The Department of Housing and Urban Development (HUD) through
the Office of Public and Indian Housing issued Notice 2012-32 on
July 26, which implements HUD’s signature legislative
initiative, the Rental Assistance Demonstration (RAD)
program. RAD was included in the fiscal year 2012 HUD
appropriations legislation and provides new project-based rental
assistance for certain HUD properties. RAD will assist in the
preservation of public housing and properties with Sec. 8 Mod-Rehab
contracts, Rental Assistance Program (RAP) subsidies, or Rent
Supplement subsidies. The preliminary notice, PIH 2012-18,
was issued March 8 for public comment, although the provisions
implementing the conversion of RAP and Rent Supplement to
project-based vouchers were effective immediately.
RAD Basics
The final RAD notice has two conversion components. The
first component is competitive and applies to public housing and
Mod-Rehab properties. The second component is noncompetitive
and applies to Mod-Rehab, RAP, and Rent Supplement properties.
Under the first competitive component, public housing
authorities may apply to HUD to convert their existing public
housing assistance to a new project-based rental assistance
(PBRA) contract or a project-based voucher contract. Owners
of Sec. 8 Mod-Rehab projects may apply to convert their Mod-Rehab
contracts to either PBRA or project-based voucher contracts.
Under the second–noncompetitive–component, owners of
Mod-Rehab properties may apply to convert tenant protection
vouchers provided upon the termination of the Mod-Rehab contract to
project-based vouchers. The owners terminating a Mod-Rehab
contract must provide the one-year opt-out notice although the
project can convert to project-based vouchers prior to the
expiration of the one-year notice period. The owner’s
submission must outline a financing and capital improvements plan
that leverages private resources, i.e., tax-exempt bonds, housing
tax credits, with the new project-based assistance.
The second component also addresses the maturing RAP and Rent
Supplement contracts. Owners of properties receiving RAP or
Rent Supplement assistance may request project-based vouchers in
lieu of tenant protection vouchers. RAD applies to RAP or
Rent Supplement contracts that have expired or terminated, or will
expire or terminate, between Oct. 1, 2006, and Sept. 30,
2013.
Although a project may be eligible for RAD, projects for which
the RAP or Rent Supplement contract matures after Sept. 30, 2013,
will be placed in a funding queue even if a prepayment triggers the
termination of the RAP or Rent Supplement contract. This
little noticed provision substantially hinders preservation of
projects in which residents of non-Rent Supplement or RAP units
would be eligible for enhanced vouchers and actually will cost HUD
more due to the fact the enhanced voucher rents are generally
higher than the project-based voucher rents. This is a poorly
thought-out policy as enhanced vouchers and project-based vouchers
come from the same funding source.
The “reach back” provision to Oct. 1, 2006, allows
properties that previously had RAP or Rent Supplement assistance to
project-base any remaining tenant protection vouchers or enhanced
vouchers that tenants may have received. In these instances,
the tenants must consent to convert their enhanced vouchers to
project-based vouchers. HUD refers to this process as a
“retroactive” conversion.
Most RAP or Rent Supplement properties will utilize the
“prospective” conversion–where the RAP or Rent
Supplement assistance has not yet expired or terminated. The
owner will work with the local field office to hold tenant
briefings to discuss the new form of assistance; tenant consent is
not required as no benefit has been provided to the tenants.
Many RAP and Rent Supplement properties are only partially
assisted by the RAP or Rent Supplement rental subsidy. If the
property is preservation-eligible, namely that the owner can prepay
without HUD’s consent and the tenants are entitled to
enhanced vouchers, then all the units may be eligible to be
converted to a project-based voucher contract.
Project-Based Vouchers vs. Project-Based Sec.8
Owners should be aware of major differences between a
project-based voucher contract and your old comfortable
project-based Sec. 8 contract. These include:
- Project-based voucher contract rents are limited to a maximum
of 110 percent of published Sec. 8 Fair Market Rents (FMRs);
project-based Sec. 8 rents are true “street rents,”
which may be much higher.
- Project-based voucher contract rent increases are not
automatic; rents follow the FMR and owners must request a rent
increase; project-based Sec. 8 rents generally receive at least the
Operating Cost Adjustment Factor on the anniversary of the
contract.
- Project-based voucher contracts are generally for a term of 15
years; project-based Sec. 8 terms are 20 years.
RAD is a positive step forward. Of course, it would have
been easier to utilize the tried and true project-based Sec. 8
program, but that’s not how Congress wrote the statute.
HUD has published the final implementation notice–146 pages
in all–within eight months of Congressional enactment. That
is a feat unto itself and suggests that RAD is a priority for
HUD.
Stephen J. Wallace is a partner with Nixon Peabody, LLP, and
head of the firm’s leading affordable housing practice. Based
out of the firm’s Washington, D.C., office, Wallace
concentrates his practice on federal legislative and regulatory
issues involving the development and financing of
government-assisted housing.