Democrats Feature Housing, Urban Policy in Platform

AFFORDABLE HOUSING FINANCE • October 2008

BY BARRY G. JACOBS

The Democrats call their 2008 party platform "Renewing America's Promise," and they have made affordable housing and community development an important part of that pledge.

"The housing crisis has been devastating for many Americans," the platform says, promising quick implementation of the recently enacted Federal Housing Administration refinancing program to avert foreclosures. In addition, the Democrats say they will work with local jurisdictions on the problem of vacant and abandoned housing. The new housing law also provides $3.92 billion for states and localities to address that problem.

"We will support affordable rental housing, which is now more critical than ever," the platform adds. "We will implement the newly created affordable housing trust fund to ensure that it can start to support the development and preservation of affordable housing in mixed-income neighborhoods throughout the country, restore cuts to public housing operating subsidies, and fully fund the Community Development Block Grant program.

" The platform criticizes the Bush administration's response to Hurricane Katrina and promises greater federal assistance in recovery and redevelopment, including increased funding for affordable housing and homeownership opportunities for returning families. "The people of New Orleans and the Gulf Coast are heroes for returning and rebuilding," the platform says, "and they shouldn't face these challenges alone."

IRS issues final tax credit utility allowance rules

The Internal Revenue Service (IRS) has issued final regulations giving low-income housing tax credit project owners additional flexibility in determining utility allowances.

When tenants pay directly for utilities, the tax credit rent ceiling must include an allowance for utility costs. Under previous rules, buildings without Rural Housing Service project-based or tenant-based assistance or that weren't under Department of Housing and Urban Development (HUD) regulation generally used the applicable public housing authority (PHA) utility allowance for the Sec. 8 voucher program or a local utility company estimate.

The new regulations also allow owners to use utility cost estimates from the agency with jurisdiction over the building, to calculate utility allowances using a HUD utility schedule model, or to retain the services of a qualified professional to calculate utility allowances using an energy consumption model.

The energy consumption model must, at a minimum, take into account specific factors, including, but not limited to, unit size, building orientation, design and materials, mechanical systems, appliances, and characteristics of the building location. In addition, the utility estimates must be calculated by a properly licensed engineer or a qualified professional approved by the agency with jurisdiction over the building. The owner must provide a copy of the estimates to the agency and make copies available to the tenants, and the owner must cover all costs involved in obtaining and disseminating the utility estimates.

The IRS said the energy consumption model should provide the most accurate utility cost estimates, and it expects this will be the option most commonly used by building owners.

The regulations require owners to calculate new utility allowances once during the calendar year, though they may calculate them more frequently. Revised allowances must be used to compute gross rents due 90 days after the change. For new buildings, the owner is not required to review utility allowances or implement new allowances until the building has achieved 90 percent occupancy for 90 consecutive days or the end of the first year of the credit period, whichever is earlier.

The rules also add cable television and Internet costs to telephone costs as items that are excluded from utility allowance calculations.

Public housing rule changes for asset management proposed

HUD has proposed changes in the public housing assessment system (PHAS) regulations and the streamlining of other public housing rules as part of the transition to a project-based asset management system for operating assistance.

The current PHAS rules provide an overall evaluation for a PHA, with a single score and classification based on indicators for physical condition, financial condition, and management operations, and a resident satisfaction survey.

The proposed rules would retain the physical, financial, and management indicators, though with some adjustments of subindicators, but the resident satisfaction survey would be replaced with a capital fund indicator. The capital fund evaluation, which was previously part of the management operations indicator, measures a PHA's performance in the obligation and expenditure of capital fund program grants.

PHAs would receive individual project scores for physical condition, financial condition, and management operations, with an overall score determined by a unitweighted average of the project scores. The capital fund score would be PHA-wide, rather than project-based.

A PHA's overall score would be a weighted average of the four indicator scores, with physical condition accounting for 30 percent of the score; financial condition, 20 percent; management operations, 40 percent; and capital fund, 10 percent.

A PHA would be classified as a high performer if its overall score is 90 or higher, and no more than 10 percent of its units are in projects that fail the physical, financial, or management operations indicator. High performers would get incentives, including relief from some regulatory requirements, and they would be eligible for bonus points in funding competitions.

A PHA that doesn't qualify as a high performer would be classified as a standard performer if its overall score is at least 60 and its score under each of the four indicators is also at least 60. A PHA with an overall score of at least 60 but a lower score on at least one indicator would be classified as substandard, and a PHA with an overall score below 60 would be designated as troubled.

The streamlining regulations would give PHAs greater flexibility within statutory parameters, providing general principles and guidelines, rather than overly prescriptive rules. The changes are intended to make the transition to asset management easier while also reducing program costs.

The rules on PHA plans, for example, would be revised to eliminate procedural requirements for the implementation of income deconcentration policies, and the development regulations would be changed to provide more flexibility in structuring mixed-finance transactions. A PHA partner or other identity-of-interest entity could serve as the general contractor for a mixedfinance development if it submits the lowest bid or if the PHA provides an independent third-party cost estimate and shows that the identity-of-interest entity's costs are less than the third-party estimate.