Fiscal Year 2023 Proposed Budget Released—USDA’s Rural Rental Housing Programs Targeted For Major Increases

CARH’s BROADCAST EMAIL—Legislative Alert


On Monday, March 28, 2022, the Biden Administration unveiled its proposed $5.8 trillion budget for Fiscal Year (FY) 2023. The proposed budget would provide $1.6 trillion for discretionary funds, including $813 billion for defense-related programs and $769 billion for domestic spending. By comparison, the Consolidated Appropriations Act, 2022 for FY 2022 (P.L. 117-103) signed into law earlier this month, provides for $1.5 trillion for discretionary spending of which $730 billion will be allocated for domestic programs and $782 billion for defense programs.

On the revenue side, the budget proposes $2.5 trillion in tax hikes on corporations and high-earning households, including a modified wealth tax. However, the proposed budget also would include an additional $10 billion for the Low-Income Housing Tax Credit (Housing Credit) program over 10 years, which would be achieved through selective basis boosts for bond-financed Housing Credit projects. The New Markets Tax Credit (NMTC) would be made permanent, indexing the credit to inflation after 2026 and beyond.

All of the relevant Committees in both the House and Senate will soon hold hearings on the proposed budget so that work can be completed on full-year funding bills prior to October 1, the beginning of the new fiscal year. It is an ambitious schedule due to Congressional midterm elections in November and the likelihood that Congress will recess during the first part of October. Thus, a Continuing Resolution (CR) running past November is probable. Still, this proposed budget seems to contain large portions of the seemingly defunct Build Back Better effort and the next best chance for passage of this agenda is before the next Congress, both because of the difficulty the party in power has during Congressional midterm elections and because a new Congress often means starting over.

This is an extraordinarily favorable budget proposal for our programs. Both the United States Department of Agriculture’s (USDA) Rural Development (RD) and the Department of Housing and Urban Development (HUD) would see increases in funding for its multifamily housing programs. (Click here for an RD chart and click here for a HUD chart that provide details on funding levels for specific programs at each agency.) Funding for RD’s proposed budget for multifamily housing is one of the best budgets originating from the agency in many years. The Section 521 Rental Assistance (RA) program would be funded at $1.602 billion an increase from $1.45 billion in FY 2022. Of this, $1.602 billion funding would be allocated as follows: $1.564 billion for existing RA contracts, including the $100 million in RA that was added in the American Rescue Plan; $40 million that would carry over into FY 2024 (a policy that CARH has supported that ensures that funds are available for RA contracts funded in the first few months of a new fiscal year, should a full year appropriation bill not be completed); $38 million for Section 542 rural housing vouchers; and $6 million for RA that would be available for new Section 515 housing. The Section 515 program would receive $200 million versus $50 million in FY 2022. Funding would be allocated for both preservation and new construction. The Multifamily Housing Preservation (MPR) program would be funded at $75 million versus $34 million in FY 2022. The budget also requests a $400 million loan level for the Section 538 program versus $250 million in FY 2022.

The budget also includes statutory language that will address some of the maturing mortgage issues facing the portfolio in the next several years. The language would provide RD with authority to decouple RA from the Section 515 program, allowing RD to continue offering RA to certain properties that no longer have a Section 515 loan. Currently, with RA tied to the Section 515 loan, in order to protect residents to the maximum extent, owners have to run through the complex processing of RD mortgage loan assumption, even when it makes little financial sense to maintain the Section 515 loan. While the devil is in the details, CARH has, for some time, supported this effort that we have come to call “decoupling.”  This decoupling is different than what HUD calls decoupling, but what this would do is put the RA contracts on the very logical path to being an important preservation tool.

Another proposed statutory change would impact the Section 542 voucher program. According to the budget document, decoupling will lead to the preservation of the majority of USDA’s project-based assistance thus, decrease the number of tenant-based vouchers. The budget request for vouchers reflects just the funding needed for the legacy vouchers that will still be renewed by RD. To assist the remaining displaced residents going forward, RD has proposed these vouchers be done in tandem with HUD tenant protection vouchers (TPV) and which would then provide $20 million in TPVs for residents in RD properties that are unable to refinance, participate in the multifamily preservation and rehabilitation options, or decouple. This would both improve RD’s key preservation program – RA, and improve resident protections, assuring residents as much as possible that they can stay in their homes. At the same time, it has been known since the 2004 ICF Study that RD commissioned, that a relatively small portion of the multifamily portfolio has become functionally obsolete. This is a concept HUD has had to address for many years in public housing. This voucher processing would still assure resident protections in such cases. And, again, while details are key, processing with TPVs allows residents to have a voucher that is more flexible and more portable than the current Section 542 vouchers, which have very different standards in certain regards.

 All of these statutory changes would need to be debated by the House Financial Services Committee and the Senate Banking Committee, if these provisions are to be made permanent. Otherwise, the Appropriations Committees could add language to their appropriations bills, but would need to then continue to do so on an annual basis.

Not included in the proposed budget is language that would allow for RA contracts to be 20 years, subject to annual appropriations. This language has been included in the last three year appropriations bills, including the P.L. 117-003 linked above. CARH has been very supportive of this language, but thus far RD has not implemented this provision. RA contracts tend to be less well known to non-Section 538 lenders and to Housing Credit equity providers and the one-year term is often an issue. RD’s consistent funding has been a strong due diligence point for lenders and investors. However, it isn’t lost on developers that these financing entities price in the costs of risk and due diligence, increasing costs of development, much of which could be solved with the 20-year subsidy contract like HUD uses. CARH will continue to advocate for this 20-year language.

The proposed budget would fund HUD programs at $71.9 billion, approximately $12.3 billion more than the FY 2021 level, or $6.2 billion more than approved for FY 2022. Several programs of interest to CARH members are proposed to be funded at the following levels: $1.95 billion for the HOME Investment Partnerships program; $32.1 billion for Section 8 tenant-based vouchers; $15 billion for Project Based Rental Assistance; $3.8 billion for the Community Development Block Grant (CDBG)$966 million for Section 202 housing for the elderly; and $400 million for the Office of Lead Hazard Control and Healthy Homes. $25 million would be used to address lead-based paint in public housing and $60 million to prevent and mitigate other housing-related health hazards, such as fire safety and mold, in HUD-assisted housing; and $86 million for Fair Housing and Equal Opportunity.

CARH will continue to update members regarding the status of the FY 2023 budget as it moves through the Congress. Members will be asked to reach out to their members of Congress at the appropriate time to outline the importance of funding, particularly the rural portfolio at the level proposed by the Administration.

Please contact the CARH national office at carh@carh.org or 703-837-9001 should you have questions or concerns. For other news and information affecting the affordable rural housing industry, please visit the Newsroom on CARH’s website, www.carh.org.

 

 

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