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[Federal Register Volume 89, Number 238 (Wednesday, December 11, 2024)]
[Notices]
[Pages 99893-99896]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29016]

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-6495-N-01]

Notice of Certain Operating Cost Adjustment Factors for 2025

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Notice; request for comment.

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SUMMARY: This notice establishes operating cost adjustment factors 
(OCAFs) for project-based assistance contracts issued under section 8 
of the United States Housing Act of 1937 and renewed under the 
Multifamily Assisted Housing Reform and Affordability Act of 1997 
(MAHRA) for eligible multifamily housing projects having an anniversary 
date on or after February 11, 2025. OCAFs are annual factors used to 
adjust section 8 rents renewed under section 515 or section 524 of 
MAHRA. Additionally, OCAFs are part of an allowable method of rent 
adjustment for project-based voucher contracts pursuant to the 
provision at section 8(o)(13)(I) of the United States Housing Act of 
1937 that was implemented June 6, 2024. Through this notice HUD also 
seeks public input on the technical changes to its OCAF calculation 
method.

[[Page 99894]]

DATES: Comment due date: January 10, 2025.
    Applicability Date: February 11, 2025.

ADDRESSES: HUD invites interested persons to submit comments regarding 
changes to the OCAF calculation method. Communications must refer to 
the above docket number and title and should contain the information 
specified in the ``Request for Public Comments and FMR Reevaluations'' 
section. There are two methods for submitting public comments:
    1. Electronic Submission of Comments. Interested persons may submit 
comments or reevaluation requests electronically through the Federal 
eRulemaking Portal at https://www.regulations.gov. HUD strongly 
encourages commenters to submit comments or reevaluation requests 
electronically. Electronic submission of comments or reevaluation 
requests allows the author maximum time to prepare and submit a comment 
or reevaluation request, ensures timely receipt by HUD, and enables HUD 
to make them immediately available to the public. Comments or 
reevaluation requests submitted electronically through the https://www.regulations.gov website can be viewed by other submitters and 
interested members of the public. Commenters or reevaluation requestors 
should follow instructions provided on that site to submit comments or 
reevaluation requests electronically.
    2. Submission of Comments by Mail. Members of the public may submit 
comments or requests for reevaluation by mail to the Regulations 
Division, Office of General Counsel, Department of Housing and Urban 
Development, 451 7th Street SW, Room 10276, Washington, DC 20410-0500. 
Due to security measures at all federal agencies, however, submission 
of comments by standard mail often results in delayed delivery. To 
ensure timely receipt of comments or reevaluation requests, HUD 
recommends that comments or requests submitted by standard mail be 
submitted at least two weeks in advance of the deadline. HUD will make 
all comments or reevaluation requests received by mail available to the 
public at https://www.regulations.gov.

    Note: To receive consideration as public comments or 
reevaluation requests, comments or requests must be submitted 
through one of the two methods specified above. Again, all 
submissions must refer to the docket number and title of the notice.

    No Facsimile Comments or Reevaluation Requests. HUD does not accept 
facsimile (FAX) comments or requests.

FOR FURTHER INFORMATION CONTACT: Jennifer Lavorel, Director, Office of 
Asset Management and Portfolio Oversight Program Administration Office, 
Department of Housing and Urban Development, 451 7th Street SW, 
Washington, DC 20410; telephone number 202-402-2515 (this is not a 
toll-free number). HUD welcomes and is prepared to receive calls from 
individuals who are deaf or hard of hearing, as well as individuals 
with speech or communication disabilities. To learn more about how to 
make an accessible telephone call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

SUPPLEMENTARY INFORMATION: 

I. Background

    Section 514(e)(2) and section 524(c)(1) of the Multifamily Assisted 
Housing Reform and Affordability Act of 1997 (MAHRA) (42 U.S.C. 1437f 
note), as amended, require HUD to establish guidelines for the 
development of operating cost adjustment factors (OCAFs) for rent 
adjustments. Similar language is found in sections 524(a)(4)(C)(i), 
524(b)(1)(A), and 524(b)(3)(A) of MAHRA, all of which prescribe the use 
of the OCAF in the calculation of renewal rents. MAHRA gives HUD broad 
discretion in setting OCAFs, referring, for example, in sections 
524(a)(4)(C)(i), 524(b)(1)(A), 524(b)(3)(A), and 524(c)(1), to simply 
``an operating cost adjustment factor established by the Secretary.'' 
HUD uses a single methodology for establishing OCAFs. The sole 
limitation to this grant of authority is a specific requirement in each 
of the foregoing provisions that application of an OCAF ``shall not 
result in a negative adjustment.''
    In addition to their use under MAHRA, section 8(o)(13)(I)(i) of the 
United States Housing Act of 1937 allows the use of OCAFs for project-
based voucher contracts as implemented on June 6, 2024 in Housing 
Opportunity Through Modernization Act of 2016--Housing Choice Voucher 
(HCV) and Project-Based Voucher Implementation; Additional Streamlining 
Changes (89 FR 38224 (May 7, 2024)).
    OCAFs vary among States and territories. Contract rents are 
adjusted by applying the OCAF for the State or territory in which the 
subject project is located to that portion of the rent attributable to 
operating expenses exclusive of debt service.
    The OCAFs provided in this notice are applicable to eligible 
projects having a contract anniversary date on or after February 11, 
2025.

II. Changes to OCAF Methodology

    HUD seeks public input on the following technical changes to its 
OCAF calculation methodology.
    Insurance component data source. To calculate the inflation factor 
for the insurance component, HUD has since 2023 used the industry data 
for Direct Property and Casualty Insurers-Commercial Multiple Peril 
Insurance series from the Bureau of Labor Statistics, Producer Price 
Index (PPI). Beginning with the 2025 OCAFs, HUD instead will use the 
year-to-year change in actual cost data from audited financial 
statements, as it better captures the significant rise in property 
insurance costs that multifamily properties have faced in recent years. 
Specifically, HUD will use actual State-level data, except for States 
that have fewer than 100 multifamily properties with submitted audited 
financial statements in 2022 and 2023. For those States, HUD instead 
uses the HUD Regional average change in actual insurance expenditures. 
By contrast, HUD's former methodology of using the PPI failed to 
capture significant geographic variations in the cost of insurance, as 
it is a national index. With respect to these changes to OCAF 
methodology, HUD will consider all comments submitted not later than 30 
days from the date of publication of this notice. Unless HUD receives 
comment that would lead to the reconsideration of these changes, the 
changes will become effective on February 11, 2025. If HUD receives 
adverse comment that leads to reconsideration, HUD will notify the 
public via a revised notice issued immediately following the close of 
the comment period.

III. OCAF Data Sources

    OCAFs are calculated as the sum of weighted component cost changes 
for electricity, employee benefits, employee wages, fuel oil, goods/
supplies/equipment, insurance, natural gas, property taxes, and water/
sewer/trash, using publicly available indices. The weights used in the 
OCAF calculations for each of the nine cost component groupings are set 
using current percentages attributable to each of the nine expense 
categories. HUD calculates weights using three years of audited Annual 
Financial Statements from projects covered by OCAFs. The expenditure 
percentages for these nine categories have been found to be stable over 
time, and using three years of data increases their stability. The nine 
cost component weights, and, thus, the OCAFs, are calculated at the 
State level, which is the lowest level of

[[Page 99895]]

geographical aggregation with enough projects to permit statistical 
analysis. These data are not available for the Western Pacific Islands, 
so data for Hawaii are used as the best available indicator of OCAFs 
for these areas.
    HUD uses the best current price data sources for the nine cost 
categories in calculating annual change factors. State-level data for 
electricity, fuel oil, and natural gas from Department of Energy 
surveys are relatively current and continue to be used. Data on changes 
in employee benefits, employee wages, goods/supplies/equipment, 
property taxes, and water/sewer/trash costs are available only at the 
national level. For insurance in 2025, HUD will use State and HUD 
Region data as described below.
    The data sources used for the selected nine cost indicators are as 
follows:
     Electricity: Energy Information Agency (EIA), May 2024 
``Electric Power Monthly'' report, Table 5.6.B. HUD compares the 
January 2024 to May 2024 estimate to the January 2023 to May 2023 
estimate. https://www.eia.gov/electricity/monthly/epm_table_grapher.php?t=epmt_5_06_b.
     Employee benefits: Bureau of Labor Statistics (BLS) 
Employment Cost Index (ECI), Private Industry Benefits, All Workers 
(Series ID CIU2030000000000I), at the national level. HUD compares the 
second quarter 2024 to the second quarter of 2023.
     Employee wages: Bureau of Labor Statistics (BLS) ECI, 
Private Industry Wages and Salaries, All Workers (Series ID 
CIU2020000000000I), at the national level. HUD compares the second 
quarter 2024 to the second quarter of 2023.
     Fuel Oil: EIA U.S. Weekly Heating Oil and Propane Prices 
report. Average weekly residential heating oil prices in cents per 
gallon excluding taxes for the period from October 2, 2023, through the 
week of March 25, 2024, are compared to the average from October 3, 
2022, through the week of March 27, 2023. For the States with 
insufficient fuel oil consumption to have separate estimates, the 
relevant regional Petroleum Administration for Defense Districts (PADD) 
change between these two periods is used; if there is no regional PADD 
estimate, the U.S. change between these two periods is used. https://www.eia.gov/dnav/pet/pet_pri_wfr_a_EPD2F_PRS_dpgal_w.htm.
     Goods/Supplies/Equipment: Bureau of Labor Statistics (BLS) 
Consumer Price Index, All Items Less Food, Energy and Shelter (Series 
ID CUUR0000SA0L12E) at the national level. HUD compares the July 2024 
estimate to the estimate for July 2023.
     Insurance: Audited Financial Statements (AFS), multifamily 
data for property insurance at the State-level or, for those States 
with fewer than 100 multifamily properties, at the HUD regional 
level.\1\ HUD compares the average annual property insurance 
expenditures in 2022 to the expenditures in 2023.
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    \1\ The financial statements comprise approximately 17,000 
residential properties, including those in the section 8 (including 
RAD conversions), section 202, and section 811 programs of HUD's 
Office of Multifamily Housing. There are 17 States with fewer than 
100 properties that receive a regional average.
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     Natural Gas: Energy Information Agency (EIA), Natural Gas, 
Residential Energy Price, June 2023-May 2024 monthly prices in dollars 
per 1,000 cubic feet at the State level. Due to EIA data quality 
standards, several States were missing data for one or two months in 
2023 and 2024; in these cases, data for these missing months were 
estimated using data from the surrounding months in that year and the 
relationship between that same month and the surrounding months in 
2022. http://www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PRS_DMcf_a.htm.
     Property Taxes: Census Quarterly Summary of State and 
Local Government Tax Revenue--Table 1 https://www.census.gov/econ/currentdata/dbsearch?programCode=QTAX&startYear=2021&endYear=2024&categories[]=QTAXC
AT1&dataType=TOTAL&geoLevel=US&adjusted=0¬Adjusted=1&errorData=0. 
Twelve-month property taxes are computed as the total of four quarters 
of tax receipts for the period from April through March. Total 12-month 
taxes are then divided by the number of occupied housing units to 
arrive at average 12-month tax per housing unit. The number of occupied 
housing units is taken from U.S. Census Bureau's Current Population 
Survey/Housing Vacancy Survey (CPS/HVS) housing inventory estimates, 
Table 8: https://www.census.gov/housing/hvs/data/histtab8.xlsx.
     Water/Sewer/Trash: Consumer Price Index, All Urban 
Consumers, Water and Sewer and Trash Collection Services (Series ID 
CUUR00 00SEHG) at the national level. HUD compares the estimate for 
July 2024 to the estimate for July 2023.
    The sum of the nine cost component percentage weights equals 100 
percent of operating costs for purposes of OCAF calculations. To 
calculate the OCAFs, State-level cost component weights developed from 
AFS data are multiplied by the selected inflation factors. For 
instance, if wages in Virginia comprised 50 percent of total operating 
cost expenses and increased by 4 percent from 2023 to 2024, the wage 
increase component of the Virginia OCAF for 2025 would be 2.0 percent 
(50% * 4%). This 2.0 percent would then be added to the increases for 
the other eight expense categories to calculate the 2025 OCAF for 
Virginia. For States where the calculated OCAF is less than zero, the 
OCAF is floored at zero. The OCAFs for 2025 are included as an Appendix 
to this notice.

IV. Findings and Certifications: Environmental Impact

    This notice sets forth rate determinations and related external 
administrative requirements and procedures that do not constitute a 
development decision affecting the physical condition of specific 
project areas or building sites. Accordingly, under 24 Code of Federal 
Regulations 50.19(c)(6), this notice is categorically excluded from 
environmental review under the National Environmental Policy Act of 
1969 (42 U.S.C. 4321).

V. Paperwork Reduction Act

    This notice does not impact the information collection requirements 
already approved by the Office of Management and Budget (OMB) with OMB 
Approval Number 2502-0587, under the Paperwork Reduction Act of 1995 
(44 U.S.C. 3501-3520). In accordance with the Paperwork Reduction Act, 
an agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless the collection displays 
a currently valid OMB control number.

VI. Assistance Listing Number

    The Assistance Listing number for this program is 14.195.

Julia R. Gordon,
Assistant Secretary for Housing--FHA Commissioner.

Appendix

Operating Cost Adjustment Factors for 2025

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Alabama........................................................      5.3
Alaska.........................................................      5.1
Arizona........................................................      5.5
Arkansas.......................................................      4.7
California.....................................................      5.0
Colorado.......................................................      3.8
Connecticut....................................................      3.0
Delaware.......................................................      4.4
District of Columbia...........................................      4.5
Florida........................................................      5.7
Georgia........................................................      4.9
Hawaii.........................................................      5.0
Idaho..........................................................      5.7
Illinois.......................................................      4.2

[[Page 99896]]

 
Indiana........................................................      4.4
Iowa...........................................................      4.6
Kansas.........................................................      4.5
Kentucky.......................................................      4.8
Louisiana......................................................      7.0
Maine..........................................................      3.6
Maryland.......................................................      4.6
Massachusetts..................................................      3.9
Michigan.......................................................      4.3
Minnesota......................................................      4.2
Mississippi....................................................      5.4
Missouri.......................................................      5.4
Montana........................................................      4.1
Nebraska.......................................................      5.0
Nevada.........................................................      4.8
New Hampshire..................................................      3.5
New Jersey.....................................................      4.7
New Mexico.....................................................      5.6
New York.......................................................      4.5
North Carolina.................................................      5.2
North Dakota...................................................      4.3
Ohio...........................................................      4.9
Oklahoma.......................................................      4.5
Oregon.........................................................      5.7
Pacific Islands................................................      4.1
Pennsylvania...................................................      4.1
Puerto Rico....................................................      5.0
Rhode Island...................................................      4.9
South Carolina.................................................      5.0
South Dakota...................................................      4.4
Tennessee......................................................      5.4
Texas..........................................................      5.9
Utah...........................................................      4.7
Vermont........................................................      5.2
Virgin Islands.................................................      8.5
Virginia.......................................................      4.3
Washington.....................................................      5.8
West Virginia..................................................      5.1
Wisconsin......................................................      4.1
Wyoming........................................................      4.3
United States..................................................      4.8
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[FR Doc. 2024-29016 Filed 12-10-24; 8:45 am]
BILLING CODE P
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