HUD: Calculating Utility Allowances

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On June 22, 2015, HUD issued Notice H-2015-04, Methodology for Completing a Multifamily Housing Utility Analysis. The Notice provides instructions to owners and management agents for completing the utility allowance required at the time of the annual or special adjustment of contract rents and when a utility rate change results in a cumulative increase of 10 percent or more from the most recently approved utility allowance.

The Notice applies to a number of HUD programs, including:
• Project-based Section 8 (including Rural Housing
Section 515 projects with Section 8);
• Section 101 Rent Supplement;
• Section 236;
• Section 236 RAP;
• Section 221(d)(3) BMIR; and
• All Section 202 and 811 Programs

Owners of multifamily housing properties that receive subsidy assistance, and for which HUD provides a utility allowance, are required to adjust their properties’ utility allowances every year at the time of the annual and special adjustments of contract rents. Utility adjustments must be supported by a utility analysis. Other requirements of the process include:
• Adjustments to the utility allowance must be made
regardless of whether the allowance shows an increase or a decrease;
• A minimum of 30-days notice must be provided to
tenants for any utility allowance decrease;
• Tenants have the right to participate in, and comment
on, a proposed utility allowance decrease; and
• A utility allowance must be increased mid-year when
changes in utility rates result in an increase of 10 percent or more to the allowance from the most recently approved utility allowance.
The methodology dictated by the Notice is premised on calculating average utility consumption based on actual tenant consumption by unit size. It is designed to provide an estimate of reasonable consumption by an energy-
conservative household of modest circumstances.

Property owners must establish baseline utility allowances for each of their bedroom sizes once every three years. For the two years after the baseline is established, owners and agents (O/As) have the option to perform a “factor-based” utility allowance.

The Baseline Analysis
To perform a baseline analysis, the following steps must be taken:
1. Request utility data from either the utility company or the tenant household for at least the number of units determined by the sample size methodology;
2. Determine the average utility cost for each bedroom size; and
3. Recommend this amount to the Contract Administrator (CA) for approval.

A sample format for submissions is contained as Attachment A to the Notice, as is a sample tenant release form.
Properties with contract anniversary dates within 180-days of publication of the Notice (12/19/15) can choose to perform the upcoming annual utility analysis using either the existing methodology or the method outlined in the Notice. If the existing methodology is used, a baseline analysis must be used at the next contract anniversary date.

Properties with contract anniversary dates after December 19, 2015, must perform the upcoming utility analysis using the methodology outlined in the Notice.

Factor-Based Utility Analysis
For the two-years after the baseline allowance is completed, the utility allowance amounts for each bedroom size and each utility at the property can be adjusted by a state-specific increase factor, the “Utility Allowance Factor (UAF),” provided by HUD, in lieu of a baseline utility analysis. The UAF may be found on the HUDUser website.

Utility Allowance Decreases
If the utility allowance decrease that results from the initial application of this Notice would exceed 15 percent of the most recent utility allowance and that decrease is equal to or greater than $10, the decrease must be phased in. No decrease in any one year may be greater than 15 percent. If the decrease is less than $10, there will be no phase-in of the decrease.

Utility Allowance Sample Size
The sample size has been set by HUD based on the number of units of each bedroom size. The Notice outlines the required sample sizes, which range from all units being included when the number of units per bedroom size is 1 -20, to 29 units if the number of units per bedroom size is 389 or more. The Notice provides the specifics of the sample size.

Allowances for New Construction or Substantial Rehabilitation
Properties undergoing new construction or substantial rehabilitation may establish initial utility allowances based on the methodology outlined by the IRS for the establishment of allowances for the Low-Income Housing Tax Credit program.