National Housing Law Project Housing Law Bulletin

Late-Breaking Senate Appropriation Action

Several dramatic differences from the House version were recorded. The Senate Committee approved: (1) $350 million for Low-Income Housing Preservation and Residential Homeownership Act (LIHPRHA)³ preservation activities (for which the House had approved nothing); (2) a reduction to $3.8 billion in funding for Section 8 expiring contracts; and (3) $50 million in additional funding for public housing operating subsidies.

The Committee consolidated a number of programs in several new accounts, including a "Prevention of Resident Displacement" account that consolidates Section 8 renewals, contract amendments and funds for displacement vouchers; a "Preserving Existing Housing Investment" account that consolidates public housing operating subsidies, modernization funds, revitalization funds for severely distressed public housing (HOPE VII), preservation (LIHPRHA), and drug elimination grants; and a "New Subsidized Housing Account" that includes Section 202 for the elderly and Section 811 housing for disabled people.

The bill permanently deregulates HUD's responsibilities with respect to HUD-held mortgages and HUD-owned projects. Unlike the more selective approach taken by the House, the Senate Committee recommended that all public housing and Section 8 reforms adopted in FY 1995 and FY 1996 be continued in FY 1997. These include repeal of the federal preferences and one-for-one replacement requirements for demolished units, and repeal of tenant-based Section 8 landlord "take one, take all" and "endless lease" provisions.

In contrast to the bill passed by the House, the Senate version included more extensive administrative provisions. For example, the Committee recommends a simple extension of current law⁴ which provides for a $25 minimum rent, with PHA authority to raise it to $50, and includes a three-month delay in implementation.

Expiring Section 8 Contracts

The Committee report also recommends (for FY 1997 only) a new renewal provision for expiring project-based Section 8 contracts.

The language. Section 211 of the Senate version allows HUD the discretion to renew Section 8 contracts expiring in FY 1997 for one year at rent levels not exceeding the lesser of current rents or market comparables. There are two exceptions: HUD must renew at current rents for HFA-financed projects. In contrast, the bill allows, but does not require, HUD to renew at rents higher than market levels on other projects if it finds that market rents will not cover debt service and operating costs.

Because Section 211 prohibits increasing rents to market, it appears that the Committee intends that expiring contracts with below-market Section 8 rents be renewed at the current rent level or possibly replaced with vouchers. These owners would want this only if the spread is small or if refinancing options have not yet materialized.

Impact on expiring contracts. Taken together, these provisions, if enacted, would permit HUD enormous flexibility to pursue its previously rejected proposals for handling the expiring Section 8 portfolio. HUD could refrain from renewing any or all contracts (except those on HFA projects), force defaults and sell the assigned mortgages with no restrictions or protections for the tenants or the housing like those being contemplated in the Senate housing subcommittee. Alternatively, HUD could use this threat as leverage to exact concessions from affected parties consistent with its desired policy.

These provisions, if enacted, would result in giving HUD the ability to implement its radical "Mark to Market" or "Portfolio Reengineering" program because it would give the Department the discretion of whether or not to renew the contracts, as well as to set rent levels and to dispose of HUD-held mortgages without restriction.

Pending action by the Senate authorizing committee, the Appropriations Committee also recommends a slight increase in the multifamily portfolio work-out demonstration in existing law "to evaluate the technique of carrying out debt restructuring with soft second mortgages instead of simple debt forgiveness which may have very adverse tax consequences for project owners."⁵

The Senate also extended the FHA single-family mortgage assignment program reforms to FY 1997 mortgages.

A House-Senate conference and floor vote on the conference report in each house seem likely before the August recess.

1. For a summary of House action, see House Passes HUD Appropriations Bill for FY 1997 elsewhere in this issue.
2. VA, HUD and Independent Agencies Appropriations Act for FY 1997; S. REP. NO. 318, 104th Cong., 2d Sess. (July 11, 1996).
3. Pub. L. No. 100-625, 104 Stat. 4079 (Nov. 28, 1990), codified at 12 U.S.C.A. §§ 4101 et seq. (West 1995).
4. Pub. L. No. 104-99, § 402(a) (Jan. 25, 1996); Pub. L. No. 104-134, § 101(e) (Apr. 26, 1996).
5. S. REP. NO. 318, 104th Cong., 2d Sess. 48.