Basics of utility allowance calculations
For OHCS HOME, LIHTC and grant programs
Basic Utility AllowanceConceptDetermining the correct UA to useLIHTCSubMeteringHOME Pre8/23/2013 and HOMEPost8/23/2013Responsibilities, Implementation and DocumentationNon-Compliance and Tips to remain in ComplianceExercise
What is a Utility allowance?
Ownersof properties financed withmost federal and state funding sources mustlimit rents and incomesto nomore than the Area Median Gross Income (AMGI)annually aspublished by HUD.Anallowance for thecost ofany utility, other than telephone, cable television, or Internet, paid directly by the tenant and not throughthe ownerof the building is included in the computation of gross rent.
What is a utility allowance continued
Whenworking with utility allowances, owners/agents must only countthe utilitiesfor which the household is responsible for paying.Ifthe owner pays all of the utilities, than theutility allowanceis zero.Themaximum rent that may be paid by the tenant must bereducedby the utility allowance.
Determining the correct UA to utilize
The Utility Allowance method of calculation that can be used is based on the specific funding at the property. When reviewing the UA it is important to know the funding source(s) involved and how they may or may not work together.LIHTCHOME (Pre or Post 8/2013 funding)Project Based Sec 8 or RDHCV Section 8 households
LIHTC with mixed funding pbv/hcv
LIHTC Property UA’s are calculated on a building by building basis. It is possible for different buildings to have different UA’s depending on funding sources involved.RuralHousing Service Properties (Rural Development or RD) -Buildingsreceiving assistance fromRHS mustuse the allowances provided by RHS for all rent restricted units in thebuildingHUD Regulated Properties-Buildingsthat receive HUD rental assistance or are required to have rentsand utilityallowances reviewed annually by HUD must use the HUD provided utility allowance for allrent restrictedunits.Ifbuildings are restricted by both RHS and HUD, the RHS numbers must be used forthosebuildings.Tenants Receiving HUD Rental Assistance-Unitshousing tenants receiving HUD tenant basedrental assistancemust use the applicable PHA utility allowance established for the Section 8 existinghousing program.
Lihtc ua methods no pbv hud/rd
PublicHousing Authority (PHA) Utility Allowance-This is the most common utility estimate methodused byLIHTC properties that are not regulated by RHS or HUD. Most PHA allowances are published bythe HousingAuthority for each County on at least an annual basis. If multiple local PHA’s serve one area, ownersmust choose the PHA that serves the property location. Each PHA is required to review andupdate utilityallowance information on an annual basis and publish new calculations if there has been a tenpercent ormore (either higher or lower) change since the utilityschedulewas last revised.UtilityCompany Estimates-Utility Company estimates may be obtained in writing from a localutility provider. This method requires written documentation from the utility company stating that the ratesare “estimates for this specific property”.Must be on the Utility Company letterhead and list specific amounts for each bedroom size. Mostutility companies base their estimate onactual consumptionand require signed authorizations of release of information from each tenant living atthe property.
LIHTC UA no pbv hud/rd continued
3.AgencyEstimates-OHCS does not calculate at this time4.HUDUtility ScheduleModel- (HUSM)Abuilding owner may calculate a utility estimate using the “HUDUtility ScheduleModel” that can be found on the LIHTC pageat http://www.huduser.org/portal/resources/utilmodel.html. Owners using this model must maintainand providedocumentation providing the source and content of all factors entered into the modelspreadsheet. Ratesinput must not be older than the rates in place 60 days prior to the date the utility allowancewill change.5.EnergyConsumption Model-A building owner may retain the services of aqualified professional or properlylicensed engineer to calculate utility allowances based on an energy consumption model (also knownas an energy and water/sewage consumption and analysis model).The calculator must be pre-approved by OHCS.
Sub-Metered Utilities are acceptable to be used when calculating a utility allowanceas longas the individual unit is metered and the utility costs paid by the tenantare based on actual consumption.In thiscase the IRS has stated that utility costs paid by a tenant and based on actual consumption are to betreated aspaid directly by the tenant. Utility rates charged to the tenant in a sub-metered unit must be limited tothe utilitycompany rates incurred by the manager orowner.(Ratio Utility Billing System)The RUBS methodis based on an allocation formula which takes into consideration the number of occupants, unitsquare footage, number of bathrooms, and number of water heaters.The RUBS method is not acceptable by theIRSfordetermining a utility allowances as the allocation method is not based on tenant actual consumption. Buildingsthat use the RUBS method must consider the cost paid by the tenant as a non-optional fee and thefee mustbe included in the maximum allowable rent calculation.
Pre and post HOME ua calculations
Pre final rule Funded before 8/23/13
Can use all UA calculation methods as approved by PJMust be based on actual consumption
Post final rule funded on/after 8/23/13
Can use all UA calculation methods as approved by PJwith exception of the PHA.Cannot use PHA.Must be based on actual consumptionEmphasis on HUSM
Utilityallowancesmust be reviewed annuallyto ensure that allowances used are comparable to what theLIHTC tenantis actuallypaying.Ownersmay choose to review allowances more than once per year however,each timea review is completed, whether a mandated annual review, or a self-imposed review, owners andagents havea maximum of 90 days after the new allowances are determined to implement them into themaximum allowablerent computation.
90 day period implementation
The 90 dayimplementation periodbegins for:PHA-When the PHA makes the revision availableUtilityCompany-withreceipt date of the new informationHUDModel-the date entered as the form date on the HUDform52667EnergyConsumption Model-60 days after the end of the last monthofthe12-month periodusedto computethe estimate
ObtainedUA from PHA-If the Owner obtained a utility allowance from the PHA the ownermust makethe utility allowance calculation notification available to all tenants at the beginning of the90 dayperiod.ObtainedUA from utility company, using the HUD Model, or Energyconsumption model-the ownermust submit copies of the utility calculations with supporting documentation to OHCSand makethe calculation available to all tenants in the building at the beginning of the 90 day period. Must have had method approved previously/consecutively if changing from PHA method.OHCSmay require additional documentation from owner during the 90 day period.
Owners are not prohibited from changing methods used for calculating a utility allowance in order tomost accuratelycalculate the utility allowance.OHCSmust be notified of the change per thenotification requirementslistedon the previous slideand must approve the provider of the energy consumptionmodel calculationif applicable.The change proposed must meet all funding source restrictions at the property.
Cost of calculation and notification
Cost of estimates:The building owner is responsible for the costs incurred in obtaining the utility allowance calculations.The buildingowner must also pay the cost of notification to the tenants and OHCS.
Proof of notification
UA calculation documentation mustbe kept on file in orderto provideproof of compliance during the entire credit period and made available to the IRS or OHCS on request.Owners or agents must submit the utility allowance documentation paperwork to OHCS each year withthe CCPC, at inspection, and when requested.Theinformation must be made available to all tenants atthe beginningof the 90 day period before the new utility allowance can be used to calculate rent.Proofofresident notificationshould be kept on file for OHCS review.
UA common Non-Compliance
The appropriate utility allowance is notused for funding source involvedThe utility allowance is not calculated properlyRents are not reduced when the tenant is paying for the utilityOwner/agent did not review the basis on which the utility allowance was established at leastonce duringthe calendar yearOwner failed to update rents for a UA change within the 90 day periodOwner failed to maintain adequate documentation regarding the computation of utility allowances.*Please note that withoutproof of the UA or how it was calculated, there is no way to correctly calculate the rent.
Consequences of non-compliance
LIHTC:Oncea unit is determined to be out of compliance with the rent limits and it is determined that a tenanthas overpaidrent for even one month, the unit ceases to be a low-income unit for the remainder of the ownerstax year. An owner cannot avoid the disallowance of the LIHTC by rebating the excess rent or fees to theaffected tenants. OHCS will require that the over charged rent is refunded; however, this will not bring the unit backinto compliance. Properties in first 15 will be subject to recapture via IRS form 8823.HOME and Other funding sources:At a minimum OHCSwill require that the over charged rent isrefunded retroactively. The status of the Owner and/or Agent may be considered to be at risk
Tips to remain in compliance
Check, calculate and change utility allowance at least once per calendar yearasapplicableMake sure that the utility allowance used is a method approved by OHCS and the IRSReduce rents within time frame allowed if applicableConsider maintaining a “buffer” below maximum rents so that a change in utility allowance doesnot puttheproperty rentsout of complianceMaintain all documentation required to show proof of complianceSubmit required documentation to OHCS asrequiredNotify tenants of utility calculations when requiredKnow the difference between actual sub-metering and RUBSObtain OHCS approval before changing methods of calculation
Tips to remain in compliance continued
Know the requirements for all funding sources at the propertyWhen utilizing the ECM make sure that you are using a qualified calculator or that your calculator is approved by OHCS before modeling the property.Do not obtain an ECM for any LIHTC building that contains one or more project based units.If utility costs decrease the rents should not automatically increase. OHCS approval must be received before raising rents.Whenin doubt talk it out with OHCS before implementingchange. Contact JenniferMarchandor AllenMcCarttwith questions or concerns!
Thank you for attending
Onbehalf of the whole OHCS Compliance and Asset Management team we thank you forattendingtoday! Pleaselet us know how we can help you maintain compliance.JenniferMarchandMultifamily ProgramCompliance TechnicalAdvisor503-986-2031 VoiceJennifer.C.Marchand@Oregon.gov(email)Oregon Housing and Community Services725 Summer Street NE, Suite BSalem, Or. 97309-0409http://www.ohcs.oregon.govIn some cases asking for advice is better than asking for forgiveness!