• HUD Fiscal Year 2010 Budget Marks New Emphasis on Affordable Rental Housing
  • June 10, 2009 | Authors: Kenneth G. Lore; Harold A. Levy
  • Law Firm: Bingham McCutchen LLP - Washington Office
  • HUD’s fiscal year (“FY”) 2010 budget announced on May 7, 2009, provides increased funding for a number of HUD programs and establishes a new emphasis on the production and preservation of affordable multifamily rental housing. The budget reflects the Obama Administration’s emphasis on coordinating housing finance and assistance with education reform, smart growth and energy conservation.

    The budget also aims to strengthen the FHA single-family program and increase HUD efforts to address the mortgage crisis by increasing funding for housing counseling assistance and taking new initiatives against predatory mortgage lending.

    Key features of the budget related to multifamily housing and development are as follows:

    National Housing Trust Fund
    The National Housing Trust Fund (the “Fund”) was authorized last year as part of the Housing and Economic Recovery Act of 2008 as a funding source primarily for the production and preservation of affordable rental housing. Under the legislation, HUD must distribute funds to states using a needs-based formula. All assistance must be used to benefit very low-income families (i.e., households with incomes not exceeding 50 percent of median area income) and at least 75 percent of the assistance must be used to benefit extremely low-income families (i.e., those with incomes at or below 30 percent of median area income).

    While proponents of the legislation in previous years envisioned that the Fund would be funded from Fannie Mae and Freddie Mac profits, which would have insulated the Fund from the appropriations process, the GSEs’ financial difficulties have ruled out this funding source at the present time.

    The budget requests $1 billion for the Fund, although it is not certain whether the source of the funds will be appropriations. HUD staff has indicated that an interim rule to implement the Fund will be issued in June or July, and will go into effect 30 days after publication, followed by a 60-day comment period. It is expected that the rule will place a strong emphasis on energy savings. Many issues are left undecided by the statute, including the length of the affordability period, limitations on rent, applicability of Davis-Bacon and other federal requirements, siting standards and possible coordination with the states’ own housing trust funds, and may be addressed in the interim rule. The length of the affordability restriction can be critical, because it may obstruct the owner’s ability to refinance in future years.

    Section 8 Project-Based Contract Funding
    The budget includes $8.1 billion for Section 8 project-based contracts, including renewal of all expiring Section 8 contracts; this amount represents an increase of $1 billion over the FY 2008 appropriations level. The budget presentation states that “HUD believes strongly that annual renewal funding should be predictable, timely and sufficient to fund rental contracts for a full 12 months, in contrast to the short funding of contracts in recent years.” This emphatic statement appears to reflect HUD Secretary Donovan’s own experience as Commissioner of the New York City Department of Housing Preservation Development, where he had to grapple with inadequate and uncertain Section 8 funding.

    HOPE VI/Choice Neighborhoods Initiative
    The budget eliminates HUD’s HOPE VI program, and in its place proposes a new $250 million program called the Choice Neighborhoods Initiative, which would provide resources for neighborhood transformation with an emphasis on linking housing development with school reform. Over the past 15 years, HOPE VI has provided $6.1 billion of funding for the demolition of approximately 96,000 public housing units and production of approximately 108,000 new or renovated housing units. The Choice Neighborhoods Initiative would provide funds for transformation of assisted housing, acquisition and renovation of unsubsidized, privately owned stock, and construction of mixed-income housing, in addition to public housing transformation. To the greatest extent possible, the Choice Neighborhoods Initiative would be coordinated with the Obama Administration’s efforts to replicate the Harlem Children Zone program through its Promise Neighborhoods Initiative.

    HUD requests $1.83 billion for the HOME program, the same level provided in the FY 2009 appropriations act.

    Community Development Block Grants
    HUD requests $4.45 billion for the CDBG program, an increase of $550 million over the FY 2009 funding level. HUD also proposes to revise the formula for allocation of funds to communities in order to better target funding to communities with the greatest needs. The higher level of overall funding would enable HUD to hold all grantees harmless at their FY 2009 funding levels.

    Housing Choice Vouchers
    The budget requests $17.84 billion for vouchers, representing an increase of approximately $1.77 billion over the levels provided in the FY 2009 appropriations act and enabling HUD to assist 116,000 more families than under the FY 2008 appropriations.

    Section 202/Section 811
    The budget proposes funding of $765 million and $250 million for the Section 202 elderly housing and Section 811 housing for persons with disabilities programs respectively, the same levels as provided in the FY 2009 appropriations act.

    Public Housing Operating Funds
    HUD requests $4.6 billion for the Public Housing Operating Fund; the budget notes that for the first time since 2002, the request will provide 100 percent of funding for operating subsidies, as calculated by a formula devised through negotiated rule making.

    Program Cuts
    Several programs are slated for funding cuts or outright elimination. The programs targeted for elimination are the American Dream Downpayment Initiative, the Section 108 community development loan guaranty program and the Brownfields Economic Development Initiative.