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.
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.