[Federal Register Volume 63, Number 37 (Wednesday, February 25, 1998)]
[Notices]
[Pages 9573-9575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4717]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
[Docket No. FR-4295-N-01]
Notice of Operating Cost Adjustment Factors for Low-Income
Housing Preservation and Resident Homeownership Projects Assisted With
Section 8 Housing Assistance Payments
AGENCY: Office of the Secretary, HUD.
ACTION: Notice.
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SUMMARY: The Low-Income Housing Preservation and Resident Homeownership
Act of 1990 (``LIHPRHA'') requires that future rent adjustments for
LIHPRHA projects be made by applying an annual factor to be determined
by the Secretary to the portion of rent attributable to operating
expenses for the project and, where the owner is a priority purchaser,
to the portion of rent attributable to project oversight costs. This
notice announces Operating Cost Adjustment Factors (``OCAF(s)''), to be
used for rent increases under LIHPRHA, which are based on a formula
using data from the Bureau of Labor Statistics that measure changes in
wages and the costs of non-food consumer goods. The most recent
published OCAF will be applied on the anniversary date of the housing
assistance payments contract. An explanation of the methodology
employed to develop the OCAFs is set forth below.
EFFECTIVE DATE: April 1, 1998.
FOR FURTHER INFORMATION CONTACT: Ulyses Brinkley, Office of Multifamily
Housing Management, Department of Housing and Urban Development, 451
Seventh Street, S.W., Washington, DC 20410; telephone (202) 708-0558;
(This is not a toll-free number). A telecommunications device for
hearing-and speech-impaired individuals (TTY) is available at 1-800-
877-8339 (Federal Information Relay Service).
SUPPLEMENTARY INFORMATION:
I. OCAFs
The Low-Income Housing Preservation and Resident Homeownership Act
of 1990 (``LIHPRHA'') (see, in particular, section 222(a)(2)(G)(i) of
LIHPRHA, 12 U.S.C. 4112(a)(2)(G) and the regulations at 24 CFR
248.145(a)(9)) requires that future rent adjustments for LIHPRHA
projects be made by applying an annual factor to be determined by the
Secretary to the portion of project rent attributable to operating
expenses for the project and, where the owner is a priority purchaser,
to the portion of project rent attributable to project oversight costs.
The Secretary has determined to use the OCAF as the annual factor.
II. Budget-Based Method of Calculating Contract Rent Increases
If an owner believes that the contract rents approved by the
Secretary pursuant to the OCAF are not adequate, an owner may request
that its contract rent increase be calculated using the budget-based
method. Owners shall: (1) Submit documentation to HUD pursuant to the
procedures in Chapter 7 of HUD Handbook 4350.1, Insured Project
Servicing Handbook, and (2) demonstrate that an increase in contract
rents above that provided by the OCAF is necessary to reflect
extraordinary necessary expenses of owning and maintaining the Housing.
If the Secretary determines that the project rents pursuant to the OCAF
are insufficient to cover project operating expenses, the Secretary may
increase contract rents in excess of the amount determined pursuant to
the OCAF to reflect extraordinary necessary expenses of owning and
maintaining the project. Any contract rent increase resulting
[[Page 9574]]
from using the budget-based method shall be effective for the year
approved.
III. Method for Calculating OCAF
In seeking to find the best operating cost adjustment factors for
this purpose, the Department analyzed several sources of data. HUD's
own data on rental project operating costs formed the largest and most
reliable set of time-series data on actual project expenses. Bureau of
Labor Statistics (BLS) data on wages and prices were found to offer the
most reliable surrogate data sources.
After exploring alternative approaches, two methods of developing
OCAFs were considered for detailed review. One was to use
administrative and operating expense data for unsubsidized FHA-insured
projects as the basis for developing factors. The other was to use BLS
data on wages and prices as a surrogate indicator of operating cost
changes.
An analysis of the HUD FHA data from the Form HUD-92410 showed that
utility, tax, and insurance expenses had such a high degree of
variability that measurements of area- or regional-level average or
median expense changes had little relevance to most projects, and that
these data could not be used to provide meaningful measures of change.
Analysis efforts were therefore concentrated on the ``Administrative''
and ``Operating and Maintenance'' expense items reported on the HUD
92410. It was found that a large percentage of FHA-insured, unassisted
projects had unusual changes in year-to-year administrative and
operating costs, possibly due to expensing of major repairs using
reserve funds that are transferred into the operating expense account.
This is of concern, since using operating expense change factors that
partly reflect unspecified inclusions of reserve expenditures means
that the data do not provide a good indicator of normal, on-going
operating expenses or of changes in those expenses. This also appears
to explain why change factors developed using FHA-insured
administrative and operating expense data do not have a significant
central grouping tendency, but instead are spread relatively evenly
over a wide range of values. Use of an average or median value has less
meaning in such situations than it normally does, since only a few
projects have values near the average.
Starting in 1993, HUD began to collect more detailed budget
information for all FHA-insured projects, including information on
funds transferred from project reserves to cover work reported as
operating and maintenance expenses. In future years, this information
may make it feasible to develop reliable OCAFs based on costs incurred
by unassisted, FHA-insured projects. The Department intends to re-
examine the feasibility of this approach as more data become available,
but believes that actual operating expense data are not a reliable
basis for developing OCAFs at this time and does not intend to use
these data to calculate OCAFs.
The second option studied takes advantage of the fact that nearly
all administrative and operating expenses are either labor-related or
are tied to the cost of non-food producer goods. Labor-related costs
should normally tend to move with regional changes in wages, while the
cost of most producer goods should change in a similar manner
throughout the country. The cost of changes in goods used in
administrative and maintenance work can be measured by the BLS Producer
Price Index. Wage and employment data are collected on a comprehensive
and highly reliable basis by the Bureau of Labor Statistics (BLS). HUD
uses BLS wage data in calculating median family income levels, and it
uses BLS government wage data as the main determinant of the annual
increases for Public Housing Allowed Expense Levels.
Research on Public Housing program administrative and operating
expenses has shown that approximately 60 percent of such expenses are
labor-related and 40 percent are tied to purchased goods. Since 1983
HUD has used this 60-percent-wage/40-percent-price-index ratio to
update Public Housing Allowed Operating Expenses. The approach has been
the subject of research and has been found to work well. It was used to
develop OCAF factors that measure changes in ``Administrative'' and
``Operating and Maintenance'' expenses, as follows:
OCAF = (60%*BLS private sector wage change + 40%*BLS non-food PPI
change) * (avg. operating and maintenance costs/avg. non-debt service
costs)
The FY 1998 OCAF figures, shown on the accompanying appendix, were
produced for the metropolitan and nonmetropolitan area parts of each of
the ten HUD Regions using the BLS data from the final annual ES-202
series data on employment and wages. This is the same level of
geography used for Section 8 Annual Adjustment Factors (AAFs), and has
the advantage of capturing regional economic trends while avoiding the
sometimes erratic changes that would result from use of more localized
data. Future OCAF factors will be published on an annual basis.
IV. Findings and Certifications
Environmental Impact
In accordance with 24 CFR 50.19(c)(6) of the HUD regulations, the
policies and procedures contained in this notice set forth rate
determinations and related external administrative requirements and
procedures which do not constitute a development decision that affects
the physical condition of specific project areas or building sites, and
therefore are categorically excluded from the requirements of the
National Environmental Policy Act.
Executive Order 12612, Federalism
The General Counsel,as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that the policies
contained in this notice will not have substantial direct effects on
States or their political subdivisions, or the relationship between the
Federal government and the States, or on the distribution of power and
responsibilities among the various levels of government. As a result,
the notice is not subject to review under the Order. This notice
pertains to Operating Cost Adjustment Factors (``OCAF(s)''), to be used
for rent increases under LIHPRHA, and does not substantially alter the
established roles of the Department, the States, and local governments.
Catalog of Federal Domestic Assistance Number
The Catalog of Federal Domestic Assistance Number for this program
is 14.187.
Date: January 23, 1998.
Andrew Cuomo,
Secretary.
[[Page 9575]]
Appendix--Low Income Housing Preservation and Resident Homeownership Act of 1990
[FY 1998 Operating Cost Adjustment Factors]
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Total Metro Nonmetro
HUD region Area (percent) (percent) (percent)
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1.................................. NEW ENGLAND........................ 1.0 1.1 0.9
2.................................. NEW YORK-NEW JERSEY................ 1.0 1.0 0.2
3.................................. MID-ATLANTIC....................... 1.2 1.2 0.8
4.................................. SOUTHEAST.......................... 1.3 1.2 1.6
5.................................. MIDWEST............................ 1.4 1.4 1.5
6.................................. SOUTHWEST.......................... 1.0 1.1 0.7
7.................................. GREAT PLAINS....................... 1.2 1.1 1.7
8.................................. ROCKY MOUNTAINS.................... 1.7 1.7 1.6
9.................................. PACIFIC/HAWAII..................... 1.2 1.2 1.7
10.................................. NORTHWEST/ALASKA................... 0.8 0.8 6.4
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U.S. TOTAL...................... ................................... 1.1 1.1 1.3
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[FR Doc. 98-4717 Filed 2-24-98; 8:45 am]
BILLING CODE 4210-27-P
