these costs could be covered by reserves, and the cost of fuel and utility services.
Now there is nothing to say that instead of setting the rents as a fixed amount to include heat and utilities, the rent might have been set at a lower level, excluding them and having the tenants pay for their own heat and utilities, as they do for telephone service. Had that been the arrangement, the tenants' dispute would have been with the utility companies and the Organization of Petroleum Exporting Countries, which first embargoed oil production and then multiplied the price, instead of with HUD.
Much is made of the argument that in adversary, adjudicative evidentiary hearings, each tenant could provide evidence of financial means on an individual basis. The futility of this kind of approach is shown by the fact that unlike the low-income program involved in Peoples Rights, the senior citizens and handicapped program contains no provision for setting rents within a range between a "basic charge" and 25% of the tenant's income.
Beyond that, those tenants on social security have received increases compounded to nearly 48% since 1969 (16% on 1/1/70; 10% on 1/1/71; 4% on 9/1/72; 7% on 3/1/74; and 4% on 6/1/74). Others may be eligible for rent supplements, and still others may have income from employment. To illustrate the last item, it is shown that the plaintiff Ambrose, who claims her primary source of income to be her "fixed social security grant", is also working and earning $50 a week or about $2,500 a year, which is to be compared to her entire annual rent of $1,404., after the increase.
Yet, as noted above, the program involved here contains no provision to alter the payments to reflect the tenant's means, nor to provide the funds to meet the costs not covered by the rents.
Whatever else may be said about the program, it does provide that the borrowed money be repaid with interest. The terms are very favorable, and in the aggregate they do provide to the senior citizens and the handicapped the kind of mortgage loan terms that they could not obtain in the open market. This is as far as the program purports to go, with further support from the contractual obligation to secure the benefit of local tax stability. Hearings by HUD/FHA can accomplish nothing in terms of rates for water, electric, gas or fuel oil. The tenants can participate in the regulatory hearings by the Public Utility Commission, and market prices for fuel oil are widely published but not regulated at the retail level.
For all these reasons, it is concluded that the plaintiffs' motion for summary judgment must be denied, and the corresponding motions by the defendants granted.
The long-term effect of this disposition in no way affects future rents and proceedings. The supervisory function here is exercised by HUD/FHA through the review of annual budgets before the fact and of certified annual audit reports after the fact. Since there is no equity interest or retained earnings to absorb fluctuations in costs and revenues, and no interest-coverage multiple for like purposes, the non-profit corporation must make use of reserve funds to achieve the purpose. To the extent that actual experience, as reflected by the certified audit reports, discloses that the actual revenues were more than needed to meet actual expense, the overrun can easily be corrected in the ensuing budget by appropriate adjustment to the rents. This approach is probably the only feasible and practical one for the supervision and regulation of a non-profit project. It is closely analogous to the method by which many kinds of insurance, such as automobile and workmen's compensation, are funded by premiums calculated on a conservative basis to assure the ability to pay claims and expenses, with adjustments after the fact in the light of experience by a return of part of the premium (usually misnamed a "dividend").
Beyond that, and following the statutory construction of a different statute in Thompson v. Washington, 162 U.S. App. D.C. 39, 497 F.2d 626 (CA. DC-1973), and in Marshall v. Lynn, 162 U.S. App. D.C. 56, 497 F.2d 643 (CA. DC-1973), HUD has promulgated new procedures on a prospective basis, published in 39 F.Register 32736. These call for notice to tenants of any intent to seek approval of rent increases, an opportunity to submit written comments, and a statement of the reasons for approval or disapproval of the request. See Paulsen v. Coachlight, etc., 507 F.2d 401 (CA. 6th-1974). These regulations will accomplish in more formal fashion the same end that was accomplished by informal procedures here.
The foregoing opinion constitutes the court's findings of fact and conclusions of law.
So ordered. No costs.
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