New Sec. 8 proposal gets rough reception

By Barry G. Jacobs

The Bush administration's new proposal to restructure the Sec. 8 voucher program is getting the same type of unfriendly reception that derailed last year's state block-grant plan.

The "flexible voucher program" unveiled in the fiscal 2005 budget would shift the program from a unit-based to a dollar-based funding system. In other words, instead of using the amount needed to renew all existing vouchers as the baseline for the next year's funding, the administration plan would simply determine a dollar amount to be provided for vouchers and then allocate those dollars among the public housing authorities (PHAs) administering the program.

Initially, funding allocations would be based on a PHA's share of fiscal 2004 funding, and any incremental funding provided in future years would be distributed through a formula based on low-income housing needs.

In conjunction with the funding change, the flexible voucher plan would give PHAs more flexibility in operating the program, allowing them to set rents and subsidy amounts and to serve families with incomes up to 80% of area median income. The current requirement to target 75% of assistance to extremely low income households would be dropped.

The administration has defended its proposed changes as a response to the soaring costs of the voucher program, as well as a way to give communities more authority to address local needs.

"The Department of Housing and Urban Development (HUD) supports housing vouchers," said Michael Liu, assistant secretary for public and Indian housing, in testimony prepared for a House appropriations subcommittee hearing. "Unfortunately, the current construct of the voucher program has allowed for, if not encouraged, dramatic increases in voucher costs without commensurate improvements in program services and, consequently, in people's lives."

By shifting program control to local communities, Liu said, the administration's goal is to serve "more families with a limited federal resource in ways that will benefit not only their short-term shelter needs, but also their entire lives."

So far, however, the administration doesn't appear to be convincing the skeptics.

The Center on Budget and Policy Priorities (CBPP), a liberal public policy organization, released an analysis of the 2005 budget concluding that the cut in voucher funding would require a reduction in the number of families assisted, an increase in rent payments by low-income families, a shift in assistance to higher-income families, or some combination of those steps.

If the cut is implemented solely through a reduction in families served, about 250,000 households would have to be dropped from the voucher rolls in 2005, the CBPP report says, and a long-term projection shows that about 800,000 vouchers—40% of the number now in use—would have to be eliminated by 2009.

The CBPP also contends that voucher cost pressures are easing. Based on its analysis of Congressional Budget Office (CBO) cost estimates, the CBPP says the current level of service could be maintained with an increase in Sec. 8 outlays of only 1.8% in fiscal 2005.

Some of the housing organizations that helped sink the state block-grant program last year have also come out against the flexible voucher proposal.

"We are not able to support HUD's flexible voucher program in its current form as it advocates a dramatic reduction in voucher funding over the next few years with the expectation that minor relaxation of program rules will enable PHAs to absorb such large funding cuts," said nine organizations in a letter to Acting Secretary Alphonso Jackson. "We believe such an approach will only result in the reduction of authorized vouchers over time and seriously hamper a PHA's ability to serve its community."

The letter was signed by the Institute for Real Estate Management, Institute for Responsible Housing Preservation, Council for Affordable and Rural Housing, National Affordable Housing Management Association, National Apartment Association, National Association of Affordable Housing Lenders, National Association of Home Builders, National Leased Housing Association, and National Multi Housing Council.

Other groups that have criticized the administration plan include the National Association of Housing and Redevelopment Officials, National Housing Conference, National Association of Realtors, and National Low Income Housing Coalition.

Opposition to the voucher proposal from housing advocacy organizations was expected. What was more surprising was criticism from the Republican-controlled House Financial Services Committee.

In adopting its report to the House Budget Committee on the fiscal 2005 budget, the committee approved, 34-26, an amendment by ranking minority member Rep. Barney Frank (D-Mass.) opposing the flexible voucher plan.

"The main feature of this proposal is the elimination of the right [that] housing authorities now have to rent to a specified number of families, and to receive funding to cover the full cost of such assistance," the amendment says. "Instead, Congress would block grant each housing authority a lump sum amount, which, in the first year alone, is $1.6 billion less than is necessary to serve the same number of families now being served nationwide. The block grant feature would let funding spiral downward in future years."

Access to HUD data could help agencies preserve housing, per GAO

Easier access to information on HUD-financed subsidized housing projects could facilitate state and local efforts to keep those projects affordable when their mortgages mature and low-income use-restrictions end, according to a report by the U.S. General Accounting Office (GAO).

While only 32 mortgages had reached the end of their terms during the past 10 years, the next decade will see the maturity of mortgages on 2,328 properties, or 21% of the 11,267 subsidized properties with HUD financing.

The impact on tenants of the expiring mortgages will depend on protections available under specific program laws and regulations, as well as the owners' decisions on what to do with their properties, the report says. Although HUD provides incentives to keep properties affordable when mortgages are prepaid, the report notes, there are no such incentives for maturing mortgages.

"While about 134,000, or 57%, of the rental units in the 2,328 properties are protected by rental assistance contracts, tenants in over 101,000 units without rental assistance are at risk of paying higher rents after mortgage maturity because no requirement exists to protect tenants when HUD mortgages mature," the report continues.

State and local agencies could offer incentives to keep properties affordable, the report adds, but they have no way to identify and track properties whose HUD mortgages may mature.

The report recommends that HUD solicit the views of state and local agencies on the information they would need to preserve the properties and the best way to provide that information.

IRS issues safe harbor price limits for mortgage bonds

The Internal Revenue Service has issued revised safe harbor purchase price limits for the mortgage revenue bond program—the first change in the safe harbor limits since 1994.

Revenue Procedure 2004-18 provides the new safe harbors for states, metropolitan areas, and counties, as well as a nationwide average purchase price of $218,100. The nationwide average is used in computing the housing cost-to-income ratio, which in turn is used to determine high-housing-cost areas that qualify for an increase in the program income limits (generally, 115% of area median income).

In the revenue procedure, the IRS also revised the methodology for computing safe harbor price limits. Previously, they had been based on housing price estimates calculated by HUD from mortgage data collected by the Federal Housing Finance Board.

The new safe harbors are based on Federal Housing Administration (FHA) loan limits. Although the statute provides for separate price limits for new and existing housing, FHA limits don't distinguish between new and existing homes. Accordingly, the revenue procedure establishes a single safe harbor that can be used for both new and existing homes in each area.

Barry G. Jacobs is editor of Housing and Development Reporter, the nation's premier source for in-depth, factual coverage of all aspects of affordable housing and community development. The two-part publication includes informed reports and insightful analyses in "HDR Current Developments," and an always up-to-date compilation of essential documents in the "HDR Reference Files." Jacobs is also the author of the annually updated HDR Handbook of Housing and Development Law. For more information, call (800) 723-8077.

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