HUD’s Office of Multifamily Housing Programs issued Notice H-2015-04 on June 22, which provides instructions to owners and management agents (O/As) for completing the utility analysis required with annual rent adjustments, as well as when a utility rate change results in a cumulative increase of 10% or more from the most recently approved utility allowance. Although the guidance is for owners and O/As, residents of multifamily-assisted properties and advocates should be aware of the key features.
Also released was a memorandum from Deputy Assistant Secretary Benjamin Metcalf announcing two means for compensating O/As for collecting and reporting utility data.
Under statute, residents of Project-based Section 8 properties 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 in the utility allowance.
The Notice states that HUD’s annual outlay for utilities is greater than $6 billion. Therefore, HUD is exploring ways to make the HUD Multifamily portfolio more energy and water efficient, in order to reduce O/A’s operating costs and thus HUD outlays. To that end, HUD notes that accurate utility data collection and analysis is important, offering O/As an opportunity to reevaluate property energy use and make efforts to conserve.
On June 20, 2011, then-Deputy Assistant Secretary Carol Galante issued a memorandum providing clarification of utility allowance policy in statute and regulations (see Memo, 7/8/11). However, the memorandum did not identify a methodology for completing a utility analysis to determine utility allowances. Industry groups requested a national standard and tools for conducting a reliable utility analysis. Notice H-2015-04 provides the requested standards and tools.
Multifamily property owners must use the new sampling methodology detailed in the Notice to establish baseline utility allowances for each bedroom size once every third year. O/As must request utility data from either the utility company or tenants for at least the number of units required by the sample size methodology. These data are used to determine the average utility cost for each bedroom size unit.
For the two years after the baseline utility allowance is established, O/As have the option to again obtain data from utilities or tenants to determine utility allowances, or to perform a factor-based utility analysis. A factor-based utility analysis entails adjusting the utility allowance during those two years using a state-specific increase factor called the Utility Allowance Factor (UAF) provided by HUD.
Owners must submit documentation and a request for an increase in utility allowances when changes in utility rates result in a cumulative increase in utility allowances of 10% or more from the most recently approved utility allowance. “Cumulatively” means all utilities for a unit. In other words, if the cost of water increases by more than 10% that increase in combination with another utility, i.e., electricity or gas, might not result in a utility allowance increase greater than 10%.
When an adjustment to the utility allowance results in a decrease, an owner must follow existing regulations regarding notice to tenants. If a utility allowance decrease is greater than 15% of the most recent utility allowance, and that decrease is equal to or greater than $10, the decrease must be phased-in so that no one-year decrease is greater than 15%. After subtracting out any phased reduction in the utility allowance, the resulting figure is multiplied by the UAF during years two and three of the three-year cycle.
Properties undergoing new construction or substantial rehabilitation may establish initial utility allowances based on analysis completed at underwriting though an energy consumption model, including an HFA-approved utility allowance calculator. This option is based on guidance established by the Internal Revenue Service under Section 42 Utility Allowance Regulations Update.
Tenant-specific features include:
- An owner may require a tenant to sign a release for utility data in certain situations, for example, if the utility company requires tenant release of the tenant’s data. The Notice has a sample tenant release form.
- As already required by regulation, households must provide utility documentation requested by the O/A.
- Households must disclose whether they are receiving utility assistance from non-HUD sources. O/As must ask whether a tenant is receiving non-HUD utility assistance at a tenant’s annual income recertification because such assistance is considered income when calculating total tenant payment.
- Failure to comply is a lease violation and may result in termination of tenancy.
The Deputy Assistant Secretary’s memorandum allows owners to request a one-time release from a property’s Reserve for Replacement account of up to $1,000 to fund acquisition, installation, and use of energy data benchmarking and/or reporting software. In addition, HUD may allow a management add-on fee when an O/A collects and reports data. This add-on fee is available only in the year when the new utility allowance methodology described in the Notice is first implemented. The fee is limited to $1 per unit per month up to $1,000 per property.
Notice H-2015-04, “Methodology for Completing a Multifamily Housing Utility Analysis” is at http://portal.hud.gov/hudportal/documents/huddoc?id=15-04hsgn.pdf
HUD modified Attachments A and B after issuing the Notice. The latest version of Attachment A is at http://portal.hud.gov/hudportal/documents/huddoc?id=Attach_A_Sample_Workbook.pdf, and the latest version of Attachment B is at http://nlihc.org/sites/default/files/AttachmentB_Tenant-Utility-Information_070615.pdf.
Deputy Assistant Secretary Metcalf’s Memorandum is at http://portal.hud.gov/hudportal/documents/huddoc?id=Memo_on_UA_Notice.pdf