President's Rural Housing Service Budget is a Disappointment for the Poor

The President’s FY 01 budget proposes a significant increase of nearly $790 million for the Rural Housing Service (RHS) programs. Most of that increase, however, comes in the programs serving moderate-income households. The programs serving low-income households are by and large scheduled for only very modest increases or, in some cases, decreases in funding.

The biggest proposed increase comes in the guaranteed single family home loan program, which will increase from $3.2 billion to $3.7 billion. Because this program merely guarantees market rate loans made by private lenders for the purchase and construction of single family homes in rural areas, it serves predominantly moderate-income households. The Section 502 direct loan program, which serves low- and moderate-income households through the use of an interest subsidy, is scheduled to receive a $139 million increase, from $1.161 billion to $1.3 billion. At least 40 percent of the funds appropriated for the program must serve households with incomes at or below 50 percent of area median income.

The Section 515 Rural Rental Housing Program, which serves mostly low- and very low-income households, is scheduled to receive only a $6 million increase in appropriations, going from $114 million to $120 million. The primary subsidy mechanism associated with the program, the Rental Assistance Program, is slated to increase by $40 million from $640 million to $680 million. Most of that increase, however, will be used to renew expiring Rental Assistance contracts and to finance preservation equity or transfer loans.

By contrast, the Section 538 guaranteed multi-family rental housing loan program, which serves moderate-income households, is scheduled to double in size from $100 million to $200 million under the President’s proposed budget. In addition, the budget signals the Administration’s intention to eliminate a statutory provision that requires that a shallow interest subsidy be provided to 20 percent of the projects financed by the program because "in most cases, the tenants this program serves have incomes high enough to guarantee sufficient cash flow to borrowers to allow them to pay back the loan."(1)

The remaining RHS programs are slated for modest increases or cuts, with most of the cuts occurring in programs that received a special supplemental appropriation in FY 00 to assist families who were residing in areas that suffered from Presidentially declared natural disasters. If should be noted that, overall, these programs are so modest in size that the funding increases or decreases are not overly significant in the RHS budget. One such program, the Section 504 home repair loan program for very low-income homeowners, will decrease in size from $48 million in FY 00 to $40 million in FY 01. This is due to the fact that the program, originally funded at nearly $33 million in FY 00, received a $15.6 million supplemental appropriation in FY 00 for disaster assistance loans. The companion Section 504 home repair grant program, which is limited to elderly households and is funded from an account that includes other RHS grant programs for compensation for construction defects and supervisory and technical assistance grants, is also scheduled for a decrease in funding from $38 million in FY 00 to $30 million in FY 01. This is also due to the fact that the program received a $12 million infusion in FY 00 for grants to individuals who were affected by natural disasters. If the special disaster appropriation is excluded, the program will increase from $26 million in FY 00 to $30 million in FY 01.

The Section 514 and 516 farm labor housing loan and grant programs will be combined under the administration’s proposal into a single flexible account of $50 million that will enable the administration to decide how to expend the funds between the programs. Nominally, the budget proposes that $30 million be made available in Section 514 loans, $15 million in Section 516 grants and $5 million in migrant farmworker hardship grants. This is only a $3 million increase over the FY 00 appropriations that provided $30 million for Section 514 loans, $14 million for Section 516 grants and $3 million for domestic farm labor disaster grants.

The Section 523 and 524 site development loan programs will both be held at FY 00 levels of $5 million each. The rural housing preservation grant program, authorized by Section 533, will increase from $6 million to $8 million while the supervisory technical assistance grant program will decrease from $2 million to $1 million.

The only other program slated for a significant budget increase is the Section 523 Self Help Technical Assistance Grant Program. The administration is proposing to increase the appropriations for the program, which has enjoyed widespread support due to its capacity to assist very low-income households through its sweat equity component, from $29 million to $40 million dollars.

Since the President’s budget is only the opening move in a protracted budget process that will play out in Congress over the next 10 months, it is premature to predict how the RHS programs will ultimately fare. This is particularly true in an election year. While it is gratifying to note that the agency’s overall budget is supported by the Administration and is slated for a significant increase, it is very disappointing that only one of the programs directly serving low- and very low-income households is proposed to receive a significant increase in funding while all the rest are slated to remain at effectively the FY 00 levels.