As I write this column, the Senate is close to considering the omnibus appropriations bill to fund HUD and other programs for FY 03/04. Passed by the House of Representatives December 8, 2003, the spending bill (HR 2673) included last-minute changes that angered Senate Democrats who blocked final passage. The Senate was scheduled to vote to cut off debate on its bill (S. 1427) January 20. Agencies affected by the bill are operating under a continuing resolution, approved by congress, which maintains fiscal year 2003 funding levels through January 31. Ironically, the scheduled vote in the Senate is the same date as President Bush’s annual State of the Union address, when the President will outline his proposed budget for FY 04/05. Discussion of the FY 04/05 budget will begin in earnest well before the FY 03/04 budget is finally completed.
The $820 billion in total spending passed by the House contains some big victories and some setbacks for the affordable housing industry. Most significantly, it included more than $17 billion for Section 8 voucher and project-based renewals. Section 8 vouchers help very low-income families rent or purchase decent and affordable housing throughout the nation. National Housing Conference (NHC) members and affordable housing advocates nationwide lobbied hard to preserve funding for affordable housing for America’s working families after the Bush Administration proposed converting the program to state-run block grants.
NHC president and CEO Conrad Egan said, “While NHC member efforts aimed at preserving housing vouchers were heard by members of Congress, we must continue to work hard in the New Year to secure the future of HOPE VI, as well as other integral housing programs.”
The HOPE VI Program was developed as a result of recommendations by the National Commission on Severely Distressed Public Housing, which was charged with proposing a National Action Plan to eradicate severely distressed public housing. The Commission recommended revitalization in three general areas: physical improvements, management improvements, and social and community services to address resident needs.
Saving HOPE VI
The Administration’s FY 2004 budget proposal did not include funding for new housing vouchers or the HOPE VI program, but efforts of affordable housing advocates led to continued funding of these programs. The House bill approved $150 million for the HOPE VI program, which helps replace distressed public housing with mixed-income communities. That’s considerably less than the $424 million approved in FY 2003 but 100 percent more than that requested by the Administration.
While congressional efforts late last year focused on passing a major Medicare Reform bill, the House and Senate succeeded in passing their respective HUD spending bills. The full House approved a $328.1 billion discretionary FY 2004 omnibus spending bill, $37 billion of it for HUD. This is $98 million more than the Administration’s budget request. If the omnibus spending bill is approved by the Senate, the funding of the Section 8 voucher program will represent an increase of almost $1 billion over FY 2003. Other funding provisions include:
- $783 million for Sec. 202 housing for the elderly
- $241 million for Sec. 811 housing for the disabled
- $1.123 billion for homeless assistance grants
- $277 million for housing opportunities for persons with AIDS (HOPWA)
- $649 million for Indian housing block grants
The HOME program would receive more than $2 billion, including $40 million for house counseling, and $87.5 million for the new American Dream Downpayment Act (S. 811), which President Bush signed into law December 16.
The American Dream Downpayment Act allows HUD to provide down payment assistance to low-income and first-time homebuyers. The greatest obstacle many families face is money for down payments on first homes. The Act authorizes $200 million each year from 2004 through 2007 for an initiative that will provide a maximum downpayment assistance grant of either $10,000 or 6 percent of the home’s purchase price, whichever is greater. HUD estimates the initiative will help as many as 40,000 low-income, first-time buyers. As much as 20 percent of the funds may be used for home repairs. For information on the formula allocations and jurisdictions under S. 811, see www.taxcredithousing.com.
The newly passed American Dream Downpayment Act includes two other important provisions. First, it will increase Federal Housing Administration (FHA) loan limits for the construction of multifamily housing in high-cost areas. This will increase private construction of affordable rental housing in the nation’s high-cost urban and suburban areas like Boston, New York and San Francisco. The per-unit maximum loan limit would increase from $194,190 to $218,465, which means the per-unit loan limit for a typical two-bedroom apartment in a high-cost urban area would rise from 136,749 to $153,843. Second, the bill provides a technical correction to the FHA’s Adjustable Rate Mortgage program intended to make the product more available to consumers.
According to the Housing Assistance Council (HAC), most USDA Rural Housing Service (RHS) programs did well in the House approved bill, with level funding or increases. Under the House approval, there is an increase of more than $300 million for Sec. 502 single-family direct loans. Sec. 521 rental assistance will receive $584 million in 2004, down from $721 million in 2003, but, reports HAC, this is because the 2004 funds are for four-year rather than 2003’s five-year contracts. A new provision allows 2004 unexpended rental assistance balances to be used for debt reduction, maintenance, repair, preservation or new rental assistance. Selected RHS funding levels in the bill include $116.5 million for Sec. 515 rental housing, instead of a proposed cut to $71 million and $35 million for Sec. 504 repair loans and $32 million for 504 grants.
Among numerous bills not passed, H.R. 3485, the Affordable Housing Preservation Tax Relief Act of 2003, would authorize states to allocate preservation tax credits to owners of affordable housing properties willing to sell those properties to new owners committed to preserve them. Taxes that sellers would otherwise face, so-called “exit taxes,” have discouraged sales to buyers committed to preserving the properties. State allocating agencies would be responsible for qualifying new owners, calculating the amount of tax relief due the owner and monitoring compliance with the bill’s affordability requirements.
Several ongoing issues continued to gain support in Congress, including the National Council of State Housing Agencies’ supported legislation, H.R. 284 and S. 595, the Housing Bond and Credit Modernization and Fairness Act. Introduced by Reps. Amo Houghton (R-N.Y.) and Richard Neal (D-Mass.), and Sens. Orrin Hatch (R-Utah) and John Breaux (D-La.), the bills make critical changes to the Mortgage Revenue Bond (MRB) program and the LIHTC program. NCSHA hoped to win passage of this legislation when Congress reconvened in January.
With some good wins under its belt in 2003, the industry faces a challenging year ahead. As we monitor the final completion of the FY03/04 housing budget in the coming weeks, we need to closely assess the President’s Fy 04/05 budget proposal. We have the momentum and the prospects to build on our recent successes and continue to increase the number of opportunities for providing decent, safe and affordable housing for those who need it most.
Author: Michael J. Novogradac is a managing partner in the San Francisco office of Novogradac & Company LLP, a national consulting and certified public accounting firm that provides a full spectrum of attest, tax, valuation, market research and consulting services to affordable housing developers, syndicators, lenders and investors information and education.