House and Senate conferees have approved an increase in Department of Housing and Urban Development (HUD) funding for fiscal 2008, but the administration appears to have the votes to back up a threatened veto of the bill (H.R. 3074).

The House approved the conference report before Congress left for Thanksgiving, but the 247-170 margin was far short of the two-thirds majority needed for an override.

The appropriations bill provides $38.659 billion in budget authority for HUD, $2.446 billion above the fiscal 2007 level and $3.062 billion above the president’s budget.

The administration has vowed to veto several funding bills for breaking the budget, and the HUD measure, which also includes money for the Department of Transportation, is one of them. The Office of Management and Budget issued a statement of administration policy calling the funding level in the measure “irresponsible and excessive.”

The bill would provide $16.436 billion for tenant-based Sec. 8 voucher assistance, including $14.695 billion for contract renewals, compared with $15.993 billion and $14.438 billion in the budget.

The measure also has $135 million for incremental voucher assistance, including $75 million for the supportive-housing program for veterans, $30 million for Family Unification, and $30 million for non-elderly disabled families.

The bill includes $6.382 billion for project- based Sec. 8—about $570 million more than the administration requested—including $6.139 billion for contract renewals.

Because of a shortage of funds and concerns about the Anti-Deficiency Act (ADA), which generally prohibits agencies from spending unappropriated funds, HUD has instituted a controversial process of renewing project-based contracts for less than a full year. The conference report directs HUD to make a final determination on the legal issue and to immediately begin issuing 12-month contracts, subject to the availability of funds, if it concludes that such a procedure wouldn’t violate the ADA.

For public housing, the bill would provide $2.439 billion for the capital fund, $4.2 billion for the operating fund, and $120 million for HOPE VI.

The bill also includes $735 million for Sec. 202 housing for the elderly, $237 million for Sec. 811 housing for the disabled, $1.767 billion for HOME (with $15 million for downpayment assistance), $1.586 billion for homeless assistance grants, $630 million for Indian housing block grants, $3.79 billion for formula Community Development Block Grants, and $300 million for Housing Opportunities for Persons with AIDS.

For mortgage finance, the bill sets commitment limits of $185 billion for the Federal Housing Administration (FHA) Mutual Mortgage Insurance Fund; $45 billion for the general and special risk account, which covers multifamily programs; and $200 billion for Ginnie Mae securities.

The bill would also raise the maximum FHA multifamily high-cost adjustments to 170 percent of the basic mortgage limits on an areawide basis and 215 percent on a project- by-project basis in high-cost areas. In addition, it would remove the cap on the number of FHA-insured home equity conversion mortgages for fiscal 2008.

Making tax credit use easier

HUD has revised the Sec. 8 Mark-to- Market program regulations to remove an obstacle to the use of the low-income housing tax credit in Mark-to-Market transactions.

The Mark-to-Market program is intended to reduce above-market rents on FHA-insured Sec. 8 projects, restructuring the FHA loans so that the modified debt can be supported by the lower rents. As part of the restructuring, HUD takes back a second mortgage, and sometimes a third mortgage, to cover the gap between the original loan and the restructured first mortgage.

The previous regulations provided for simple interest on the subordinate debt at a rate between 1 percent and the annual federal rate. However, the Internal Revenue Service allows debt to be included in eligible basis for the 9 percent tax credit only if the interest rate is no lower than the applicable federal rate and the interest is compounded. Projects with simple interest on the debt were thus limited to using the 4 percent credit.

The revised regulations remove the requirement for simple interest on subordinate debt in Mark-to-Market restructurings, giving HUD the option to require either simple or compound interest. When tax credits are involved, the department can require compound interest, allowing a project to qualify for 9 percent credits without the need to seek a regulatory waiver from the simple interest requirement.

The regulations also implement statutory changes in the Mark-to-Market program, including a provision making projects with approved plans of action under the Emergency Low-Income Housing Preservation Act of 1987 or Low-Income Housing Preservation and Resident Homeownership Act of 1990 eligible for the Mark-to-Market program if they are sold to purchasers acceptable to HUD.

In addition, the rules require a restructuring plan to provide for the rehabilitations needed to be able to attract non-subsidized tenants in the local market. The renovations may include the addition of significant features, such as air conditioning, an elevator, or additional community space, and they provide for owner contributions to the cost of significant additional features.

Rent limits removed

In another regulatory change to promote the use of tax credits with HUD programs, the department has removed the tax credit rent limit on Sec. 8 projectbased voucher rents.

In 2005, HUD issued rules on the use of project-based vouchers in projects that also receive other federal subsidies. The rules generally limit project-based voucher rents to the subsidized, or basic, rent in the other program, even if that rent is below the otherwise allowable project-based voucher rent ceiling.

The intent was to eliminate double subsidies, with the voucher assistance covering only the gap between the subsidized program rent and 30 percent of tenant income. However, tax credit advocates contended that the rules could hamper the use of project-based vouchers in tax credit projects in areas with high fair market rents, where the project-based voucher rent limit could be substantially above the tax credit rent ceiling.

HUD agreed with the criticism and dropped the tax credit program from the list of federal subsidy programs where the project-based voucher rents are restricted. However, the department declined to provide an explicit exemption for tax credits, saying such an exemption would restrict its ability to respond to changing economic and programmatic conditions.

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.