95-18052. Notice of Operating Cost Adjustment Factors for Low-Income Housing Preservation and Resident Homeownership Projects Assisted With Section 8 Rental Payments  

  • [Federal Register Volume 60, Number 140 (Friday, July 21, 1995)]
    [Notices]
    [Pages 37782-37783]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 95-18052]
    
    
    
    
    [[Page 37781]]
    
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    Part VII
    
    
    
    
    
    Department of Housing and Urban Development
    
    
    
    
    
    _______________________________________________________________________
    
    
    
    Office of the Secretary
    
    
    
    _______________________________________________________________________
    
    
    
    Operating Cost Adjustment Factors for Low-Income Housing Preservation 
    and Resident Homeownership Projects Assisted With Section 8 Rental 
    Payments; Notice
    
    Federal Register / Vol. 60, No. 140 / Friday, July 21, 1995 / 
    Notices
    
    [[Page 37782]]
    
    
    DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
    
    Office of the Secretary
    [Docket No. FR-3924-N-01]
    
    
    Notice of Operating Cost Adjustment Factors for Low-Income 
    Housing Preservation and Resident Homeownership Projects Assisted With 
    Section 8 Rental Payments
    
    AGENCY: Office of the Secretary, HUD.
    
    ACTION: Notice.
    
    -----------------------------------------------------------------------
    
    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: June 1, 1995
    
    FOR FURTHER INFORMATION CONTACT: Barbara Hunter, Acting Director, 
    Planning and Procedures Division, Office of Multifamily Housing 
    Management, Department of Housing and Urban Development, 451 Seventh 
    Street SW., Washington, DC 20410; telephone (202) 708-3944; (TDD) (202) 
    708-4594. (These are not toll-free numbers.)
    
    SUPPLEMENTARY INFORMATION:
    
    OCAFS
    
        The Low-Income Housing Preservation and Resident Homeownership Act 
    of 1990 (``LIHPRHA'') (see, in particular section 222(a)(2)(G) of 
    LIHPRHA 12 U.S.C. 4112(a)(2)(G) and the regulations at 24 C.F.R. 
    248.145(a)(9)) require 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.
    
    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 are 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 from 
    using the budget-based method shall be effective for the year approved.
    
    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-
    
    [[Page 37783]]
    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 1995 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 released on an annual basis.
    
        Dated: July 17, 1995.
    Henry G. Cisneros,
    Secretary.
    
    Appendix
    
    Low Income Housing Preservation and Resident Homeownership Act of 1990--
                    FY 1995 Operating Cost Adjustment Factors               
    ------------------------------------------------------------------------
        HUD region              Area            Total     Metro    Nonmetro 
    ------------------------------------------------------------------------
    1................  New England..........     2.3%      2.3%        1.9% 
    2................  New York-New Jersey..     3.2%      3.2%        1.6% 
    3................  Mid-Atlantic.........     2.2%      2.2%        1.9% 
    4................  Southeast............     2.3%      2.3%        2.3% 
    5................  Midwest..............     2.2%      2.3%        1.9% 
    6................  Southwest............     2.1%      2.1%        1.6% 
    7................  Great Plains.........     2.1%      2.2%        2.0% 
    8................  Rocky Mountains......     1.9%      2.0%        1.7% 
    9................  Pacific/Hawaii.......     0.7%      0.8%        1.4% 
    10...............  Northwest/Alaska.....     2.4%      2.6%        1.6% 
                                                                            
                      ------------------------                              
                       U.S. Total...........     2.0%      2.1%        1.9% 
    ------------------------------------------------------------------------
    
    [FR Doc. 95-18052 Filed 7-20-95; 8:45 am]
    BILLING CODE 4210-32-P
    
    

Document Information

Effective Date:
6/1/1995
Published:
07/21/1995
Department:
Housing and Urban Development Department
Entry Type:
Notice
Action:
Notice.
Document Number:
95-18052
Dates:
June 1, 1995
Pages:
37782-37783 (2 pages)
Docket Numbers:
Docket No. FR-3924-N-01
PDF File:
95-18052.pdf