The lights went out early in federal offices across the country Oct. 1, including the Department of Housing and Urban Development (HUD).
The shutdown came as lawmakers failed to agree on a spending plan as they fought over health-care reforms. It is uncertain how long the impasse will last.
The pain of the shutdown has not immediately spread to developers of affordable housing. The federal housing programs they depend on—such as the low-income housing tax credit (LIHTC) and Community Development Block Grants—tend to be managed by local officials and not federal agencies. But many of these federal programs have already been damaged by years of budget cuts and the budgets cut mandated by the sequester.
“So long as the federal government is shutdown, key low-income housing programs are unable to advance, and we can only expect the shortage of affordable housing to worsen in the coming year,” said Sheila Crowley, president and CEO of the National Low Income Housing Coalition in a statement.
So far, the LIHTC program is relatively safe from the shutdown. “At this point in time I have not observed any impact for tax credit properties,” says Cameron Dorsey, director of multifamily finance for the Texas Department of Housing and Community Affairs.
That’s because LIHTCs are written into the tax code—they don’t depend on annual appropriations for funding. Even the Internal Revenue Service, which sent home most of its employees, is not absolutely necessary since state agencies handle the day-to-day running of the program. “We can use our tax credit counsel instead of calling the IRS director,” says Dorsey.
Some affordable housing developments that use tax credits may be vulnerable to the shutdown, simply because affordable housing projects often use so many different sources of funding. For example, a LIHTC project might depend on an embattled agency like the Environmental Protection Agency for a small part of its budget, such as a brownfield remediation grant. But uncertainty over that grant could still confuse the financing.
A long list of funding sources can also be an advantage, however. It’s more likely that one of the funders will be able to assist the property in the case of a temporary funding shortfall.
Sec. 8 vouchers
The shutdown could also affect rental subsidies provided by HUD. Many affordable housing developments depend on rental subsidies, either because the property holds a Sec. 8 contract with HUD, or because individual residents hold Sec. 8 vouchers. Existing Sec. 8 contracts should continue to be honored at least through the end of October, according to Jim Chandler, director of the LIHTC program for the Virginia Housing Development Authority.
However, after the end of October, the outlook for Sec. 8 voucher funding is less clear. New developments that are hoping to negotiate Sec. 8 funding will be unable to negotiate these commitments while HUD is shut down, says Chandler.
During the shutdown, the Federal Housing Administration still plans to close on multifamily deals that have firm commitments with scheduled closings and final endorsements that have critical external deadlines.
During the first 10 business days of a shutdown, Multifamily Accelerated Processing lenders servicing construction loans may, at their and owners’ and general contractors’ risk, process interim construction draws. HUD will perform or contract for construction inspections on a post-review basis at such time the government re-opens. Initial and final draws will not be processed or approved, according to the agency's contingency plans.
In addition, no change orders will be processed or approved.
For more detail on the outlook for HUD programs during the shutdown, visit the NLIHC, which has compiled a helpful list.
HUD has also posted its contingency plan online.