National Housing Law Project Housing Law Bulletin

HUD Multifamily Inventory Weathers Post-Veto Uncertainty

The approach taken by that that resolution, actually the fourth of the year, posed problems for the HUD-assisted multifamily programs if pursued for any length of time because it based funding levels on a percentage of the final post-rescission FY 1995 levels. Those funding levels for both the Title VI preservation program ($175 million) and Section 8 renewals ($2.16 billion) covered a much smaller number of units emerging during FY 1995 from the preservation processing or expiring Section 8 contract pipelines than would be flowing during FY 1996. Those FY 1995 levels would not come close to covering the needs for FY 1996.² Without recognition of this essential difference in the next continuing resolution, and the provision of funds at the full FY 1996 funding levels, HUD would run out of funds to meet the flow of threatened HUD inventory at some point in the near future.

On January 26, Congress finally passed another continuing resolution, "The Balanced Budget Downpayment Act" (H.R. 2880),³ providing the necessary funds at FY 1996 levels to preserve the privately owned multifamily stock, at least until March 15. This continuing resolution also contains a patchwork of rules, some of which apply for the rest of the fiscal year, not just until March 15. As of March 1, it appears that the desire of both the Administration and Congress to avoid another government shutdown will yet produce another continuing resolution, but this time providing funding at full FY 1996 levels for the remainder of the fiscal year.

This article reviews the status of each of the major categories of privately owned HUD-assisted multifamily housing in light of these changes and other recent developments.

The Title VI Preservation Program

Apart from the funding, this latest continuing resolution included some, but not all of the "administrative provisions" and "provisos" of the FY 1996 appropriations legislation. For the Title VI preservation program, none of the revisions of H.R. 2099 (such as restoration of the prepayment right or the sales priority) were included.⁴ Thus the effect was to provide funding to implement the existing Title VI program, which HUD has used to fund only part of the queue awaiting funding, focusing first on those developments that can otherwise prepay and convert, i.e., sales reaching the end of their six-month waiting period. HUD has given these purchasers the option to choose whether to close these transactions using the original financing framework of the old Title VI program (Section 241(f) acquisition loans and Section 8 subsidies), or to use a "capital grant" format authorized under existing law but rarely used until recently. Most purchasers have elected the capital grant, primarily due to the uncertainty surrounding the future prospects for renewal of expiring five-year Section 8 LMSA contracts. Since the first approved but unfunded owner extensions (refinancings with incentives) do not reach a conversion point until April 1996, resolution of their fate awaits the funding and rules to be provided under the next continuing resolution.

As of February 23, HUD had spent about $200 million during FY 1996 for preservation projects, leaving a growing unfunded queue consisting of about 25 sales projects and almost 200 extensions, all of which have approved plans with varying prepayment dates if funding is not provided.

Both the House and the Senate have passed differing versions of an "extender" bill relating to a number of HUD programs.⁵ The House version of the bill requires HUD to operate the preservation program under the revisions made in H.R. 2099. Thus, the program would become voluntary for owners, who could then otherwise prepay, and developments being sold to tenant-endorsed nonprofit purchasers would receive a funding priority.⁶ The extender bill, however, also extends by six weeks the applicable dates for permitting owners to "switch" to a sale plan (March 1 changed to April 15), for ending a funding priority for sales (July 1 changed to August 15), and for determining when HUD must consider certain specified priorities for any remaining funds (August 1 changed to September 15). The Senate may soon consider this "pre-conferenced" version on the unanimous consent calendar.

Next Steps. HUD has only $22 million on hand as of the end of February to fund about $700 million worth of approved plans. The continuing resolution for the period beginning March 16 should provide an additional $400 million or so, along with the program revisions initially contained in H.R. 2099. This should be sufficient to fund all of the sales projects approvable during this fiscal year, and probably all approved extensions with prepayment dates arriving during this fiscal year. Whether it will also be enough to cover the voucher costs for protecting tenants in any prepaid unit will depend upon the volume of prepayments, if and when Congress restores the prepayment right.

The vetoed FY 1996 appropriations bill (H.R. 2099) requires HUD to suspend processing of transactions without approved plans, effectively pushing Congress toward a sunset of the preservation program unless subsequent legislation keeps it alive. During the appropriations process for FY 1997, and perhaps in an authorizing bill dealing with preservation (which no one on Capitol Hill seems to be working on), the continued survival of program funding levels, and perhaps further program revisions, will no doubt be addressed. HUD has again requested to kill the program for FY 1997, seeking no funding, and the Office of Management and Budget (OMB) has even refused to request funds to protect tenants who would be displaced by prepayments. HUD's budget request (per OMB) also reportedly seeks rescission of $200 million from any FY 1996 funds that Congress may soon provide.

Expiring Project-Based Section 8 Contracts

While the continuing resolution sets funding at the pro rata share of the FY 1996 level for the period prior to March 15, the administrative provisions last for the rest of the fiscal year, until September 30, 1996.⁷ Whereas both the vetoed appropriations bill and the continuing resolution give HUD the discretion to convert all 8,000 expiring Section 8 Moderate Rehabilitation units to vouchers, the Senate's version of the extender bill⁸ appears to provide one-year rollovers at the owners' option, not HUD's, similar to the treatment for all other expiring Section 8 developments. The House version of the extender bill, as passed by the House, gives HUD the discretionary authority to renew expiring Section 8 Moderate Rehabilitation contracts for one year. This version is likely to become law, so HUD would control the renewal decision.

Next Steps. The continuing resolution for the period beginning March 16 will address the funding level for contract renewals for the remainder of the fiscal year and perhaps resolve the issue of the treatment of Section 8 Moderate Rehabilitation contracts.

The Senate Housing Subcommittee's intended authorizing bill now under development may determine the content of Congress' renewal policy. Key issues will include which projects are covered, the nature of the subsidy and restrictions that continue after any mortgage restructuring, the number of units preserved, the allocation of program costs between tenants and the government, who controls the developments, responsibility for the regulatory role, how to address substandard developments and nonperforming ownership, and the nature of the process for making these decisions. This Senate proposal could be enacted directly or be tacked onto any other legislation with a greater chance of passage (such as the FY 1997 appropriations bill). The House apparently has no current plans to develop an expiring contract proposal of its own this spring. Due to the legislative logjam of this election year, it is entirely possible that authorizing legislation raising contentious policy issues will not be able to move forward on its own. The need to secure necessary consents could give greater incentive to compromise as proposals move forward, or may force any proposal to be smaller in scope.

Congress' policy on some of these issues raised by expiring Section 8 contracts may well be influenced by whatever Congress decides to do in the public housing area via its pending authorizing bills (H.R. 2406 and S. 1260). The public housing decisions on the Brooke Amendment⁹ and income targeting of the units may have great weight, since the Section 8 stock currently serves tenants with similar incomes.

HUD has stated its intention to produce a legislative proposal on "Portfolio Re-engineering" (nee "Mark to Market") early this spring. This follows on the heels of four meetings held by HUD between mid-January and mid-February to once again hear constituency views on the topic, and where HUD failed to present any elaboration of its likely position. In its most recent draft of the Reinvention Blueprint (Jan. 24, 1996),¹⁰ HUD essentially rejuvenated its "Mark to Market" proposal from last year, with greater emphasis on transfer of the decision-making power about the form of the replacement subsidy (tenant-based or project-based) to local governments. That draft also notes that, regardless of the policy approach and if contract renewals are reduced to one-year terms, the price tag for renewal of the same number of units in the year 2002 will rise to $20 billion, equal to the entire current HUD budget. HUD's suggested remedy for this $20 billion problem is that renewals be taken off the budget, an approach that has yet to find key support on Capitol Hill.

The National Alliance of HUD Tenants (NAHT), one of the HUD forum participants, has prepared a position paper setting forth strong positions against displacement and rent increases, together with concrete ideas to save funds, improve operations and empower tenants.¹¹ NAHT also spearheaded a sign-on letter to Secretary Cisneros on a handful of central issues where many diverse constituencies agreed, urging HUD to maintain a strong federal role and project-based assistance, not to allow rents in older regulated units to rise to market levels, and to develop specific solutions for troubled projects.

The fate of Congress' proposed small-scale "Mark to Market" demonstration that was contained in the original FY 1996 appropriations bill (vetoed in December) remains unclear. HUD opposed the demonstration concept, and now that several months have passed without enactment, Congress (particularly the Senate) must decide in the next continuing resolution whether it still supports a demonstration, or whether it prefers to develop a policy without demonstration data.

Commencing the FY 1997 budget process, OMB's decision on HUD's appeal of the HUD budget passback contains $4.26 billion for Section 8 contract renewals, both tenant- and project-based. This figure is about $111 million less than HUD's appeal; we have no information about any explanation for the discrepancy.

Projects With HUD-Held Mortgages or That Are HUD-Owned

Next Steps. The continuing resolution for March 16 through the end of the fiscal year will probably contain the remainder of FY 1996's discretionary funding for these developments. The authorizing proposal being developed by the Senate Housing Subcommittee will also probably cover developments with HUD-held mortgages that have expiring Section 8 contracts. Finally, the FY 1997 appropriations bill will also determine funding levels and any additional rules for HUD's activities affecting this stock. OMB's final decision on HUD's FY 1997 budget again provides no funding for these needs.

HUD continues to plan to divest itself of servicing responsibilities with respect to HUD-held multifamily loans, under authorities previously obtained from Congress. HUD is moving forward with policies and plans to sell HUD-held mortgages on "partially-assisted" developments that have Section 8 covering less than half of the units. One such sale of 157 loans is scheduled for April. HUD is also moving along with a demonstration program to transfer HUD-held subsidized loans to three State Housing Finance Agencies (Pennsylvania, Missouri, and Maryland), with an intent to expand the program to other agencies in the near future.

Given the nature of the funding and programmatic challenges of 1995, survival represented a tremendous success for tenants and advocates. As the budget noose tightens, all of HUD's programs will continue to face enormous pressures. The challenge during this coming year will be to preserve funding and protections for as much of the multifamily stock as possible, so that future Congresses will have the opportunity to focus on preserving this inventory and to meet the needs of its current and future low-income residents.

1. See Conference Agreement Defers Fundamental Decisions on Project-Based Section 8, 25 HOUS. L. BULL. 205 (Dec. 1995), and HUD Preservation Program Survives Appropriations Conference, 25 HOUS. L. BULL. 200 (Dec. 1995).
2. The FY 1996 appropriations bill provided substantially higher funding levels for this increased flow, effectively more than $700 million for the Title VI program and $4.35 billion for renewing expiring Section 8 contracts (both tenant- and project-based), even though contract renewal terms were reduced to one and two years.
3. The Balanced Budget Downpayment Act I, Pub. L. No. 104-99, 104th Cong., 2d Sess. (Jan. 26, 1996).
4. For a refresher on the program revisions wrought by H.R. 2099, see HUD Preservation Program Survives Appropriations Conference, supra note 1.
5. S. 1494. The Senate version of the extender bill passed by unanimous consent on January 24 (142 CONG. REC. S351), and the House version passed on the suspension calendar on February 27 (142 CONG. REC. H1290). The House version must still be approved in the same form by the Senate, which should happen very soon.
6. See HUD Preservation Program Survives Appropriations Conference," supra note 1.
7. Pub. L. No. 104-99 (Jan. 26, 1996), § 405.
8. S. 1494, supra note 5.
9. See The Brooke Amendment Should Not Be Repealed elsewhere in this issue.
10. See HUD Reinvention Blueprint II Sounds Many Old Themes elsewhere in this issue.
11. To obtain a copy, contact NAHT at 353 Columbus Avenue, Boston, MA 02116, Tel. (617) 267-9564.
12. Pub. L. No. 104-99, supra note 3, § 401.