Fiscal '05 budget would revise voucher program

By Barry G. Jacobs

President Bush has sent Congress a fiscal 2005 Department of Housing and Urban Development (HUD) budget that would raise overall spending slightly and make major changes to the Sec. 8 voucher program.

The budget includes $31.264 billion in net budget authority for HUD programs, up from $30.416 billion in 2004.

"These are times for hard choices, yet this budget shows just how committed this administration is to the people and places who need help," said acting HUD Secretary Alphonso Jackson. "Whether it's promoting homeownership and affordable housing or serving our most vulnerable citizens, the resources we are requesting signal a strong investment in neighborhoods throughout America."

The administration's continued emphasis on homeownership is reflected in proposals to increase funding for HOME Investment Partnership downpayment assistance to $200 million, from $87 million this year, and to create a new zero-downpayment FHA home mortgage program. The administration is also resubmitting its proposal for a tax credit to encourage the development of affordable ownership housing.

The HUD budget proposes $18.466 billion for the Sec. 8 housing certificate fund, $2.674 billion for the public housing capital fund, and $3.573 billion for the public housing operating fund, but no money for the HOPE VI program for severely distressed public housing. The administration also tried to kill HOPE VI in 2004, but Congress wouldn't go along, although funding was cut sharply from $570 million to $149 million.

Because Congress recently reauthorized the HOPE VI program, it is likely to provide funding again in 2005.

Other major funding provisions include $2.084 billion for HOME, including the $200 million for downpayment assistance; $647 million for Indian housing block grants; $4.618 billion for community development, including $4.324 billion for formula Community Development Block Grants; $1.485 billion for homeless assistance; $295 million for housing assistance for persons with AIDS (HOPWA); $773 million for Sec. 202 seniors housing; and $249 million for housing for the disabled.

To avoid disruptions in FHA multifamily funding, the budget proposes increasing commitment authority for the General Insurance and Special Risk Insurance funds, to $35 billion from 2004's $25 billion. The annual mortgage insurance premium for Sec. 221(d)(4) mortgages would be reduced from 50 to 45 basis points.

The budget would keep commitment authority for the FHA Mutual Mortgage Insurance Fund and Ginnie Mae securities at their 2004 levels of $185 billion and $200 billion, respectively.

As in 2004, the most controversial element of the 2005 HUD budget is the effort to revamp the Sec. 8 voucher program. While the administration has dropped the state block-grant proposal that was roundly criticized last year, the new plan is also certain to be attacked.

Currently, program funding is driven largely by the effort to renew all existing vouchers. Coupled with rising per-unit costs, this renewal plan is a prescription for continuing increases in program costs.

To address this problem, the budget calls for a shift to a dollar-based "flexible voucher program." For 2005, voucher funding would be based on 2004 funding, with adjustments as warranted, and incremental funding in future years would be determined through a formula based on local housing needs.

Funding would be provided to public housing authorities (PHAs), which would have considerable discretion in administering the program. PHAs would determine minimum tenant rents and maximum housing subsidies, and they could project-base up to 20% of their funding.

HUD would no longer set fair market rents, although rents for assisted units would still have to be reasonable in comparison with rents for "modest" units in the private market. PHAs would have to review rents at least annually to ensure they met the reasonability requirement.

HUD would establish performance standards for PHAs, taking into account such factors as effective budget utilization, financial management, and the effectiveness of voucher assistance in helping families become self-sufficient. If a PHA received a failing score on its performance assessment for two consecutive years, HUD could shift administration of the voucher program to another PHA.

PHAs would receive a base administrative fee of up to 7% of their annual program funding, and they could also get an additional fee and incentive bonuses based on performance.

The budget also includes a public housing demonstration program for up to 100 PHAs that would be based on the Moving to Work program. Half of the PHAs would be a control group that would continue to operate under current procedures. The other PHAs would be given operational flexibility, including relief from some statutory and regulatory requirements; the ability to combine capital and operating funds; and authority to set their own rent structures.

Rural budget has no Sec. 515 new construction funds

The rural housing part of the administration's budget includes $60 million for the Sec. 515 rural rental housing loan program, but none of the money would be available for new construction.

Instead, all of the Sec. 515 funds would be limited to repair and rehabilitation of existing properties. According to the budget documents, the Rural Housing Service (RHS) would utilize the hiatus on production to determine more efficient ways to operate its multifamily housing portfolio.

The budget also provides $100 million for Sec. 538 guaranteed multifamily loans; $592 million for rural rental assistance; $1.1 billion for direct Sec. 502 home loans and $2.725 billion for guaranteed Sec. 502 loans. The guarantee fee would be raised from 1.5% to 1.75%, but borrowers could finance the fee as part of the loan.

Housing groups object to guidance on limited English proficiency

HUD has issued proposed guidance on the ban on discrimination against persons with limited English proficiency (LEP) under Title VI of the Civil Rights Act of 1964. The HUD notice requires housing owners to translate various documents - including applications, leases, property regulations and eviction notices - into foreign languages and to provide verbal translations of the documents for persons who don't read in their native language.

In written comments to HUD, nine housing groups, including the National Apartment Association, National Association of Housing and Redevelopment Officials and the National Multi Housing Council, expressed concern that the LEP notice will impose substantial costs and possible liability on owners who accept federal housing assistance and could threaten the uniform system of HUD-adopted model lease forms.

"Since HUD created many of these 'model' English-language documents in the first place," the groups said, "it is manifestly HUD's responsibility to provide 'model' versions of those documents in other languages, for LEP purposes."

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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