National Housing Law Project Housing Law Bulletin

The Administration’s Fiscal Year (FY) 2000 budget proposes $6.32 billion for the USDA’s Rural Housing Service (RHS), which administers the Department’s rural housing programs. The proposal is a 10-percent increase over last year’s appropriated level of $5.69 billion./1/

Over half of the proposed increase is directed to the Section 502 Single-Family Home Loan program which authorizes RHS to make direct loans to low-income households and guaranteed loans to low- and moderate-income households. Under the budget, the direct loan program increases from $965 million in the current fiscal year to $1.1 billion in FY 2000. The guaranteed loan program is proposed to increase from $3 billion to $3.2 billion.

The Section 515 Rural Rental Housing program, which funds loans for the construction or rehabilitation of rental housing for very low-income and low-income households, is slated for yet another cut in funding from the current level of $114 million to $100 million. Program funding has been reduced drastically over the last several years because of abuses by for-profit owners that were discovered in 1994-95. While most of these abuses have been curtailed, the program has fallen into disfavor and the proposed funding reduces the program to a level where its continued viability is severely threatened. The cut in the program will have a particularly adverse impact on very low-income households because the Section 515 program, with its Rental Assistance subsidy, serves, households with an average annual income of approximately $7,300. While the proposed amount may fund as many as 1,900 new rental units and rehabilitation of an additional 2,400 units nationwide, it is likely that fewer units will actually be constructed or rehabilitated. This is because RHS may seek congressional approval to divert some of the funds to existing owners of Section 515 housing who have been promised equity loans in return for not prepaying their RHS mortgages. Some of these owners have been waiting for more than two years for their loans and are mounting pressure on Congress to modify the Rural Rental Housing Preservation Program that was enacted in 1987.

The Section 521 Rental Assistance Program subsidizes rents in Section 515 units to the point where tenants do not pay more than 30 percent of household income for rent. Rental Assistance Contracts are usually five-year contracts between RHS and the owner. In the current fiscal year, the Rental Assistance program was funded at $583 million. In FY 2000, the Administration proposes to cut the program to $440 million. At the same time, however, it proposes to provide the program an additional $200 million beginning October 1, 2000, which technically is the first day of Fiscal Year 2001. It is not clear from the budget documents whether the $200 million that the budget proposes to make available on October 1, 2000, will come from FY 2000 appropriations or FY 2001. More importantly, the budget documents do not disclose the number of Rental Assistance Contracts that expire in FY 2000 and whether the $440 million that is being proposed will be sufficient to renew those contracts. Moreover, it is not clear what amounts, in addition to the $200 million that is proposed to be made available on October 1, 2000, will be needed to renew the contracts that expire in FY 2001.

Funding for the Section 538 Rental Housing Guarantee program is proposed at $100 million for FY 2000, a $25-million increase over the current year. The budget indicates that the Administration will seek an additional $100 million if Congress repeals the requirement that 20 percent of the units financed under the program receive a shallow subsidy called interest credit. The elimination of this subsidy makes it likely that the program will serve only moderate-income households unless the projects are developed using Low-Income Housing Tax Credits or additional subsidies are made available from such sources as the CDBG or HOME programs.

The budget proposes that the remaining RHS programs receive modest funding increases. If the budget is adopted, the Section 514 Farm Labor Housing program will increase from $20 million to $25 million; the Section 516 Farm Labor Housing Grant program will increase from $14 million to $15 million; the Section 504 Home Repair Loan program will increase from $25 million to $32 million; the Section 504 grant program will increase from $20 million to $30 million; Section 523 Self Help Technical Assistance grants will increase from $26 million to $30 million, and the Section 533 Housing Preservation Grant program will increase from $7 million to $9 million.

The House Agricultural Appropriations Committee, which recommends appropriations for the entire Department of Agriculture, including RHS, has scheduled hearings for March 11 on rural development programs, including the RHS rural housing programs.

1    Budget of the United States Government Fiscal Year 2000, U.S. Department of Agriculture, Rural Housing Service (Feb. 1999). The Budget is accessible over the Internet at www.access.gpo.gov/su_docs/budget/index.html.

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