD has never incorporated new nonmetropolitan areas 
into metropolitan areas and relies on OMB guidance for determining 
metropolitan areas. HUD has taken counties out of metropolitan 
definitions based on rent and income differences and may revisit this 
methodology when the new metropolitan area definitions are 
incorporated.
Small Area FMRs Should Not Be Used; HUD Has Not Adequately Addressed 
the Potential for Disinvestment in Reinvestment and/or Low-Income Areas
    HUD's floor of 10 percent for the SAFMR demonstration program 
represents a substantial drop in rents. SAFMRs should not be used for 
Difficult to Develop Areas. In general, the use of ZIP codes as areas 
does not represent housing markets and should not be used for SAFMRs.
    HUD Response: HUD published a Federal Register notice requesting 
comments on the use of SAFMRs in the designation of DDAs. HUD continues 
to use SAFMRs in Dallas, as part of a settlement agreement which did 
not include the implementation of caps and floors. The operation of 
SAFMRs in Dallas varies from the invitational demonstration program and 
so information collected from Dallas will initially need to be analyzed 
independently from data collected from other participating PHAs SAFMRs 
must reflect a level of geography smaller than a county, and while 
tract level data is available, it is not feasible to consider as the 
basis for SAFMRs. A typical single Census Tract is too small to be used 
for setting SAFMRs. Any methodology used by the Department to aggregate 
Census Tracts places the Department in the unenviable position of 
having to constantly defend the aggregation

[[Page 61166]]

methodology. Although ZIP codes are created for the efficient delivery 
of mail, they have the distinct advantage that they are large enough to 
provide a suitable number of housing units, small enough to depict 
variation in rental across metropolitan areas and, most importantly, 
through Census Bureau ACS ZCTA data aggregations, have sufficient gross 
rent data to use in the calculation of SAFMRs.
HUD's Use of a ``Public Housing Rent'' Threshold Is Too Low
    The public housing cutoff rent should include rents for housing 
serving low income residents (at 80 percent of the area median income 
(AMI)). HUD underestimates its public housing rent cutoff by basing it 
on the 75th percentile of the public housing rents; it should be at the 
95th percentile, or greater. Public housing rents do not include debt 
service and HUD provides PHAs with assistance in covering operating 
expenses and capital maintenance such that public housing rents are 
much lower than what is required for a housing quality adjustment.
    HUD Response: The public housing cutoff rent is used as a proxy to 
remove substandard units and those renting in non-market transactions 
from the standard quality distribution of rents. Removing all rents 
below what would be affordable for low-income families from the 
distribution would not reflect entire rental markets as contemplated by 
the FMR Statute and regulations. Not all affordable housing should be 
included in this cutoff amount. Some affordable rental housing, 
especially for families at 80 percent of the AMI could have rents that 
are well above the 40th percentile rent. The use of the 40th percentile 
distribution coupled with the elimination of the bottom of the 
distribution below the public cutoff rent on top of rents that were 
already adjusted for standard quality by the Bureau of the Census in 
our special tabulations, provides enough of an adjustment.
HUD Should Use a Local Trend Factor, Rather Than a National Trend 
Factor
    A different commenter supported the new national trend factor as 
appropriate in minimizing year-to-year volatility.
    HUD Response: HUD published a Federal Register notice on March 9, 
2011, requesting comments on a revised trend factor (76 FR 12985). Few 
comments were received on this notice and a clear consensus could not 
be reached based on these comments for the new trend factor. A few 
comments suggested the use of more local data, but there were also a 
few comments opposing a more local factor. HUD believes that enough 
uncertainty has been added by changing the previously 10-year national 
trend factor into an annual national trend factor and does not want to 
increase the volatility in the FMR based solely on changes in the trend 
factor.
HUD Should Change Its Methodology Such That Units Built in the Past Two 
Years Are Not Excluded From the Data Used To Calculate FMRs
    Many of the units built in the past two year are affordable housing 
units.
    HUD Response: The methodology to calculate FMRs has always excluded 
those units built in the past two years. This was done as a proxy for 
eliminating luxury units. If these units are not at the upper end of 
the distribution, and are in fact, mainly affordable housing units, 
then the distribution of rents is not reduced and the 40th percentile 
rent is higher than what it would be if these units were truly at the 
high end of the distribution of rents.
Large FMR Increases Do Not Reflect Market Conditions and Will Hurt 
Housing Choice Voucher Families
    HUD should not increase FMRs at a time when federal agencies should 
be freezing or reducing costs. One comment stated that the FMR 
increases will result in fewer families being served. The change in the 
three-bedroom ratio results in a large increase in this unit size FMR.
    HUD Response: Just as HUD must use current data that results in FMR 
decreases, so HUD must use current data that results in increases. HUD 
determines FMRs based on the most current statistically reliable data. 
While the three-bedroom cap only increased modestly, from 1.34 using 
the 2000 decennial Census to 1.36 using the 2010 ACS data, there are 
more significant changes by FMR area. Neither base rent increases nor 
increases resulting from a change in the bedroom ratio may be held 
harmless. Rent reasonableness studies can be used to set the payment 
standard below the FMR if the FMR is in fact too high for particular 
units of acceptable quality chosen by voucher tenants. It should be 
noted that a comment filed in response to FY 2012 Proposed FMRs made a 
similar claim, yet apparently did not reduce its payment standards, 
and, in fact, has applied for exception payment standard based on the 
higher FY 2012 FMRs.
Homelessness Will Increase in Areas Where the FY 2013 FMRs Decreased
    Several comments suggest that FMR decreases, even those under five 
percent, will reduce the ability of tenants to find units that meet 
housing quality standards and will increase homelessness, as fewer 
units are available at the lower FMR.
    HUD Response: Where market conditions warrant, HUD encourages PHAs 
to use Exception Payment Standards and Success Rate Payment Standards 
to increase voucher holder's success in finding housing.
Decreases in FMRs Will Undo PHAs Efforts To Maintain a High Success 
Rate; Program Utilization Will Be Reduced With Lower FMRs
    HUD Response: Where market conditions warrant, HUD encourages PHAs 
to use Exception Payment Standards and Success Rate Payment Standards 
to increase voucher holder's success in finding housing.
HUD Should Institute Caps and Floors To Limit Annual FMR Changes to 
Five Percent
    A five percent change in the FMR triggers a rent reasonableness 
study, which is costly for cash-strapped PHAs. HUD should have 
instituted the same cap and floor of five percent that it instituted 
for Income Limits with the FY 2010 Income Limits.
    HUD Response: HUD is constrained by legal and regulatory language 
for its calculation of FMRs, and therefore cannot ignore the 
requirement to use the most current data by only implementing FMR 
changes in five percent increments. Statutory and regulatory changes 
are required before HUD would be able to implement any methodology 
changes to not fully use the most current rent data in setting FMRs. No 
such regulation or legislative requirement governs the calculation of 
income limits and prior to FY 2010, income limits were held harmless, 
that is, not allowed to ever decline. The change to incorporate caps 
and floors of up to five percent was a way to remove this hold harmless 
policy and create parity with increases and decreases.
The Loss of 50th Percentile FMRs Puts Voucher Families at Risk for Rent 
Increases, Rejection and Moving to Areas of Greater Poverty
    HUD should not take away 50th percentile FMRs for PHAs meeting 
deconcentration objectives under SEMAP; HUD should use its regulatory 
authority to reinstate 50th percentile FMRs for these areas. HUD's 
evaluation of 50th percentile areas included FY

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2009, a year of voucher funding shortfalls that limited the 50th 
percentile FMRs. HUD should change it requalification analysis.
    HUD Response: Of the seven areas evaluated for requalification, 
only one area did not deconcentrate and is not eligible for evaluation 
until FY 2016. This area was one of the original 50th percentile FMR 
areas in FY 2002 and has had 50th percentile FMRs continuously. The 
decrease in the FMR as a result of the loss of the 50th percentile is 
difficult for all PHAs that operate in that area, but HUD has the 
authority to grant payment standard protection for PHAs that meet 
deconcentration objectives under 24 CFR 982.503(f). This request must 
be made to the HUD Field Office, and not through the comment process.
The FY 2013 Small Area FMRs for Dallas Do Not Affirmatively Further 
Fair Housing
    Where FY 2013 SAFMRs in the Dallas, TX FMR Area are below what they 
were in FY 2011, the first year SAFMRs were used, the comment states 
that HUD is violating its duty to affirmatively further fair housing.
    HUD Response: HUD must follow its statutory and regulatory 
requirements to update FMRs using the most current data available. This 
means that both increases and decreases must be applied to the Dallas 
SAFMRs. A decrease that reflects more current data does not prevent HUD 
from affirmatively further fair housing. The data HUD uses in the 
calculation of FMRs (both metropolitan-wide and small area FMRs) are 
compiled across all survey respondents in a given area and are not 
segmented in any way by demographic traits.
The FMRs Are Too Low and Do Not Reflect Market Rents; HUD Must Conduct 
a Survey of Rents
    HUD Response: While rent surveys conducted either by HUD or a PHA 
would provide more current data, these surveys take about two months to 
complete and are quite expensive. HUD does not have the funds to 
conduct many surveys and HUD cannot delay the implementation while new 
surveys are being conducted. Areas with relatively short-term market 
tightening are not easily measured by rent surveys. Based on past 
experience, HUD finds that an area must have rent increases or declines 
for a period of at least two years before it can be measured.
HUD Should Replace the Use of the 2010 ACS Data for One Area With a 
2011 Census Survey of a Subarea
    HUD Response: The use of the more current 2011 Census survey to set 
base rents is a problem because the survey covers only a portion of the 
FMR area; excluded from this survey are several counties that are part 
of the FMR area. For the 2011 data to be used the survey results have 
to be from the entire FMR area, not just a subarea. Further, one of 
these excluded counties is required, by statute be included in that 
area's FMR calculation.
HUD Should Provide Information on the Utility Costs Included in FMRs
    HUD Response: HUD uses gross rents from the ACS to establish base 
rents and to determine recent mover factor adjustments.
HUD Should Publish 2000 Decennial Census Data To Help PHAs Determine 
Exception Payment Standards
    HUD Response: HUD has decennial Census tract level data that its 
Field Economists or Headquarters Economists use to determine exception 
payment standards for PHAs. However, lately HUD has relied on the 
SAFMRs, published by ZIP Code, which are based on the 2010 ACS data. 
This data for metropolitan areas only is already available to PHAs at 
http://www.huduser.org/portal/datasets/fmr/fmrs/index_sa.html&data=fy2013.
For Areas Without Their Own CPI, AAFs Should Be Provided for the 10 HUD 
Regions Instead of the Four Census Regions
    HUD Response: The 10 HUD regional AAFs, for both metropolitan and 
non-metropolitan areas were calculated based on a very expensive survey 
that HUD conducted. This data was used to adjust the FMR for areas 
without local CPI data. When the 2000 decennial Census data was 
released, HUD analyzed the FMR using the survey data and found that the 
survey data did not improve the FMR estimation over what it would have 
been using the CPI. The cost of that data collection effort was not 
worthwhile. HUD did not stop the survey because of budgetary problems; 
HUD stopped the survey because it did not significantly improve the 
estimation of the FMR.

VIII. Rental Housing Surveys

    In 2011, HUD solicited bidders to study the methodology used to 
conduct local area surveys of gross rents to determine if the Random 
Digit Dialing (RDD) methodology could be improved upon. The Department 
undertook this study due to the increasing costs and declining response 
rates associated with telephone surveys. Furthermore, the advent of the 
1-year ACS limits the need for surveys in large metropolitan areas. 
Based on this research, the Department decided that its survey 
methodology should be changed with mail surveys being the preferred 
method for conducting surveys, because of the lower cost and greater 
likelihood of survey responses. These surveys, however, take almost 
twice as long to conduct as prior survey methods took, and when 
response times are most critical, the Department may choose to conduct 
random digit dialing surveys as well, as the budget permits. The 
methodology for both types of surveys along with the survey instruments 
is posted on the HUD USER Web site, at the bottom of the FMR page in a 
section labeled Fair Market Rent Surveys at: http://www.huduser.org/portal/datasets/fmr.html.
    Other survey methodologies are acceptable in providing data to 
support comments if the survey methodology can provide statistically 
reliable, unbiased estimates of the gross rent. Survey samples should 
preferably be randomly drawn from a complete list of rental units for 
the FMR area. If this is not feasible, the selected sample must be 
drawn to be statistically representative of the entire rental housing 
stock of the FMR area. Surveys must include units at all rent levels 
and be representative of structure type (including single-family, 
duplex, and other small rental properties), age of housing unit, and 
geographic location. The 2006-2010 5-year ACS data should be used as a 
means of verifying if a sample is representative of the FMR area's 
rental housing stock.
    Most surveys cover only one- and two-bedroom units, which has 
statistical advantages. If the survey is statistically acceptable, HUD 
will estimate FMRs for other bedroom sizes using ratios based on the 
2006-2010 5-year ACS data. A PHA or contractor that cannot obtain the 
recommended number of sample responses after reasonable efforts should 
consult with HUD before abandoning its survey; in such situations, HUD 
may find it appropriate to relax normal sample size requirements.
    HUD will consider increasing manufactured home space FMRs where 
public comment demonstrates that 40 percent of the two-bedroom FMR is 
not adequate. In order to be accepted as a basis for revising the 
manufactured home space FMRs, comments must include a pad rental survey 
of the mobile home parks in the area, identify the utilities included 
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rental fee, and provide a copy of the applicable public housing 
authority's utility schedule.
    As stated earlier in this Notice, HUD is required to use the most 
recent data available when calculating FMRs. Therefore, in order to re-
evaluate an area's FMR, HUD requires more current rental market data 
than the 2010 ACS.

IX. Environmental Impact

    This Notice involves the establishment of fair market rent 
schedules, which do not constitute a development decision affecting the 
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).
    Accordingly, the Fair Market Rent Schedules, which will not be 
codified in 24 CFR part 888, are amended as shown in the Appendix to 
this notice:

    Dated: September 27, 2012.
Erika C. Poethig,
Acting Assistant Secretary for Policy Development and Research.

Fair Market Rents for the Housing Choice Voucher Program

Schedules B and D--General Explanatory Notes

1. Geographic Coverage
    a. Metropolitan Areas--Most FMRs are market-wide rent estimates 
that are intended to provide housing opportunities throughout the 
geographic area in which rental-housing units are in direct 
competition. HUD is using the metropolitan CBSAs, which are made up of 
one or more counties, as defined by the Office of Management and Budget 
(OMB), with some modifications. HUD is generally assigning separate 
FMRs to the component counties of CBSA Micropolitan Areas.
    b. Modifications to OMB Definitions--Following OMB guidance, the 
estimation procedure for the FY 2013 Final FMRs incorporates the most 
current OMB definitions of metropolitan areas based on the CBSA 
standards as implemented with 2000 Census data, but makes adjustments 
to the definitions to separate subparts of these areas where FMRs or 
median incomes would otherwise change significantly if the new area 
definitions were used without modification. In CBSAs where subareas are 
established, it is HUD's view for programmatic purposes that the 
geographic extent of the housing markets are not yet the same as the 
geographic extent of the CBSAs, but may become so in the future as the 
social and economic integration of the CBSA component areas increases. 
Modifications to metropolitan CBSA definitions are made according to a 
formula as described below.
    Metropolitan area CBSAs (referred to as MSAs) may be modified to 
allow for subarea FMRs within MSAs based on the boundaries of old FMR 
areas (OFAs) within the boundaries of new MSAs. (OFAs are the FMR areas 
defined for the FY 2005 FMRs. Collectively they include 1999-definition 
MSAs/Primary Metropolitan Statistical Areas (PMSAs), metro counties 
deleted from 1999-definition MSAs/PMSAs by HUD for FMR purposes, and 
counties and county parts outside of 1999-definition MSAs/PMSAs 
referred to as nonmetropolitan counties.) Subareas of MSAs are assigned 
their own FMRs when the subarea 2000 Census Base Rent differs by at 
least 5 percent from (i.e., is at most 95 percent or at least 105 
percent of) the MSA 2000 Census Base Rent, or when the 2000 Census 
Median Family Income for the subarea differs by at least 5 percent from 
the MSA 2000 Census Median Family Income. MSA subareas, and the 
remaining portions of MSAs after subareas have been determined, are 
referred to as HUD Metro FMR Areas (HMFAs) to distinguish these areas 
from OMB's official definition of MSAs.
    The specific counties and New England towns and cities within each 
state in MSAs and HMFAs are listed in Schedule B.
2. Bedroom Size Adjustments
    Schedule B shows the FMRs for zero-bedroom through four-bedroom 
units. The Schedule B addendum shows Small Area FMRs for PHAs operating 
using Small Area FMRs within the Dallas, TX HMFA. The FMRs for unit 
sizes larger than four bedrooms are calculated by adding 15 percent to 
the four-bedroom FMR for each extra bedroom. For example, the FMR for a 
five-bedroom unit is 1.15 times the four-bedroom FMR, and the FMR for a 
six-bedroom unit is 1.30 times the four-bedroom FMR. FMRs for single-
room-occupancy (SRO) units are 0.75 times the zero-bedroom FMR.
3. Arrangement of FMR Areas and Identification of Constituent Parts
    a. The FMR areas in Schedule B are listed alphabetically by 
metropolitan FMR area and by nonmetropolitan county within each state. 
The exception FMRs for manufactured home spaces in Schedule D are 
listed alphabetically by state.
    b. The constituent counties (and New England towns and cities) 
included in each metropolitan FMR area are listed immediately following 
the listings of the FMR dollar amounts. All constituent parts of a 
metropolitan FMR area that are in more than one state can be identified 
by consulting the listings for each applicable state.
    c. Two nonmetropolitan counties are listed alphabetically on each 
line of the non-metropolitan county listings.
    d. The New England towns and cities included in a nonmetropolitan 
county are listed immediately following the county name.

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[FR Doc. 2012-24618 Filed 10-4-12; 8:45 am]
BILLING CODE 4210-67-C