1. (1) Housing companies are required to prepare budgets in accordance with schedules and accounting categories, and in formats, as specified by the division. In addition, to provide for the uniform calculation of certain items in companies' budgets, the division establishes standards and formulas for their computation and/or projection.
2. (2) The computation of certain major items of income and obligations is fixed by other means. Calculation of required debt service and debt service arrears is based on the debt service schedule(s) established pursuant to the terms of the mortgage(s). Other expense items, such as real estate taxes and water and sewer charges, are based on established rates and projections available from the municipality or other appropriate governmental entity.

3. (3) There are three basic categories of housing company income: rental income, subsidy income, and other income.

   1. (i) Rental income consists of:

      1. (a) the scheduled rents for all residential apartments;
      2. (b) the scheduled rents based upon leases for commercial space and professional apartments; and
      3. (c) the scheduled rents based upon a lease of the net number of rented parking spaces.
   2. (ii) Subsidy income consists of subsidy payments paid to or on behalf of the housing company by the Federal, State or local government.

   3. (iii) Other income consists of:

      1. (a) charges for tenants' or cooperators' use of air conditioners and appliances; and

      2. (b) surcharge income, interest income and miscellaneous income, which are projected based upon the prior year's experience unless, upon assessment by the division of changed conditions, an adjustment to such rate or amount is found to be warranted.

         (b) Maintenance and operating expenses.

         Projections for each category of expense shall be made by applying adjustments for inflation to current expenditures, as revised pursuant to section 1728-1.2(a)(2) of this Subpart. The inflation adjustment factors, which shall be applied to each applicable individual category of expense, are derived from the United States Department of Labor Statistics New York-Northern New Jersey Consumer Price Index for all Urban Consumers, unless otherwise specified in this section or as determined by a supply or service contract, for the period of said contract.

         (c) Fuel oil.

         Projected costs of fuel oil will be calculated and revised monthly by the division based on an analysis of oil prices and/or oil price futures.

         (d) Electricity, gas and steam.

         Costs for these utilities shall be based on actual current expenses, adjusted by amounts to cover any rate adjustments which have been granted or are reasonably expected to be granted by the New York State Public Service Commission.

         (e) Contingency reserve.

         Payments into the contingency reserve shall be computed according to the following schedule:

         Current balance as percentage of annual residential rent roll	Annual addition to reserve
         Less than 10 percent	3 percent of annual rents
         10 percent up to 15 percent	2½ percent of annual rents
         15 percent up to 20 percent	2 percent of annual rents
         20 percent up to 25 percent	1 percent of annual rents
         25 percent or more	No additional payments

         If a company has no vacancies for the last two years and currently has a waiting list for all size apartments, the above requirements will be reduced by one half of one percent in each category. Funding of the contingency reserve shall not be required if there are debt service arrears.

         (f) Replacement reserve.

4. (1) Current. Funding of the replacement reserve shall be based upon the division's analysis of a study of the housing company which shall be conducted by a qualified technical consultant. The requirements for the study will include a detailed physical examination of the housing company and preparation of a schedule of anticipated replacement needs and their cost. Pending the division's analysis of the funding requirements for each housing company, housing companies will be required to fund replacement reserves at the greater of:

   1. (i) the current required annual contribution; or
   2. (ii) 0.006 of the project's original construction cost.

5. (2) Arrears. For purposes of computing the annual funding requirement for arrears in the replacement reserve:

   1. (i) the required balance shall be the total of the amounts required by the division to be deposited in the replacement reserve fund from the inception of the project, plus all interest earnings credited to the replacement reserve fund; less the sum of the total amount authorized by the division as allowable charges against the replacement reserve fund, and the amount determined as the projected cost of essential corrective work which has been identified and which is eligible for funding in accordance with existing replacement schedules and guidelines. The division will provide an encumbrance form detailing the nature and estimated cost of the work;
   2. (ii) the current available balance shall be the amount in the replacement reserve fund of the company, less the cost of the corrective work as identified in subparagraph (i) of this paragraph;
   3. (iii) the arrears shall be the difference between the amount computed in subparagraph (i) of this paragraph and the amount computed in subparagraph (ii) of this paragraph.

6. (3) The annual funding requirement for arrears in the replacement reserve shall be no less than the amount computed from the following schedule:

   Arrears as percentage of required balance	Repayment period
   25 percent up to 50 percent	6 years
   50 percent up to 75 percent	5 years
   75 percent or more	4 years

7. (4) Notwithstanding the preceding provisions of this subdivision, the annual requirement for replacement reserve arrears shall not exceed the provision for the current replacement reserve requirement used in the operating budget projection, unless the division shall otherwise determine.

   (g) Working capital.

8. (1) Working capital is defined as the sum of:

   1. (i) operating cash (administration fund and managing agent's cash account); and
   2. (ii) investments made from these funds; less the sum of current accounts payable (exclusive of debt service).

9. (2) A budget provision to fund a working capital deficiency or, alternatively, a provision to apply a working capital surplus to partially offset a projected budget deficit is permitted subject to the following restrictions:

   1. (i) A working capital deficit greater than one half of one month's rent, computed pursuant to the above definition, is to be funded in the first year of the budget, dependent on the extent of the deficit, such that:

      1. (a) where the deficit exceeds one month's rental income, the budget provision will be for the amount in excess of one month's rental income, but not less than one half of one month's rental income; or
      2. (b) if the deficit exceeds one half of one month's rental income but does not exceed one month's rental income, the provision will be for the amount in excess of one half of one month's rental income.

10. (3) The amount of a working capital surplus which exceeds one month's rental income may be applied in reduction of a budget deficit to the extent that such amount applied may not exceed 25 percent of the deficit, or three percent of the annual rent roll, whichever is greater.

    (h) Debt service arrears.

    Debt service arrears shall be funded in the budget projections at the lesser of: the total debt service arrears or an amount equal to the current debt service requirement, unless otherwise provided in an agreement restructuring the mortgage loan and approved by the division.

    (i) Air conditioner and appliance charges.

    The division shall periodically establish guidelines for charges for the use of various classes of appliances based upon rate and consumption data.

    (j) Return on equity.

11. (1) Current. Within reasonable limits an annual amount for return on equity shall be provided for in the budget at the rate stated in the share certificates and/or income debentures. In the case of partnerships, the rate shall be as set forth in the schedule of estimated annual expenses and income (schedule B) used at the time the initial rents for the housing development were set and included in the mortgage closing documents.
12. (2) Arrears. The amount of arrears provided for in the budget shall not exceed the amount calculated for the current annual provision.

(a) General.