[Federal Register Volume 72, Number 21 (Thursday, February 1, 2007)]
[Notices]
[Pages 4918-4942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-453]



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Part IV





Department of Housing and Urban Development





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Section 8 Housing Assistance Payments Program--Contract Rent Annual 
Adjustment Factors, Fiscal Year 2007; Notice

Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / 
Notices

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5031-N-03]


Section 8 Housing Assistance Payments Program--Contract Rent 
Annual Adjustment Factors, Fiscal Year 2007

AGENCY: Office of the Secretary, HUD.

ACTION: Notice of Revised Contract Rent Annual Adjustment Factors.

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SUMMARY: This notice announces revised Annual Adjustment Factors (AAFs) 
that are applied to Section 8 contract rents for specific programs. 
These factors are applied at Housing Assistance Payment (HAP) contract 
anniversaries for those calendar months commencing after the effective 
date of this notice. The AAFs are based on residential rent and 
utilities time-series cost indices from the Bureau of Labor Statistics 
Consumer Price Index (CPI) surveys.

DATES: Effective Date: February 1, 2007.

FOR FURTHER INFORMATION CONTACT: David Vargas, Senior Advisor, Housing 
Voucher Management and Operations Division, Office of Public Housing 
and Voucher Programs, (202) 708-0477 can respond to questions relating 
to the Section 8 Voucher, Certificate, and Moderate Rehabilitation 
programs; Mark Johnston, Office of Special Needs Assistance Programs, 
Office of Community Planning and Development, (202) 708-1234 for 
questions regarding the Single Room Occupancy Moderate Rehabilitation 
program; Willie Spearmon, Director, Office of Housing Assistance and 
Grant Administration, Office of Housing, (202) 708-3000, for questions 
relating to all other Section 8 programs. Marie L. Lihn, Economic and 
Market Analysis Division, Office of Policy Development and Research 
(202) 708-0590, is the contact for technical information regarding the 
development of the factors for specific areas or the methods used for 
calculating the AAFs. Mailing address for above persons: Department of 
Housing and Urban Development, 451 Seventh 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: In addition to being published in the 
Federal Register, these data will be available electronically from the 
HUD data information page: http://www.huduser.org/datasets/aaf.html.

I. Methodology

    AAFs are calculated using CPI data on rents and utilities for all 
metropolitan areas that are specifically surveyed for the CPI. AAFs for 
other areas use the more general CPI for rents and utilities calculated 
for the four Census Regions, Northeast, South, Midwest, and West. AAFs 
are rent change factors. Two types of AAFs are calculated. One type is 
a gross rent change factor that should be used when the primary utility 
(normally heating) is included in the rent. The other type is a shelter 
rent (i.e., rents without utilities) factor that should be used when 
the primary utility is not included in rent. Decennial census data are 
used to establish the relationship between gross rents and shelter 
rents.

CPI Surveys

    For specific metropolitan areas where CPI surveys are conducted, 
changes in the shelter rent and utilities components are calculated 
based on the most recent CPI annual average change data. In this 
publication, the rent and utility CPIs for metropolitan areas are based 
on changes in the index from 2004 to 2005. The ``Highest Cost Utility 
Included'' column in Schedule C is calculated by weighting the rent and 
utility change factors using the corresponding components of gross rent 
in a particular area as calculated in the 2000 Census. The ``Highest 
Cost Utility Excluded'' column in Schedule C is calculated by 
eliminating the utility portion of the gross rent change factor.
    For areas not covered by a specific metropolitan CPI surveys, HUD 
uses the CPI surveys for the Northeast, South, Midwest, or West region, 
as appropriate. Rent and utility change factors are calculated from 
2004 to 2005. For areas assigned Census Region CPI factors, both 
metropolitan and non-metropolitan areas received the same factor.

Geographic Areas

    The current and former metropolitan areas that use specific CPI 
factors are listed alphabetically in the tables, according to the 
metropolitan area where appropriate. Each AAF applies to a specified 
geographic area and to units of all bedroom sizes. AAFs are provided:
    <bullet> For separate metropolitan areas, including counties that 
are currently designated as non-metropolitan, but are part of the 
metropolitan area defined in the local CPI survey.
    <bullet> For the four Census Regions for those metropolitan and 
non-metropolitan areas that are not covered by the local CPI surveys.
    The AAFs shown in Schedule C use the same Office of Management and 
Budget (OMB) metropolitan area definitions, as revised by HUD, that are 
used in the FY2007 Fair Market Rents.

Area Definitions in Schedule C

    To make certain that they are using the correct AAFs, users should 
refer to the area definitions section at the end of Schedule C. For 
units located in metropolitan areas with a local CPI survey, AAFs are 
listed separately. For units located in areas without a local CPI 
survey, the metropolitan or nonmetropolitan counties receive the 
regional CPI for that Census Region.
    The AAF area definitions shown in Schedule C are listed in 
alphabetical order by state. The associated CPI division 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 specifically listed on Schedule C or the area file.
    Puerto Rico and the Virgin Islands use the South Region AAFs. All 
areas in Hawaii use the AAFs identified in the Table as ``STATE: 
Hawaii,'' which are based on the CPI survey for the Honolulu 
metropolitan area. The Pacific Islands use the West Region AAFs.

II. 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 payments 
programs during the initial (i.e., pre-renewal) term of the HAP 
contract. Three categories of Section 8 programs use the AAFs:
    Category 1--The Section 8 New Construction and Substantial 
Rehabilitation programs and the Section 8 Moderate Rehabilitation 
program.
    Category 2--The Section 8 Loan Management (LM) and Property 
Disposition (PD) programs.
    Category 3--The Section 8 Project-based Certificate (PBC) program.
    Each Section 8 program category uses the AAFs differently. The 
specific HAP contract, program regulation, program requirement, or law 
determines the application of the AAFs. Restrictions to the use of AAF 
are discussed below:
    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

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restructuring plan adopted under 24 CFR part 401; or renewed without 
restructuring under 24 CFR part 402). In general, renewal rents are 
determined by applying a state-by-state operating cost adjustment 
factor (OCAF) published by HUD.
    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) or 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 and 24 CFR 886.132. Budget-based 
adjustments are used for most Section 8/202 projects.
    Certificate Program. In the past, AAFs were used to adjust the 
contract rent (including manufactured home space rentals) in both the 
tenant-based and project-based certificate programs. The tenant-based 
certificate program has been terminated and all tenancies in the 
tenant-based certificate program have been converted to the Housing 
Choice Voucher Program, which does not use AAFs to adjust rents. All 
tenancies remaining in the project-based certificate program continue 
to use AAFs to adjust contract rent for outstanding HAP contracts.
    Moderate Rehabilitation Program. Under the Section 8 Moderate 
Rehabilitation program (both the regular program and the single room 
occupancy program), the public housing agency (PHA) applies the AAF to 
the base rent component of the contract rent, not the full contract 
rent. For the other covered programs, the AAF is applied to the whole 
amount of the pre-adjustment contract rent.

III. 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, issued by the Office of 
Housing and the Office of Public and Indian Housing.
    Because of statutory and structural distinctions among the various 
Section 8 programs, there are separate rent adjustment procedures for 
the three 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, 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 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):
    <bullet> The Table 1 AAF is used for a unit occupied by a new 
family since the last annual contract anniversary.
    <bullet> The 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: The Loan Management Program (24 CFR Part 886, Subpart A) 
and Property Disposition Program (24 CFR Part 886, Subpart C)

    At this time, rent adjustment by the AAF in the Category 2 programs 
is not subject to comparability. (Comparability will again apply if HUD 
establishes regulations for conducting comparability studies under 42 
U.S.C. 1437f(c)(2)(C).). Rents are adjusted by applying the full amount 
of the applicable AAF under this notice.
    The applicable AAF is determined as follows:
    <bullet> The Table 1 AAF is used for a unit occupied by a new 
family since the last annual contract anniversary.
    <bullet> The Table 2 AAF is used for a unit occupied by the same 
family as at the time of the last annual contract anniversary.

Category 3: Section 8 Certificate Project-Based Certificate Program

    The following procedures are used to adjust contract rent for 
outstanding HAP contracts in the Section 8 PBC program:
    <bullet> The Table 2 AAF is always used. The Table 1 AAF is not 
used.
    <bullet> The Table 2 AAF is always applied before determining 
comparability (rent reasonableness).
    <bullet> Comparability always applies. If the comparable rent level 
is lower than the rent to owner (contract rent) as adjusted by 
application of the Table 2 AAF, the comparable rent level will be the 
new rent to owner.

IV. 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:
    <bullet> For all tenancies assisted in the Section 8 Project-Based 
Certificate program.
    <bullet> In other 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).

    To implement the law, HUD publishes two separate AAF Tables, 
contained in Schedule C, Tables 1 and 2 of this notice. 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.

V. How To Find the AAF

    The AAFs are contained in Schedule C, Tables 1 and 2 of this 
notice. There are two columns in each table. The first column is used 
to adjust contract rent for 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:
    <bullet> 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.

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    <bullet> Determine whether the highest cost utility is or is not 
included in contract rent for the contract unit.
    <bullet> If highest cost utility is included, select the AAF from 
the column for ``highest cost included.'' If highest cost utility is 
not included, select the AAF from the column for ``utility excluded.''
    Accordingly, HUD publishes these Annual Adjustment Factors for the 
Section 8 Housing Assistance Payments programs as set forth in the 
Tables.

    Dated: January 25, 2007.
Darlene F. Williams,
Assistant Secretary for Policy Development and Research.
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[FR Doc. 07-453 Filed 1-31-07; 8:45 am]
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