CARH’S BROADCAST E-MAIL – Legislative Update

February 11, 2016

On February 9, 2016, President Obama released his Fiscal Year (FY) 2017 budget request to Congress which lays out his priorities and policy proposals for the fiscal year which begins on October 1. This will be the last budget for the Obama Administration. The budget would provide an additional $2.1 billion increase over the current FY 2016 budget for affordable housing and community development programs. The Congressional calendar will be condensed this year, due to the November Presidential election. Budget hearings will begin almost immediately with the House and Senate Appropriations Committees acting on individual appropriations bills by mid-summer.

Rural Development

In terms of spending for housing programs, the United States Department of Agriculture’s Rural Development (RD) housing programs would see funding near or slightly above the FY 2016 levels. (Click here to view USDA’s budget request appendix.) Of particular concern to CARH members, are the multifamily housing programs that would see increased funding, some of which just a few years ago were slated for elimination. For example, the Section 538 Guaranteed Rural Rental Housing Program would have an obligation level of $230 million, an increase of $80 million over the FY 2016 level. (As CARH members will recall, the FY 2012 budget would have zeroed out this program, but due to the efforts of CARH and other industry stakeholders, the program was continued through the implementation of fees paid by users of the program, essentially making it a budget neutral program.)

Another program of considerable interest and debate during the FY 2016 budget cycle is the Section 521 Rental Assistance (RA) program. As CARH members know, several factors created the RA crisis that was ultimately solved by Congress, in a bi-partisan effort, in response to the education from many CARH members throughout the country. The President’s FY 2015 budget proposed and Congress agreed to language that prevented RA contracts from being re-renewed if funds were exhausted in the middle of the fiscal year. That language coupled with the Agency not requesting sufficient funding, resulted in many RA contracts running out of money long before the fiscal year ended. The re-renewal language was not included in the final appropriations bill (P.L. 114-113) that passed Congress and additional funds were provided along with legislative language allowing for the Agency to backfill contracts that ran out of money. The FY 2017 budget does not contain the re-renewal language nor any of the additional changes to the program that the Agency had proposed for the last two years and that CARH and other industry groups opposed. In fact, most of the budget language for the program is relatively clean and mirrors the Omnibus Act for FY 2016. The funding level for FY 2017 would be $1.405 billion, an increase of $25 million over the FY 2016 level. While CARH is supportive of this funding level, we need to be vigilant that this level will allow all contracts to be fully funded for the entire fiscal year. We need to also press for preservation RA that until recently the Administration has resisted.

CARH understands that a majority of RA contracts that ran out of funds in FY 2015 have received funding. However, there are some contracts that remain unfunded. While the Agency has indicated that those contracts will receive their funding in the next few weeks, it is important that CARH members continue to inform CARH’s national office if they do not receive monies.

The Agency is using a new model for determining RA needs based on actual numbers versus the state-wide averages, which was another factor in creating the RA funding issues. Consequently, as indicated above, it is important that should CARH members find their RA contracts without sufficient funding during the next several months, members need to immediately inform the national CARH office so that we can resolve the issue.

The budget is also proposing changes to the rural housing voucher program that will allow vouchers to be available for residents when a Section 515 mortgage expires. Under current law, when a Section 515 mortgage expires, Section 521 RA also expires. The Agency is proposing that the voucher program be expanded to cover residents in those properties impacted by expiring mortgages. Rural housing vouchers currently can only be used for properties where an owner prepays a mortgage or the government chooses to foreclose a mortgage. This proposal was included in the FY 2016 budget but was not agreed to by Congress. The issue of expiring mortgages, the RA program and voucher use is currently being reviewed by the Government Accountability Office (GAO). The study was requested during the FY 2016 budget cycle by the Senate Appropriations Committee with a report due sometime this spring.

Other housing programs within RD would receive the following:

• $33.1 million for the Section 515 Rural Rental Housing Loan program, an increase of  $4.7 million over FY 2016 funding level (including $9.79 million for new construction);
• $23.9 million for the Section 514 Farm Labor Housing Program, the same as the FY 2016 funding level;
• $18 million for the  Section 542 Rural Housing Vouchers, this would be $3 million over the FY 2016 funding levels;
• the Multifamily Housing Preservation and Revitalization (MPR) program would receive $19.362 million, $2 million less than the FY 2016 level;
• Section 502  Single Family Housing Direct Loan program would receive $900 million, the same level as FY 2016; and
• $24 billion for the Section 502 Single Family Housing Guaranteed program, the FY 2015 and 2016 levels.

Department of Housing and Urban Development

The Administration’s proposed budget for the Department of Housing and Urban Development (HUD) provides $48.9 billion, $1.9 billion over the FY 2016 enacted level. (Click here to review HUD’s budget request appendix.) The HUD budget places added emphasis on ending chronic homelessness with $11.3 billion in new mandatory spending with the goal of ending family homelessness by 2020. The budget provides $2.1 billion in local housing authority administrative fees using a new formula that HUD calls “evidence-based”. Housing authorities have been facing intense pressure on their administrative fees for several years as the Administration and Congress sought budget cuts. The budget does not include new funding for the Veterans Affairs Supportive Vouchers (VASH), usually funded at about $60 million in past budgets, but the Administration does propose $88 million in vouchers for homeless families. At the same time, the Administration seeks to revise and limit the language in the Omnibus Act for FY 2016 that significantly expanded Moving to Work for public housing agencies.

Other programs within HUD would receive the following:

• $20.832 billion for the Section 8 tenant based voucher program, more than $1.3 billion over the FY 2016 enacted level;
• $11 billion for project based Section 8 rental assistance, a $400 million increase over the FY 2016 enacted level;
• $1.94 billion for the Public Housing Capital Fund, nearly $700 million more than the FY 2016 enacted level;
• $4.363 million for Public Housing Operation Fund;
• $950 million for HOME, the same level as the FY 2016 enacted level, (as CARH members know, the HOME program was nearly eliminated in FY 2016 but due to efforts of the industry, funding was restored.);
• $2.8 billion for CDBG, $200 million less than FY 2016 enacted level;
• $200 million for Choice Neighborhoods; and
• $50 million for the Rental Assistance Demonstration (RAD) program.

Housing Trust Fund and Capital Magnet Fund

The FY 2017 budget estimates $136 million will be funded in FY2017 through a mandatory assessment from Fannie Mae and Freddie Mac. The budget estimates that $170 million would be available in FY2016. The Treasury Department portion of the budget estimates $91 million in FY 2016 and $80 million in FY2017 for the Capital Magnet Fund.

Tax Related Issues

The FY 2017 proposed budget is similar to the FY 2016 proposal. The Administration proposes changes to private activity bonds to permit allocating state agencies to convert up to eighteen percent of their private activity bond volume to nine percent low income housing tax credits. The budget would also modify the 50 percent test to allow developers to use non-tax-exempt bond financing but still generate 4 percent Housing Credits without issuing tax-exempt bonds to finance projects.

The budget would use revised formulas, effective December 31, 2015, to produce annual allocated credit rates. The budget would again seek to create a new income election of reserving at least 40 percent of units at an average 60 percent of area median income, up to 80 percent area median income on initial certification. States would be required to add a new preservation selection criterion to their qualified allocation plans. The budget would also extend rules under the Violence Against Women Act for most federal housing programs to Tax Credit projects. In addition, the budget would adjust the Qualified Census Tract, by removing the aggregate population cap, enabling properties in more areas within the metropolitan region to receive the 130 percent basis boost. Finally, a new proposal would require state Qualified Allocation Plans (QAPs) to include affirmatively furthering fair housing as an explicit allocation preference.

Other Treasury-Related Issues

The budget proposal also includes $246 million for the US Treasury Department’s Community Development Financial Institutions (CDFI) Fund and would also extend the CDFI Bond Guarantee Program. The New Markets Tax Credit (NMTC) program would be permanently extended with an allocation of $5 billion a year, allowing the NMTC to offset Alternative Minimum Tax (ATM) liability.

The President continues to support corporate tax reform. As in previous years, the budget proposes lowering corporate rate to 28 percent while improving incentives for research and clean energy.Of course, by every analysis we have seen, reducing corporate taxes to that low a rate, without a tax increase would eliminate most tax benefits in the federal code and do great damage to programs like the housing credits and NMTCs. The idea of tax reform continues to attract broad bi-partisan support. However, agreements on any details of tax reform proposals are elusive. Conventional wisdom is that we will not see tax reform in an election year, and all signs point to this wisdom holding for 2016. We will continue to confer with Congressional and Administration offices throughout this year but anticipate tax reform to gain strength after the November elections.

CARH’s board of directors will be meeting in March. During this meeting, the board will be meeting with key members of Congress and their staffs regarding the proposed budget on the affordable housing industry. Issue briefs are being prepared by the national CARH office for use by the board. These issue briefs will be posted on CARH’s website prior to the meeting and a broadcast email will be sent to all CARH members when these issue briefs become available.  We would encourage CARH members to contact their respective Congressional delegations and use these issue briefs in your discussions.

Please contact the CARH national office at carh@carh.org or 703-837-9001 should you have questions.