In response to inconsistencies raised by advocates, HUD distributed a Memorandum clarifying one of the obligations regarding utility allowance adjustments that must be made by owners of Project-based Section 8 properties. The June 20 Memorandum from Carol Galante, Deputy Assistant Secretary for Multifamily Housing Programs, was sent to HUD Multifamily staff and contract administrators.
According to the law authorizing the Project-based Section 8 program, residents must not pay more than 30% of their adjusted income for housing. The regulations include utility costs as a component of housing cost. Therefore, when residents pay their own utilities, the owner must establish, with HUD approval, a utility allowance amount that is deducted from the residents’ rent payment to the owner. The regulations require owners to submit an analysis of utility allowances when requesting an increase of rent payments from HUD. Regulations also require owners to request a utility allowance adjustment when an analysis indicates that utility rate changes would result in a 10% increase.
At meetings and through written comments, advocates have pointed to inconsistent direction regarding utility allowances in the Section 8 Renewal Guidebook. For owners using the Operating Cost Adjustment Factor (OCAF) to request a contract renewal or an annual rent adjustment, the Guidebook does not require an owner to submit a utility analysis. Nor does it require a utility cost analysis when utility rates increase 10%. However, for owners using a budget-based method to request a rent adjustment, the Guidebook instructs owners to comply with Chapter 7 of Handbook 4350.1, which clearly calls for a utility analysis with each rent adjustment request.
On a related issue, advocates reminded HUD that the statute requires owners to notify residents and provide an opportunity to comment on proposed rent increases. However, HUD has taken the position that no tenant comments are required with OCAF rent adjustments, denying residents any chance to address inadequacies of the utility allowance.
Advocates at the Housing Preservation Project and the Sargent Shriver National Center on Poverty Law examined the policies of all 47 Project-based Section 8 contract administrators, covering 15,485 properties. They found substantial variations in the way contract administrators deal with utility allowances, as well as conflicting direction from HUD area offices. Consequently, it is likely that a substantial number of residents are paying more than 30% of income for rent and utilities.
The June 20 Memorandum states that owners are required to perform yearly analyses of their projects’ utility costs and adjust utility allowances every year at the time of annual and special adjustments of contract rents for both OCAF and budget-based adjustments. If an owner does not submit a utility cost analysis the contract administrator must withhold the rent adjustment to the owner until an analysis is provided. HUD also writes that multiple adjustments in utility allowances can be made throughout the contract year and must be requested by an owner any time changes in utility rates result in an increase of 10% or more.
Regarding advocates’ complaint that the Guidebook does not require an opportunity for residents to comment on utility cost analyses, the Memorandum merely cites an existing regulation which only applies to a decrease in utility allowances, which will be rare given consistently rising utility costs. Consequently, residents will still not be able to offer formal comments on the absence of an increase in the utility allowance or an insufficient increase in one, unless HUD issues further guidance.
HUD’s Memorandum is available at http://nlihc.org/doc/HUD-Memorandum-Sect8-Utility-Allowance.pdf and a summary of the advocates’ study can be found at http://nlihc.org/doc/Advocates-Utility-Allowance-Study-2010.pdf