HUD Establishes Operating Cost Adjustment Factors for 2017

HUD recently published a notice that establishes operating cost adjustment factors (OCAFs) for Section 8 project-based rental assistance contracts with an anniversary date on or after Feb. 11, 2017. OCAFs are annual factors used primarily to adjust the rents for contracts renewed under Section 515 or Section 524 of Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA).

OCAFs are calculated as the sum of weighted average cost changes for wages, employee benefits, property taxes, insurance, supplies and equipment, fuel oil, electricity, natural gas, and water/sewer/trash using publicly available indices. The weights used in the OCAF calculations for each of the nine cost component groupings are set using current percentages attributable to each of the nine expense categories. Average expense proportions were calculated using three years of audited Annual Financial Statements from projects covered by OCAFs. The expenditure percentages for these nine categories have been found to be very stable over time, but using three years of data increases their stability. The nine cost component weights were calculated at the state level, which is the lowest level of geographical aggregation with enough projects to permit statistical analysis.

The best current price data sources for the nine cost categories were used in calculating annual change factors. State-level data for fuel oil, electricity, and natural gas from Department of Energy surveys are relatively current and continue to be used. Data on changes in employee benefits, insurance, property taxes, and water/sewer/trash costs are only available at the national level.

To calculate the OCAFs, state-level cost component weights developed from the data are multiplied by the selected inflation factors. For instance, if wages in Virginia comprised 50 percent of total operating cost expenses and increased by 4 percent from 2015 to 2016, the wage increase component of the Virginia OCAF for 2017 would be 2.0 percent (50 percent times 4 percent). This 2 percent would then be added to the increases for the other eight expense for Virginia. For states where the OCAF is less than 1 percent, the OCAF is floored at 1.

The 2017 OCAFs range anywhere from no change (Hawaii) to an increase of 2.6 percent (West Virginia). For most states, the OCAFs are between 1.5 and 2.2 percent, with a U.S. average of 1.9 percent.