National Housing Law Project Housing Law Bulletin

Analysis of Proposed Changes in HUD's
Community Planning and Development Programs¹

Introduction

This article reviews HUD's proposed changes in the programs of its Office of Community Planning and Development.² It also discusses an earlier draft³ of these proposals because other organizations and members of Congress are likely to raise some of the ideas contained in that draft. Finally, it looks at proposals for change made by the National Association of Housing and Redevelopment Authority Officials (NAHRO).⁴

Overview of HUD's Proposals for Changes in Its Community Planning and Development Program

HUD proposes to fundamentally restructure federal funding programs for the development of low-income housing. All current funding for these programs would be eventually consolidated into three block grant programs: the Housing Certificate Fund (a tenant-based assistance program in place of all current Section 8 programs and project-based assisted housing;⁵ the Affordable Housing Fund; and the Community Opportunity Fund. Housing Opportunities for People with AIDS and Homeless Assistance block grant funds would be merged with the Affordable Housing Fund in years 1998 and 2000 respectively.

Affordable Housing Fund. The Affordable Housing Fund (AHF) is intended to help communities increase the supply of affordable rental and homeownership housing, and to provide rental assistance for America's poor and vulnerable populations, including the elderly and the disabled. HUD proposes folding the following major programs into the AHF: HOME, National Homeownership Fund, Housing Counseling Program, elderly housing (Section 202), housing for the disabled (Section 811), HOPE II, HOPE III, and the Lead-Based Paint Hazard Reduction Program. HUD's budget proposal requested for Fiscal Year 1996 is an amount approximately equal to the total appropriations, prior to rescission, for these programs in FY 1995. State and local participating jurisdictions will be expected to use their AHF funds in accordance with their Consolidated Plans.⁶ HUD intends to use the current HOME program as the basis for distributing the Affordable Housing funds and to maintain the existing statutory requirements and protections with only a few amendments necessary to accommodate folding in some of the new programs. Funds would be distributed to state and local governments in accordance with the current formula of approximately 40 percent to participating jurisdictions and 60 percent to states on the basis of need. HUD intends to expand the existing uses of funds to include supportive services, service coordinators, housing counseling, public housing modernization, and project-based rental assistance and operating subsidies.

Homeless Assistance Fund. HUD's Homeless Assistance Fund (HAF) would consolidate the six McKinney Act homeless programs into a single fund to enable localities to develop a "comprehensive, flexible, coordinated continuum-of-care approach to solving, rather than institutionalizing, homelessness."⁷ The HAF will be consolidated into the Affordable Housing Fund by the year 2000. The Consolidated Plan (ConPlan) is intended to serve as the basis for allocating HAF funds. In addition, communities will be required to create a local board, including homeless providers representing a broad range of subpopulations, advocates, representatives of the business community, and homeless persons. These local boards are to develop a more detailed plan for a comprehensive homeless assistance program than is in the ConPlan.

Community Opportunity Fund. The Community Opportunity Fund (COF) is intended to provide a flexible vehicle for state and local governments to fund community development activities that benefit low- and moderate-income individuals. It will include the following major existing programs: CDBG, the Economic Development Initiative, the EZ/Economic Development Initiative, UDAG Recaptures, Youth Build, Colonias, Early Childhood Development, and the Neighborhood Development and Community Adjustment Planning Program. As with the AHF, the Consolidated Plan will serve as the planning application and reporting mechanism for COF funds. State and local governments will be required to identify community and neighborhood development needs, develop action plans to address those needs (including specific activities on which CDBG dollars will be spent), and establish performance measures. The proposal contains a very strong emphasis on job creation. The current CDBG statute will provide the primary basis for administering the Community Opportunity Fund. HUD presumably will seek any necessary amendments required by incorporating the other programs.

Most housing advocates believe that the proposed consolidations will lead to greater effectiveness and find the overall concept acceptable. Nonetheless, certain aspects of the HUD proposals and other initiatives that are likely to be considered by Congress contain numerous threats to the development and preservation of affordable housing for low-income households and, in particular, low- and very low-income households. These threats include the likelihood of a serious decrease in the total amount of funds available and the deregulation of targeting, affordability, long-term use and other protections.

The March Blueprint offers little detail regarding crucial aspects of implementating these block grant programs and raises significant concerns regarding the ability of the programs to benefit households with the greatest housing needs. This article will analyze the Affordable Housing Fund, identify a few issues concerning the Community Opportunity Fund and the Housing Assistance Fund, and offer some general principles that should be part of any revised Community Planning and Development programs.

The Affordable Housing Fund

The AHF proposals in the March Blueprint are significantly different than HUD's January 23, 1995, draft.⁸ The January draft had deregulated many areas of critical importance to low-income people. It also had different targeting provisions. In its March Blueprint, HUD apparently decided to rely more on the existing HOME and CDBG statutory basis in order to try and minimize public debate, with the hope that this would lead to earlier and faster enactment of the new programs.

It is likely, however, that other housing organizations and House and Senate committees will take positions similar to those in the January 23rd document. NAHRO's proposals, for example, recommend significant deregulation.

NAHRO's proposed affordable housing program would provide a single block grant for affordable housing development and rehabilitation. Its proposal was designed to permit local and state governments to coordinate all federally funded housing development, rehabilitation and service-related activities within a single community housing needs assessment and plan. It would combine programs similar to those recommended by HUD's AHF. NAHRO also recommends a planning process that seems somewhat similar to HUD's Consolidated Plan. It stresses the need for regulatory reform to eliminate HUD's micromanagement and to promote local flexibility.

NAHRO's proposed recommendation for a community development block grant program advocates modification or elimination of the following statutory and regulatory restrictions: the Davis-Bacon Act and Section 3; lead-based paint abatement requirements; site and neighborhood selection standards; environmental review regulations, the Uniform Relocation Act, one-for-one replacement, fair housing plans and provisions affirmatively furthering fair housing.

Major Issues of Concern

The rest of this section reviews eight major issues raised by the AHF of concern to low-income housing advocates. It describes HUD's existing requirements, the March Blueprint proposals, the January 23rd proposals and, where relevant, NAHRO's proposals.

Targeting. Existing HOME regulations require that 100 percent of the renters and homeowners assisted by the funds earn less than 80 percent of area median income. Ninety percent of the rental units assisted must be occupied by households earning less than 60 percent of median income. At least 20 percent of the rental units in each project must be occupied by households earning less than 50 percent of median.

The March Blueprint contains the HOME targeting provisions but would allow a limited portion of the households assisted by AHF funds to earn up to 115 percent of area median income in targeted community development neighborhoods. This increase of up to 115 percent apparently is being recommended because it is the upper income limit served by the National Homeownership Trust program, which is being folded into the AHF.

HUD's January draft document contained similar targeting recommendations with one important additional item. It would have required that 30 percent of the households assisted by the AHF have less than 30 percent of median income.

NAHRO recommends that beneficiaries under its proposal have less than 80 percent of area median income. It would leave all other targeting decisions to the discretion of state and local governments.

Comment. HUD's January 23rd recommendation of specific targeting requirements for extremely low-income households was noteworthy. For the first time, it would have required state and local governments to ensure that families with incomes below 30 percent of area median income be guaranteed program benefits. In most communities receiving HOME funds, the most significant need by far is among families with incomes below 30 percent of median. The Consolidated Plan process requires that there be a linkage between these significant identified community needs and the allocation of housing resources. For a community to adequately address this extremely low-income need would often require that more than 30 percent of the assisted households have incomes below 30 percent of area median. Thus, HUD must enforce the ConPlan's "linkage" requirement and ensure that states and localities view the 30-percent targeting requirement as a floor and not as a ceiling.

Any new program that permits affordable housing funds to be targeted to households with up to 115 percent should limit the amount of funds that can benefit those households. An appropriate amount would be the total amount nationwide that would have been available under the National Homeownership Trust program. This was $50 million in FY 1995. Although households with more than 80 percent of median income sometimes need assistance and it is desirable to attract some higher income households to revitalized areas, other resources are available for these purposes. Furthermore, the limited HUD resources must be spent in accordance with the linkage requirements of the ConPlan which, in most communities, would require that almost all of the funds be spent for households having less than 80 percent of area median, with the greatest percentage being allocated to households with less than 50 percent.

Eligible Activities. The HOME statute allows funds to be used to develop and support affordable rental housing, homeownership affordability and tenant-based rental assistance; to evaluate and reduce lead-based paint hazards; and to support community housing development organizations.

The March Blueprint anticipates a much broader use of the funds. In addition to expanding eligible uses to include the new programs that are being incorporated into the AHF, such as the Section 202 and 811 programs, the proposal mentions many other uses. It states that the AHF could be used for project-based rental assistance and operating subsidies and specifically states that project-based assistance is helpful in the development of housing to serve populations with special needs. Public housing modernization would become an eligible AHF expense after the transition of public housing to tenant-based assistance is complete. Local governments would also be able use AHF funding to support PHAs as long as the need is discussed in the Consolidated Plan. The ConPlan is to examine the need for public housing demolition and disposition, as well as to outline plans for assisting troubled PHAs. It is also possible that the AHF could be used to support assisted housing that does not receive adequate support from HUD's Office of Housing.

In contrast, HUD's January 23rd proposal had essentially limited new activities to those that would result from incorporating new programs into the AHF, such as housing for elderly and disabled tenants and housing counseling.

NAHRO recommends a much narrower use of the funds, and that the program's primary goal be to assist development or rehabilitation of units that will be self-sufficient in maintaining their affordability to low-income people. NAHRO specifically states that tenant-based rental assistance should be left solely to the proposed tenant-based rental assistance program and that the funds should not be used to support existing public housing.

Comment. To increase the eligible uses of the Affordable Housing Fund without increasing the amount of funds available is a shell game. Without making additional appropriations available, it would become even harder to revitalize our neglected communities, would help vulnerable and other low-income populations, and would decrease the likelihood that the HOME fund will be used, as intended by Congress, to increase the number of housing units available to low-income households.

Long-Term Use/Rent/Resale Restrictions. Existing HOME regulations incorporate a series of protections to ensure that rents are affordable to the targeted households and remain affordable for an extended period of time, and that homeownership units are subject to subsidy recapture provisions for similar periods of time.

The March Blueprint would maintain these long-term use restrictions. In contrast, HUD's January 23rd version, would have allowed all decisions regarding, for example, rent restrictions, long-term use restrictions and subsidy limits, to be made by local and state governments.

NAHRO does not specifically address whether there should be use restrictions. Its proposal, however, does state that Congress needs to determine the minimum level of regulation necessary to clarify statutory intent, and suggests that significant cutbacks in existing regulations are needed.

Comment. Deregulation of these critical components would be a mistake. It would permit each locality to fashion its own definition of "affordable housing." As a result, a locality would have the option of considering an assisted unit as "low income" if a low-income household resides in it, even though the household may be paying 70 percent of its income in rent. Likewise, a developer could receive substantial federal assistance for a unit even though the unit may be restricted to occupancy by a low-income family for only the first year.

Tenant Protections. Existing HOME regulations protect tenants from eviction or refusal to renew the lease for other than "good cause." In addition, overreaching terms are prohibited in the lease.

The March Blueprint would leave existing tenant protections in place by building on HOME's statutory requirements. HUD's January 23rd proposal, however, would have allowed all decisions regarding eviction controls and lease terms to be made by local and state governments.

NAHRO's general comments about too many regulations, and its approach to public housing tenants' protections, suggest it would also like to see the programs deregulated.

Comment. Tenants' rights to basic fairness should be preserved, not repealed under the guise of deregulation. These rights were developed in response to abuses by various landlords and local housing authorities. While a few states do provide some tenant protections, most residents do not have the resources to afford to go to court to combat an eviction. Also, taking away these protections is likely to lead to increased tension between tenants and management which will not be beneficial for the development as a whole.

Community Housing Development Organizations. HOME regulations provide for a 15-percent set-aside for Community Housing Development Organizations (CHDOs) for activities directly related to the development of affordable housing. The March and January HUD reinvention proposals increase that set-aside to 30 percent and expand the universe of eligible recipients to include "all types of nonprofits engaged in housing." The March Blueprint specifically names sponsors of elderly and disabled housing and local housing authorities as eligible recipients.

The NAHRO proposal is supportive of efforts to expand the capacity of nonprofit developers, but is opposed to a specific set-aside. It says that a 15-percent set-aside could lead to delays and inefficient spending of funds or might result in the funds going to unqualified organizations.

Comment. An increase in the set-aside for nonprofit developers is a positive measure. However, the HUD proposals would no longer guarantee that Community Housing Development Organizations, as defined and required by the National Affordable Housing Act of 1990, would receive any of the set-aside funds. A better approach would be to earmark 50 percent of the expanded set-aside for nonprofits that meet the statutory definition for CHDOs.

Monitoring and Enforcement. Existing HOME regulations require that tenant incomes be recertified annually and that the projects be monitored for compliance with HOME requirements, including rents, property standards, marketing activities, and occupancy standards, as well as an annual site visit.

HUD's March Blueprint does not provide any real guidance on how it would approach monitoring or enforcement. The January 23rd proposal, however, would have allowed each jurisdiction to develop its own monitoring procedures for rental housing according to locally developed criteria which would be incorporated into the Consolidated Plan.

NAHRO's proposal is silent on monitoring and enforcement. Its approach to regulatory reform, as discussed earlier, suggests its position would be much closer to HUD's January proposal.

Comment. An affordable housing fund that permitted states and localities to monitor themselves without any meaningful federal review or enforcement would be viewed as a license by many communities to simply ignore the federally mandated goals and requirements.

Performance Standards. The HOME statute would require HUD to review Consolidated Plans at least annually. The review is to include, to the extent practical, on-site visits by HUD employees and must include an assessment of the state and local governments' management of HUD funds, compliance with the local Consolidated Plan, the accuracy of the performance report, and general contract and legal compliance. HUD's March Blueprint is fairly vague on performance standards. It refers to a series of performance measures to be developed by HUD, with the locality establishing the actual numbers to be achieved. The specific performance measures are to be created through the ConPlan process to reflect the specific needs and priorities of particular communities. The March proposal also indicates that good performers will be rewarded from a bonus pool equal to 10 percent of the AHF allocation.

HUD's January 23rd proposal had also provided for a 10-percent set-aside for the best performing jurisdictions. The only standard discussed in the January 23rd proposal, however, was a comparison of each community's performance against both its own goals and a type of "national average." In this comparison, the top performers would obtain increased AHF funds, whereas the bottom performers might lose funds. Jurisdictions that performed significantly below the national average would have to explain to HUD why they had performed so poorly and, in those circumstances, could lose some funding.

NAHRO's document states that NAHRO is against federally mandated performance standards. It believes that state and local governments should simply set their own goals and performance measures.

Comment. The Affordable Housing Fund proposal is not a block grant of general revenue sharing. It is a block grant to carry out certain federally recognized housing goals. Failure to require meaningful federal performance standards would encourage local and state governments to ignore the statutory purposes of the AHF and would lead to a significant level of abuse.

Citizen Participation. Existing Consolidated Plan regulations provide for an extensive citizen participation effort to determine the uses of the HOME funds as part of the development of the ConPlan. The March and January HUD proposals both apparently incorporate the existing ConPlan process without any changes. The NAHRO proposal says that each participating jurisdiction would have to undertake with its own citizens a local needs assessment and develop an annual plan to set priorities and to determine how federal and local funds will be used. NAHRO states that the Consolidated Plan would be the model for its recommended process.

Comment. To be effective, the ConPlan process must be driven by a citizen participation element that truly involves low-income residents and communities. Low-income citizens throughout the country have reported a variety of problems regarding citizen participation in the Consolidated Plan and the prior CHAS processes. Many localities have had no more than the minimum number of hearings with little prior public access to the local needs assessment information or to the planned uses of the funds. Unless these concerns are addressed through changes in the ConPlan regulations, abuses would continue.

Fair Housing. The HOME statute and related regulations reiterate the existing commitments to fair housing in the programs funded by the federal government. Both the January and March Blueprints state that HUD must uphold our country's fair housing goals. The NAHRO proposal also supports racial and economic integration in our communities.

The Homeless Assistance Fund and Community Opportunity Fund

Homeless Assistance Fund. The most disturbing aspect of the Homeless Assistance Fund is its scheduled merger into the AHF by the year 2000, and its deregulation within five years. While allowing continued expenditure of AHF funds on the problem of homelessness, such a merger could signal the end of significant federal involvement in targeted homeless activities.

Community Opportunity/CDBG Fund. The CDBG statute permits funds to be used to meet housing needs. HUD's March Blueprint does not require that communities continue to expend COF funds on housing. While the proposal would permit COF funds to be used for housing activities, it does not expressly state that such activities are eligible. There is significant concern that AHF funds would be viewed as the exclusive source of housing funds and that the COF would be used exclusively for non-housing community development needs. This would result in a significant reduction in the funds available for affordable housing.

Comment. Even if COF monies were used to develop housing, HUD's proposal would not ensure affordable rents, long-term affordability or occupancy by low-income tenants. Long-term use and rent restrictions are essential to ensure that units created with public monies for the purpose of meeting the housing needs of low-income households is actually utilized for that purpose.

HUD's proposal does not include any of the tenant protections from arbitrary eviction and landlord overreaching found in the HOME program and incorporated into the AHF, and does not impose any obligation on local governments to offer tenant protections. Residents of COF-funded housing should be accorded the same basic protections as residents of AHF-funded housing. There is no rationale for treating tenants of COF-funded housing any differently.

Principles to Apply in Reviewing HUD Proposals for Changes in Its Community Planning and Development Programs

1. HUD must implement planning policies to ensure that the housing needs of very low-income persons are served by the Consolidated Plan, the Affordable Housing Fund, and the Homeless Assistance Fund and Community Opportunity Fund Programs.

Communities receiving AHF, HAF or COF monies must be required to undertake a planning process at least as comprehensive as the current Consolidated Plan process. Such a process must consist of a needs assessment in which community needs are broken down by income, race and neighborhood. The locality must then develop a strategic plan and annual action plans.

The planning process must also require a linkage, as with the Consolidated Plan, between the various stages of the process — the identification and prioritization of local community needs, the prioritization of needs, the development and implementation of programs, and allocation of resources.

2. The Affordable Housing Fund and Community Opportunity Fund must ensure the continued existence of a linkage between identified local needs and the allocation of resources so that a fair share of the monies are targeted to those households most in need.

Federal programs must continue to require that there be a linkage between the identification of local community needs and the allocation of resources. Jurisdictions should be required to demonstrate that their programs allocate resources to helping those they have identified as most in need, particularly underserved, impoverished minority households and communities.

3. The Affordable Housing Fund should guarantee affordable rents for the longest term feasible.

At a minimum, federal programs must maintain the current level of long-term affordability and rent restrictions. One of the purposes of the National Affordable Housing Act is to retain "wherever feasible as housing affordable to low-income families those dwelling units produced for such purposes with Federal assistance."⁹ Again, one of the purposes of the current HOME program is "to ensure that Federal investment produces housing stock that is available and affordable to low-income families for the property's remaining useful life . . . ."¹⁰ The experience of many states, including California, is that long-term affordability does not deter participation in the program, but rather protects and preserves a vital community asset — high quality, affordable housing.

4. The Affordable Housing Fund and Community Opportunity Fund should maintain and improve the tenant protections of the current HOME program.

The current HOME statute and regulations require that tenants and applicants be treated fairly, and include good cause for eviction and fair tenant selection criteria. These protections must be incorporated into the proposed AHF- and COF-funded programs.

5. There must be adequate monitoring and enforcement mechanisms to ensure that restrictions are complied with and performance standards met.

A citizen-driven ConPlan process is vital to any restructuring proposal. To ensure that the local jurisdictions truly comply with all elements of the ConPlan development process, HUD must incorporate "meaningful minimum standards" to provide guidance to local jurisdictions, their citizens, and to HUD as to the minimum necessary components and "clear standards of review" so that HUD reviewing officials will have the authority and knowledge necessary to require compliance from local jurisdictions.

In addition, HUD must implement adequate federal monitoring and enforcement efforts to ensure that states and localities fully comply with all program requirements. Finally, federal policies must ensure that all of these various rights and obligations are fully enforceable by HUD, local communities, applicants and tenants.

6. The level and quality of citizen participation in the ConPlan process should be significantly increased.

The ConPlan planning process must be driven by a citizen participation element that truly involves low-income residents and communities. Low-income citizens throughout the country have reported a variety of problems regarding citizen participation in planning under ConPlan's predecessor, the Comprehensive Housing Affordability Strategy (CHAS). Unless there are significant changes in the ConPlan requirements, there is no reason to believe that these problems would not continue.

7. The AHF must ensure that fair housing goals are fully met.

Providers of housing and housing assistance must be prohibited from discriminating against applicants or tenants on the grounds of race, color, national origin, religion, gender, the presence of children in the family, household composition, age, disability, sexual orientation, the use of housing assistance, and the level or source of income. Providers of housing and housing assistance must administer programs so that they affirmatively further fair housing.

Federal housing policies, at a minimum, must not increase the disproportionate impact of housing programs on vulnerable populations, including, but not limited to, communities of color, families with children headed by women, and elderly and disabled individuals. Federal policies must ensure that an individual has a right to live in a neighborhood of his or her choice, and that existing deteriorated neighborhoods are revitalized so that they provide a decent living environment.

8. Jurisdictions currently receiving CDBG funds must maintain their continuing commitment to the funding of affordable housing with COF monies.

Jurisdictions currently receiving CDBG funds must be required to meet a maintenance-of-effort requirement for housing unless they can demonstrate that the housing needs of the community are already adequately and fully being met.

1. This article includes analysis done by the LALSHAC Working Group on HOME/CDBG/ConPlan.
2. HUD Reinvention: From Blueprint to Action (Mar. 1995) (hereafter March Blueprint).
3. HUD, Office of Community Planning and Development, New Relations for the Year 2000: A Reinvention Blueprint (Jan. 23, 1995).
4. NAHRO, No Longer Business as Usual: Proposals for Housing and Community Development Programs (1995).
5. See More Details From HUD on Certificate Specifications, 25 HOUS. L. BULL. 67 (Mar. 1995).
6. See Consolidated Plan Regulations, 25 HOUS. L. BULL. 42 (Feb. 1995), which identifies housing needs, actions to address those needs, and performance measurement criteria.
7. March Blueprint, supra note 2, at 24.
8. Supra note 3.
9. Pub. L. No. 101-625, 104 Stat. 4085, § 103(2) (Nov. 28, 1990), codified at 42 U.S.C.A. § 12703 (West 1994).
10. Pub. L. No. 101-625, 104 Stat. 4085, 4095-96, § 203(7) (Nov. 28, 1990), codified at 42 U.S.C.A. § 12722 (West 1994).