National Housing Law Project Housing Law Bulletin

Responding to the growing rate of conversions of privately owned subsidized properties in the Twin Cities area and nationwide, Congressman Bruce Vento (D-MN) recently introduced the "Housing Preservation Matching Grant Act of 1999" (H.R. 425) in the 106th Congress. The bill seeks to restore some federal role in preserving existing federally subsidized or assisted properties that face conversion to market-rate use, a role that had been largely abandoned by Congress’ withdrawal of funding from the Title VI preservation program (the "Low-Income Housing Preservation and Resident Homeownership Act of 1990" or "LIHPRHA") for fiscal years 1998 and 1999, in tandem with its 1996 restoration of owners’ right to prepay. Since 1996, according to data compiled from HUD sources by the National Housing Trust, about 100,000 units have been lost to the federal low-income stock through owner prepayments, "opt-outs," or foreclosures and Section 8 contract terminations. A federal funding role is absolutely essential to preserving any of the at-risk stock, since state and local resources can rarely cover all of the financial needs for rehabilitation and owner equity.

H.R 425 has been referred to the House Committee on Banking and Financial Services. In early February, Congressman Jim Ramstad (R-MN) agreed to co-sponsor the bill. It is considered a "placeholder," expected by its authors to be revised as it proceeds through the legislative process. Tenants, advocates and other interest groups are in the process of reviewing the legislation to make recommended changes.

The basic design of the bill seeks to address some of the criticisms of the LIHPRHA program, such as high aggregate and per-unit costs, lack of state and local participation, highly regulated federal processing, and poor targeting to developments most at risk.

As initially drafted, H.R. 425’s key elements include:

o Provision of HUD grants to states for preservation of "at risk" HUD developments;

o Limitation to cover most privately owned properties that are either HUD-insured and -subsidized, subsidized with state agency loans, have HUD-held loans but formerly were subsidized, or have project-based Section 8;

o Use of funds for capital (including acquisition and rehabilitation) or operating costs, or for "preservation incentives";

o Imposition of use restrictions in exchange for receiving new funds would include waiver of prepayment restrictions and an extension of affordability commitments (rents, rents contributions, and occupancy limitations), as well as a commitment to extend Section 8 for maximum available contract terms;

o HUD may limit state's grant allocation to a need-based share of the funds (presumably based on numbers of properties and units);

o The required match would need to be at least one state or local dollar for every two federal dollars (as drafted, the countable state matching funds could not include funds made available under state-controlled but federally connected resources, such as Low-Income Housing Tax Credits, tax-exempt mortgage revenue bond financing, or HOME funds);

o States would apply to HUD for the funds, which they would then allocate to specific properties;

o HUD would make the general program rules;

o Authorized funding levels would be "such sums as necessary," so the annual appropriations process would effectively determine the size of the federal resource pool.

Some of these elements raise significant issues, either because of their impact upon sound preservation policy, prospects for sufficient political support from key constituencies, or the public sector’s ability to successfully administer such a program. Controversial items include the matching requirement, both how much and what counts as a state and local contribution. States will undoubtedly seek a more flexible approach, with more resources countable than the current draft allows. Many still view this as a federal problem and have little in the way of state or locally created resources to allocate for this purpose, and even less prospect of creating any at the state and local level. Another area for debate will probably include the applicable use restrictions accompanying the new funds, with some owners and possibly some states advocating shorter terms and weaker restrictions.

Many housing advocates favor broad eligibility for the funding, covering buildings at risk from a variety of causes, not just high-equity conversion candidates that tend to be concentrated in hot market areas. Buildings at risk of loss via disqualification or foreclosure due to substandard conditions or owner violations should also be eligible. In combination with other available resources, these buildings may lend themselves to cost-effective preservation strategies with substantial local involvement.

Many housing advocates also favor a broader match to enlist sufficient political support from states that are unlikely to have or to develop their own resources. States or local governments that commit their own resources should receive more liberal terms in the matching process, so that relatively higher federal contributions in those areas would encourage targeting of new state and local funds for this purpose.

In addition, in an era of insufficient resources to meet all of the needs, strong and long-term use restrictions that protect both the tenants and the future affordability and availability of the housing are especially important. These will ensure that scarce funds are well-spent on lasting solutions, rather than temporary palliatives. A commitment to renew any project-based Section 8 subsidy contract will be especially vital to ensure availability to those most in need. In many cases, these goals may point toward transfers to tenant-endorsed nonprofit purchasers as the most appropriate approach.

At this point, advocate and tenant groups remain optimistic that H.R.425 can provide a rallying point to force the federal government back into the preservation picture. It could provide an essential preservation resource in tandem with current efforts to encourage HUD to exercise its statutory authority to "mark up" expiring Section 8 contracts toward market to preserve stable housing,. Although the bill’s fate may well be tied up in the overall negotiations concerning the future of the existing crippling budget caps on domestic discretionary spending, H.R.425 remains an important vehicle to highlight local preservation needs and the federal role in addressing them. The bill’s sponsors are now circulating a "Dear Colleague" letter soliciting additional co-sponsors.

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