[Federal Register Volume 82, Number 109 (Thursday, June 8, 2017)]
[Notices]
[Pages 26710-26711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-11936]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-6037-N-01]


Section 8 Housing Assistance Payments Program-Fiscal Year (FY) 
2017 Inflation Factors for Public Housing Agency (PHA) Renewal Funding

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

ACTION: Notice.

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SUMMARY: This notice establishes Renewal Funding Inflation Factors 
(RFIF) to adjust Fiscal Year (FY) 2017 renewal funding for the Tenant-
based Rental Assistance (TBRA), or Housing Choice Voucher (HCV), 
Program of each public housing agency (PHA), as required by the 
Consolidated Appropriations Act, 2017. The notice apportions the 
expected percent change in national Per Unit Cost (PUC) for the HCV 
program, 3.97%, to each PHA based on the change in Fair Market Rents 
(FMR) for their operating area to produce the FY 2017 RFIFs. HUD's FY 
2017 methodology differs in part from that used in FY 2016; HUD 
improved the national PUC forecast by removing the reliance on 
historical PUC data and independently projecting growth in gross rents 
and tenant incomes.

DATES: Effective Date: June 19, 2017.

FOR FURTHER INFORMATION CONTACT: Miguel A. Fontanez, Director, Housing 
Voucher Financial Division, Office of Public Housing and Voucher 
Programs, Office of Public and Indian Housing, telephone number 202-
402-4212; or Peter B. Kahn, Director, Economic and Market Analysis 
Division, Office of Policy Development and Research, telephone number 
202-402-2409, for technical information regarding the development of 
the schedules for specific areas or the methods used for calculating 
the inflation factors, Department of Housing and Urban Development, 451 
7th Street SW., Washington, DC 20410. Hearing- or speech-impaired 
persons may contact the Federal Relay Service at 800-877-8339 (TTY). 
(Other than the ``800'' TTY number, the above-listed telephone numbers 
are not toll free.)

SUPPLEMENTARY INFORMATION:

I. Background

    Division K, Title II of the Consolidated Appropriations Act, 2017 
requires that the HUD Secretary, for the calendar year 2017 funding 
cycle, provide renewal funding for each public housing agency (PHA) 
based on validated voucher management system (VMS) leasing and cost 
data for the prior calendar year and by applying an inflation factor as 
established by the Secretary, by notice published in the Federal 
Register. This notice provides the FY 2017 inflation factors and 
describes the methodology for calculating them. Tables in PDF and 
Microsoft Excel formats showing Renewal Funding Inflation Factors 
(RFIF) will be available electronically from the HUD data information 
page at: https://www.huduser.gov/portal/datasets/rfif/rfif.html.

II. Methodology

    RFIFs are used to adjust the allocation of Housing Choice Voucher 
(HCV) program funds to PHAs for local changes in rents, utility costs, 
and tenant incomes. To calculate the RFIFs, HUD first forecasts a 
national inflation factor, which is the annual change in the national 
average Per Unit Cost (PUC). HUD then calculates individual area 
inflation factors, which are based on the annual changes in the two-
bedroom Fair Market Rent (FMR) for each area. Finally, HUD adjusts the 
individual area inflation factors to be consistent with the national 
inflation factor.
    HUD has refined its methods for predicting inflation factors over 
time. In FY 2012, HUD changed from using a Consumer Price Index (CPI) 
historical gross rent index-based factor known as Annual Adjustment 
Factors to using a forecasting model that was based on historical 
levels of PUC and incorporated forecasted economic indices as 
explanatory variables to predict future levels of PUC. HUD continued to 
use the forecasting model adopted in FY 2012 through FY 2016 to 
calculate a national PUC inflation factor. Consistent with HUD's 
statement in the FY 2016 Renewal Funding Inflation Factor Notice that 
it planned to change its inflation factor methodology in FY 2017, HUD 
has now implemented a revised methodology to calculate a national PUC 
inflation factor that does not rely on historical values of PUC. See 81 
FR 22296.
    The objective of the revised methodology is to determine the amount 
by which baseline funding for HCVs currently under lease needs to 
increase to maintain the same number and quality of leased vouchers. 
The prior methodology had the disadvantage of incorporating the lower 
per-unit costs calculated during economic downturns into future 
projections, which resulted in a failure to account for higher per-unit 
costs during economic recoveries. The revised methodology instead 
calculates a ``notional'' PUC by taking the difference between national 
gross rent and 30 percent of national average HCV tenant income, as 
described below. The inflation factor is then calculated as the annual 
change in notional PUC.
    The notional PUC is calculated following the same basic formula 
that is used to calculate the voucher subsidy. The monthly subsidy is 
the difference between total monthly gross rent (which is the total of 
the unit's contract rent plus utilities expenses required to make the 
unit habitable--principally electricity and/or heating fuel) and the 
monthly tenant rent contribution (which is calculated as 30% of monthly 
tenant income). However, the change in the notional PUC is calculated 
using forecasts incorporating economic indicators, in part using the 
same methodology used to calculate the national FMR trend factor, so 
that it reflects forward-looking cost projections rather than backward-
looking data. The base level of the notional PUC is the two-bedroom 
national average FMR less 30 percent of the national average tenant

[[Page 26711]]

income measured using HUD administrative data. Future values of the 
notional PUC are calculated as the difference between the forecast of 
monthly gross rent (using a national average) and the forecast of the 
monthly tenant rent contribution (calculated as 30% of the national 
average forecast of monthly tenant adjusted gross income).
    An accurate PUC forecast depends upon the interaction of the three 
factors mentioned above that determine the voucher subsidy amounts: 
Rents and utility expenses--together, gross rents--and tenant incomes. 
Note that if tenant incomes grow more strongly than gross rents, 
voucher costs will grow more slowly than gross rents. This typically 
does not occur, as tenant incomes have historically grown more slowly 
than gross rents. However, modeling the growth in gross rents and 
tenant incomes independently is an improvement of the prior 
methodology, which forecasted PUC changes directly, essentially 
assuming that gross rents and tenant incomes grow at the same rates. In 
contrast, the new model expressly captures differences in expected 
growth rates of the three relevant factors: Rent of primary residence, 
utilities associated with renting a housing unit, and tenant incomes.
    HUD calculates a gross rent index forecast by combining two indices 
that HUD independently forecasts using data from the CPI-U: A rent of 
primary residence index and a housing--fuels and utilities index. The 
Rent of Primary Residence Index (BLS CPI-U component series ``SEHA'') 
is weighted at 80 percent, or 0.8 times, and is estimated from 
quarterly data on residential fixed investment from the National Income 
and Product Accounts, and civilian employment from the Bureau of Labor 
Statistics. The Housing--Fuels and Utilities Index (BLS CPI-U component 
series ``SAH2''), a forecast of quarterly utility expense growth, is 
weighted at 20 percent, or 0.2 times, and is estimated using the 
quarterly average spot price in dollars per barrel of West Texas 
Intermediate crude oil, the quarterly national average price in dollars 
per short ton of bituminous coal, the quarterly average Henry Hub price 
of natural gas in dollars per million BTUs, and the overall level of 
the Consumer Price Index (CPI-U) lagged by 2 quarters. The changes 
predicted by the gross rent index forecast are then applied to a 
``base'' gross rent--for this year, the FY 2016 national voucher-
weighted average two-bedroom FMR--to ``inflate'' the FY 2016 national 
average gross rent to its projected FY 2017 amount.
    HUD forecasts quarterly average tenant household incomes (sourced 
from HUD administrative data) using a model that includes a seasonal 
difference and seasonal moving average factor. The other independent 
variables are BLS's civilian employment and unemployment rate data.
    As stated above, the notional PUC is the difference between the 
national average monthly gross rent forecast less 30% of the national 
average monthly voucher tenant household income forecast. The national 
inflation factor is the annual change in the national average PUC 
predicted for the current calendar year (in this case 2017) divided by 
the national average PUC for the prior year (in this case 2016). The 
Calendar Year 2017 PHA HCV allocation uses 3.97 percent as the national 
inflation factor. Forecast components for each economic series used in 
the model in FY 2017 were taken from the FY 2017 OMB Midsession Review 
Economic Assumptions.

III. The Use of Inflation Factors

    HUD then calculates individual geographic area inflation factors 
for each PHA administering the HCV program to account for relative 
differences in the changes of local rents so that HCV funds can be 
allocated among PHAs according to local costs. HUD does so by assigning 
each PHA an inflation factor calculated for its FMR area(s) and then 
adjusting these individual inflation factors to be consistent with the 
national forecast.
    The inflation factor for an individual geographic area is based on 
the annualized change in the area's FMR between FY 2016 and FY 2017.\1\ 
These changes in FMRs are then scaled such that the voucher-weighted 
average of all individual area inflation factors is equal to the 
national inflation factor, i.e., the expected annual change in national 
PUC from CY 2016 to CY 2017 (now calculated using the revised 
``notional PUC'' methodology described above), and also such that no 
area has a factor less than one. For PHAs operating in multiple FMR 
areas, HUD calculates a voucher-weighted average inflation factor based 
on the count of vouchers in each FMR area administered by the PHA as 
captured in HUD administrative data as of September 30, 2016.
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    \1\ The FY 2017 inflation factors use the one-year change in 
FMRs measured between FY 2016 and FY 2017. As noted in the FY 2016 
``Section 8 Housing Assistance Payments Program-Fiscal Year (FY) 
2016 Inflation Factors for Public Housing Agency (PHA) Renewal 
Funding'' notice, HUD used the annualized two-year change in FMRs 
measured between FY 2014 and FY 2016 because the FY15 predicted 
inflation rate was negative. The notice also stated that HUD 
intended future inflation factors to be based on the one-year change 
in FMRs.
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    HUD subsequently applies the calculated individual area inflation 
factors to eligible renewal funding for each PHA based on VMS leasing 
and cost data for the prior calendar year.

IV. Geographic Areas and Area Definitions

    As explained above, inflation factors based on area FMR changes are 
produced for all FMR areas and applied to eligible renewal funding for 
each PHA. The tables showing the RFIFs, available electronically from 
the HUD data information page, list the inflation factors for each FMR 
area on a state-by-state basis. The inflation factors use the same OMB 
metropolitan area definitions, as revised by HUD, that are used in the 
FY 2017 FMRs. PHAs should refer to the Area Definitions Table on the 
following Web page to make certain that they are referencing the 
correct inflation factors: http://www.huduser.org/portal/datasets/rfif/FY2017/FY2017_RFIF_FMR_AREA_REPORT.pdf. The Area Definitions Table 
lists areas in alphabetical order by state, and the counties associated 
with each area. In the six New England states, the listings are for 
counties or parts of counties as defined by towns or cities. HUD is 
also releasing the data in Microsoft Excel format to assist users who 
may wish to use these data in other calculations. The Excel file is 
available at https://www.huduser.gov/portal/datasets/rfif/rfif.html.

V. Environmental Impact

    This notice involves a statutorily required establishment of a rate 
or cost determination which does 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).

    Dated: June 2, 2017.
Matthew Ammon,
General Deputy Assistant Secretary for Policy Development and Research.
[FR Doc. 2017-11936 Filed 6-7-17; 8:45 am]
 BILLING CODE 4210-67-P