[Federal Register Volume 81, Number 244 (Tuesday, December 20, 2016)]
[Notices]
[Pages 92840-92842]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30618]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5991-N-01]


Section 8 Housing Assistance Payments Program--Annual Adjustment 
Factors, Fiscal Year 2017

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

ACTION: Notice of Fiscal Year (FY) 2017 Annual Adjustment Factors 
(AAFs).

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SUMMARY: The United States Housing Act of 1937 requires that certain 
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 2017 AAFs for adjustment of contract rents on the 
anniversary of those assistance contracts. 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. Beginning with the FY 2014 AAFs and continuing with these FY 
2017 AAFs, the Puerto Rico CPI is used in place of the South Region CPI 
for all areas in Puerto Rico. These factors are applied at the 
anniversary of Housing Assistance Payment (HAP) contracts for which 
rents are to be adjusted using the AAF for those calendar months 
commencing after the effective date of this notice. A separate Federal 
Register Notice that will be published at a later date will identify 
the inflation factors that will be used to adjust FY 2017 tenant-based 
rental assistance funding.

DATES: December 20, 2016.

FOR FURTHER INFORMATION: Contact Becky Primeaux, Director, Management 
and Operations Division, Office of Housing Voucher Programs, Office of 
Public and Indian Housing, 202-708-1380, for questions relating to the 
Project-Based Certificate and Moderate Rehabilitation programs (not the 
Single Room Occupancy program); 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, 
Director, Office of Housing Assistance and Grant Administration, Office 
of Housing, 202-708-3000, for questions relating to all other Section 8 
programs; and Marie Lihn, Economist, Economic and Market Analysis 
Division, Office of Policy Development and Research, 202-402-5866, 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.)

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

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; and
    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

[[Page 92841]]

general, renewal rents are established in accordance with the statutory 
provision in the Multifamily Assisted Housing Reform and Affordability 
Act of 1997 (MAHRA), as amended, under which the HAP is renewed. After 
renewal, annual rent adjustments will be provided in accordance with 
MAHRA.
    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 factor is applied to the pre-adjustment 
contract rent. 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.
    For Category 1 programs, the Table 1 AAF factor is applied before 
determining comparability (rent reasonableness). Comparability applies 
if the pre-adjustment gross rent (pre-adjustment contract rent plus any 
allowance for tenant-paid utilities) is above the published Fair Market 
Rent (FMR).
    If the comparable rent level (plus any initial difference) is lower 
than the contract rent as adjusted by application of the Table 1 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):
     Table 1 AAF is used for a unit occupied by a new family 
since the last annual contract anniversary.
     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:
     Table 1 AAF is used for a unit occupied by a new family 
since the last annual contract anniversary.
     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:
     Table 2 AAF is always used. The Table 1 AAF is not used.
     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 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, Table 
1 and Table 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

[[Page 92842]]

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 Table 1 and Table 2 are posted on the HUD User Web site at 
http://www.huduser.gov/portal/datasets/aaf.html. 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. For Puerto Rico, the Puerto Rico Community Survey (PRCS) is used 
to determine the ratio of utilities to rents, resulting in different 
AAFs for some metropolitan areas in Puerto Rico.\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.gov.
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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 2014 to 
2015. 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 2015 CEX survey data produced for HUD for the purpose of 
computing AAFs. The utility-to-rent ratio used to produce AAFs comes 
from 2014 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. All non-metropolitan counties 
use regional CPI factors. For areas assigned the Census Region CPI 
factor, both metropolitan and non-metropolitan areas receive the same 
factor.
    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 2017 FMRs.
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.gov/portal/datasets/aaf.html. 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 separately listed in the Area Definitions Table at 
http://www.huduser.gov/portal/datasets/aaf.html.
    Puerto Rico uses its own AAFs calculated from the Puerto Rico CPI 
as adjusted by the PRCS, the Virgin Islands uses the South Region AAFs 
and the Pacific Islands uses the West 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: December 12, 2016.
Katherine M. O'Regan,
Assistant Secretary for Policy Development and Research.
[FR Doc. 2016-30618 Filed 12-19-16; 8:45 am]
 BILLING CODE 4210-67-P