[Federal Register Volume 85, Number 243 (Thursday, December 17, 2020)]
[Notices]
[Pages 81949-81952]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27708]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[FR-6241-N-01]


Section 8 Housing Assistance Payments Program--Annual Adjustment 
Factors, Fiscal Year 2021

AGENCY: Office of the Assistant Secretary for Policy Development and 
Research, Housing and Urban Development (HUD).

ACTION: Notice of Fiscal Year (FY) 2021 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 2021 AAFs for adjustment of contract rents on the 
anniversary of those assistance contracts. A separate Federal Register 
notice, to be published following the finalization of the FY 2021 
Federal appropriations, will be used in the calculation of the calendar 
year (CY) 2021 Housing Choice Voucher (HCV) renewal funding for public 
housing agencies (PHAs).

DATES: The FY 2021 AAFs are effective December 17, 2020.

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); Norman A. Suchar, Director, Office of 
Special Needs Assistance Programs, Office of Community Planning and 
Development, 202-402-5015, for questions regarding the Single Room 
Occupancy (SRO) Moderate Rehabilitation program; Katherine Nzive, 
Director, OAMPO Program Administration Office, Office of Multifamily 
Housing, 202-402-3440,

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for questions relating to all other Section 8 programs; and Marie Lihn, 
Economist, Program Parameters and Research 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: The factors are based on a formula using 
residential rent and utility cost changes from the most recent annual 
Bureau of Labor Statistics (BLS) Consumer Price Index (CPI) survey. The 
FY 2020 AAFs were the first to use the revised BLS area definitions for 
local area CPI. The revised area definitions for local CPI reduced the 
number of metropolitan areas covered by local data from 123 
metropolitan areas (including some nonmetro counties) that were 
formerly in metropolitan areas to 70 metropolitan areas. The AAFs 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. 
AAFs are distinct from, and do not apply to the same properties as, 
Operating Cost Adjustment Factors (OCAFs). OCAFs are annual factors 
used to adjust rents for project-based rental assistance contracts 
issued under Section 8 of the United States Housing Act of 1937 and 
renewed under section 515 or section 524 of the Multifamily Assisted 
Housing Reform and Affordability Act of 1997 (MAHRA). 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. There are two 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.
    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. AAFs are not used to determine renewal rents after 
expiration of the original Section 8 HAP contract (either for projects 
where the Section 8 HAP contract is renewed under a restructuring plan 
adopted under 24 CFR part 401; or renewed without restructuring under 
24 CFR part 402). In general, renewal rents are established in 
accordance with the statutory provision in 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.
    Housing Choice 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). 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 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. Because of statutory and 
structural distinctions among the various Section 8 programs, there are 
separate rent adjustment procedures for the two 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)

    Category 2 programs are not currently 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.

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

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is reduced by 0.01 in 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)).

IV. How To Find the AAF

    AAF Table 1 and Table 2 are posted on the HUD User website 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 inflation factor and fuel and utilities inflation factor 
for each large metropolitan area and Census region are based, 
respectively, on changes in the CPI index for rent of primary residence 
and the CPI index for fuels and utilities from 2018 to 2019. 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 2019 CEX survey data produced for HUD. The utility-to-rent ratio 
used to produce AAFs comes from 2018 ACS median rent and utility costs.

Geographic Areas

    Beginning with the data collection for 2018, BLS revised the sample 
for the CPI to be based on Core Based Statistical Areas (CBSAs). 
Previously the sample was based on Metropolitan Statistical Areas 
(MSAs) as defined in 1998. In addition, the population required to be 
designated a Class A CPI city was increased from 1.5 million to 2.5 
million. The following major metropolitan areas were eliminated under 
the new sample design: Pittsburgh PA, Cincinnati-Hamilton OH-KY-IN, 
Cleveland-Akron OH, Milwaukee-Racine WI, Kansas City MO-KS, and 
Portland-Salem OR-WA. With the change in metropolitan area definitions 
and the designation of Class A cities, the number of CPI cities 
declined from 28 metropolitan areas to 23 metropolitan areas 
(Riverside-San Bernardino has been split off from the Los Angeles 
survey area). This decline has resulted in fewer metropolitan component 
areas receiving local CPI adjustments, down to 70 metropolitan areas 
and subareas (HUD Metro FMR Areas) from 124 metropolitan and 
nonmetropolitan areas. The 2018 CPI data with new metropolitan area 
definitions was first used with the FY 2020 AAFs. There are no longer 
any nonmetropolitan areas using local CPI inflation factors in the U.S. 
This change did not impact Puerto Rico which applies an island-wide CPI 
to all metropolitan and nonmetropolitan areas.
    Each metropolitan area that uses a local CPI update factor is 
listed alphabetically in the tables and each HUD Metro FMR Area (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 metropolitan areas at the MSA or HMFA level.

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     For the four Census Regions (to be used for those 
metropolitan areas that are not covered by a CPI city-survey and non-
metropolitan areas).
    AAFs use the same Office of Management and Budget (OMB) 
metropolitan area definitions, as revised by HUD, that are used for the 
FY 2021 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 survey 
areas 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 use the West Region AAFs.

Todd M. Richardson,
General Deputy Assistant Secretary, Office of Policy Development and 
Research.
[FR Doc. 2020-27708 Filed 12-16-20; 8:45 am]
BILLING CODE 4210-67-P