HUD Publishes Operational Cost Adjustment Factors for 2016
On Oct. 13, HUD published the Operational Cost Adjustment Factors (OCAFs) that will go into effect nationwide for eligible multifamily housing projects having an anniversary date on or after on Feb. 11, 2016. These factors are used for adjusting or establishing Section 8 rents under the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA), as amended, for projects assisted with Section 8 Housing Assistance Payments.
OCAFs are percentage adjustment factors that HUD publishes annually for each state. HUD determines OCAFs based on nine categories of operating expenses at FHA-insured projects: wages, employee benefits, property taxes, insurance, supplies and equipment, fuel oil, electricity, natural gas, and water and sewer. To calculate the rent adjustment, HUD subtracts the per-unit debt service cost from the contract rent, then applies the OCAF for the state where the site is located. The national average this year is 2.8 percent (up from 2.1 percent last year), with highs of 3.4 percent in Illinois and New Mexico, and lows of 1.4 percent in Alaska and Vermont.
Auto OCAF
Some contracts are eligible for an Auto OCAF. The Auto OCAF Rent Increase process eliminates the requirement for the owner to calculate its own OCAF rent increase and submit an OCAF Worksheet and a cover letter to the contract administrator during Amend Rents years to obtain an OCAF rent increase. Contract renewals and certain contracts that aren’t eligible to receive an automatic OCAF annually won’t be a part of this automated process.
If your site is eligible for an Auto OCAF rent increase, you should receive a rent adjustment reminder letter approximately 180 days prior to the contract anniversary date. If you intend to choose the OCAF rent adjustment, you should be processing the utility analysis (if applicable) and/or rent comparability study (if applicable). Then, approximately 150 days before the contract anniversary date, the contract administrator will send a letter advising you of your site’s new OCAF increased rents, a new revised rent schedule (Exhibit A), and a request that you certify the accuracy of the debt service and non-Section 8 rent potential amounts used.
Once you have accepted the Auto OCAF rent increase, you will need to execute one Form HUD-92458 Rent Schedules and return it to the contract administrator with your signed certification within 10 days. If your contract allows for budget-based rent adjustments, you will be offered the option to submit a budget-based request instead of returning the Auto OCAF to the contract administrator.
Once you receive the executed HUD-92458 Rent Schedules, you can complete your Gross Rent Change through TRACS. The entire process should be easily completed in time to implement the new rents by your site’s contract anniversary date.
Sites Not Eligible for Auto OCAF
For a site not eligible for the Auto OCAF, it’s up to you to make sure you get your annual rent increase and keep your assistance payments coming on time. To do this, you must submit an OCAF rent adjustment worksheet to HUD or your contract administrator at least 120 days before the anniversary of the renewal date on your contract. If you don’t do this a full 120 days before the anniversary date, you won’t get the rent increase on time.
Sites that aren’t eligible for Auto OCAF are required to submit the OCAF Rent Adjustment Worksheet (HUD Form 9625), utility allowance analysis (if applicable), and a mortgage statement showing current debt service to obtain an annual rent increase.
Some sites have multi-year renewal contracts that let them choose to get budget-based rent increases instead of OCAF rent increases. If your contract gives you the option of getting budget-based rent increases, and you decide to choose that type of increase instead of an OCAF rent increase, follow the procedures spelled out in Section 2-15 of the Section 8 Renewal Guide issued by HUD in August 2015. It modifies some of the requirements detailed in Chapter 7 of HUD Handbook 4350.2.