Housing advocates can now make out the outlines of the government’s plans for its portfolio of aging Sec. 515 projects – and they are very worried. Sec. 515 is the main housing program run by Rural Development (RD), a part of the U.S. Department of Agriculture.

As many as 45,000 poor households could lose their low-cost housing if property owners remove their apartments from the Sec. 515 rural affordable housing program – a possibility that’s looking more likely these days as courts lean toward giving owners the opportunity to prepay the Sec. 515 mortgages on their properties. To make matters worse, a promise of federal assistance for affected renters is shrinking as Congress grapples with a massive budget shortfall.

Based on preliminary discussions, housing advocates had hoped tenants would receive rural housing vouchers that would supply them with rental subsidies similar to Sec. 8 vouchers.

But it’s unclear where Congress will find the money to pay for all these new housing vouchers, even as several lawsuits are pressing Congress and RD to allow Sec. 515 owners to prepay their loans and leave the program.

There are now 17,000 properties in the program, totaling about 450,000 units, and about two-thirds of those are more than 20 years old.

For now, Sec. 515 properties financed before 1979 are not allowed to prepay, thanks to a 1987 law called the Emergency Low-Income Housing Preservation Act (ELIHPA). But a few owners believe that ELIHPA is illegal, and the federal courts are increasingly inclined to agree.

After years of appeals and stays, a federal court affirmed in March that Sec. 515 owners have enforceable rights arising from their participation in housing programs, clearing the way for stalled lawsuits to move forward. Congress and HUD “will be liable for the consequences when they attempt to infringe on the legal rights of owners,” wrote Harry J. Kelly, a lawyer with Nixon Peabody LLP, in a summary of the decision.

Letting owners leave

To protect itself from these suits and an uncertain amount of damages and lawyers fees, RD has proposed removing the ELIHPA restriction, which would let these properties leave the program.

RD’s latest proposal, introduced in Congress this March with strong bi-partisan support, would allow Sec. 515 owners to leave the program regardless of whether Congress has provided enough funding to give vouchers to the tenants at their projects.

“That leaves residents hanging if Congress does not appropriate funds for a voucher program,” said Gideon Anders, executive director of the National Housing Law Project.

These residents are especially vulnerable. The average income of a household living in a Sec. 515 property is only about $9,075 – less than half the federal poverty line of $19,307 for a family of four. About 90% of these households earn less than 50% of the area median income and 58% are elderly or disabled.

Even tenants who do receive vouchers from the federal government aren’t guaranteed the right to remain in their homes under the new housing voucher program, said Anders.

To allow tenants to remain in their apartments, RD must set a comparable market-rent figure equal to the rent that the owner plans to charge for the unit, the owner must be willing to participate in the rural voucher program, and the owner must be willing to rent to the particular household, Anders said.

RD estimated that creating a voucher program for the 45,000 households threatened by prepayment would cost $214 million a year for three years. Congress provided RD with $16 million for the new rural housing vouchers in fiscal 2006. That’s hardly enough to fund all the needed vouchers. But Congress also did not repeal ELIHPA, so the vouchers were not yet desperately needed.

Money shortage

In March 2006, RD and HUD released the rules for the new Rural Housing Voucher program. HUD will handle most of the program’s administration on behalf of Rural Housing and will subcontract voucher administration to local housing authorities.

Unfortunately Congress now faces a $354 billion budget deficit for fiscal 2007 under the President’s proposed budget, and housing advocates fear lawmakers are unlikely to allocate significant funding for vouchers. The RD budget being considered by Congress would allocate $74.2 million in fiscal 2007 to RD to split between the voucher program and RD’s growing Sec. 515 preservation program.

Even if vouchers received all of this funding, it would still provide just one-third of the funding Rural Housing predicted it would need.

If there is little room in the fiscal 2007 budget for rural housing vouchers, advocates fear even worse treatment in 2008.

“It’s not this year but next year that we’re going to get the real whack,” said Moises Loza, executive director of the Housing Assistance Council, based in Washington, D.C.