Notice is hereby given that I an this date filing, with the Area Rent Director at the address indicated in the upper right-hand corner of this form. a petition in connection with the above described housing accommodations. I have posted and will keep posted for 15 days at for your inspection and examination, a copy of the petition and accompanying documents filed with the Area Rent Director. Rent Procedural Regulation 2 requires that if you desire to make any re. sponse to the documents which have been posted, you must do so within the next 7 days. Any comments which you wish to make must be prepared in writing in triplicate. An original and one copy must be sent to the Area Rent Office, and one copy must be mailed or delivered to your landlord. In the original and copy which you submit to the Area Kent Office you must certify that you have mailed or delivered to the landlord a copy of your response. GPO-ONE PIT Apartment house building in Boston, Mass., containing 27 housing units Total of column 4, pt. D. Pt. E... Total of lines 2 and 3. Total of pt. B, after proper selection Total of column 5, pt. C. Line 4 minus line 10. From special schedule attached to Line 11 multiplied by 100 percent Line 7 divided by 0.75 for "large". Line 17 minus line 4.. If line 14 is less than 15 percent skip line 15. OFFICE OF THE HOUSING EXPEDITER Washington 25, D. C. JULY 3, 1950. INTERIM MANUAL RELEASE 2-25 (SUPPLEMENT No. 4 REVISED) (This release replaces Supplement No. 4, corrections thereto, and Supplement No. 5. Remove them from all Manuals. It also modifies sec. 2-25. 1b.) Subject: New Schedule for 5 (a) 18 adjustments in high expense-ratio cases. Attached to this release is a schedule to be followed in making rent adjustments under section 5 (a) 18. REASONS FOR THE NEW SCHEDULE OF RENT ADJUSTMENTS The 25 percent net operating income ratio set forth in the regulation was derived from a survey of the operations of a large group of properties in the 8 years 1939-46. This survey showed that there normally exists considerable variation among individual properties in respect to the ratio of net operating income to total income. The 25 percent ratio represents the median of all the properties covered by the survey-that is, half the properties earned higher ratios and half earned lower ratios. The survey also showed that there were some properties for which considerably lower ratios of net operating income were normal. It was determined in April of 1949, however, that any special provision for adjustments in these cases should be withheld until experience could show whether the actual occurrence of such cases would be of sufficient number and significance to warrant special treatment. Experience has since shown that special consideration must be given to these cases. By applying the 25 percent formula to all properties without exception, we have found that the adjustments in some cases will yield to the landlord a net operating income far in excess of that which he normally received and in excess of a fair net operating income within the meaning of the act. At the same time, such adjustments result in great injustices to the tenants in that they are required to pay rents out of all proportion to the rental value of the units they occupy when compared with the rents for comparable controlled housing accommodations. The result is that inequities are created, rather than corrected. 1 This discussion is expressed in terms of the ratio for large buildings, but it is equally applicable to small buildings. The use of the new schedule of rent ad ustments will produce more realistic adjustments in these cases. The 25 percent formula will continue to apply to buildings which are normally in the standard range of operation. Under the schedule, however, a lesser percentage net operating income will apply to buildings which normally operated at a lower rate of profit. Thus, in each case a rent adjustment will be provided to yield a net operating income that is appropriate and fair for each building. In each case, however, the adjustment will be sufficient to provide a margin of net operating income over all operting expenses, and depreciation. EXPLANATION OF THE NEW SCHEDULE OF RENT ADJUSTMENTS On the basis of the survey referred to above, the Housing Expediter has determined that properties which normally had a net operating income of less than 15 percent that is, more than 10 percent below the median-were below the standard range of operation. It is necessary, therefore, to determine in each individual case whether the operation of the property was within the standard range at the end of the survey period. Inasmuch as the D-105 petition gives the current income and current expenses of the property, it is necessary to convert these figures to make allowance for increases in income and expenses since the survey period. The income is converted by deducting from the current income all financial adjustments and voluntary lease increases-and this converted income is called base income. Expenses are converted on the assumption (based on the Agency's experience) that current expenses are 10 percent higher than expenses at the end of the survey period; therefore, to convert, current expenses are multiplied by ten-elevenths and this figure is called base expense. If it is found that the "base net operating income" is 15 percent or more, the property will be given an adjustment which will result in a current net operating income of 25 percent. If the "base net operating income" is less than 15 percent, the attached schedule provides for an adjustment which will yield a current net operating income of somewhat less than 25 percent. In such cases, however, the adjusted rents will be at least 25 percent higher than the base rents. As indicated above, base expenses are used instead of current expenses in order to make allowance for increases which have generally occurred since the end of the survey period, and base income is used instead of current income in order to exclude increases in income due to leases and other financial relief. An additional reason for using base income is that the use of current income might discriminate against those landlords who have not received previous financial relief. The following example will illustrate the necessity for using base income, rather than current income, for purposes of determining the percentage of net operating income to be yielded by the adjustments to be granted. 1 Includes $975 hardship adjustment. $2,581.00 $2,581.00 25.81 25.81 2 Taken from column 6 of Schedule for Large Structures which specifies a new net operating income of 21.31 percent where income ratio is 10 percent. The schedule applies because the income ratio was below 15 percent (standard range). Since the income ratio of 18 percent is within the standard range, the schedule does not apply. You will note that if the current income were used, property A would receive an adjustment yielding a 21.31 percent net operating income, whereas property B would receive a 25 percent net operating income merely because its maximum rents were previously increased by a hardship adjustment. By using base income, both properties will receive adjustments to yield a 21.31 percent net operating income. You will note further that by using base income, property A receives a rent adjustment of $2,581 or 25.81 percent over its current income, whereas property B will only receive an adjustment of $1,606 or 14.63 percent over its current income, because its base maximum rents had already been increased $975 by a hardship adjustment. However, in both cases the base maximum rents are increased $2,581 or 25.81 percent. The need for using "base income" becomes more obvious when we realize that we will soon be receiving repeat petitions under 5 (a) 18, as this section has been in effect for more than a year. If we used current income the properties which received a prior rent adjustment under 5 (a) 18 would be given more favorable treatment than those which did not receive such an adjustment. METHOD OF PROCESSING 1. No change is made in the present Manual instructions governing the determination of expense items and annual income. 2. Form D-107, which has been revised in accordance with the attached sample, should be completed through line 9. If line 9 is 25 percent or more for small buildings (20 percent for large buildings), the petition should be denied. If line 9 is less than these percentages, the computations on the work sheet should be continued. 3. The figure on line 10 shall be obtained by reviewing the registrations and statutory leases for the building to ascertain the amount of all financial relief which has been secured on the units in the building. "Financial relief" includes increases in rent due to statutory leases, adjustments in rent under sections 5 (a) 11 (ii), 5 (a) 12 on or after August 22, 1947, 5 (a) 16, 5 (a) 17,5 (a) 18 and 5 (a) 19, increases in rents on units which have been decontrolled, and area-wide increases. 4. Lines 11 through 14 shall be computed according to the instructions on the work sheet. If line 12 exceeds line 11, be sure to mark "Loss" on lines 13 and 14. 5. If the income ratio on line 14 is within the standard range of operation, the new annual income to be established will be computed on line 15. 6. If the income ratio on line 14 is below the standard range of operation-or is a loss-the new annual income to be established will be computed on lines 16 and 17. The percentage increase to be used on line 16 in these cases will be secured from the Schedule that is attached to this interim Manual release. 7. If the "New annual income to be established" as determined on line 15 or line 17 is less than the present annual income shown on line 4, the petition must be denied. The reason for denial in such cases is that the amount of financial relief which has already been secured on the property is greater than the amount of relief to which the property is entitled under the fair net operating income provision of the regulation. 8. If there has been no previous financial relief on any controlled unit, the percentage on line 19 shall be applied to each controlled rent. 9. If there has been previous financial relief on controlled units, but there is no uncontrolled or decontrolled rental income and no "Other income," the dollar amount on line 18 shall be distributed in accordance with section 2-25.15 of the Manual. 10. If there has been previous financial relief on controlled units and there is uncontrolled or decontrolled rental income or "Other income," the dollar amount on line 23 shall be distributed in accordance with section 2-25.15 of the Manual, with paragraph A-4 revised to read as follows: 2-25.15 A-4. If there are uncontrolled commercial or residential units in the property or if there is "Other income," determine the percentage which the total of the present scheduled rents of the controlled units is of the total present annual income of the entire building. The total increase in annual income shown on line 18 of work sheet, Form D-107 (Revised June 1950), shall be multiplied by this percentage to determine the dollar adjustment that is to be made in the rents of the controlled units. Distribution centers are being shipped a limited supply of Form D-107. In requisitioning your supply of these forms, please make the quantity consistent with your 5(a) 18 incoming workload. We must hold our expenses for printing to a minimum. FILING INSTRUCTIONS File this interim Manual release with chapter 2-25 until the printed amended chapter is issued. STATEMENT OF WALLACE SAVAGE, MAYOR OF THE CITY OF DALLAS, TEX. Mr. SAVAGE. Mr. Chairman, I do appreciate the opportunity of being permitted to come here to speak to you about decontrol. I was in New York, attending the conference of mayors, when I heard that there was at least one suggested bill which would give authority to Housing Expediter to recontrol areas. The CHAIRMAN. That is not the bill as introduced. Mr. SAVAGE. All right, sir, then I misunderstood that. That was the background of my particular interest in appearing before you this morning. Also I understand that because Dallas is one of the major cities to have been decontrolled, that the experiment there has been one in which the committee was interested, and I thought perhaps that, as the chief elective representative of the city I might be able to give you a more direct report than almost anyone else |