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Calculating Utility Allowances
Michael Kotin
Kay-Kay Realty Corp.2008
Concept of a Utility Allowance
Utility Allowances must be computed for all properties where some or all of the utilities are not provided by the landlord (Owner).
Existing Law – No change.
Concept of a Utility Allowance
Method for determining utility allowances are provided in Treasury Regulation 1.42-10. These Regulations have been in place for a long time. However, they were modified effective as of 29-Jul-08.
Concept of a Utility Allowance
An allowance must be provided for any of the following eight utilities if not paid directly by the tenant to the utility:
Heat HVAC Cooking“Plug ins” Water SewerTrash Hot Water
Existing Law – No change.
Methods for Determining Utility Allowances
New regulations clarified and confirmed generally consensus that no allowance is required for the following services:
Telephone CableInternet
Clarified Existing Law.
Methods for Determining Utility Allowances
Utility allowance calculation must follow a “waterfall” based upon the property’s potential participation in other Federal programs.
Existing Law – No change.
Methods for Determining Utility Allowances
1. If property has RHS 515 subsidy on any units (even if not 100% of the units), the utility allowance determined between the owner and the project’s 515 administrator must be used on all units.
Existing Law – No change.
Methods for Determining Utility Allowances
2. If property has a project-based Section 8 contract on any units (even if not 100% of the units), the utility allowance determined between the owner and the Section 8 administrator must be used on all units.
Existing Law – No change.
Methods for Determining Utility Allowances
3. If neither (1) nor (2) apply, in the absence of any additional documentation or effort, the utility allowance as prepared by the local PHA having jurisdiction over the property for portable Section 8 vouchers must be used on all units.
Existing Law – No change.
Methods for Determining Utility Allowances
4. A property may elect to obtain an alternate utility allowance instead of using the PHA table. Applies only to tenants who do not receive Section 8 subsidy. If obtained, it must be used on all non-Section 8 tenants. The property would, essentially, have two utility allowances – one for Section 8 residents and another for non-subsidized tenants.
Existing Law – No change.
Permissible Alternate Methods for Determining Utility Allowances
If the property wishes to obtain an alternate utility allowance, there are now 4 options. Previously, there had been only 1.
New Law.
Permissible Alternate Methods for Determining Utility Allowances
Option A:
The property may obtain a written estimate from the local utility company providing service to the property.
Existing Law – No change.
Permissible Alternate Methods for Determining Utility Allowances
Option A:The allowance must come directly from
the utility company.
The allowance must pertain to the property using the allowances (no “sister” properties, phases, etc.)
Existing Law – No change.
Permissible Alternate Methods for Determining Utility Allowances
Option B:The state agency responsible for LIHTC
administration may issue allowance for tax credit properties under its jurisdiction. These tables need not be identical to the PHA tables and may take age of the property and energy efficiency into consideration.
New Law.
Permissible Alternate Methods for Determining Utility Allowances
Option C:
The owner may self-compute the utility allowance using HUD’s utility schedule model.
New Law.
Permissible Alternate Methods for Determining Utility Allowances
Option C:If an owner self-computes, the
allowance and supporting documentation must be submitted to the state agency responsible for LIHTC administration for review and approval before it may be implemented.
New Law.
Permissible Alternate Methods for Determining Utility Allowances
Option D:An owner may engage a professional
energy consumption and modeling firm to determine property-specific estimates. Guidelines to be published to specify the model to be used and the qualifications of the firm providing the services.
New Law.
Other items of Note.
Language modified to state:
If the cost of any utility for a residential rental unit is paid directly by the tenant(s), and not by or through the owners of the building…
New Law.
Other items of Note.
Such language eliminates the loophole which some owners have claimed which permitted an owner to bill a tenant for “RUBS” in excess of the allowance provided, thereby increasing the amount of net revenue collected.
Clarified old law?
Other items of Note.
Example: PHA table provides an allowance of $25 for water
and sewer. Tenant is billed “RUBS” at $30.
Note that the fact that water and sewer is actually running $30 is irrelevant.
Clarified old law?
Other items of Note.
Example: PHA table provides an allowance of $25 for water
and sewer. Tenant is billed “RUBS” at $30.
Allowance is determined by treating RUBS in the calculation of gross rent paid and treating water and sewer as if provided by the owner.
Clarified old law?
Other items of Note.
Example: PHA table provides an allowance of $25 for water
and sewer. Tenant is billed “RUBS” at $30.
No benefit to a RUBS system (as opposed to simply raising the rent and including water and sewer) except from a marketing perspective.
Clarified old law?
Other items of Note.
Same concept applies to sub-metered properties – even if amount billed is based upon actual usage (as opposed to RUBS which is based on unit size and/or family size).
Clarified old law?
Other items of Note.
Properties which are sub-metered have utilities which are in the name of the owner. Owner pays the utility company and then “rebills”. This meets the definition of running “through” the owner – even if the billing process is contracted out to a third party.
Clarified old law?
