UNITED STATES OF AMERICA, ACTING THROUGH THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, PETITIONER V. RAINIER VIEW ASSOCIATES, ET AL. No. 88-1515 In the Supreme Court of the United States October Term, 1988 Petition for a Writ of Certiorari to the United States Court of Appeals for the Ninth Circuit The Acting Solicitor General, on behalf of the United States of America, petitions for a writ of certiorari to review the judgment of the United States Court of Appeals for the Ninth Circuit in this case. PARTIES TO THE PROCEEDING Petitioner, defendant below, is the United States of America, acting through the United States Department of Housing and Urban Development. The Housing Authority of the City of Bremerton (Washington) was also technically a defendant in the district court, but it consented to the entry of a default judgment in the district court (see App., infra, 22a n.1) and did not appear in the court of appeals. Respondents, plaintiffs below, are Rainier View Associates, a Washington Limited Partnership; and Kurtis R. Mayer and Pamela Mayer, doing business as Mayer Built Homes. TABLE OF CONTENTS Question presented Parties to the proceeding Opinions below Jurisdiction Statutory provisions involved Statement Reasons for granting the petition Conclusion OPINIONS BELOW The opinion of the court of appeals (App., infra, 1a-7a) is reported at 848 F.2d 988. Other orders of the court of appeals in this case (App., infra, 42a, 49a) are reported at 830 F.2d 1017 and 840 F.2d 741. Other orders and opinions of the court of appeals in this case (App., infra, 35a-36a, 50a-51a, 57a, 58a) are unreported. The opinion of the district court (App., infra, 8a-15a) is unreported. Other opinions and orders of the district court in this case (App., infra, 16a-34a, 37a-41a, 43a-48a, 52a-56a) are unreported. JURISDICTION The judgment of the court of appeals (App., infra, 59a) was entered on June 6, 1988. A petition for rehearing was denied on November 15, 1988 (App., infra, 60a). On February 13, 1989, Justice O'Connor extended the time for filing a petition for a writ of certiorari to and including March 15, 1989. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). STATUTORY PROVISIONS INVOLVED Before its amendment in 1988, Section 8(c)(2) of the Housing Act of 1937, 42 U.S.C. 1437f(c)(2), provided in pertinent part: (A) The assistance contract shall provide for adjustment annually or more frequently in the maximum monthly rents for units covered by the contract to reflect changes in the fair market rentals established in the housing area for similar types and sizes of dwelling units or, if the Secretary (of Housing and Urban Development) determines, on the basis of a reasonable formula. * * * * * (C) Adjustments in the maximum rents as hereinbefore provided shall not result in material differences between the rents charged for assisted and comparable unassisted units, as determined by the Secretary. Subsection (c)(2)(C), as amended on February 5, 1988, and November 7, 1988, /1/ provides in pertinent part: (C) Adjustments in the maximum rents under subparagraphs (A) and (B) shall not result in material differences between the rents charged for assisted units and unassisted units of similar quality and age in the same market area, as determined by the Secretary. If the Secretary or appropriate State agency does not complete and submit to the project owner a comparability study not later than 60 days before the anniversary date of the assistance contract under this section, the automatic annual adjustment factor shall be applied. The Secretary may not reduce the contract rents in effect on or after April 15, 1987, for newly constructed, substantially rehabilitated, or moderately rehabilitated projects assisted under this section (including projects assisted under this section as in effect prior to November 30, 1983), unless the project has been refinanced in a manner that reduces the periodic payments of the owner. Any maximum monthly rent that has been reduced by the Secretary after April 14, 1987, and prior to the enactment of this sentence shall be restored to the maximum monthly rent in effect on April 15, 1987. For any project which has had its maximum monthly rents reduced after April 14, 1987, the Secretary shall make assistance payments (from amounts reserved for the original contract) to the owner of such project for the original contract) to the owner of such project in an amount equal to the difference between the maximum monthly rents in effect on April 15, 1987, and the reduced maximum monthly rents, multiplied by the number of months that the reduced maximum monthly rents were in effect. QUESTION PRESENTED Whether the Department of Housing and Urban Development (HUD) is prohibited by 42 U.S.C. 1437f(c)(2)(A) and (C) and its implementing standard form contracts from effectuating through individual market studies the statutory and contractual mandate that the rent increases paid by the federal government to the owners of "Section 8" low-income housing units not result in rents exceeding those in comparable private units, because HUD chose to establish presumptive rent adjustment levels by a formula. STATEMENT In 1974, Congress added the "Section 8 program" to the Housing Act of 1937. See 42 U.S.C. 1437f. The Section 8 program generally provides for subsidized housing for lower income tenants. The tenant's rent payment is determined by the tenant's ability to pay, rather than the market value of the unit. See generally 42 U.S.C. 1437a(a), 1437f(c)(3); 24 C.F.R. 813.107. The remainder of the lawfully authorized rent is paid by the federal government. The Section 8 new construction and substantial rehabilitation program provides federally subsidized housing to millions of low-income tenants. It is one of the largest housing programs administered by the United States Department of Housing and Urban Development (HUD), with a total of approximately $115 billion in projected federal subsidies due to project owners under existing standard form long-term contracts (known as "housing assistance payment contracts" or "HAP contracts"). Approximately 18,000 such contracts are in effect nationwide, and all are subject to the statutory and implementing contractual language whose construction is the subject of this case. The Section 8 program was the first to provide statutory authority for inflation-based rent adjustments. "(I)n structuring section 8, Congress meant it to be a market program." /2/ Thus, "(t)he Section add(ed) (a) new concept() to the leasing program -- * * * fair market rents." S. Rep. No. 693, 93d Cong., 2d Sess. 45 (1974). The basing of rent adjustments on market considerations was accomplished through Section 8(c)(2), 42 U.S.C. 1437f(c)(2), which before 1988 provided in pertinent part: (A) The assistance contract shall provide for adjustment annually or more frequently in the maximum monthly rents for units covered by the contract to reflect changes in the fair market rentals established in the housing area for similar types and sizes of dwelling units or, if the Secretary (of Housing and Urban Development) determines, on the basis of a reasonable formula. (C) Adjustments in the maximum rents as hereinbefore provided shall not result in material differences between the rents charged for assisted and comparable unassisted units, as determined by the Secretary. As noted, HUD has implemented Section 8 by entering into thousands of long-term form contracts providing for billions of dollars in rent subsidies. Section 1.9b of each contract implements Section 8(c)(2)(A) of the statute; Section 1.9d implements Section 8(c)(2)(C). Section 1.9 provides in pertinent part: b. Automatic Annual Adjustments. (1) Automatic Annual Adjustment Factors will be determined by the Government at least annually; interim revisions may be made as market conditions warrant. Such factors and the basis for their determination will be published in the Federal Register * * *. (2) On each anniversary date of the Contract, the Contract Rents shall be adjusted by applying the applicable Automatic Annual Adjustment Factor most recently published by the Government. Contract Rents may be adjusted upward or downward, as may be appropriate; however, in no case shall the adjusted Contract Rents be less than the Contract Rents on the effective date of the Contract. * * * * * d. Overall Limitation. Notwithstanding any other provisions of this Contract, adjustments as provided in this Section shall not result in material differences between the rents charged for assisted and comparable unassisted units, as determined by the Government; provided that this limitation shall not be construed to prohibit differences in rents between assisted and comparable unassisted units to the extent that such differences may have existed with respect to the initial Contract Rents. App., infra, 3a. HUD has promulgated regulations that implement the statute in the same way as the contracts. See 24 C.F.R. 880.609; note 13, infra. From 1974 to 1981, HUD regularly awarded rent increases in accordance with published Automatic Annual Adjustment Factors (AAAFs), which were based on the Consumer Price Index (CPI). /3/ In order to ensure that CPI-based AAAFs would not result in rents that were too low, HUD did two things. First, on November 25, 1977, it published in the Federal Register a regulation (codified ever since as 24 C.F.R. 888.204) that permits a project owner to show HUD that "application of the (AAAFs) results in rents that are substantially lower than rents charged for comparable units not receiving assistance under the U.S. Housing Act of 1937, in the area for which the (AAAF) was published or a portion thereof, and * * * that the costs of operating comparable rental housing have increased at a substantially greater rate than the (AAAFs)." 42 Fed. Reg. 60,508-60,509. On such a showing, HUD "will consider" adjustments in the form of changes to the AAAFs. Second, in 1978, HUD published a handbook that also provided, in Paragraph 7-8d, for revisions to AAAFs based on showings by project owners that the AAAFs resulted in less-than-comparable rents. Paragraph 7-8a(4) of that handbook purports to provide a procedure for "review (of) the accuracy of the (AAAF-level) rent adjustment to ensure that it is comparable (neither too high (n)or too low) in relationship to similar assisted and unassisted units." Specifically, Paragraph 7-8a(4) provides for revision of the AAAFs "in accordance with the revision procedures in paragraph 7-8(d)(2) and (3)." /4/ The procedure described in Paragraph 7-8(d)(2) and (3), however, on its face and by its nature applies only when AAAF-level rents are too low, not when they are too high -- the situation addressed in this case. No AAAF was ever revised downward because of a showing that a AAAF-level rent was too high. /5/ Beginning in 1981, HUD decided that it was not doing enough to implement the mandate of Section 8(c)(2)(C) and Section 1.9d that application of Section 8(c)(2) and Section 1.9d "not result in material differences between the rents charged for assisted and comparable unassisted units." Specifically, HUD became concerned that it was doing nothing to ensure that the CPI-based AAAFs did not result in rents that were too high. HUD therefore began reviewing the rents charged in certain individual projects. The review took (and continues to take) the form of a survey of rents in a small geographic area surrounding the project whose rents are being reviewed. If such a "comparability study" shows that the rents that would result from application of the AAAFs would be substantially higher than those for comparable unassisted units, then HUD uses the comparability study to cap the amount of the rent increase that would be produced using the formula standing alone. It is the statutory and contractual authority of HUD to use such studies to implement the comparability mandate that is at issue here. This case consists of two actions for declaratory judgments that were consolidated in the United States District Court for the Western District of Washington. Respondents are two owners of Section 8 projects in the Seattle area. In 1976 respondents Mr. and Mrs. Mayer, and in 1980 respondent Rainier View Associates, entered into HUD form contracts that are, in all pertinent respects, identical to the form contract whose Section 1.9 is quoted above. App., infra, 18a-21a. In 1983, AAAF-level rent increases were denied to both respondents. Respondent Rainier View Associates was denied a AAAF-level rent increase when it refused to conduct a comparability study. The other respondents, Mr. and Mrs. Mayer, were denied a AAAF-level rent increase when a comparability study showed that their rents were substantially higher than those for comparable unassisted housing units. Id. at 20a-21a. In their declaratory judgment actions, respondents claimed, among other things, that they had statutory and contractual rights to receive AAAF-level rent increases free of any caps based on comparability studies. /6/ The district court rejected those arguments. The district court read Section 8(c)(2)(C) to mean that "(a)pplication of the formula determined by the Secretary may not * * * result in material differences between the rents charged for assisted and comparable unassisted units." App., infra, 12a. It also read the contract to refute plaintiff's claim of entitlement to automatic rent increases (id. at 13a): To hold that plaintiff is entitled automatically to annual rent adjustments would be contradictory to the language in Section 1.9(d) providing an overall limitation on adjustments arrived at under Section 1.9. Thus, plaintiff's contention that the Seattle area office of HUD lacks authority to refuse to adjust plaintiff's rent levels automatically is without merit. This authority is clearly provided in Section 1.9(d) of plaintiff's HAP Contract. The court of appeals reversed per curiam. /7/ After stating the case and the contentions of the parties, the Ninth Circuit concluded that "HUD misconstrues the role of the overall limitation." App., infra, 5a. The court provided only three short paragraphs of explanation for that conclusion. First, the court said that "(t)he overall limitation in section 1.9d, consistent with its statutory analog, Section 8(c)(2)(C), is clearly a limitation on the calculation of the formula used to adjust rents, not an independent basis for making annual rent adjustments." This was because "HUD's interpretation of the overall limitation provision would render the formula method authorized by the statute and elected in the contract a nullity." Id. at 5a-6a. Second, the court read 24 C.F.R. 888.204 to "interpret the overall limitation provision in the statute the same way we interpret the overall limitation provision in the contract -- as permitting adjustments of the AAAFs, not abandonment of the formula method whenever application of the formula would result in a disparity between section 8 and other rents." Id. at 7a. Finally, the court said, "the contract clearly elects the formula method, one of two statutorily authorized methods for calculating rent adjustments. The overall limitation provision just as clearly authorizes modifications of the formula applied to keep assisted rents in line with market rents. What the overall limitation provision does not do is permit HUD to switch from one method to another." Ibid. During the pendency of the present case, a new action, involving the same legal issues but different parties, was brought in the United States District Court for the Western District of Washington and assigned to the same judge who presides over respondents' case. The district court has already entered summary judgment in favor of nearly 50 additional Section 8 project owners, who are the plaintiffs in that case, based on the ruling of the court of appeals at issue here. Bellevue Manor Associates v. United States, No. C86-1626R (W.D. Wash. Jan. 4, 1989). /8/ The government has appealed that judgment. In addition, respondents' counsel, who also represents the plaintiffs in the follow-on case, has threatened to bring a class action on behalf of all affected project owners within the Ninth Circuit if HUD does not agree to disregard any limits on rent increases it has imposed based on comparability studies, and does not accordingly pay rents, retroactively, at the level they would have reached under the AAAfs. HUD estimates that the amount of money that it would have to pay to Section 8 project owners on that basis if the decision of the Ninth Circuit were allowed to stand, retroactively up through fiscal year 1988, would be $50 million within the Ninth Circuit alone (and that amount is of course growing every day). HUD further estimates that the analogous nationwide figure would be more than $200 million. REASONS FOR GRANTING THE PETITION The decision of the court of appeals is clearly wrong. It goes to a core feature of one of the government's largest nationwide housing subsidy programs: how to calculate rent adjustments, and therefore the extent of the federal subsidy, after initial rents have been set. The effect of the decision below would be to grant Section 8 project owners AAAF-level rent increases that, by definition, have been shown by market surveys to result in rents substantially higher than those for comparable unassisted units. The Ninth Circuit has converted a program designed to attract landlords by assuring them that they will receive full market rents into a program in which landlords would receive formula-based rents that have been determined to exceed market rents, all because of a perceived -- but in fact nonexistent -- inconsistency between HUD's decision to use a formula to set presumptive rent increases for projects in large areas and its use of individualized comparability studies to cap those increases when such studies reveal that the formula would produce above-market rent levels. The question presented is of substantial importance to the federal government. If not reversed, the erroneous decision of the court of appeals will cause federal taxpayers to suffer an immediate, irretrievable, and unjustified loss estimated at $50 million, potentially to be followed by further large losses. This Court should not permit the imposition of such liability on the basis of a decision whose analytical flaws are as plain as those of the decision below. /9/ 1. The basic issue of statutory and contract interpretation in this case is straightforward. The language of the statute and the language of the contracts conclusively refute the Ninth Circuit's view that the only way HUD can carry out the mandate of Section 8(c)(2)(C) is somehow to incorporate the comparability determination into the AAAFs. Congress's recent amendments to the statute, although concededly prompted by displeasure at other features of HUD's administration of the Section 8 program, confirm the correctness of the government's position on the issue presented here, i.e., that the use of project-specific comparability studies to limit AAAF-level rent increases is an entirely permissible way of carrying out Section 8(c)(2). a. Congress unambiguously directed HUD to ensure that periodic adjustments in rents would "not result in material differences between the rents charged for assisted and comparable unassisted units." 42 U.S.C. 1437f(c)(2)(C). Pursuant to that directive and 24 C.F.R. 880.609(c), HUD prepared, and the project owners signed, form contracts that provide: "(n)otwithstanding any other provisions of this Contract, adjustments as provided in this Section shall not result in material differences between the rents charged for assisted and comparable unassisted units, as determined by the Government" (emphasis added). Thus, the fact that HUD has legal authority to ensure comparability is beyond dispute. What is disputed is how HUD may carry out that mandate. To answer that question, one would naturally expect to look to the statute, to see what guidance Congress gave HUD as to how to carry out the comparability mandate, and to the contract, to see what commitments HUD made as to how it would carry out that mandate. But the contract and the statute say absolutely nothing about the methodology for ensuring comparability. Section 8(c)(2)(A) and Section 1.9b, which set forth the presumptive methodology for determining rent adjustments, say nothing about comparability. And Section 8(c)(2)(C) and Section 1.9d, which set forth the mandate of comparability, say nothing about the presumptive methodology for determining rent adjustments. Thus, neither Congress in the statute, nor the contracting parties in the contract, have said anything that imposes on HUD any particular technique for conforming its rent-setting methodology and the mandate of comparability. The obvious conclusion is that the choice of techniques for harmonizing the two statutory mandates was left to HUD, a conclusion borne out by the phrase "as determined by the Secretary" at the end of Section 8(c)(2)(C) and the phrase "as determined by the Government" in Section 1.9d. HUD has chosen an entirely reasonable way to carry out the twin mandates of Section 8(c)(2)(A) and (C). Under Section 8(c)(2)(A), and Section 1.9b of the contracts, HUD makes generalized determinations, over relatively wide geographic areas, of the presumptively appropriate formula for adjusting rents each year. See, e.g., 52 Fed. Reg. 9478-9491 (1987) (AAAFs for four Census regions, the States of Alaska and Hawaii, and 72 metropolitan areas). Because there will always be economic variations within those areas, the formula necessarily cannot assure that in each specific case the formula-based rent increases will "not result in material differences between the rents charged for assisted and comparable unassisted units." Therefore, when HUD has reason to believe that AAAF-level rent increases would be excessive, it spot checks rents for particular projects by means of comparability studies focused precisely on those projects and a small surrounding area. When no material difference is discovered, HUD leaves the rent increases at the levels set by application of the AAAFs. But, when a material difference is discovered, HUD limits the rent increases so that they do not materially exceed comparable rents. /10/ The Ninth Circuit did not deny that this process produces exactly the result -- comparable rents -- that Congress intended. The Ninth Circuit nevertheless found it "clear" that, once HUD has elected to adjust rents by formula, the only way HUD may ensure comparability is to incorporate the comparability contraint into the formula itself. /11/ No statutory language was cited to support that proposition. No contract language was cited to support that proposition. All the Ninth Circuit provided by way of explanation was a claim that any other result "would render the formula method authorized by the statute and elected in the contract a nullity," and a further claim that HUD's own regulations read the statute that way. App., infra, 6a-7a. Both claims are far off the mark. Allowing HUD to check selected rents by comparability studies does not render the formula method of increasing rents a nullity, any more than allowing the Internal Revenue Service to check selected tax returns by audits renders the self-reporting system a nullity. HUD does not do a comparability study in every case, and for tha reason alone there is no substance to the Ninth Circuit's claim that doing comparability studies amounts to abandoning the formula method of setting rents. HUD estimates that only approximately 10% of all Section 8 projects in the nation have been the subject of comparability studies in any year. The remaining 90% have received AAAF-level rent increases. The AAAFs have thus been used as a presumptive guide to rent increases in all cases, and as the final determinant of rent increases in those cases -- the vast majority -- in which HUD has not made an individualized comparison of the rents charged at a particular project with market rents, or in which that comparison has shown that the AAAF produced a figure not materially different from the market. By no stretch of the imagination can it be said that that process renders the formula a nullity. Furthermore, the Ninth Circuit misunderstood the "market survey" concept. The two things to which the court applied the same label -- "market survey" -- are, in fact, not the same at all. Fair Market Rental (FMR) surveys report rents charged in a large number of units in broad geographical areas, typically multicounty. See 24 C.F.R. 888.103; 53 Fed. Reg. 14,954 (1988). Under Section 8(c)(2)(A), HUD could appropriately have used that type of market survey, in lieu of the AAAFs, to establish general adjustment levels for extensive areas. By contrast, a comparability study compares one assisted housing project with one to five individual housing projects that have similar unassisted units in the same local area. That is done because, for units to be truly comparable for rent-level purposes, they must be located in close proximity to each other (since even small distances between projects may vastly alter their rental value), and must be as similar to each other in all other relevant aspects as possible. See 1984 Hearing, supra, at 66-67. To conduct the latter type of survey is not to elect the "market survey" option referred to in Section 8(c)(2)(A), but to fine-tune the Section 8(c)(2)(A) determinations -- which are based on a broad geographic area, whether a formula or a survey is used -- by means of surveys focused on a narrower geographic area. The Ninth Circuit's "nullity" argument would be unpersuasive for yet another reason, even if the foregoing two points did not exist. The contract provision setting out the comparability mandate begins with the words "(n)otwithstanding any other provisions of this Contract." Those are the words one uses for the precise purpose of overriding other provisions, when in operation they are inconsistent. The provision is also labeled an "overall limitation" -- language that again indicates that anything to the contrary yields to the mandate of comparability. /12/ The only reasonable way to read those words is that HUD wanted to preserve its ability to ensure that other contract provisions "not result in material differences between the rents charged for assisted and comparable unassisted units," no matter what those contract provisions said. The statute likewise sets out the comparability mandate in unqualified terms. 42 U.S.C. 1437f(c)(2)(C). /13/ It says that "(a)djustments in the maximum rents as hereinbefore provided shall not result in material differences between the rents charged for assisted and comparable unassisted units." The Ninth Circuit, by contrast, has interpreted the statute to mean that adjustments in the maximum rents as provided in Section 8(c)(2)(A) shall result in such material differences unless HUD has incorporated the comparability determination into the presumptive formula it uses to set rents. /14/ The Ninth Circuit's argument based on 24 C.F.R. 888.204 is also wholly unpersuasive. That regulation does not implement Section 8(c)(2)(C) at all. It implements Section 8(c)(2)(A), which permits adjustment of rents more frequently than annually, and Section 1.9(b)(1), which allows "interim revisions * * * as market conditions warrant." The regulation corresponding to Section 8(c)(2)(C) is not 24 C.F.R. 888.204, but 24 C.F.R. 880.609(c), which fully supports our position. See note 13, supra. To maintain that HUD's regulations coincide with the Ninth Circuit's interpretation, when HUD has so plainly followed a different interpretation for many years, is contrary to the principle that, "(i)n construing administrative regulations, 'the ultimate criterion is the administrative interpretation, which becomes of controlling weight unless it is plainly erroneous or inconsistent with the regulation.'" United States v. Larionoff, 431 U.S. 864, 872 (1977) (quoting Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945)); see also Mullins Coal Co. v. Director, Office of Workers' Compensation Programs, 108 S. Ct. 427, 440 (1987); Gardebring v. Jenkins, 108 S. Ct. 1306 1314 (1988). /15/ In sum, the Ninth Circuit's reading of the statute and the contract as mandating incorporation of the comparability limitation into the Section 8(c)(2)(A) formula has no plausible support whatever in the sources on which the Ninth Circuit relied. b. Other sources to which the Ninth Circuit did not advert further show that comparability studies are a legally permissible basis for limiting AAAF-level rent increases. Over the years since 1981, Congress has been well aware that HUD has used comparability studies to limit the availability of AAAF-level rent increases. Congress has both tolerated and, eventually, affirmatively recognized that practice as being a valid way to carry out the provisions of Sections 8(c)(2)(A) and 8(c)(2)(C). The attitude of recent Congresses toward this practice stands in marked contrast to the view of the court below that HUD can never limit AAAF-based rent increases by the independent use of comparability studies. In 1983, HUD published a controversial set of proposed rules (which, ultimately, were never implemented). 48 Fed. Reg. 52,936. In the proposed rules, HUD would have adjusted rents annually under all Section 8 contracts based on increases in costs for comparable rental units. /16/ In early 1984, the Subcommittee on Housing and Community Development of the House Committee on Banking, Finance and Urban Affairs held a hearing specifically focused on that proposal. 1984 Hearing, supra. Some harsh words about that proposal appear in the published hearing, including the opening remarks of the subcommittee chairman. Id. at 1-2. In the courts below, respondents have cited those remarks as evidence that Congress had the same view of the statute as the one that has now been adopted by the Ninth Circuit. The hostile language respondents have cited, however, has nothing to do with the issue here because the hearing is focused on the 1983 proposed rules and their extension of cost-based comparability determinations to pre-1981 contracts. Although the hearing contains substantial commentary on the general question whether limitation of AAAF-level rent increases because of rent-based comparability studies is proper, that was not the subject of the hearing and was not the subject of most of the criticism of HUD in the hearing. The discussion of rent-based comparability studies at the hearing is in fact quite instructive. Respondent Kurtis Mayer and his counsel testified in opposition to HUD's existing use of comparability studies, referring specifically to this lawsuit, which "a group of builders ha(d) financed" (1984 Heaing, supra, at 6), and to an alleged promise "that annual rent adjustments would be made automatically on the basis of the Consumer Price Index" (id. at 12; see also id. at 84). /17/ Counsel, however, deferred to "Mr. Edson who has more familiarity with the background of the program than I have." Id. at 12. Charles L. Edson, Counsel for the National Leased Housing Association, was the next witness. Edson was sharply critical of the 1983 proposed regulations. His more general comments on the role of "comparability" under the statute and contracts, however, were more favorable: (I)n structuring section 8, Congress meant it to be a market program. Rents would rise by either the fair market rents in the area, or a reasonable formula which as our legislative history shows was the CPI, but there was a cap, a market discipline cap, and that is where comparabilities came in. Rents could not exceed the rents of a comparable project in the area. It was a well though through mechanism. * * * HUD was very anxious to get it off the ground and it pointed out to developers at many meetings throughout the country of this marvelous rent devise (sic), of this escalation procedure where there would not be a cost review, but instead you would just go up by the market index capped only by comparability. 1984 Hearing, supra, at 21 (emphasis added). Edson's prepared statement made the same point: HUD made much of the "automatic annual adjustment" for rents, with the only limitation being that Section 8 rents could not exceed comparable unassisted rents. Id. at 27 (emphasis added); see also id. at 38, 39. In later colloquy, the same witness noted that "comparability has been enforced with a vengeance since 1979 (sic) and has kept the rents at a reasonable level at the market rate. That is what the statute intended. That is a good mechanism." Id. at 84. Mr. Edson's remarks are of some significance, because he is a leading practitioner in this field, and his client organization was closely involved in the drafting of the statute. See id. at 21. This subsequent legislative history may provide little insight into the thinking of the 1974 Congress, but it does, at a minimum, refute the Ninth Circuit's claim that the preexisting statute and form contracts "unambiguously" forbid the implementation of the comparability mandate through any method other than incorporation into the AAAFs. If a leading representative of the housing industry itself thought HUD's practice of performing comparability studies was exactly what the statute contemplated, it is hard to see how the Ninth Circuit can hold that that is something the statute (or contract) unambiguously forbids. Moreover, Congress's awareness of the administrative practice /18/ takes on added significance in light of the 1988 amendments to Section 8. Those amendments concededly reflect displeasure at some features of HUD's implementation of Section 8. As to the question presented here, however, they clearly assume the validity of case-by-case comparability studies as a means of limiting rent increases. Specifically, in 1988, in Pub. L. No. 100-242, Section 142(c)(2)(B) and (d), 100 Stat. 1850, Congress has added the following two sentences to the end of Section 8(c)(2)(C): If the Secretary or appropriate State agency does not complete and submit to the project owner a comparability study not later than 60 days before the anniversary date of the assistance contract under this section, the automatic annual adjustment factor shall be applied. The Secretary may not reduce the contract rents in effect on or after April 15, 1987, for newly constructed, substantially rehabilitated, or moderately rehabilitated projects assisted under this section (including projects assisted under this section as in effect prior to November 30, 1983), unless the project has been refinanced in a manner that reduces the periodic payments of the owner. The first of those two sentences would be a complete absurdity under the Ninth Circuit's interpretation of the statute. If Congress had intended in 1974 to forbid the use of comparability studies altogether, there would obviously be no point in enacting a statute 14 years later that merely regulates the timing of such studies. The second sentence forbids year-to-year reductions in rents, i.e., decreases of rents below those allowed in a prior year. Far from contradicting the basic idea that comparability studies are a legitimate way to limit AAAF-level rent increases, however, that provision merely decries the practice of decreasing rents based on comparability studies. /19/ Thus, although Congress was not pleased with certain features of HUD's implementation of Section 8, the text of the 1988 amendments unquestionably assumes that comparability studies will be used to limit AAAF-level rent increases. When one focuses on the precise question presented -- whether comparability studies are a permissible means of limiting AAAF-level rent increases -- rather than the general issue of whether Congress has been pleased or displeased with other aspects of HUD's administration of Section 8, it is clear that the record is favorable to the government's position. As this Court has observed, "when Congress revisits a statute giving rise to a longstanding administrative interpretation without pertinent change, the 'congressional failure to revise or repeal the agency's interpretation is persuasive evidence that the interpretation is the one intended by Congress.'" CFTC v. Schor, 478 U.S. 833, 846 (1986). The subsequent legislative history confirms what is obvious from the text of the statute and contracts themselves: the decision of the court of appeals is untenable. 2. The incorrect ruling of the Ninth Circuit deserves review by this Court. Although there is no conflict in the circuits, the combined fiscal importance and programmatic importance of the decision fully satisfy this Court's standards for a grant of certiorari. The decision of the court of appeals is seriously wrong, not only as a strict legal matter but also from the standpoint of public policy. There is no conceivable substantive reason why Congress would have wished to disable HUD from checking particular formula-based rents to see whether they are in fact comparable to market rents. A promise that rents will increase over time above market rents has never been considered necessary to attract and retain project owners in the Section 8 program, and is in any event exactly what Section 8(c)(2)(C) would plainly forbid even if for some reason HUD thought it desirable. According to the Ninth Circuit, however, HUD completely lost any right to prohibit above-market rent increases once it set the AAAFs at levels designed to deal with the general case rather than with each specific case. If the Ninth Circuit's decision is applied retroactively, as there is every indication it would be if not reversed, then score of project owners within the Ninth Circuit will be entitled to recover millions of dollars in back rent completely without regard to whether the rents they would have received through automatic application of the AAAFs are or are not comparable to rents for unassisted units. The effect of the ruling would be to confer on owners of Section 8 housing a substantial windfall that serves no conceivable statutory purpose. The magnitude of the financial impact of the decision below on the government and the persons it serves is also sufficiently grave as to warrant this Court's attention. As noted above, HUD estimates the potential retroactive liability under that decision to be $50 million within the Ninth Circuit and more than $200 million if the decision were applied nationwide. Those funds either must be provided at the expense of future low-income tenants who may suffer because HUD's budgetary resources have been diverted for the benefit of landlords, or must be borne by federal taxpayers, or both. The potential financial impact of the decision below is not limited to its retroactive effect. The decision below is so cryptic and internally inconsistent that, if not reversed, it casts serious doubt on the extent to which HUD can ever mitigate its impact. The court of appeals acknowledged that "(t)he overall limitation provision * * * clearly authorizes modifications of the formula applied to keep assisted rents in line with market rents" (App., infra, 7a), but it also insisted that "(t)he overall limitation provision * * * does not permit HUD * * * to adjust rents solely on the basis of a market survey" (id. at 6a). Given that HUD must necessarily determine what the market rents are in order to keep particular rents "in line with market rents" -- in other words, that only a market survey can possibly tell HUD whether particular rents are "in line" -- the Ninth Circuit's assertion that no adjustment can ever be made solely on the basis of such a survey leaves HUD at sea in determining what role a market survey can play. If the Ninth Circuit were to enforce its decision in this case by precluding all use of comparability studies to cap rents, whether the studies are published as part of the AAAFs or not, then HUD would have very little power to mitigate the future financial impact of the Ninth Circuit's decision, and no power to assure that, in the individual case, application of the AAAFs will "not result in material differences between the rents charged for assisted and comparable unassisted units," as required by Section 8(c)(2)(C). The result would be tens or even hundreds of millions of federal dollars lost to above-market rents that, we submit, Congress never contemplated. Before a loss of that magnitude is imposed on low-income tenants or federal taxpayers, this Court's review is appropriate. CONCLUSION The petition for a writ of certiorari should be granted. Respectfully submitted. WILLIAM C. BRYSON Acting Solicitor General JOHN R. BOLTON Assistant Attorney General THOMAS W. MERRILL Deputy Solicitor General ROY T. ENGLERT, JR. Assistant to the Solicitor General ANTHONY J. STEINMEYER BARBARA C. BIDDLE Attorneys GERSHON M. RATNER Associate General Counsel for Litigation HOWARD M. SCHMELTZER Assistant General Counsel JOHN A. MARTIN Attorney Department of Housing and Urban Development MARCH 1989 /1/ See Housing and Community Development Act of 1987, Pub. L. No. 100-242, Section 142(c)(2) and (d), 101 Stat. 1850; Stewart B. McKinney Homeless Assistance Amendments Act of 1988, Pub. L. No. 100-628, Section 1004(a), 102 Stat. 3264. /2/ Section 8 Rent Adjustments, Elderly Housing, and Other Assisted Housing Issues: Hearing Before the Subcomm. on Housing and Community Development of the House Comm. on Banking, Finance and Urban Affairs, 98th Cong., 2d Sess. 21 (1984) (testimony of Charles L. Edson, Counsel, National Leased Housing Association) (hereinafter 1984 Hearing). /3/ HUD later began publishing AAAFs based on a combination of the CPI and the Annual Housing Survey (AHS). See App., infra, 9a. The AHS has recently been renamed the Bureau of the Census American Housing Surveys. See 52 Fed. Reg. 9478 (1987). /4/ The handbook actually refers to "paragraph 7-8c(2) and (3)," but the "c" is an obvious error because paragraph 7-8c has no subparagraph (3) and does not provide a revision procedure for AAAFs. /5/ HUD never actually implemented Paragraph 7-8 of the 1978 handbook. The handbook was rescinded in 1981. /6/ The plaintiffs have also contended that the Due Process Clause prohibits HUD from conducting comparability studies without first adopting nationwide standards for selecting projects and for conducting such studies. The district court has held in a separate phase of this litigation that the Due Process Clause requires that HUD develop such nationwide standards. App., infra, 25a-34a. Although we believe that ruling is in error, HUD has now adopted comprehensive nationwide standards and procedures. As to future rent increases, therefore, the ruling of the court of appeals concerning statutory and contractual construction is the only legal impediment that would prevent HUD from implementing its comparability system as to respondents. As to past decisions to limit respondents' rent increases, however, there is no longer a live controversy between the parties because HUD long ago administratively determined, for reasons largely independent of the due process and statutory/contract interpretation issues, that respondents were in fact entitled to the full AAAF-level rent increases. /7/ Before the panel ruled on the merits, the panel sua sponte suggested, and the en banc court voted, that the case be heard en banc on a jurisdictional question. The en banc Ninth Circuit considered whether, under the Ninth Circuit's decision in North Side Lumber Co. v. Block, 753 F.2d 1482, cert. denied, 474 U.S. 931 (1985), this action should have been dismissed as an impermissible action for a declaratory judgment on a claim against the United States founded on an express contract, and, if so, whether North Side Lumber was correctly decided. In an unpublished order dated March 7, 1988, the en banc court declined to determine whether North Side Lumber was correctly decided, on the ground that there was no jurisdictional problem even under North Side Lumber. According to the en banc court, "this case, although 'contract-related,' rests at bottom on statutory or regulatory rights." App., infra, 50a. /8/ Even before it entered judgment in the Bellevue Manor case, the district court claimed the power to extend to nonparties its ruling in favor of respondents. See App., infra, 43a-48a, 52a-56a. Although only respondents are plaintiffs in this action, and although the district court based its claim to jurisdiction on the proposition that respondents are not seeking damages (id. at 11a), the district court has indicated that, on pain of contempt (see id. at 53a), the government must apply the district court's rulings to all project owners in the Western District of Washington and must "make the required annual rent adjustments, both retroactive and prospective, on all Section 8 projects by applying the AAAF factors" (id. at 54a (emphasis added)). The court described the government's argument that "the court * * * did not specifically order retroactive payment of rent adjustments" -- the very point that formed the basis for the district court's assertion of jurisdiction in the first place -- as a "linguistic loophole() which the government has sought to exploit." Ibid. The government appealed from those rulings, which the court of appeals stayed. Id. at 57a. The day after rehearing was denied in the present case, however, the court of appeals dismissed the government's appeal in that case as "moot." Id. at 58a. The government has sought rehearing of the dismissal order, and in response to our rehearing petition respondents have agreed that that appeal is not moot. Even if the appeal were moot, however, the action of the court of appeals in dismissing the government's appeal outright, and not vacating the judgment of the district court, would be flagrantly contrary to this Court's decisions. See Great Western Sugar Co. v. Nelson, 442 U.S. 92 (1979). The government's rehearing petition in the appeal from the rulings extending the district court's order to nonparties remains pending. /9/ We also continue to believe, as we urged before the district court and the en banc court of appeals, that at least to the extent this action calls for construction of HUD's Section 8 form contracts, the district court never had jurisdiction over this action in the first place. Federal district courts do not have jurisdiction to enter declaratory judgments that the United States is in breach of contract. See Sharp v. Weinberger, 798 F.2d 1521, 1523-1524 (D.C. Cir. 1986) (Scalia, J.) (and cases cited therein); North Side Lumber Co. v. Block, supra; see also Bowen v. Massachusetts, 108 S. Ct. 2722, 2746 (1988) (Scalia, J., dissenting). The en banc court of appeals avoided that rule by holding that this case required the interpretation of statutes and regulations rather than contracts. Nevertheless, the court of appeals panel then interpreted both the statute and the contracts. See, e.g., App., infra, 2a ("In this action for declaratory relief, we consider a question of contract interpretation * * *."); id. at 7a ("We thus hold that the contract unambiguously support (sic) Rainier's interpretation."). We feel obliged to call that jurisdictional defect to the Court's attention, but we have elected not to petition for certiorari on the issue, because the claim raised under the statute may give rise to district court jurisdiction over at least part of this action under this Court's decision in Bowen v. Massachusetts, supra; and because a prompt and final resolution of the issue that the Ninth Circuit has decided on the merits is so vital to the proper administration of a huge, ongoing, nationwide program. /10/ Since April 15, 1987, HUD has been prohibited from reducing rents below those that prevailed in the prior year. See Housing and Community Development Act of 1987, Pub. L. No. 100-242, Section 142(d), 101 Stat. 1850; Stewart B. McKinney Homeless Assistance Amendments Act of 1988, Pub. L. No. 100-628, Section 1004(a), 102 Stat. 3264. Congress has not, however, prohibited HUD from denying or limiting rent increases based on comparability studies. /11/ Not even respondents were so bold as to advance that proposition before the Ninth Circuit. See Rainier View C.A. Reply Br. 3 ("This Court is not being asked to determine which interpretation is correct. The only issue is whether the rent adjustment provisions are reasonably susceptible of the meaning asserted by Plaintiffs, given the statutory background."). Only the court of appeals went so far as to find that the statute and contracts support respondents' position "unambiguously." /12/ Our interpretation of the "overall limitation" treats it as something that applies "overall" and limits the application of the other provisions of the contract. The Ninth Circuit's interpretation, by contrast, treats the "overall limitation" as subordinate to another provision of the contract and limited by that provision. The court has taxed us with "misconstru(ing) the role of the overall limitation" (App., infra, 5a), but it has given no explanation of why it is wrong to treat an "overall limitation" as an overall limitation. /13/ HUD has always read Section 8(c)(2)(C) to set an overall limitation on rents. HUD's very first notice of proposed rulemaking under this statute, issued the same year the statute was passed, proposed a regulation that would treat the comparability mandate as an "overall limitation." 39 Fed. Reg. 40,668 (1974) (Section 1273.103(h)(4)). The final rule, promulgated in April 1975, likewise denominated the comparability mandate an "overall limitation." 40 Fed. Reg. 18,687 (1975) (Section 880.110(d)). An appendix to that final rule was a sample contract, which, like respondents' contracts, requires comparability as an "overall limitation" to be applied notwithstanding any other provision of the contract. Id. at 18,705. Section 880.110(d) was recodified in 1979 (see 44 Fed. Reg. 59,428) as 24 C.F.R. 880.609(c), with the "overall limitation" language intact. Although HUD did not enforce the comparability limitation before 1981, there can be no doubt that from the very start HUD has been consistent in interpreting Section 8(c)(2)(C) to provide an overall limitation on other provisions of the statute. That longstanding interpretation is entitled to deference under the principles of Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837, 843-845 (1984), which the court of appeals ignored. HUD's consistent interpretation is, in any event, not only a reasonable construction of Section 8(c)(2)(C) but by far the most natural construction of a statutory mandate of comparability that is not qualified in any way. /14/ To be sure, one can debate in any particular case whether the comparability study accurately identifies a material difference between assisted and unassisted rents. But the Ninth Circuit's judgment forbids all comparability studies whose effect is to deviate from the AAAFs, no matter how accurate the study may be in any particular case. /15/ Even if we assumed, arguendo, that Section 888.204 represented an interpretation of Section 8(c)(2)(C), the reasoning of the Ninth Circuit would still be wrong. That regulation applies to cases in which the formula-based rent is too low, not to cases like this one in which the formula-based rent is too high. More important, the regulation would only show that one way to carry out the comparability mandate would be to incorporate comparability considerations into the formula used for presumptive rent adjustments. Absolutely nothing in Section 8(c)(2)(C) and 1.9d says that this is the only way to carry them out, and that is what is at issue here. Thus, even if HUD had in fact chosen to implement the comparability mandate in one particular way when rents are shown to be too low, that could not remotely support a misreading of the statute to forbid a different, and sensible, way of carrying out the comparability mandate when application of the formula would result in rents that are too high. For all of those reasons, respondents have been equally mistaken, in the courts below, in relying on HUD's 1978 handbook, which contemplates incorporation of a form of "comparability" into the AAAFs when the rents are too low. /16/ HUD was, before 1988, statutorily authorized to do this for contracts entered into on or after October 1, 1981. 42 U.S.C. 1437f(c)(2)(D); see 42 U.S.C. 1437f note (effective date); 12 U.S.C. 3701 note (same). But see Pub. L. No. 100-242, Section 142(e), 101 Stat. 1850 (repealing Section 8(c)(2)(D)). The proposed rules would have applied that methodology to contracts entered into before October 1, 1981. /17/ The General Counsel of HUD, John J. Knapp, testified at the hearing and made clear at the outset of his testimony that the complaints that Mayer and his counsel had aired were different from the complaints about the cost-based rule that was the subject of the hearing. 1984 Hearing, supra, at 99. /18/ Congress was aware of that practice not only because of the live testimony at the hearing but also because HUD submitted, and the committee published as an appendix to the hearing, the opinion of the district court in this case upholding the use of comparability studies. 1984 Hearing, supra, at 151-159. /19/ When it enacted the Sec. 8 program, Congress intended that rents for project-based assisted projects would be reduced only if the published Automatic Annual Adjustment Factor ("AAAF") was negative; reflecting a noticeable general downturn of rents in the market area. Although no negative adjustment factors have been published to date, HUD field offices have been making capricious individualized rent reductions nonetheless. Further, such reductions and other rent limitations have been made on an ad hoc and arbitrary basis in the absence of published procedures that could assure a consistent policy. To eliminate these arbitrary practices not justified under current law, Sec. 142(d) (the provision adding the second new sentence to Section 8(c)(2)(C)) prohibits reductions in rents in effect on or after April 15, 1987, unless the project has been refinanced and the monthly mortgage payments have been reduced. H.R. Rep. No. 122, 100th Cong., 1st Sess. 32 (1987) (emphasis added). APPENDIX