February 9, 2015

On Tuesday, February 3, 2015, President Obama released the Administration’s proposed budget for Fiscal Year (FY) 2016, which is set to begin on October 1, 2015.  The budget is a $4 trillion proposal which would, if enacted, essentially shatter the budget caps that have been in place for the last year and a half.  In submitting the budget, the president declared that the deficit focus of the past should be discarded in favor of “investments” in infrastructure and education.  The new spending would be paid for by raising taxes on corporations and higher income individuals.  No doubt this budget sets the stage for a high-stakes battle with the new Republican majority controlled Congress in which Members have indicated that they want to balance the federal government’s budget within ten years.

A cornerstone of the budget is a $478 billion infrastructure program that would be funded through tax on corporate earnings.  Off-shore earnings of U.S. companies would be taxed at a 14 percent tax rate, generating $238 billion in revenue. In order to pay for other increases, such as education, job training, cybersecurity and combatting climate change, the President has proposed cuts in a variety of mandatory spending programs, closing tax loopholes and limiting tax benefits.

Rural Development

In terms of spending of housing programs, the United States Department of Agriculture’s Rural Development (RD) housing programs would see funding near or slightly above the FY 2015 levels. Of particular interest to CARH members, are the multifamily housing programs that would see modest funding increases but also proposed changes in program operations.  The FY 2016 budget request for the Section 521 Rental Assistance (RA) program is $1.172 billion, a slight increase from the $1.089 billion approved for FY 2015.  The budget again proposes renewing RA contracts at USDA’s discretion, and instituting a resident paid $50.00 per month minimum rent. While the Department of Housing and Urban Development (HUD) has a similar minimum rent of $25.00 (up to $50.00 if set by the local housing authority), Congress rejected the proposal last year for RD.  The Administration has included language, again rejected by the Congress last year, which would change the allocation of RA.  The budget document states “the agency will no longer automatically renew contracts within the same 12 month period; contracts will be renewed at the discretion of the Secretary depending on the needs of the project; and contracts will be issued for a fixed time and fixed sum.”  However, one proposal that was agreed to by Congress last year and again is in the FY 2016 budget is the prohibition of RA being re-renewed within the same project budget year.  In approving this language for FY 2015, Congress did include language requiring the agency to report on how they intend to implement this non re-renewal language by June 1, 2015.

The Administration 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 Rental Assistance 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.  Legislation to allow the expanded use of vouchers would need to be introduced and passed by both the House and Senate.

The budget document, as it did for the FY 2015 budget, includes budget language providing for changes within the RA program.  However, the document also indicates that RD will be submitting to Congress a multifamily housing reinvention legislative package that will include changes to the RA and rural voucher programs, as well as provide permanent authority for preservation of the Section 515 portfolio.

CARH strongly believes that significant changes to programs should not be implemented through the appropriations process.  We believe that the legislative proposals need to be thoroughly reviewed by the Congressional authorizing committees (the Senate Banking, Housing and Urban Affairs and the House Financial Services Committees) and that hearings on the agency programs and proposals should be a priority for these Committees. Among statutory changes that should be made would be to decouple RA contracts from Section 515/514 mortgages so non-federal participants can work with RD to extend its mission beyond the mortgage term without having to borrow more 515/514 funds.

Other housing programs within RD would receive the following:

• $200 million in funding and continuation of fees for the Section 538 Guaranteed Rural Rental Housing Program, this is an increase of $50 million over the FY 2015 level;
• $42.3 million for the Section 515 Rural Rental Housing Loan program, an increase of  $13.9 million over FY 2015 funding level;
• $23.9 million  for the Section 514 Farm Labor Housing Program Rural Housing, a slight increase from FY 2015;
•  $15 million for the  Section 542 Rural Housing Vouchers, this would be $8 million over the FY 2015 funding levels;
• the Multifamily Housing Preservation and Revitalization (MPR) program would receive $19 million, $2 million over FY 2015;
• Section 502  Single Family Housing Direct Loan program would receive $900 million, the same level as FY 2015; and
• $24 billion for the Section 502 Single Family Housing Guaranteed program, the FY 2014 and 2015 levels.

Department of Housing and Urban Development

The Administration’s proposed HUD budget is more than $4 billion for FY 2016 than FY 2015. Perhaps most important for affordable rental housing, the Administration proposes increasing by nearly $2 billion, Section 8 vouchers from $19.3 billion to $21.1 billion, and about $1 billion in project based rental assistance from $9.73 billion to $10.76 billion. These proposed increases would address pressure on the voucher program and fill looming funding gaps in project based Section 8.  Along the same lines:

• Public Housing Capital Fund is increased $100 million and Public Housing Operating Fund is increased $200 million to $1.97 billion and $4.6 billion, respectively.
• HOME Program is proposed at $1.06 billion, a $160 million increase.
• Housing Counselling increases about $350 million to $2.48 billion.
• Choice Neighborhoods is slated to basically triple to $250 million.
• The Community Development Fund (including CDBG) is proposed for reduction from $3.066 billion to $2.88 billion.
• The separate VASH program is folded into a $177.5 million fund for additional Section 8 vouchers for use by families, veterans and tribal families experiencing homelessness or domestic violence.

Tax Related Issues

The FY 2016 proposed budget is similar to the FY 2015 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 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 proposed for the 70 percent present value and allocated 30 percent present value low income housing tax credit would be the average of the mid-term and long-term applicable federal rates for the relevant month, plus 200 basis points. 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.

Other Treasury Related Issues

The budget proposal also includes $233.5 million for the US Treasury Department’s Community Development Financial Institutions (CDFI) Fund and would permanently extend the New Markets Tax Credit program at $5 billion a year.  The budget would also extend the CDFI Bond Guarantee Program.

CARH’s board of directors will meet on March 4-5 in Washington, DC.  On Wednesday, March 4, the board will be meeting with key members of Congress and their staff.  Topics to be covered during those meetings will be the Administration’s proposed budget as well as the continued discussions on tax reform and the impact on the Housing Credit and bond programs.  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.