HUD has provided updated information to HUD Notice H-2015-04, Methodology for Completing a Multifamily Housing Utility Allowance. The additional information relates to six areas of the original HUD Notice.
Baseline Analysis
Owners/Agents (O/A) are required to submit documentation to HUD or the Contract Administrator (C/A) when requesting approval of a UA. Backup information could include:
- Copies of tenant data received from utility providers; or
- Copies of printouts indicating a summary of monthly data if the tenant was able to obtain data online from their utility provider for the previous 12-months, or ten-months as the case may be; or
- If the O/A obtained actual monthly utility bills from the tenant, the O/A may submit a spreadsheet summarizing an average of the monthly bills. Actual utility bills may be requested at the discretion of HUD/CA. These bills, regardless of whether they are provided to HUD/CA, must be retained by the owner for three years;
- At the discretion of HUD/CA, there may be cases where a combination of the information noted above will have to be provided.
The new guidance also establishes a limit to the age of data used in the analysis. The utility analysis should be prepared four to six months prior to the anniversary date of the contracts, with submitted data covering the prior 12-month period. Thus, at the time of contract renewal, the data used in the analysis to support the UA should generally be no more than 18-months old.
Release Forms
HUD has clarified that refusal by a tenant to sign a release form for release of utility information can be considered a lease violation. According to HUD, a tenant refusal to sign a release form constitutes material noncompliance with the lease agreement, as defined in the lease agreement, and repeated violations can result in termination of tenancy. Further, for properties other than 236 and 221(d)(3), not signing the release form is a violation of the regulatory obligations of the tenant found at 24 CFR 5.659(b)(1).
To add clarity to this requirement, HUD encourages owners to include language in their rules and regulation (House Rules) advising tenants of their obligation to sign release forms and to provide any information deemed necessary to administer the program, or face possible termination.
Utility Assistance as Income
HUD also provided guidance that is applicable only in California. Some utility bills in CA include a “climate credit,” and the question has been raised regarding whether or not this credit should be included in the UA calculation. HUD’s response is no – the California Climate Credit should not be used by owners in calculating utility allowances and should be removed from the cost totals. This is because, while the California climate credit is delivered to California residents through their utility bills, the California Public Utilities Commission (CPUC) has held that the climate credits “should not be considered a reduction in the individual customer’s electricity bill.” Instead of being used to offset utility allowances, California climate credits should be considered “income” for the purposes of recertification. This guidance applies only to the California Climate Credit. Questions relating to similar state or local benefits will be reviewed by HUD on a case-by-case basis.
The Factor-Based Utility Allowance Analysis
Going forward, Utility Allowance Factors (UAF) will be effective on the same date as the OCAF, which is typically February 11 of each year. Factors for 2017 will be release at the same time as the FY 2017 OCAF.
Also, the UAF will not automatically be applied to the prior year UA. HUD systems will not automatically apply the UAF to the prior year UA, nor is it the CAs responsibility. UA regulations require the owner to “submit an analysis of the project’s utility allowances” for review and approval each year. This requirement extends to the factor-based years in which an owner will show how the factor was applied and identify the resulting UA recommendation.
Utility Allowance Decreases – Phase In
O/As are required to phase-in UA decreases, but only in the initial implementation of the new methodology, and only if the decrease exceeds 15% AND is equal to or greater than $10.
UA phase-in eligibility is determined at the time of the first baseline analysis after implementation of Housing Notice 2015-04 only. At this time, the total decrease should be examined to determine if the decrease is more than 15% or $10 from the last UA provided.
Following is an example of how a three-year phase in would be applied:
Year One
- Current UA: $90
- Decrease in First year: 40%
- New Calculated UA: $54
- Year one UA: $77 (with a phase-in cap of 15% each year, the new capped UA is $77 ($90 minus 15%). This is the UA that is implemented in year one.
Year Two
- Second year UAF (applied to uncapped new UA): +2%
- New Actual UA: $55 ($54 + 2%)
- Tenant’s second year capped UA: $65 ($77 minus 15%) – (The UA that is implemented in year two is $65 even though the calculated UA is $55).
Year Three
- Third year UAF (applied to uncapped second year UA): +2%
- New actual UA: $56 ($55 + 2%)
- Tenant’s third year UA: $56 (implement the actual calculated UA as it is less than 15% lower than the prior year’s UA).
In this example, the phase-in occurs over two years of the cycle (baseline year, plus first factor-adjusted year). In each of the factor-adjusted years, the factor is applied to the previous year’s calculated UA, i.e., what the UA would have been if there were not a cap applied because of the requirement to phase it in. After that, there is a new baseline and phase-in requirements no longer apply.
Miscellaneous
HUD has clarified that a Section 811 Project Rental Assistance (PRA) property with a Rental Assistance Contract (RAC) must separate the PRA units from the project-based units when completing the utility analysis. In other units, projects of this type will conduct a separate analysis for the PRA units and the RAC units.
Owners and Agents should review this additional information in conjunction with a review of HUD Notice H-2015-04, issued on June 22, 2015. These requirements apply to the following programs:
- Project-based Section 8 (including Rural Housing Section 515 projects with Section 8);
- Section 101 Rent Supplement;
- Section 202/162 PAC;
- Section 202 PRAC;
- Section 202 SPRAC;
- Section 811 PRAC; Project Rental Assistance (PRA);
- Section 236;
- Section 236 RAP; and
Section 221(d)(3) BMIR.