On September 29, HUD issued a Notice establishing a process to move all Section 202 Program of Supportive Housing for the Elderly PRAC properties into contracts with a 5-year term, phased in over the next three years. HUD’s ability to renewal multi-year contracts, subject to annual appropriations, was authorized by Congress through the Consolidated Appropriations Act, 2022.

In an email about the update, HUD said that the change “will enable a more efficient annual funding process and reduce paperwork burdens for both owners and HUD.” HUD went on to say that “conversion of Section 202 PRACs to five-year renewal terms is the first step in a broader plan for streamlining PRAC renewal and rent adjustment processes.”

LeadingAge had advocated to HUD for streamlined PRAC renewal processes, including multi-year contract renewals.

HUD’s Updated Contract Renewal Language

The general procedures for requesting a PRAC renewal and budget-based rent adjustments are unchanged: In order for the HUD Regional or Satellite Office to adequately and timely process the request for the renewal of a PRAC, the request should be submitted to HUD no later than 120 days prior to the expiration of the contract. Owners must submit an operating budget on HUD Form 92547-A, Budget Worksheet, for all projects with an expiring PRAC.

Notice H-2022-05 also updates the contract renewal procedures and standard renewal contract language for PRACs under the Section 202 Program and Section 811 Program of Supportive Housing for Persons with Disabilities: HUD will utilize updated contract renewal amendment text, included as an appendix to the Notice, when renewing PRACs that expire after December 31, 2022.

Five-Year Contract Renewals for 202 PRACs

Properties meeting certain conditions will be excepted from the annual budget requirement, which mandates that an owner submit an operating budget not less than 30-days prior to the end of each project fiscal year: If an operating budget was submitted by the owner for a given contract year – either in conjunction with a contract renewal or an annual rent adjustment – a second budget submission prior to the end of the project fiscal year is not required. Furthermore, if a property under a multi-year contract does not submit a budget-based rent adjustment request during a given project fiscal year and remains in good standing with HUD, the previously submitted budget will be treated as current and a new budget submission will not be required.

Should any property’s risk rating become “Troubled”, the MOR rating fall below “Satisfactory”, or the REAC score drop below 60, HUD reserves the right to require an owner to submit an updated project operating budget no later than 30-days prior to the end of the project’s fiscal year.

Shifting to End of Month Expiration Dates

For any Section 202 contracts expiring mid-month and renewing for an annual term, HUD will advance the expiration dates to the end of the month in which the ending expiration will occur. For example, contracts expiring March 20, 2023, will be renewed with an expiration date of March 30, 2024.

For contracts that expire in the middle of a month, 5-year renewal contracts will be adjusted so that the contract terminates at the end of the prior month (a 202 PRAC renewing on January 5, 2023 would receive a new expiration date of December 31, 2027). If an owner has a PRAC with a mid-month expiration that is selected to renew for a 5-year term in 2023 and does not wish to end the renewal contract term in the prior month, they may opt to renew instead for a 1-year term that allows for expiration at the end of the current month of expiration and defer signing a 5-year contact to a 2024 (renew August 20, 2023 through August 30, 2024, followed by a 5-year renewal).

HUD will continue to provide funding to all PRACs, including those under one-year or multiyear terms, on an annual basis, in increments estimated to address subsidy needs for a 12-month period.

Phased-In Contract Renewal Extensions

For Section 202 PRAC contracts expiring after December 31, 2022, HUD will assign all contracts to one of three renewal cohorts:

• Cohort 1: Section 202 PRAC Contracts with a Capital Advance Project Number (example: 063-EE000) ending in 0,1,2,3 will sign a 5-year contract at their next renewal (from January 1, 2023, through December 31, 2023).
• Cohort 2: Section 202 PRAC Contracts with a Capital Advance Project Number ending in 4,5, 6, or 7 will be issued an annual contract at their next renewal and a 5-year contract at the subsequent renewal (from January 1, 2024, through December 31, 2024).
• Cohort 3: Section 202 PRAC Contracts with a Capital Advance Project Number ending in 8 or 9 will be issued an annual contract for the next two renewal cycles, and a 5-year contract in the 3rd year (from January 1, 2025, through December 31, 2025).

HUD expects that no later than January 1, 2026, all Section 202 PRACs currently operating under 1-year agreements will be operating under 5-year contracts.

Budget-Based Rent Adjustments for 5-Year Contracts

While supportive of longer contract terms, LeadingAge had advocated with HUD for properties under longer contracts to retain the ability to adjust rents to meet expenses. HUD’s Notice preserves that ability: At the request of the owner, HUD will consider budget-based rent adjustments for projects under a multi-year contract to reflect operating expense changes in the years following the renewal.

Budget-based rent adjustments will be effective on the 1st day of the month in which the contract anniversary date falls. (For example, a contract renewing for 5-years on November 5th , would receive a rent adjustment on November 1st in the four subsequent years if a change is requested by the owner.)

According to the Notice, alignment of rent adjustments to the contract renewal anniversary is a critical factor in HUD’s ability to fund all contracts accurately, efficiently, and on schedule.

The HUD Notice also states that submission of a utility allowance analysis is required annually and may result in an adjustment to gross contract rents even if no change is being made to operating expense amounts.

LeadingAge applauds HUD for taking streamlining actions to improve the Section 202 program. Read HUD’s Notice here.