Opposition Brief — Cisneros v. Alpine Ridge Group
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OFFICE OF THe CLERK
Sumpreme Court ofthe Bnited Staes
October Term, 1992
re
JACK F. KEMP, SECRETARY OF THE UNITED STATES
DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT, ET AL.,
Petitioners,
vs.
ALPINE RIDGE GROUP, ET AL.
Respondents.
On Petition for a Writ of Certiorari to the United States
Court of Appeals for the Ninth Circuit
RESPONDENT ALPINE’S BRIEF
IN OPPOSITION
WARREN J. DAHEIM
DONALD W. HANFORD
GORDON, THOMAS,
HONEYWELL, MALANCA,
PETERSON & DAHEIM
Attorneys for Respondent
Alpine Ridge Group
2200 First Interstate Plaza
Tacoma, Washington 98104-1157
(206) 572-5050
=
TABLE OF CONTENTS
Page
ns Loc ck eageesveadessskvheccces l
i veces eden nWaRedeneeeesebecceens 5
DB. TrerucpossOlSectionSOl .......cccccccscess 6
ee 7
D. HUD's Version OF ThisCase .... 2... cc cccccsees 8
Reasons For Denying The Writ ..............-cceceees 20
Cheol seek oak on ke dane SS MOOD 6000600 21
TABLE OF CITATIONS
Cases Cited:
Alpine, etal. v. Kemp, 955 F.2d 1382(1992) .......... 4, 18,20
Bowen v. Public Agencies Opposed to Social Security
Batrapement, 477 U.S.41 (ISEB)... cccccccccccccess 21
Graham and Foster v. Goodcell, 282 U.S.409(1931) ...... 20
Lynch v. United States, 292 U.S.571 (1934) .......... 7, 20,21
Opdyke Investment Co. v. Detroit, 883 F.2d 1265 (6th Cir.
Pi Mitt ce diaes chebneneatstsnncedesess 20
il
Contents
Page
Rainer View Associates v. United States, 848 F.2d 988 (9th
Cir. 1988), cert. denied, 490 U.S. 1066(1989) ..........
seccceveeccececseseuen ete 4,5,8,9, 15, 18,19
Statute Cited:
Department of Housing and Urban Development Reform Act
of 1989, Pub. L. No. 101-235, 103 Stat. 1989 .......... 5
United States Constitution Cited:
Pifth Amondememt .....cccccccccccsessenneeee 7
Other Authorities Cited:
24C.P.R.§SB0.1G2 .....cccccccsseeseuneeneee 9
24CF.R.§CGD.1IGS .....cccccccscecseuunenn ene 9
24C.F.R.§SBO.1GB ... 0c ccncecseses beeen 9
24C.PR.§ 2OOES .. 2c cccveseseseneeueue nee 2
H.R. Rep. No. 122, 100th Cong., Ist Sess. (1987) ......... 4,17
Cong Rec. HOGGS .... cc scccessceseseneaueeneeeeee 5
Cong Rec. 8.16601 .....cccccvcsccseesuuuuunneeee 5
Cong Rec. S$. 16607... cccccccccsescesseuneeannee 6
ii
Contents
Page
APPENDIX
Appendix A — Opinion of the United States Court of Appeals
for the Ninth Circuit Decided June 6,1988 ........... la
Appendix B— Methodologies ....................... 8a
Appendix C— Methodologies ....................... l4a
No. 92-551
In The
Supreme Court of the United States
October Term, 1992
a—
JACK F. KEMP, SECRETARY OF THE UNITED STATES
DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT, ETAL..,
Petitioners,
vs.
ALPINE RIDGE GROUP, ETAL..,
Respondents.
On Petition for a Writ of Certiorari to the United States Court of
Appeals for the Ninth Circuit
RESPONDENT ALPINE’S BRIEF IN OPPOSITION
Respondent Alpine respectfully requests that this Court deny
HUD’s petition for a writ of certiorari.
STATEMENT OF THE CASE
This case is about “Section 8,” a once successful HUD
program of the 1970's to “privatize” low income housing. Under
that program, HUD induced private developers to sign long-term
contracts to build, own, operate and maintain specialized rental
housing for the elderly, handicapped, and poor at specific locations
selected by HUD. For the developers it was a high risk program to
perform a governmental function (housing the poor) with the
incentive for profit and the risk of loss.’
The trial courts below, and the Ninth Circuit, found that the
contracts “are bargained-for agreements for which plaintiffs paid
valuable consideration — they built and maintained low income
housing in accordance with HUD’s requirements.”* The contracts
expressly provide that they are backed by the “full faith and credit”
of the United States.’
A primary inducement for developers to enter into the
contracts was a provision requiring HUD to make “automatic”
annual inflation adjustments to the initial rents negotiated with the
developers.‘ The “automatic” adjustments were to be based on
inflation factors selected by HUD and published in the Federal
Register. HUD sold the program on the promise that the rent
adjustment process would be open, objective and hassle-free,
unlike the subjective and torturous project-by-project process of
|. Senate Report No. 93-693, p. 4314 (Feb. 27, 1974).
2. Petition for Certiorari, Appendix E, p.S3a.
3. Ibid at p. 53a.
4. The tenant pays a portion of the rent and HUD pays the balance.
Adjustments in rents do not affect the amount of rent the tenant pays, which is
based solely on a percentage of the tenant's income. See Comment 24 C.F.R. §
20083 (May |, 1991).
3
rent adjustments used in previous low income housing programs.°
From 1974 to 1981 the program attracted hundreds of
developers and ran smoothly. The initial rents were negotiated
between HUD and the developer, and the developer received
inflation adjustments based on HUD’s published factors. HUD
ensured accurate inflation adjustments by monitoring and
selecting the factors and geographical areas based on statistical
data and local market conditions.
Beginning in 1981, HUD responded to budgetary pressures by
attempting to repudiate the rent adjustment method it used to
induce the developers to build and operate the housing. Instead of
using its published factors, HUD began to selectively cut rents
based on a project-by-project method it euphemistically called a
“comparability study.” The comparability method gave local HUD
personnel the license to ignore HUD’s factors and selectively cut
rents based on arbitrary comparisons with the rents charged by
non-assisted housing in the geographical area. Untrained HUD
clerks performed “comparability studies” without regulations,
handbook provisions, or any other standards or guidelines. The
process was described by Congress as follows:
HUD field offices have been making
Capricious individualized rent reductions. . .
5. The previous low income housing program was the disastrous Section
236 program. It used government insured mortgages and provided for project-
by-proyect rent adjustments by local HUD officials. The adjustments proved to
be unpredictable, tsme-consuming, and often applied selectively and arbitrarily
depending on the HUD employee administering the adjustment and the owner's
relationship with that employee (i.e., favoritism or retribution). Rejected and
delayed rent adjustments resulted in deferred maintenance, cuts in services,
vacancies, and defaulted mortgages. Since the mortgages were government
insured, the developers simply walked away from troubled projects, leaving
HUD to foreclose.
4
such reductions and other rent limitations have
been made on an ad hoc and arbitrary basis
6
HUD claimed its comparability studies demonstrated that
rents produced by its own published factors were “excessive” and
should be cut. In fact, the district court in this case described the
results of HUD’s rent cuts as follows:
Plaintiffs have demonstrated great hardship.
Some plaintiffs have foregone all return on
their investment; others have no money for
necessary repairs; and still other are now
teetering on the brink of foreclosure.”
In Rainier View Associates v. United States,*the Ninth Circuit
ruled that HUD elected the factor method of rent adjustment in the
contract and could not circumvent that election under the pretext of
preventing “excessive” rents. The court held that HUD was
required to prevent excessive rents within the framework of the
rent adjustment method it wrote into the contract, i.e., by adjusting
the factors in geographical areas, just as it had before the budget
crisis in 1981 corrupted HUD’s original understanding and
administration of the program.
HUD represented to the court, and announced to Section 8
owners throughout the Ninth Circuit,’ that it would acquiesce in
the Rainier View decision and bring rents to their proper levels.
Instead, HUD proceeded to ask Congress for authority to do
6. H.R. 100-122, June 2, 1987.
7. Alpine, et al. v. Kemp, May 21, 1991.
8. 848 F.2d 988 (9th Cir. 1988), cert. denied, 490 U.S. 1066 (1989). See
Appendix A.
9. Petition for Certiorari, Appendix E, p. 42a.
5
precisely what the Ninth Circuit ruled it could not do; that is,
circumvent its contractual election to use the factor method of rent
adjustment. HUD inserted a provision (Section 801) in the 1989
HUD reform bill which abrogated the owner’s contractual right to
factor rent adjustments, retroactively and prospectively. '°
A. Section 801
On November 22, 1989, Congress passed H.R. 1, entitled
“Department of Housing and Urban Development Reform Act of
1989” (the “Bill”). The Bill was signed by the President on
December 15, 1989, as Pub. L. No. 101-235, 103 Stat. 1989. It
deals with a number of HUD abuses ‘eported in the press during the
summer and fall of 1989.
Tacked on at the end of the Bill was Section 801, entitled
“annual adjustment factors for Section 8 rents.” The essence of
Section 801 is that Section 8 owners who had been victimized by
HUD’s comparability process were to be further victimized.
Owners previously affected by HUD’s comparability process
would be forced to accept 30 cents on the dollar for rents due under
their contracts. In addition, Section 801 authorized project-by-
project comparability studies in lieu of factor adjustments for all
owners, directly contrary to the owners’ contract rights. In short,
Section 801 permitted HUD to do exactly what the Ninth Circuit
held was not permitted under HUD’s Section 8 contracts.''
10. Secretary Kemp introduced the HUD Reform Bill on October 30,
1989. Cong. Rec. H9885 (Nov. 21, 1989). Section 801 of the Bill addressed the
Rainier View litigation. See Cong. Rec. S. 16601 (Nov. 21, 1989).
11. Senator D’ Amato, one of the Bill's sponsors, stated: “In addition, the
legislation addresses a controversial ruling in the Ninth Circuit relating to the
Rainier View case.” Cong. Rec.S. 16601 (Nov. 21, 1989). Addendum 14.
6
Section 801 is not a simple tinkering with the rent adjustment
process. It strikes at the very heart of the Section 8 contracts. It
eviscerates the factor method of rent adjustment which the Ninth
Circuit held was required by the contracts. If Section 801 stands,
Congress will have unilaterally amended HUD’s contracts to
permit project-by-project comparability studies as a substitute for
the factor method. The change is material. No Section 8 owner
would have taken the risks of the program knowing he could be
subject to the whims and caprice of the project-by-project
comparability process which Section 801 now authorizes.
B. The Purpose Of Section 801
It is clear from the legislative history that the primary purpose
of Section 801 was to save money:
Senator Sasser (Chairman Budget
Committee):
Mr. President, I would like to enter into a
colloquy with the chairman of the
Subcommittee on Housing and Urban Affairs
to clarify the intent of the legislation with
respect to Section 801, “annual adjustment
factors for Section 8 rent.”
At the outset, I would like to offer my
congratulations to the chairman for addressing
the very complex situation surrounding the
Rainier View decision. Indeed, by moving
quickly to enact this legislation with its Rainier
View “fix” we could save the Government
hundreds of millions, if not more than a billion
dollars.
Cong. Rec. S. 16607 (Nov. 21, 1989).
7
HUD does not dispute the fact that Section 801 substantially
impairs plaintiffs’ contract rights to factor rent adjustments. '*
C. The Decision Below
Plaintiffs challenged Section 801 asking: “does congress have
the power to abrogate the government’s bargained-for financial
contracts in order to save money?”
The Ninth Circuit held that Congress did not have such power.
It held that Section 801 “unconstitutionally abrogates the owners’
vested property rights in violation of the fifth amendment.”
The court pointed out that plaintiffs’ contract rights were
“supported by independent consideration and are therefore vested
under the Supreme Court’s decisions in Lynch v. United States, 292
U.S. 571 (1934) (Lynch) and Perry v. United States, 294 U.S. 330
(1935) (Perry).” The court distinguished the “sovereign powers”
12. Before the trial court and the Ninth Circuit, HUD conceded this point.
See Petition for Certiorari, Appendix B, p. 12a, p. 27a. HUD now suggests (fn.
14) that since comparability could theoretically produce the same result as the
factor method, Section 801 does not impair a substantive right. Pigs will fly
before the two approaches produce the same result.
Since the two approaches are not attempting to do the same thing, the
results will never be the same. The factor approach attempts to keep initial
contract rents even with the movement of rents in the local market. As explained
later in the text, the comparability approach that HUD argues for is an attempt to
remeasure (and undo) the initial relationship of contract rents to the market. One
iS a principled and objective attempt to keep contract rents even with inflation.
The other is an attempt to save money by a subjective reanalysis of the rents
originally agreed upon.
13. Petition for Certiorari, Appendix A, p. 14a.
8
doctrine (it does not apply to bargained-for financial contracts),
curative legislation cases (which cure faulty interpretations of
statutes, not contracts), and HUD’s claim that some rational basis
for the legislation existed other than to save money.
D. HUD’s Version Of This Case
To mask its conduct, HUD puts a “spin” on the Section 8
program, the rent adjustment process, the Rainier View case, and
Section 801, that at best has fleeting contact with the undisputed
facts.'* Some of HUD’s more egregious misstatements are:
1. That the Section 8 new construction program “was
designed simply to provide prevailing market rents.”'* That
statement is false. It is critical because it permeates HUD’s
misdescription of the new construction program. ®
To understand this case, it is necessary to properly understand
the basic facts of the Section 8 new construction program. The first
basic fact is how the parties arrived at initial contract rents.
Initial rents under the new construction program were not
market rents. They were negotiated rents, based on the costs of
construction."’ Initial rents were not market rents for the simple
14. Sworn affidavits of plaintiffs have not been challenged by HUD.
15. Petition for Certiorari, p.19a..
16. HUD confuses the new construction program and the existing housing
program. Under the existing housing program, rents are market rents since the
housing was built as market housing (not under the Section 8 program) and
formerly rented as such. There is no reason, other than HUD red tape, why
existing housing should rent for more simply because it is rented to low income
tenants.
17. In the case of HUD insured Section 8 projects, costs had to be certified
on completion of construction.
9
reason that there was no comparable renting housing. Indeed, the
sole purpose of the new construction program was to produce
rental housing that the market had not produced. '* The market had
not produced the desired rental housing because it was not good
economics.
HUD regulations required that initial rents not exceed 120%
of what it termed Fair Market Rents.'* That term was not the same
as “market rents.” It was defined by regulation as those rents
“required to be paid in order to obtain privately developed and
owned newly constructed rental housing. . . .””
Since newly constructed rental housing of similar design and
amenities did not exist at the locations specified by HUD, it was
unrealistic for HUD to come up with Fair Market Rents based on
anything other than costs. In addition, HUD’s special construction
requirements, and Davis Bacon wage rates, increased the
developer's costs by close to 50%, necessitating higher Fair
Market Rents. As a result, Fair Market Rents, and the companion
requirement that rents be “reasonable,”*' were interpreted by HUD
as justifying the rents necessary to make projects financially
feasible. Otherwise, no projects would have been developed.
As an example,” in 1979 HUD advertised for proposals to
18. HUD regulations provided that “New construction projects shall be
permitted only where . . . HUD determines that there is not and there is not
likely soon to be an adequate supply of existing housing. . . [to] meet the needs
of eligible families.” 24 C.F.R. § 880.103 (April 29, 1975).
19. HUD also “trended” rents to the completion of construction.
20. 24C.F.R. § 880.102 (April 29, 1975).
21. 24C.F.R.§ 880.108 (April 29, 1975).
22. Taken from the record in Rainier View.
10
build housing for the elderly in Puyallup, Washington, a town of
less than 30,000. Retirement housing already existed in Puyallup,
but it rented for $800 to $900 a month, without meals. That was far
too much for a senior citizen trying to live on a $600 monthly social
security check. As a result, many of Puyallup’s elderly lived in
substandard housing. It was not a group that could afford to pay for
decent housing close to transportation and medical and community
services.
In response to HUD’s invitation, Ray Dally, a local builder,
submitted a proposal. His proposal was to build 25 one bedroom
apartments in a three-story, brick, elevatored building. It would
have a mechanical core, elevator machinery room, elevator shaft,
elevator, elevator lobbies on each floor, extra wide interior
hallways and stairways with handrails down both sides of the stairs
and halls, social hall, handicapped restrooms and an entry security
system which was remote controlled by each individual resident
from their own apartment. Each apartment had an emergency call
light, bathroom grab bars, smoke detectors and automatic fire
alarms. The project was near downtown, on expensive land, close
to transportation, medical and community services. With a view of
Mt. Rainier, it was to be named “Rainier View.”
Dally’s proposal was accepted. At that point, Dally and HUD
agreed by contract that the initial rents for an apartment would be
$315 a month. The contract was pledged by Dally to a local bank to
secure financing for the project. From the viewpoint of Dally and
his bank, the contract rent of $315 was required to justify Dally’s
high cost of building and financing a specialized building under
HUD regulations. In addition, Dally would be operating a difficult
social program based on HUD’s promise that he would be paid for
doing the government’s job.
1]
The rent of $315 a month was also agreeable to HUD, even
though recently constructed one bedroom apartments in Puyallup
rented for under $200 a month. Nonetheless, HUD internally
determined that the Dally rents were “reasonable” in light of
HUD’s special requirements and the uniqueness of the project.
There would be nothing like Rainier View in the City of Puyallup,
except for retirement housing which rented for two to three times
the Rainier View rent. Certainly the wood frame walk-up
apartments in the area which rented for under $200 were not
comparable.
In any event HUD agreed to the original rents. In doing so,
HUD interpreted its authority under the Act to justify the rents
which were necessary to make the project financially feasible and
induce Dally to build. In no sense were those rents “market” rents.
2. HUD’s second misstatement is that HUD would “conduct
appraisals. . . as acap to increases produced under the adjustment
factors,”* That statement is false. It is designed to make an
irrational process for cutting (not capping) rents by telephone
surveys (not appraisals) appear as a principled process to carry out
a congressional mandate. In fact, it is a process calculated by HUD
to undermine its original agreement on rents.“ The fact is also
23. Petition for Certiorari, p. 6
24. Indirections to its offices processing retroactive rent payments under
the law at issue in this case, HUD stated:
“Before calculating the amount of any retroactive
payment, the PHA, if directed by HUD, will review
whether rents were excessive when initially set.” 56 Fed.
Reg. 20086 (1991).
(Cont'd)
12
basic to a proper understanding of this case.
Not only did HUD agree on the initial rents, it agreed that the
relationship of the initial rents to the market would be preserved.
For example, Ray Dally’s original rents were $315 a month
because of the uniqueness of the Rainier View project. At the same
time, new walk-up apartments in the area rented for $200 a month.
Ten years later if the $200 rent had increased by 50% to $300,
Dally’s $315 rent was to have moved 50% to $472.50. Only in that
way could Dally be assured of getting a return on his investment
comparable to what he would have received had HUD not induced
him to enter the Section 8 program. To guarantee Dally that he
would get inflation adjustments on a regular basis while preserving
the intitial relationship of his rents to the market, his contract with
HUD provided:
Automatic Annual Adjustments.
(1) Automatic Annual Adjustment Factors
will be determined by the government at least
annually; interim revisions may be made as
market conditions warrant. Such factors and
the basis for their determination will be
published in the Federal Register.
(2) On each anniversary date of the contract,
the Contract Rents shall be adjusted by
(Cont'd)
This direction reveals HUD’s mind set. First, rents were not “set” by HUD,
they were agreed upon between HUD and the developer. Second, HUD has no
authority to revisit its original agreement on rents. The developer relied on those
rents in making his decision to proceed with the project. Both parties must live
with their bargain.
13
applying the applicable automatic annual
adjustment factor most recently published by
the government.
Overall Limitation.
Notwithstanding any other provision of this
contract, adjustments as provided in this
section shall not result in material differences
between the rent charged for assisted and
comparable unassisted units, as determined by
the government; provided that this limitation
shall not be construed to prohibit differences in
rents between assisted and comparable
unassisted units to the extent that such
differences may have existed with respect to the
initial contract rents.
The two provisions (automatic annual adjustments and overall
limitation) must be read together and harmonized. Taken alone, the
provision for automatic annual adjustments gives little guide to the
basis for selecting factors.” The overall limitation supplies that
basis. It directs that the factors selected by HUD shall maintain,
without increasing or decreasing, the difference between the initial
rents and market rents. In other words, the factors should measure
the movement in market rents and adjust rents accordingly. That is
exactly how HUD interpreted and administered the rent
adjustment process until 1981.
25. In 1983 HUD seized on that fact in an attempt to justify basing factors
on changes in operating costs, rather than changes in market rents. The attempt
was dropped after prompting the following remarks from Chairman Gonzales of
the House Subcommittee on Housing:
(Cont'd)
14
To implement its understanding of the two provisions, HUD
annually selected Automatic Annual Adjustment Factors
(“AAAFs”) based on the movement of rents in various georgraphic
areas, and published those factors in the Federal Register. The
factors were percentage figures, required by regulation to be
applied against current rents to produce the new rents. For
example, if the rental movement factor is 5% and the current rents
are $350 per month, the adjusted rents for the following year would
be 105% of $350, or $367 per month.
HUD’S understanding of the program was described in the
Rainer View case by a number of HUD officials. Lynn Stowell,
HUD Director of Housing in Seattle, testified:
Q. The automatic adjustment process, the way
you understand it, was basically an inflation
hedge, was it not?
A. Yes.
Q. And that was the way it was explained to
developers and lenders?
ff
A. Yes.
(Cont'd)
I recognize the Department is undoubtedly being
directed to stick by its guns through the orders of the
Office of Management and Budget. But it is a sorry day
when any agency of the government, in the name of
economy, stands ready to corrupt contracts, vitiate and
violate the law, and generally operate in a style more
" appropriate to a small time dictatorship.” Section 8 Rent
Adjustments, Elderly Housing and Other Assisted
Housing Issues: Hearing Before the Subcommitiee on
Housing and Community Development of the House
—
15
Q. Iam not trying to put words in your mouth,
but so that if market rents went up 15%, you
would expect contract rents to go up 15%?
A. Yes.*
Ray Bradley, Seattle HUD Director of Development, testified:
Q. Wasn't it your understanding then that if
the market was at this level and contract rents
were, say, at this level that the idea of the
adjustment was that the contract rents would
rise with the market rents, is that correct?
A. Yes, that was my understanding.
Q. If market rents went up 10%, your contract
rents went up the same 10%.
A. The same gap would be maintained.”
The program ran smoothly from 1974 to 1981. Each year,
HUD designated the geographical areas and selected the factors
based on the overall limitation, and adjusted rents accordingly.”
26. See Rainier View case, excerpts of record 64.
27. Ibid.
28. The process can be traced through HUD regulations, handbooks, and
detailed written methodologies. It started with factors developed by the
economic analysis arm of HUD, which develops factors for cities and other areas
by using rental market information derived from a number of data sources and
market analysis. See Methodologies, Appendix B and C, infra, 8a-24a.
Handbook provisions directed local offices to revise the factors if they were
either too high or too low. As all of this makes clear, the factor process has built in
safeguards against the “anomalous” results HUD pretends to fear.
16
The “same gap” was maintained.
In 1981, as inflation drove Section 8 rents higher and housing
budgets became smaller, some HUD offices took it upon
themselves to ignore the automatic annual rent adjustment process.
Instead of comparing the movement of rents and translating it into
factors, certain offices started to recompare projects, invariably
concluding that the Section 8 rents were “excessive.” Instead of a
system which maintained a base (initial rents) and moved upward
or downward according to market conditions, HUD attempted to
set a new base. The purpose of the process changed from protecting
the value of the original rents to undercutting that value.
To the extent that chaos can be called process, the process
began with untrained HUD clerks (not appraisers) calling around
to see if they could find any “comparable” market rents that were
lower than those of the Section 8 project arbitrarily selected for
review. Of course, they always did, even if they had to “compare” a
downtown highrise Section 8 project for the elderly with a
dilapidated walk-up apartment on the edge of town.
By “recomparing” projects, HUD was undermining the
original relationship between the Section 8 project and the market,
in direct violation of its written promise. It was as if original rents
had never been agreed upon. Everything was starting from “ground
zero,” even though HUD had agreed on the original relationship
between project rents and the market in an effort to induce the
developer to execute a contract.
Invariably, the new process resulted in rent adjustments that
were lower than those based on the movement of rents. In many
cases the new process was used not only to deny increases, but to
substantially cut existing rents, regardless of the impact on the
owner.
All of this was done without regulations, handbook
17
provisions, or any other standards or guidelines. The reports of
trained appraisers challenging HUD’s “comparability” studies
were ignored. If hearings were allowed, neither the owner nor his
representative were allowed to ask questions. Normally the HUD
official who cut the rents made the determination whether or not he
would undo his own handiwork. To say that the process was bizarre
unduly dignifies it.
When finally challenged, HUD attempted to justify its rent
cutting by reference to the “overall limitation” clause. It now saw
that clause not as a limitation on the selection and modification of
the factors, but as an independent rent adjustment method not
mentioned in the contract. HUD had not yet invented its two-tiered
or “capping” argument, and of course that argument would be
inadequate to explain cutting existing rents.”
To give an illustration, if Dally’s rents should have gone to
$472.50 based on market movement, they were instead reduced to
$375 by “comparing” his well located brick high rise apartments
with two story wooden walk up apartments on the edge of town.
The effect was to destroy the original relationship of Dally’s
apartments to the market. Worse yet, the objective rent system
which Dally had bargained for was now replaced by a subjective
system vulnerable to bureaucratic whims of favoritism or
retribution. Instead of being able to rely on uniform published
29. In 1987 Congress stated that it never intended the process to cus rents
unless deflation occurred and HUD published a negative factor. H.R. Rep. No.
122, 100th Cong., Ist Sess. (1987):
When it enacted the Section 8 program. the Congress
intended that rents for project based assisted projects
would be reduced only if the published Automatic
Annual Adjustment Factor (“AAAF”™) was negative... .
18
factors open to public scrutiny, evenly applied to all, Dally was
subjected to back room manipulations of rent which he originally
had been assured went out with the discredited Section 236
program.
The Ninth Circuit in Rainier View held that HUD’s new
“system” made a mockery of its contract election of a factor
method of rent adjustment.
3. HUD'’s third major misstatement is that the Rainier View
and Alpine decisions “invalidate a key provision in a substantial
federal program designed to provide housing for low income
tenants ... and threaten to inflict widespread harm on 2 major
social welfare program.” That statement is also false. Its
hysterical tone is again intended to mask HUD’s attempts during
the 1980's to euthanatize a successful program of the 1970's to
privatize low income housing.
More to the point, Rainier View did not tell HUD to abandon
its mandate. It simply held that the mandate must be carried out
within the framework of HUD’s contractual election of a factor
method of rent adjustment. Although Rainier View is based on an
analysis of the contract and the statute, the same result would be
reached using a straight analysis of the contract and applying
ordinary principles of contract interpretation.”
30. Petition for Certiorari, p. 11.
31. Itis HUD, not plaintiffs, which has a record of strained interpretations
For example, in 1988 a congressional subcommittee dealing with HUD's
interpretation of a 1987 congressional mandate not to cut Section 8 rents, said
that “nothing could be more convoluted and tortuous than HUD'’s interpretation
of. . . the 1987 Act.” In Rainier View, the trial court accused HUD of conjuring
up “linguistic loopholes which the government has sought to exploit . . .” See
Petition for Certiorari in Rainier View at p. S4a.
19
Rainier View does not invalidate a contract provision. The
decision validates a contract provision for rent adjustments, the
parties understanding of that provision, and HUD'’s practical
application of that provision for seven years. The decision does not
do widespread harm to a program, it supports that program. The
decision makes it safer to do business with HUD, which is good for
low income housing. The decision validates an experiment in
privatization, which Secretary Kemp now claims is the key to
housing the poor. In short, Rainier View not only recognized but
gave full effect to the overall limitation.
As it did from 1974 to 1981, HUD can still make as many
studies of rent movement as it wants in any area it wants. But the
study is to measure market movement, which then must be
translated to published factors to protect the openness and
uniformity which is imperative to a principled system. HUD is
unable to show why the system which operated effectively for
years will not produce an accurate measurement of market
movement. The answer is that HUD does not want to measure
market movement. HUD’s real purpose is to undermine the original
relationship of rents to market, which it agreed upon when the
developers executed contracts and pledged those contracts as
security for financing.
32. HUD has been using the factor method of rent adjustment since 1989,
even though it was given authority under Section 801 to do project-by-project
comparability if it first published regulations. If the factor method of rent
adjustment was such a drain onthe treasury, surely HUD would have
implemented comparability under Section 801 long ago. It was not prohibited
from doing so, except for the few plaintiffs in this case.
HUD has not published regulations for comparability (even though
required to do so by June 15, 1990) for one obvious reason. Publication would
expose the fact that HUD is not interested in accurately measuring market
movement of rents. Its only interest is in undermining the original relationship of
rents to market.
20
REASONS FOR DENYING THE WRIT
Although the Ninth Circuit’s decision in Alpine needs no
additional gloss, a few observations are in order.
1. In Alpine, the Ninth Circuit held that plaintiffs have
bargained-for contract rights to factor based rent adjustments.
Those rights are supported by independent consideration and are
therefore vested under Lynch and Perry. HUD offers no basis to
distinguish Lynch and Perry, other than to repeat its claim that
plaintiffs do not have contract rights to factor based rent
adjustments.
2. HUD’s attempt to put Section 801 in the category of
“curative” legislation is patently wrong. Unliquidated claims, not
based on contract, can of course be resolved by Congress. The
cases cited by HUD support that proposition, but nothing more.”
HUD fails to reveal how those cases support Congress’ abrogation
of contract rights, whether or not under the guise of “curative
legislation.”
Here, plaintiffs’ claims are supported by “investment-backed
expectations.” Plaintiffs invested their money in special use
buildings in return for HUD’s promise of hassle-free rent
adjustments. Congress cannot take away plaintiffs’ rights under
the guise of curative legislation.
3. HUD equates the power to amend a statute with the power
33. Opdyke Invesiment Co. v. Detroit, 883 F.2d 1265 (6th Cir. 1989)
(retroactive application of Act precluding anti-trust damages permitted as to
unliquidated claims — did not involve vested contract rights); Graham and
Foster v. Goodcell, 282 U.S. 409, 426-30 (1931) (a defect in the administration
of the Internal Revenue Code can be cured by retroactive legislation — did not
involve vested contract rights).
Mt -
21
to amend existing contracts. It cites the case of Bowen v. Public
Agencies Opposed to Social Security Entrapment, 477 U.S. 41
(1986) for the doctrine of “sovereign power” to repudiate its
contract obligations. As the Ninth Circuit pointed out, Bowen
involved “benefits, gratuitously conferred by statute.” That is a far
cry from the “bargained-for contract rights” involved in this case.
4. HUD claims some rational purpose for Section 801 other
than to save money. As the Ninth Circuit pointed out, settling a
dispute which the government itself created is not a rational basis
for the government repudiating its own contracts. Since HUD was
“unable to present any argument explaining Section 801 other than
Congress’ attempt to save money”, the case falls within Lynch and
Perry.
CONCLUSION
The Ninth Circuit decision is clearly correct. HUD offers no
legitimate grounds for reversing that decision. The petition should
be denied.
Respectfully submitted,
WARREN J. DAHEIM
DONALD W. HANFORD
GORDON, THOMAS,
HONEYWELL, MALANCA,
PETERSON & DAHEIM
Attorneys for Respondent
Alpine Ridge Group
la
APPENDIX A — OPINION OF THE UNITED STATES
COURT OF APPEALS FOR THE NINTH CIRCUIT
DECIDED JUNE 6, 1988
RAINIER VIEW ASSOCIATES, a Washington limited
partnership; Kurtis R. Mayer and Pamela Mayer, dba/ Mayer Built
Homes,
Plaintiffs-Appellants,
v.
UNITED STATES of America, acting Through the UNITED
STATES DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT,
Defendant-Appellee.
No. 86-3685.
United States Court of Appeals,
Ninth Circuit
Argued and Submitted May 5, 1987.
Submission Vacated June |, 1987.
Resubmitted March 7, 1988.
Decided June 6, 1988.
Warren J. Daheim, Gordon, Thomas, Honeywell, Malanca,
Peterson & Daheim, Seattle, Wash., for plaintiffs-appellants.
Mack A. Player, Dept. of Justice, Civ. Div., Washington, D.C..,
for defendant-appellee.
Appeal from the United States District Court for the Western
2a
AppendixA
District of Washington.
Before FLETCHER, BOOCHEVER and NORRIS, Circuit
Judges.
PER CURIAM:
In this action for declaratory relief, we consider a question of
contract interpretation concerning the method by which the United
States Department of Housing and Urban Development (“HUD”)
may alter its method of calculating annual rent adjustments for
government-assisted housing projects. The district court granted
summary judgment in favor of the United States and against Rainier
View Associates (Rainier), a developer and owner of Section 8
housing. We reverse.
I
Around 1974; pursuant to the enactment of Section 8 of the
United States Housing Act of 1987, as amended, 42 U.S.C. § 1487f,
HUD implemented a program to encourage the private sector to
build rental housing for low-income people. HUD solicited private
developers to submit bids to construct specialized housing at
specific locations. Successful bidders were awarded Housing
Assistance Payment (HAP) contracts, either directly or through
local public housing agencies as the contract administrators. Under
the HAP contract, the developer/owner collects a portion of the
contract rent directly from the tenant, while the remainder is paid to
the owner by HUD through the contract administrator.
Section 8(c)(2)(A) requires that the HAP contract provide for
periodic adjustment of the maximum monthly rent (and thus of
HUD’s contribution) “to reflect changes in the fair market rentals
;
-
*
3a
AppendixA
established in the housing area for similar types and sizes of
dwelling units or, if the Secretary determines, on the basis of a
reasonable formula.” 42 U.S.C. § 1437f(c)(2)(A). Section
8(c)(2)(C) places a limitation on the permissible adjustments so
that they “shall not result in inaterial differences between the rents
charged for assisted and comparable unassisted units, as
determined by the Secretary.” 42 U.S.C. § 1437f(c)(2)(C).
Section 1.9 of the HAP contract at issue in this case contains
provisions designed to carry out the mandates of section 8(c)(2):
* ad ad * *
b. Automatic Annual Adjustments.
(1) Automatic Annual Adjustment Factors
will be determined by the Government at least
annually; interim revisions may be made as
market conditions warrant. Such Factors and
the basis for their determination will be
published inthe Federal Register. . . .
(2) On each anniversary date of the
Contract, the Contract Rents shall be adjusted
by applying the applicable Automatic Annual
Adjustment Factor most recently published by
the Government. Contract Rents may be
adjusted upward or downward, as may be
appropriate; however, in no case shall the
adjusted Contract Rents be less than the
Contract Rents on the effective date of the
Contract.
4a
AppendixA
d. Overall Limitation. Notwithstanding any
other provisions of this Contract, adjustments
as provided in this Section shall not result in
material differences between the rents charged
for assisted and comparable unassisted units,
as determined by the Government; provided
that this limitation shall not be construed to
prohibit differences in rents between assisted
and comparable unassisted units to the extent
that such differences may have existed with
respect to the initial Contract Rents.
OnApril 9, 1980, Rainier executed a HAP contract for aterm of
twenty years with the Housing Authority of the City of Bremerton
(Bremerton). In 1981 and 1982, Bremerton granted Rainier annual
rent adjustments for its Section 8 housing project based upon
HUD’s published Automatic Annual Adjustment Factors (AAAFs).
However, in 1988, Bremerton refused to grant Rainier the annual
adjustment that would have resulted from the application of the
AAAFs published by HUD in the Federal Register on January 20,
1988. Instead, Bremerton insisted that Rainier conduct arent study
of the housing in the project’s vicinity in order to justify any
adjustment in the maximum rent allowances. Rainier refused and
commenced this action in the district court, seeking a declaratory
judgment that under the HAP contract, it was entitled to an
automatic annual adjustment based on the latest published AAAFs.
The district court granted summary judgment for HUD, ruling
that as a matter of law the HAP contract unambiguously permits
HUD (in this case through its agent, Bremerton) to withhold the
annual rent adjustment outlined in section 1.9b when such an
adjustment would violate the overall limitations provision in
Section | .9d. Rainier appealed.
A A Ne i i I tai lt el ia a
AppendixA
II
A grant of summary judgment is reviewable de novo. Ashton v.
Cory, 780 F.2d 816, 818 (9th Cir. 1986). Federal law controls when
interpreting a government contract. Saavedra v. Donovan, 700 F.2d
496, 498 (9th Cir.), cert. denied, 464 U.S. 892, 104 S.Ct. 236, 78
L.Ed.2d 227 (1983). The interpretation of a contract presents a
mixed question of law and fact. When, as here, the district court’s
decision is based on analysis of the contract language, the decision
is reviewed de novo. Miller v. Safeco Title Ins. Co., 758 F.2d 364,
367 (9th Cir. 1985).
Section 8(c)(2)(A) allows adjustments based either on market
surveys, “or, if the Secretary determines, on the basis of a
reasonable formula.” Raimer contends that in Section 1.9b of the
HAP contract HUD elected to rely exclusively on the AAAF
formula process, instead of on an individualized “market survey”
method. By switching to an individualized “market survey”
method, Rainier argues, HUD reneged on its obligation. Rainier
explains that the “overall limitation” in Section | .9d is a limitation
on HUD’s calculation of the AAAFs. Accordingly to Rainier, the
clause may not be construed as providing HUD with an independent
basis for refusing to apply the published AAAFs. Rainier argues
that by invoking the “overall limitation” provision as an
independent basis for adjusting the maximum allowable rent, even
though the latest published AAAFs show that a greater adjustment
is indicated, HUD is seeking to nullify its election.
HUD counters that Section 1.9d of the HAP contract
authorizes the government to limit adjustments that would occur
through the use of the AAAF formula when use of that formula
would result in a material difference between the rents charged for
assisted and comparable unassisted housing. HUD argues that the
language of Section 1.9d, which provides, “Notwithstanding any
6a
AppendixA
other provisions of this contract, adjustments as provided in this
Section shall not result in material differences between rents
charged for assisted and comparable unassisted housing units. . .,
authorizes HUD to override the formula process for determining
rent adjustments.
HUD misconstrues the role of the overall limitation. The
overall limitation provision in section 1.9d, consistent with its
statutory analog, Section 8(c)(2)(C), is clearly a limitation on the
calculation of the formula used to adjust rents, not an independent
basis for making annual rent adjustments. Under the statute, HUD
could choose either a market survey method (described in the first
clause of Section 8(c)(2)(A)) or a formula method (described in the
second clause of Section 8(c)(2)(A)). In the contract, HUD elected
the formula method. Having made its choice, HUD cannot now
change its mind. The overall limitation provision of the statute and
the contract permit HUD to adjust the formula factors in light of
market conditions, but it does not permit HUD to abandon entirely
the formula method it chose and to adjust rents solely on the basis of
a market survey. HUD’s interpretation of the overall limitation
provision would render the formula method authorized by the
statute and elected in the contract a nullity. It would make all rent
adjustments depend on the market survey method.
Not only is HUD’s interpretation of Section 1.9d of the
contract foreclosed by the contract language, it is inconsistent with
the role of the overall limitation provision described in the
regulations. 24C.F.R. § 888.204 (1987) provides that
“(i}f the application of the Annual Adjustment
Factors results in rents that are substantially
lower than rents charged for comparable units
not receiving assistance. . . , in the area for
Ta
AppendixA
which the factor was published or a portion
thereof, and it is shown to HUD that the costs of
operating comparable rental housing have
increased at a substantially greater rate than the
Adjustment Factors, the HUD Field Office will
consider establishing separate or revised
Automatic Annual Adjustment Factors for that
particular area.”
Thus, HUD’s own regulations interpret the overall limitation
provision in the statute the same way we interpret the overall
limitation provision in the contract — as permitting adjustment of
the AAAFs, not abandonment of the formula method whenever
application of the formula would result in a disparity between
section 8 and other rents.
In sum, the contract clearly elects the formula method, one of
two statutorily authorized methods for calculating rent
adjustments. The overall limitation provision just as clearly
authorizes modifications of the formula applied to keep assisted
rents in line with market rents. What the overall limitation provision
does not do is permit HUD to switch from one method to another.
That is ciear from the contract language, and is consistent with the
statutory language and HUD’s own regulations interpreting the
Statute. We thus hold that the contract unambiguously support
Rainier’s interpretation. Accordingly, the district court erred in
denying Rainier’s motion for summary judgment and in granting
summary judgment in favor of HUD.
Rainier’s request for its attorneys’ fees on appeal pursuant to
the Equal Access to Justice Act, 28 U.S.C. § 2412(d), should be
considered by the district court.
The judgment of the district court is
REVERSED.
8a
APPENDIX B — METHODOLOGIES
Methodology Used to Develop Automatic Annual
Adjustment Factors for the Section 8 Housing Assistance
Payments Program Effective November 8, 1980
Section 8(c)(2A) of the United States Housing Act of 1937, as
amended, specifies that an assistance contract made pursuant to
Secuon 8 shall provide for adjustments annually or more frequently
in the maximum monthly rents to reflect changes in the fair market
rentals, and further specifies, if the Secretary determines, that these
adjustments be made on the basis of a reasonable formula. Subpart
B of Part 888 of the Code of Federal Regulations established
general guidance in regard to the development and use of
Automatic Annual Adjustment Factors (AAFs), the manner of
publication, and the revision of factors for a particular area by
HUD Field offices.
Pursuant to the regulations, the Headquarters Economic and
Market Analysis Division produces Annual Adjustment Factors for
selected (currently 34) Standard Metropolitan Statistical Areas
(SMSAs) and the 4 Census Regions based on rent and utility infla-
tion factors developed from the “‘Rent, residentiai’’ and ‘‘Fuel and
Other Uslities’’ components of the Consumer Price Index for All
Urban Consumers (CPI(U)). Normally, these inflation factors are
based on changes in the CPI rent and utility indexes for the most re-
cent 12 month period, but they may, for selected areas, be based on
changes in the CPI indexes for other time periods or be adjusted to
reflect rental market information derived from other data sources
or market analysis.
A single factor is developed for use in adjusting Contract Rents
(excluding utilities), and a matrix of 105 separate factors, reflecting
differences for various rent ranges and bedroom sizes, is developed
for adjustment of Contract Rents including all utilities (Gross
Rents). The following is an example of the format used to publish
the AAFs in the Federal Register:
9a
Appendix B
SECTION 8 HOUSING ASSISTANCE PAYMENT PROGRAMS
ANNUAL ADJUSTMENT FACTORS
SMSA: ANAHEIM-SANTA ANA-GARDEN GROVE, CA
MONTHLY . 1 2 3 4s
GROSS RENT BEDROOMS BEDROOM BEDRUOMS BEDROOMS BEDROOMS
UNDER $125 1.133 1.143 1.157 1.174 1.185
125-149 1.1380 1.138 1.150 1.163 1.172
150-174 1.128 1.135 1.144 1.156 1.164
175-199 1.126 1.132 1.141 1.151 1.157
200-224 1.125 1.130 1.138 1.146 1.152
225-2A9 1.124 1.128 1.135 1.142 1.149
250-274 1.123 1.128 1.134 1.141 1.146
275-299 11 1.127 1.132 1.139 1.143
300-324 1.122 1.126 1.131 1.137 1.141
325-249 1.122 1.125 1.130 1.135 1.139
350-374 1.121 1.124 1.129 1.1¢ 1.137
375-399 1.121 1.124 1.128 1.133 1.136
400-424 1.121 1.123 1.127 1.132 1.135
425-449 1.120 1.123 1.127 1.131 1.134
450-474 1.120 1.123 1.126 1.130 1.133
475.499 1.120 1.122 1.125 1.129 1.132
500-524 1.120 1.122 1.125 1.129 1.131
525-549 1.120 1.122 1.125 1.128 1.130
550-574 1.119 1.121 1.124 1.128 1.130
575-599 1.119 1.121 1.124 1.127 1.129
600 + 1.119 1.121 1.124 1.127 1.129
ANNUAL ADJUSTMENT FACTOR FOR CONTRACT RENT
(EXCLUDING UTILITIES) ss 1.116
Development of AAFs for Contract Rents
(excluding utilities)
With two exceptions, the AAFs for Contract Rents (excluding
utilities) effective November 8, 1980 were developed on the basis of
rent inflation factors derived from the residential rent component of
the CPI for the 12-month period from April or May 1979 to April or
May 1980, depending on the month designated for data collection in
each market area.
10a
Appendix B
The inflation factor applicable to the San Francisco SMSA was
derived from the trend in the CPI rent index between August 1979
and Apnil 1980, and the inflation factor for the Anchorage SMSA
was derived from the CPI trend between January 1980 and May
1980. The use of the different time periods for calculation of the in-
flation factors for the San Francisco and Anchorage SMSAs was
adopted to avoid questionable short-term fluctuations in the CPI
rent indexes for those areas.
A table indicating the rent inflation factors applicable to the 4
Census Regions and the 34 SMSAs for which CPI data currently is
available is attached.
The following example illustrates the development of the AAFs
for Contract Rents (excluding utilities) for the Anaheim-Santa Ana-
Garden Grove SMSA, which as indicated at the bottom of the
preceding table of Annual Adjustment Factors has been established
at 1.116:
CPI rent index May 1980 207.6
CPI rent index May 1979 186.0 — nome
Development of AAFs for Contract Rents Including Utilities
(Gross Rents)
As indicated, a matrix of 105 separate factors, reflecting dif-
ferences for various rent ranges and bedroom sizes, is developed for
adjustment of Gross Rents.
The AAFs for Gross Rents effective November 8, 1980 were
developed on the basis of rent and utility inflaton factors derived
from the residential rent, and fuel and utilities components of the
CPI. The rent inflation factors are the same as those used for the
development of the AAFs for Contract Rents (excluding utilities).
Estimates of utility costs by bedroom size established as part of the
Fair Market Rent schedules for Section 8 Existing Housing in 1979,
and two sets of utility inflation factors were used to develop the
utility portion of the AAFs for Gross Rents.
The most recent annual utility inflation factors reflect changes in
the fuel and utilities component of the CPI for the 12-month penod
from April or May 1979 to April or May 1980. The utility inflason
omeun ~ ——<,
eet —
lla
Appendix B
factors for the previous year generally reflect changes in the utilities
component of the CPI between April or May of 1978 and 1979; but,
for some areas, they may reflect changes for other time periods or
adjustments based on other data or market analysis.
The estimates of utility costs by bedroom size for 1979, as deter-
mined from the Annual Housing Survey (AHS) national sample for
1977 updated to 1979 by use of the CPI national index for utilities,
are as follows:
Number of Bedrooms 0 ] 2 3 4
Fuel and Utility Costs $20 31 47 66 79
A table indicating the rent and utility inflation factors applicable
to the 4 Census Regions and 34 SMSAs is attached.
The following example illustrates the development of one of the
105 factors in the matrix of adjustment factors for Gross Rents ap-
plicable to the Anaheim-Santa Ana-Garden Grove SMSA
(Monthly Gross Rent range of $225-249 and 2 Bedroom Unit):
The objective is to develop Annual Adjustment Factors reflect-
ing differences for various rent ranges and bedroom sizes.
Step |. Calculate the mid-point of the selected Gross Rent range (to
be used to represent the Gross Rent for this rent range for
1980):
$249.99 - 225.00
2
Step 2. Update the utility cost for a 2 Bedroom Unit from 1979 to
1980 using the calculated utility inflation factor from the
attached table:
$47.00 x 1.1550 = $54.29 Utility component 1980
Step 3. Use the utility cost estimate for 1980 to calculate the rent
component of the mid-point rent as of 1980:
$237.50 — 54.29 = $183.21 Rent component 1980
Step 4. Update the utility cost for a 2 Bedroom Unit from 1980 to
1981 using the appropriate utility inflation factor from the
attached table:
$54.29 x 1.2010 = $65.20 Utility component 1981
= $12.50 $225.00 + 12.50 = $237.50
12a
Appendix B
Step 5. Update the rent component of the mid-point rent from
1980 to 1981 using the rent inflation factor from the at-
tached table:
$183.21 x 1.1160 = $204.46 Rent component 1981
Step 6. Add the rent and utility components calculated in steps 4
and 5 to obtain a mid-point rent for 1981:
$65.20 + 204.46 = $269.66 Mid-point rent 1981
Step 7. Calculate the AAF for the 2 Bedroom Unit in the $225-249
rent range by dividing the mid-point rent for 1981 by the
mid-point rent for 1980:
$269.66 = 1.135 AAF for Gross Rent
Checking the table of AAFs for Gross Rents for the Anaheim-
Santa Ana-Garden Grove SMSA reveals that the AAF ‘or the 2
Bedroom Unit in the $225-249 rent range is given as 1.135 as
illustrated in the above example.
Note: See attached table for Rent and Utility Inflation Factors.
;
et Cu.
RENT AND UTILITY INFLATION FACTORS
13a
Appendix B
Used to Develop Automatic Annual Adjustment Factors
Effective November 8, 1980
1980-1981 19791980 1980-1981*
SMSA CENSUS REGION RENT UTUTY UNUTY
CODE OR SMSA FACTORS FACTORS FACTORS
—— NORTHEAST 1.0740 1.2247 1.2500
—— NORTH CENTRAL 1.0790 1.1425 1.1550
—— SOUTH 1.0920 1.1266 1.1430
—— WEST 1.1060 1.1243 1.2070
360 ANAHEIM-SANTA ANA-
GARDEN GROVE 1.1160 1.1550 1.2010
380 ANCHORAGE 1.0030 1.0911 1.0900
$20 ATLANTA 1.0720 1.0994 1.1160
720 BALTIMORE 1.0670 1.4583 1.1810
1120 BOSTON 1.0780 1.3229 1.2840
1280 BUFFALO 1.0540 1.1782 1.2420
1600 CHICAGO 1.0900 1.1328 1.1630
1640 CINCINNATI 1.1040 1.0860 1.1370
1680 CLEVELAND 1.0690 1.1789 1.1500
1920 DALLAS-FORT WORTH 1.0960 1.0560 1.0390
2080 DENVER-BOULDER 1.0970 1.1435 1.1630
2160 DETROIT 1.1000 1.1508 1.1340
2960 GARY-HAMMON-EAST CHICAGO 1.0900 1.1328 1.1630
3320 HONOLULU 1.1060 1.0398 1.1440
3360 HOUSTON 1.0600 1.2063 1.1530
376) KANSAS CITY 1.0630 1.1529 1.0410
4480 LOS ANGELES-LONG BEACH 1.1160 1.1550 1.2010
5000 MIAMI 1.1220 1.09% 1.1480
5080 MILWAUKEE 1.0800 1.1857 1.2270
5120 MINNEAPOLIS-ST. PAUL 1.0960 1.0700 1.1260
S600 NEW YORK 1.0660 1.1997 1.2100
5640 NEWARK 1.0660 1.1997 1.2100
5745 NORTHEAST PENNSYLVANIA 1.0580 1.1704 1.1890
6000 OXNARD-SIMI VALLEY-VENTURA 1.1100 1.1550 1.2010
) 6040 PATTERSON-CLIFTON-PASSAIC 1.0660 1.1997 1.2100
610 PHILADELPHIA 1.0610 1.2368 1.2830
6280 PITTSBURGH 1.0680 1.1110 1.1280
/ 6440 PORTLAND 1.0730 1.2383 1.2940
6780 RIVERSIDE-SAN BERNARDINO 1.1160 1.1550 1.2010
7040 ST. LOUIS 1.1530 1.1204 1.0670
7320 SAN DIEGO 1.0900 1.1508 1.2700
730 SAN FRANCISCO 1.0970 1.1275 1.1690
7600 SEATTLE-EVERETT 1.2070 1.2132 1.2840
8840 WASHINGTON 1.0860 1.1033 1.1460
* Dates indicated above for rent and utility factors apply to the penod of use.
See the text of tne AAF Methodology for references to data sources and dates.
~~ —
l4a
APPENDIX C — METHODOLOGIES
Methodology Used to Develop Automatic Annual
Adjustment Factors for the Section 8 Housing Assistance
Payments Program Effective November 8, 1981
Section 8(c)(2A) of the United States Housing Act of 1937, as
amended, specifies that an assistance contract made pursuant to
Section 8 shall provide for adjustments annually or more frequently
__ inthe maximum monthly rents to reflect changes in the fair market
rentals. This Section further specifies, if the Secretary determines,
that these adjustments can be made on the basis of a reasonable for-
mula. Subpart B of Part 888 of the Code of Federal Regulations
establishes general guidance in regard to the development and use
of Automatic Annual Adjustment Factors (AAFs), the manner of
publication, and the revision of factors for a particular area by
HUD Field Offices.
The methodology used by the Headquarters Economic and
Market Analysis Division to develop the November 8, 1981 AAFs is
based on a formula using the ‘Rent, residential”’ and ‘‘Fuel and
Other Utilities’” components of the Consumer Price Index for All
Urban Consumers (CPI(U)) as of June 1981, and data from the
1978 and 1979 Annual Housing Surveys (AHS) updated to 1982.
AAFs are developed for 37 Standard Metropolitan Statstical Areas
(SMSAs) and the four Census Regions. Two sets of factors are
developed; one for Contract Rents Including Highest Cost Unlity,
and one for Contract Rents Excluding Highest Cost Utility. A
matrix of 50 separate factors, reflecting variations by rent ranges
and bedroom sizes, is developed for each set of factors. The step-
by-step procedures and the data used to develop the adjustments
factors are as follows:
(1) Calculation of the increases in the Rent and Utilities com-
ponents of the CPI for the most recent twelve-month period
(2) Calculation of a Shelter Rent increase factor by adjusting for
the units in the CPI Rent Index that include heating costs
ee
a
+ lle
lSa
Appendix C
(3) Calculation of a single Gross Rent increase factor for each of
the 37 SMSAs and the four Census Regions by weighting the
Shelter Rent and Utility increases in accordance with Na-
tonal and Census Regional weights derived from 1979 AHS
data
(4) Calculation of AAFs for Contract Rents Including Highest
Cost Utilities (Gross Rents) that reflect differences for rent
ranges and bedroom sizes developed from 1978 and 1979
AHS data
(S) Calculaton of AAFs for Contract Rents Excluding Highest
Cost Uulities (Shelter Rents) by development of shelter rents
for 1982 and 1981, and comparison of the 1982 rents with the
1981 rents
A detailed description of the step-by-step procedures and the
data used to develop the Automatic Annual Adjustment Factors
for both Gross Rents and Shelter Rents is given in the following
paragraphs:
An example of the AAF calculations for the Boston SMSA is
given following the description of the Methodology.
(1) Calculation of Rent and Utility Increase Factors Based on
CPI
Rent and Utlity increase factors for the most recent twelve-
month period were calculated by dividing the most recent
Rent and Utility price index from the CPI by the index for
the same month one year earlier as shown in Table A below:
l6a
Appendix C
Table A
Rent and Utility Increase Factors Based on Change in CPI
Census Regon Survey Rent index Ud. index increase
a@ SMSA Month 1960 1981 Facer 1980 1981 Factr
Northwest Census Region June 117.1 :126.3 1.0786 143.2 168.7 1.1781
North Central Census Region June =—-:119.4_ 127.7 1.0695 134.2 150.7 1.1230
South Census Region June 122.4 132.0 1.0784 127.0 144.9 1.1409
West Census Region June =—-:125.9_ 138.7 1.1017 141.3 149.1 1.0552
Anaheon-Santa Ana-
Garden Grove, CA June =: 212.0 235.2 1.1094 233.9 250.9 1.07277
Anchorage, AK May = 157.8 165.9 1.0513 194.7 217.9 1.1192
Auanta, GA June 166.6 187.8 1.1273 259.9 276.9 1.0654
Baltimore, MD May 172.9 187.7 1.0856 266.4 309.1 1.1603
Boston, MA May 194.4 218.7 1.1250 312.8 380.7 1.2171
Buffalo, NY Jume =—-:176.7_ 184.7 1.0453 346.4 408.6 1.1796
Chicago, IL June 172.3 183.8 1.0667 253.8 285.0 1.1229
Cincinnati, OH-KY-IN May = 168.9 184.9 1.0947 287.5 318.9 1.1092
Cleveland, OH June =:169.1_ 178.3 1.0544 279.4 321.5 1.1507
Dallas-Fort Worth, TX June 188.8 207.9 1.1012 243.6 305.9 1.2557
Denver-Boulder, CO May = 182.9 201.2 1.1001 243.0 276.7 1.1387
Detroit, MI June 194.3 204.7 1.0535 294.9 335.6 1.1380
Gary-Hammond-East Chicago, IN June 172.3 183.8 1.0667 253.8 285.6 1.1229
Honolulu, HI June 205.6 229.1 1.1143 237.6 334.9 1.4095
Houston, TX June 181.2 196.7 1.0855 317.2 377.2 1.1892
Jersey City, NJ June 200.7 216.0 1.0762 316.5 375.3 1.1858
Kansas City, MO-KS Jume 162.4 172.2 1.0603 265.3 299.0 1.1770
Los Angeles-Long Beach, CA June = 212.0 235.2 1.1094 233.9 250.9 1.0727
Miami, FL May 121.9 141.6 1.1616 119,8 142.9 1.1928
Milwaukee, WI May = 178.4 193.3 1.0835 293.1 339.1 1.150
Minneapolis-St. Paul, MN-WI June 195.2 215.0 1.1014 266.9 320.3 1.2001
Nassau-Suffolk, NY Jume 200.7 216.0 1.0762 316.5 375.3 1.1858
New Brunswick-Perth Amboy-
Sayreville, NJ June 200.7 216.0 1.0762 316.5 375.3 1.1858
New York, NY Jume 200.7 216.0 1.0762 316.5 375.3 1.1858
Newark, NJ June 200.7 216.0 1.0762 316.5 375.3 1.1858
Northeast Pennsylvania, PA May 217.7 227.4 1.0446 348.0 412.7 1.1859
Oxnard-Simi Valley-Ventura, CA June = 212.0 235.2 1.1094 233.9 250.9 1.07277
Patterson-Clifton-Passaic, NJ June 200.7 216.0 1.0762 316.5 375.3 1.1858
Philadelphia, PA-NJ June 194.1 208.4 1.0737 292.3 345.0 1.1803
Piusburgh, PA June =—:185.9 199.4 1.0726 247.4 272.8 1.1027
Portland, OR-WA May 200.3 215.7 1.07 317.3 357.6 1.1270
Rivernde-San Bernardino-
Ontario, CA June §=212.0 235.2 1.1094 233.9 250.9 1.0727
St. Louis, MO-IL May 166.1 177.6 1.0692 228.4 245.4 1.0744
San Diego, CA May 7221.2 243.4 1.1004 220.4 259.8 1.1788
San Francisco-Oakiand, CA June = 212.8 233.2 1.0959 321.0 309.9 1.0000
Seaitle-Everet, WA May 225.3 240.7 1.0684 2645 298.0 1.1267
Washington, DC-MD-VA May 194.7 213.4 1.0960 2525 287.6 1.1390
et ot aa NOE OOK
17a
Appendix C
(2) Calculation of a Shelter Rent Increase Factor
(a) The residential rent component of the CPI is based on a
sample of about 18,000 rental units. The rental data for
some of the units in each of the areas surveyed includes the
cost of heating. To calculate a Shelter Rent increase factor
for each of the 37 SMSAs and the four Census Regions for
which the CPI data was available, it was necessary to
eliminate the cost of heating from the Rent component of
the CPI, and this was accomplished by the use of the
following formula:
I= A(CR + DU) + BR)
(Solve for R to find Shelter Rent increase)
I = CPI residential rent increase factor
A = Percentage of rental units in the CPI sample that
included the cost of heating
B = Percentage of rental units in the CPI sample that did
not include the cost of heating
C = The ratio of Shelter Rent to Gross Rent
D = The ratio of Utilities to Gross Rent
R= Shelter Rent increase factor
U = CPI Utility increase factor
(b) The ratio of Shelter Rent and the ratio of Utilities to Gross
Rent used in the above formula were derived from 1979
AHS data. The weight given to Shelter Rent was 70 percent,
and the weight given to Utilities was 30 percent for all
SMSAs, the North Ceutral, South, and West Census
Regions. The weights were 67 percent and 33 percent for
the Northeast Census Region. The percentage of units in
the CPI rental survey that included the cost of heating, and
the Shelter Rent increase faci-as calculated by use of the
preceding formula are shown: in Table B below.
18a 19a
—— ae ee he
Appendix C Appendix C
(3) Calculation of a Gross Rent Increase Factor Table B
(a) A single Gross Rent increase factor for each of the 37 Percentage of rental units in the CPI rental ny that included the
SMSAs and the four Census Regions was calculated by | cost of heating, calculated Shelter Rent increase factor, |
weighting the percentage increase in Shelter Rent and the | and calculated Gross Rent increase factor for four Census Regions
percentage increase in Utilities in accordance with the and 37 designated SMSAs
weights derived from the 1979 AHS as given in paragraph | Consus Ragien a — my =
(2b) above. The formula used for the calculation was as ; or SMSA With Heat Fector Factor
follows: | Northwest Census Region 445 1.061 0999
| North Central Census Reg 4.1 1.063 0807
G= A(R) + BU) South Comms Regen 20.9 1.074 43
(Solve for G to find Gross Rent increase) | West Census Region 21.6 1.105 0900
G = Gross Rent increase factor . ) a. chore AK Same Gem, CA a. ae i.
; ; Auanta, 17.7 1.131 An
A = Weight applicable to Shelter Rent | Baltimon, MD 149 ‘on “ene
a ae Boston, MA 46.9 1.110 1421
B = Weight applicable to Utilities | Buffaic, NY "9 ~~ ‘an
e | Chicago, IL $1.7 1.056 0610
R = Percentage increase in Shelter Rent Chasionah, C8-KY-2N 3 a ——
U = Percentage increase in Utilities Cleveland, OH 36.6 1.043 0150
Dallas-Fort Worth, TX %.7 1.082 AMI
(b) The Gross Rent factors are shown in Table B below. Denver-Boulder, CO 35.7 1.087 1026
Detrou, MI 42.3 1.041 .0702
Gary-Hammond- East Chicago, IN $1.7 1.056 0163
Honolulu, HI 00.0 1.000 1729
Houston, TX 418 1.071 1063
Jersey City, NJ 64.3 1.050 090"
Kansas City, MO-KS 25.6 1.055 Oe.
Los Angeles-Long Beach, CA 12.5 1.11 O84
Miami, FL 23 1.161 1708
Milwaukee, WI 35.0 1.075 0995
Minneapolis-St. Paul, MN-WI 47 1.090 1230
Nassau-Suffolk, NY 643 1.050 0908
New Brunswick-Perth Amboy-
Sayreville, NJ 64.3 1.050 0908
New York, NY 643 1.050 0908
Newark, NJ 64.3 1.050 0908
Northeast Pennsylvama, PA 265 1.032 .O78S
Oxoard-Sum Valley- Ventura, CA 125 Lil 0994
Patterson Clifton- Passaic, NJ 643 1.050 0908
Ptuladeiphia, PA-NJ $8.0 1.051 0899
P\usburgh, PA w4 1.08 0788
Pordand, OR-WA 143 1.075 0804
Riverside-San Bernardino-Ontano, CA 125 Lan Ree)
St. Louis, MO-IL 21.0 1.069 0705
San Diego, CA 68 1.099 178
San Francsco-Oakiand, CA 86 1.098 0689
Seaule-Everett, WA 12.3 1.066 0843
Washington, DC-MD-VA 53.5 1.088 1030
20a
Appendix C
(4) Calculation of AAFs for Contract Rents Including Highest
Cost Uulities
(a) The distribution of all rental units covered in the 1979 AHS
national sample shows that the 1978 to 1979 median percen-
tage increases in gross rents declines at subsequently higher
rent intervals. The data also suggest that the percentage in-
crease at each rent level rises as the number of bedrooms in-
creases. The actual distribution of units and the rent in-
creases taken directly from the AHS data are shown in
Table C.
(b) Increases for all rent intervals and bedroom sizes could not
be obtained directly from the AHS data because of the
small number of cases in the survey sample. This was
especially true in regard to the number of efficiency and
four-bedroom units. Estimated distributions were made in
these categories to develop a complete matrix covering all
rent ranges and bedroom sizes. The complete matrix is
shown in Table D.
(c) Intermediate adjustment factors necessary to complete a
matrix of percentage rent increases based on the single
Gross Rent factor and the variations shown for rent ranges
and bedroom sizes were delivered by dividing the factors in
Table D by 6.5 percent, which is the overall rent increase
from the 1979 AHS sample of rental units matched in 1978
and 1979. The intermediate adjustment factors developed
by this procedure are shown in Table E.
(d) The intermediate adjustment factors in Table E were up-
dated to 1982 by increasing the 1978 rent levels by 33.3 per-
cent, which was the median rent increase for the four-year
period. The updated factors necessary to compute per-
centage rent increases in Gross Rents by rent range and bed-
room size based on the single Gross Rent factor developed
for the most recent twelve-month period are shown in Table
P.
a
2la
Appendix C
(e) The AAFs for Contract Rents Including Highest Cost Utlli-
ty applicable to each Census Region and the 37 designated
SMSAs were calculated by multiplying the single Gross
Rent increase factor developed for each area in Step (3) by
the intermediate adjustment factors shown in Table F, and
adding | to the result.
Tables C, D, E, and F are shown following the description of
Step (5) below:
(S) Calculation of AAFs for Contract Rents Excluding Highest
Cost Utilities
(a) The AAFs for Contract Rents Excluding Highest Cost
Uulity were calculated by developing a 1982 shelter rent for
each $50 rent interval, and then dividing the 1982 shelter
rent by the mid-point of the rent interval, which represents
the 1981 shelter rent to be adjusted.
(b) The 1982 shelter rents were developed in a series of steps by
(1) calculating 1981 utility costs for each bedroom size unit,
and then adding the utility cost to the mid-point of each
rent interval to obtain 1981 gross rents, (2) calculating a
1982 gross rent by applying the appropriate AAF for gross
rent, and (3) calculating 1982 utility costs, and then sub-
tracting the utility cost from the gross rent.
(c) The 1981 utility costs were calculated by updating 1979
utility costs for each Census Region derived from the AHS.
The 1979 costs were increased by 21 percent, which was the
overall utility increase indicated by the CPI. 1982 utility
costs were calculated by updating the 1981 costs by the utili-
ty increase factor for each Census Region and SMSA
shown in Table A. The 1979 utility costs from the AHS that
were used in the preceding calculations were as follows:
AREA OBR 1-88 20R 38h 4&F
Northeast Census Region SO 65 80 95 110
North Central Census Region 35 SO 6 8 9
South Census Region 35 S 6& 8 95
West Census Region 0» # Ss @®m 7
22a
Appendix C
TABLE C
Median percentage change in Gross Rent from 1978 to 1979 and
number of cases in sample, by rent range and bedrooms where
number of cases exceeds 100 units.
Obedooms j§§ ‘bedroom 2bedoons Jbedoons 4 bedrooms
|
lessthan$i00 125 100 122 Mm 12:1 260
$1000 149 = 88.0138 79 71 02 746 89 Di
10019 «867.8 «133 6.7 1,199 7.1 1,135 74 3%
200 w 249 7.0 77 «664 «(214352%60~« 6448
250 wo 299 5.3 41 55 941 69 28
0 w M9 48 1M 50 49 53 22
350 to 399 45 1799 42 143
400 w 449 49 111
450 or more
Note Median percentage merease was 6.5 percent.
1/ Sample less than 100 uruts for each rent interval.
Source: 1978 and 1979 Annual Housing Survey, U.S. Summary (preiomimary).
TABLE D
Estimated percentage change in gross rent from 1978 tw 1979 by
rent range and bedrooms based on Table C.
Gross fert 0 bedrooms 1 bedroom 2 bedrooms 3 bedrooms 4 bedrooms
in 1978 * * — * ~
less than $150 7.4 79 8.4 8.9 9.4
150 w 199 65 6.8 7d 7.4 77
200 wo 249 5.6 5.9 6.2 6.5 68
250 wo 299 49 $.2 $5 5.8 6.0
0 wo M9 4.3 46 49 $.2 $5
350 w 39 3.8 4.1 44 47 $.0
400 wo 449 3.4 3.7 40 4.3 46
450 or more 3.1 3.4 3.7 40 43
Source: Esumated by EMAD, based on AHS.
23a
Appendix C
TABLE E
Adjustment factors to be applied to median percentage increase in
gross rent.
Gross Rent 0 bedrooms 1 bedroom 2 bedrooms Jbedouns 4 bedroons
in 1978 * _ — * *
less than $150 1.1385 1.2154 1.223 1.32 1.4462
190 © 19 1.0000 1.0462 1.0923 1.1385 1.1846
200 to 249 8615 9077 S38 1.0000 1.0462
250 w 299 7538 .8000 8462 893 IB
30 to M9 AB 07r7 71538 .8000 $462
350 to 39 5846 6307 6710 pa) | 712
400 to 449 SB - 52 6154 6615 0r1
450 of more 418 SBA 5692 6154 615
Note: Factors developed from Table D for application tw current CPI median gross rent
peroentage increase factor.
TABLE F
Adjustment factors updated to 1982 for application to percentage
increase in gross rent developed for each Census Region and SMSA
in Step (3) of AAF Methodology.
Gross Rent 0 bedrooms 1 bedroom 2bedooms Jbedoons 4 bedoons
less than $200 1.1385 1.2154 1LwB 1.32 1.4462
200 to 249 1.0346 1.0962 1.1577 1.2193 1.2808
250 w 299 TH 9770 1.9231 1.0893 1.1154
WO wo M9 642 BBBS 9341 9808 1.0193
350 to 399 7538 8000 $442 3B B74) |
400 to 449 62 143 -788S 546 IBS
450 to 499 6385 6846 THR 118 B1S4
500 to 549 5808 6269 6731 192 1616
550 w 59 SBI 52 6154 S615 or
600 or more 418 4) | 5 6154 615
Note: The factors m Table F whuch reflect differences for rent ranges and bedroom sizes were
appled to the smgje gross rent factor developed in Step (3) of the AAF Methodology two deter-
mune the AAFs for Contract Rents Including Highest Cost Utilities.
(1)
(2)
(3)
(4)
(5)
24a
Appendix C
Example of Methodology Used for Calculation of AAFs
as of Nov. 8, 1981
Boston, MA Standard Metropolitcan Statistical Area
Calculation of Rent and Utility Increase Factors Based on CP]
CPI Rent Index 1981 * Rent Increase 218.7 = 1.1250
CPI Rent Index 1980 Factor 194.4
CPI Utility Index 1981 “ Utility Increase 380.7 = 1.1271
CPI Utility Index 1980 Factor 312.8
Calculation of a Shelter Rent Increase Factor
I = A(CR + DU) + BIR) (See Methodology for identification of symbols)
R- 1-ADU_ R« 1.125 — (.469) 301.2171) R .9538
AC +B (469.70) + 531 _
Calculations of a Gross Rent Increase Factor
G = A(R) + BU) (See Methodology for identification of symbols)
G = .7(.1100) + .30(.2171) G = .0770 + .0651 G = .1421
Calculation of AAFs for Contract Rents Including Highest Cost Utility
Gross Rent Increase Factor Adjustment factor from +12 AAF
developed in SiepG)above Table F for each rent interval
(.14211.1385) +1 = 1.162 | Calculated AAF for less than $200 rent interval
(.1421(1 0346) + 1 = 1.147 Cakulated AAF for $200-249 rent interval
(Note: These examples are for the 0-Bedroom AAFs)
Calculation of AAFs for Contract Rents Excluding Highest Cost Utility
1979 Utility Cost for 0-BR unit Northeast Census Region
From AHS $50
Increase in Utility Cost from 1979 to 1981 U.S. from CPI «1.21
1981 Utility Cost for OBR unit $1
Increase in Utility Cost from 1981 to 1981 Boston SMSA
from CPI x 1.2171
1982 Utility Cost for 0-BR unit in Boston SMSA $74
Mid-point of rent interval under $200 (1981 Shelter Rent) $175
Plus 1981 Utility Com + 61
1981 Gross Rent $236
Multiply by AAF for Gross Rent at the $200-249 rent interval x 1.147
1982 Gross Rent $271
Minus 1982 Utility Cost - 14
1982 Shelter Rent $197
1982 Shelter Rent _ AAF for Contract Rents Exctuding Highest $197 14. gap
1981 Shelter Rent Cost Utility (0-BR under $200 imterval) $175
(Note: Approved AAF is 1.130 - difference is aftributable to computer rounding)
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.