Section 8 Housing Assistance Payments Program: Contract Rent Annual Adjustment FactorsRevision to ``Rounding'' Factor

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing--Federal Housing

Commissioner

24 CFR Part 888

[Docket No. R-94-1697; FR-3598-F-02]

RIN 2502-AG17

Section 8 Housing Assistance Payments Program: Contract Rent

Annual Adjustment Factors--Revision to ``Rounding'' Factor

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing

Commissioner, HUD

ACTION: Final rule.

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SUMMARY: This final rule revises the method for ``rounding'' contract

rents. Before issuance of this rule, the applicable HUD regulations

provided for adjustment to be made to the contract rent of a dwelling

unit by rounding the computed monthly contract rent that contains a

fractional dollar amount to the next higher whole dollar amount. (The

monthly contract rent was rounded to the next higher whole dollar

amount even when the dollar fraction was as low as .01.) Through this

final rule, HUD revises this adjustment procedure by providing for

contract rents that contain fractional dollar amounts of .01 to .49 to

be rounded to the next lower dollar amount, and for contract rents that

contain fractional dollar amounts of .50 to .99 to be rounded to the

next higher dollar amount. The purpose of this rule is to provide for a

``rounding'' procedure that is more consistent with standard industry

practices, and that more accurately reflects actual rent adjustments.

EFFECTIVE DATE: August 29, 1994.

FOR FURTHER INFORMATION CONTACT: Barbara Hunter, Acting Director,

Planning and Procedures Division, Office of Housing, Department of

Housing and Urban Development, 451 Seventh Street, S.W., Room 6180,

Washington, D.C. 20410. Telephone (202) 708-3944 (voice) or (202) 708-

4594 (TDD). (These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

I. Background--The Former ``Rounding'' Procedure

Before issuance of this final rule, 24 CFR 888.203(b) provided as

follows:

The adjusted monthly amount of the Contract Rent of a dwelling

unit shall be determined by multiplying the Contract Rent in Effect

on the anniversary date of the contract by the applicable Automatic

Annual Adjustment Factor (see paragraph (a) of this section) and

rounding the result to the next higher whole dollar amount.

The former rounding procedure provided for all contract rents that

contain fractional dollar amounts to be rounded to the next higher

whole dollar, regardless of the fractional amount. HUD determined that

there are approximately two million dwelling units receiving section 8

assistance, and the former rounding procedure (a procedure that

provides for a dollar fraction as low as .01 to be rounded up) costs

about $24 million in annual section 8 subsidies (2,000,000 units x $1

per unit x 12 months = $24,000,000). Accordingly, HUD determined that

a change was necessary to make its rounding procedure consistent with

generally accepted mathematical principles, and to bring disbursement

of section 8 subsidies more in line with a housing authority's or

project owner's actual section 8 subsidy needs.

II. December 28, 1993 Proposed Rule

On December 28, 1993 (58 FR 68615), HUD published a proposed rule

that would have revised the rounding procedure in Sec. 888.203(b) to

provide for fractional dollar amounts of .01 to .50 to be rounded down,

and for fractional dollar amounts of .51 to .99 to be rounded up.

In the preamble to the proposed rule, HUD acknowledged that the

proposed change to the rounding procedure would adjust section 8

contract rents by an average of fifty cents per-unit per-month less

than contracts rents are adjusted under the procedure used to date. HUD

also noted in the preamble that the rounding procedure used to date

provided many housing authorities and owners with section 8 subsidies

substantially beyond their section 8 assistance needs. Because HUD's

resources are tightly constrained, even as the need for housing

assistance intensifies, it is important that HUD use existing resources

more efficiently. More efficient use of section 8 subsidies will help

HUD meet increased demands for housing assistance. The anticipated

savings in section 8 subsidies from the change in the rounding

procedure can be used to help other low-income families who need

housing assistance.

The December 28, 1993 proposed rule provided for a 60-day public

comment period. The comment period expired on February 28, 1994, and by

this date, HUD received 12 comments. The public comments and HUD's

response to these comments are discussed in Sections III and IV of the

preamble.

III. Final Rule--A ``Rounding'' Procedure More Consistent With

Standard Industry Practices

In response to public comment, the final rule revises the rounding

procedure set forth in the December 28, 1993 proposed rule. The final

rule provides for fractional dollar amounts of .01 to .49 to be rounded

down, and fractional dollar amounts of .50 to .99 to be rounded up.

Three commenters supported HUD's proposal to change the rounding

procedure, but stated that the proposed revision was not consistent

with generally accepted mathematical principles. The commenters stated

that under generally accepted mathematical principles, rounding occurs

as follows: .01 to .49 DOWN, and .50 to .99 UP. The commenters

expressed concern that HUD's departure from standard practice would

lead to confusion, and result in increased time and expense for owners.

Increased time would result from the need on the part of owners to be

cognizant that HUD's rounding procedure is slightly different from that

generally used. Increased expense would result from the need on the

part of many owners to revise existing computer software programs to

accommodate HUD's ``unique'' rounding procedure.

HUD agreed with the commenters, and as noted above, the final rule

adopts the standard ``rounding'' method. In the final rule,

Sec. 888.203(b) provides as follows:

The adjusted monthly amount of the Contract Rent of a dwelling

unit shall be determined by multiplying the Contract Rent in effect

on the anniversary date of the contract by the applicable Automatic

Annual Adjustment Factor (see paragraph (a) of this section) and

rounding the result as follows:

(1) If the result contains a fractional dollar amount ranging

from $0.01 to $0.49, round to the next lower whole dollar amount;

(2) If the result contains a fractional dollar amount ranging

from $0.50 to $0.99, round to the next higher whole dollar amount.

IV. Public Comment

In addition to the commenters who supported a change to the

rounding method, but not the change proposed by HUD, four commenters

expressed their support for the proposed rule with no recommendations

for change. Other comments, and HUD's response to these comments, are

as follows:

Comment. One commenter supported the change to the rounding factor

but stated that it strongly opposed retroactive implementation of the

rule.

Response. The rule does not provide for retroactive application.

The revised rounding procedure applies to only future rents as they are

adjusted on the anniversary dates of the Housing Assistance Payment

(HAP) contracts.

Comment. Four commenters opposed the change to the rounding

procedure, and stated that the savings anticipated by the change will

be substantially less because of the increased rents allowed under

requests for special adjustments.

Response. Reduced rent increases that result from a change in the

rounding procedure do not constitute an eligible justification for

special adjustments. Special adjustments are available only when

increases in expenses have resulted from substantial general increases

in real property taxes, utility rates, or other similar costs. HUD does

not believe that the reduction of rents resulting from a change in the

rounding procedure will be so substantial as to adversely affect

project owners.

Comment. Three commenters stated that the application of a revised

rounding factor to existing contracts is legally questionable.

Response. As noted above, there is no retroactive application of

the rule. Additionally, the HAP contracts and the section 8 regulations

do not prohibit HUD from revising the ``rounding'' procedure for

contract rents.

Comment. One commenter stated that the preamble to the proposed

rule made the assertion that many housing authorities and project

owners are provided with section 8 subsidies substantially beyond their

section 8 assistance needs. The commenter stated that HUD must take

into consideration projects that need all of their section 8

assistance.

Response. HUD believes that the revised rounding factor, which is

based on generally accepted mathematical principles, and is consistent

with standard industry practices, presents a balanced approach to the

former rounding method which did, in fact, provide many owners with

section 8 subsidies beyond their needs. (Again, the previous procedure

provided for a dollar fraction as low as .01 to be rounded up to the

next whole dollar.) As noted earlier in this preamble, while the

revised rounding method will result in some reduction in section 8

subsidies, HUD does not believe that the reduction will be so

substantial as to adversely affect project owners, including those that

need all of their section 8 assistance.

Comment. One commenter stated that the Automatic Annual Adjustment

Factor has a built-in downward bias, which, together with the revision

to the rounding factor, will substantially reduce section 8 assistance.

Response. The Automatic Annual Adjustment Factors (AAFs) are

computed so as to eliminate as many sources of bias as is practicable.

There is no effort on the part of HUD to establish the AAFs in a way

that would be detrimental to project owners.

V. Other Matters

Environmental Impact

An environmental assessment is unnecessary because statutorily

required establishment and review of rent schedules that do not

constitute a development decision affecting the physical condition of

specific project areas or building sites are categorically excluded

from the Department's National Environmental Policy Act procedures

under 24 CFR 50.20(1).

Impact on Small Entities

The Secretary, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)), has reviewed this final rule before publication, and,

by approving it, certifies that this final rule would not have a

significant economic impact on a substantial number of small entities.

The rule will result in reduced section 8 subsidies for a substantial

number of housing authorities (the reduction in subsidies will extend

to all housing authorities, and is not limited to small housing

authorities) and project owners. However, the reduced section 8

subsidies will not result in a significant economic impact on these

entities because a substantial number of these authorities and project

owners are currently receiving section 8 subsidies considerably beyond

their actual section 8 housing assistance needs. The savings in section

8 subsidies achieved by this rule will result in disbursement of

section 8 subsidies to additional housing authorities and project

owners. Thus, the rule would not result in a significant economic

impact on a substantial number of small entities within the meaning of

the order.

Federalism Impact

The General Counsel, as the Designated Official under section 6(a)

of Executive Order No. 12612, Federalism, has determined that this

final rule would not have a substantial, direct effect on the States or

their political subdivisions or on the relationship between the Federal

government and the States, or on the distribution of power or

responsibilities among the various levels of government. The rule

relates solely to the method of determining Federal financial

assistance--that is, the method of determining the amount of section 8

assistance needed by a housing authority or project owner, based on the

procedure for computing adjusted contract rent. This matter does not

affect the States or their political subdivisions or the distribution

of power or responsibilities among the various levels of government.

Impact on the Family

The General Counsel, as the Designated Official under Executive

Order 12606, The Family, has determined that this final rule will not

have a potential significant impact on family formation, maintenance,

and general well-being, and thus is not subject to review under the

order. No significant change in existing HUD policies or programs will

result from promulgation of this rule, as those policies and programs

relate to family concerns.

Regulatory Agenda

This rule was listed as sequence number 1608 in the Department's

Semiannual Agenda of Regulations published on April 25, 1994 (59 FR

20424, 20453) under Executive Order 12866 and the Regulatory

Flexibility Act.

List of Subjects in 24 CFR Part 888

Grant programs--housing and community development, Rent subsidies.

Accordingly, 24 CFR part 888 is amended as follows:

PART 888--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM--FAIR

MARKET RENTS AND CONTRACT RENT ANNUAL ADJUSTMENT FACTORS

1. The authority citation for part 888 continues to read as

follows:

Authority: 42 U.S.C. 1437c, 1437f, and 3535(d).

2. In Sec. 888.203, paragraph (b) is revised to read as follows:

Sec. 888.203 Use of contract rent automatic annual adjustment factors.

* * * * *

(b) The adjusted monthly amount of the Contract Rent of a dwelling

unit shall be determined by multiplying the Contract Rent in effect on

the anniversary date of the contract by the applicable Automatic Annual

Adjustment Factor (see paragraph (a) of this section) and rounding the

result as follows:

(1) If the result contains a fractional dollar amount ranging from

$0.01 to $0.49, round to the next lower whole dollar amount;

(2) If the result contains a fractional dollar amount ranging from

$0.50 to $0.99, round to the next higher whole dollar amount.

Dated: July 20, 1994.

Jeanne K. Engel,

General Deputy Assistant Secretary for Housing--Federal Housing

Commissioner.

[FR Doc. 94-18496 Filed 7-28-94; 8:45 am]

BILLING CODE 4210-27-P