HUD Issues New 2014 Operating Cost Adjustment Factors

On Oct. 2, HUD published new Operating Cost Adjustment Factors (OCAFs), which will be effective for project-based assistance contracts for eligible multifamily housing projects having an anniversary date on or after Feb. 11, 2015. OCAFs are annual factors used to adjust Section 8 rents renewed under Section 524 of the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA). In other words, under certain Section 8 contract renewal options, HUD uses OCAFs to increase Section 8 contract rents annually for sites with multiyear contracts.

Although an OCAF rent increase doesn't affect the resident's portion of the rent, it increases the amount of assistance HUD will pay the site. To calculate the rent increase, HUD subtracts the per-unit debt service cost from the contract rent, then applies the OCAF for the state where the site is located.

HUD determines OCAFs on a state-by-state basis using weighted average cost changes in nine cost categories that include wages, employee benefits, property taxes, insurance, supplies and equipment, fuel oil, electricity, natural gas, and water/sewer/trash, using publicly available indices.

Average expense proportions were calculated using three years of audited annual financial statements from projects covered by OCAFs. According to HUD, 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 revised OCAFs range from a low of 1.4 percent for Michigan and a high of 2.7 percent for Rhode Island and Louisiana, with a U.S. average of 2.1 percent.