[Federal Register Volume 84, Number 237 (Tuesday, December 10, 2019)]
[Notices]
[Pages 67471-67473]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26426]
[[Page 67471]]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
[Docket No. FR-6189-N-01]
Section 8 Housing Assistance Payments Program--Annual Adjustment
Factors, Fiscal Year 2020
AGENCY: Office of the Assistant Secretary for Policy Development and
Research, HUD.
ACTION: Notice of Fiscal Year (FY) 2020 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 2020 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 (BLS) Consumer Price Index
(CPI) survey. The FY 2020 AAFs are the first to use the revised BLS
area definitions for local area CPI. A separate Federal Register
notice, to be published following the finalization of the FY 2020
federal appropriations, will be used in the calculation of the calendar
year (CY) 2020 Housing Choice Voucher (HCV) renewal funding for public
housing agencies (PHAs)
DATES: December 10, 2019.
FOR FURTHER INFORMATION CONTACT: 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, 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 Relay Service at 800-877-8339 (TTY). (Other than the
``800'' TTY number, the above-listed telephone numbers are not toll
free.)
SUPPLEMENTARY INFORMATION: This notice announces FY 2020 AAFs for
adjustment of contract rents on the anniversary of those assistance
contracts. The factors for adjustment 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 are the first to use the revised BLS area definitions for
local area CPI. There are now only 70 metropolitan areas covered by
local CPI data; previously there were 123 metropolitan and
nonmetropolitan 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). A separate Federal Register notice, to be published following
the finalization of the FY 2020 federal appropriations, will be used in
the calculation of the calendar year (CY) 2020 Housing Choice Voucher
(HCV) renewal funding for public housing agencies (PHAs).
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). 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
[[Page 67472]]
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 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)).
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 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 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 2017 to 2018. 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 2018 CEX survey data produced for HUD. The utility-to-rent ratio
used to produce AAFs comes from 2017 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. There are now 23 major metropolitan areas
(excluding Puerto Rico, which is unchanged) with local CPI data, down
from 28 last year (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. There are no longer any
nonmetropolitan areas using local CPI inflation factors (except for
Puerto Rico).
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.
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 OMB metropolitan area definitions, as revised by
HUD, that are used for the FY 2020 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.
Dated: November 26, 2019.
Seth D. Appleton,
Assistant Secretary for Policy Development and Research.
[FR Doc. 2019-26426 Filed 12-9-19; 8:45 am]
BILLING CODE 4210-67-P