CARH’S BROADCAST EMAIL – Budget Update

February 16, 2018

On February 12, the Trump Administration formally unveiled its proposed $4.4 trillion Fiscal Year (FY) 2019 budget proposal. This document was more conceptual than an actual budget proposal. On February 13, a more detailed budget document was released which provided specific numbers as well as proposed changes to programs. What is important to note about the Administration’s proposed budget is that it was prepared prior to the major two-year budget blueprint that was agreed to last week between Congress and President Trump, but released after that blueprint was signed into law. While there are some similarities in what was released yesterday and what was signed into law last week, there are wide discrepancies particularly in the area of domestic spending. Keep in mind, the blueprint is now law and while the Administration’s budget is a ten-year proposal, Congress may or may not use it to address how to appropriate monies.

As CARH members will recall, last year the Administration had a similar approach for the FY 2017 budget. (See May 4, 2017, Broadcast Email). Congress rejected much of the Administration’s FY 2017 budget recommendations. Despite this rejection, the Administration’s proposed budget for FY 2019 mirrors many of the recommendations in the proposed FY 2018 budget. It seems unlikely that Congress will changes its views regarding these FY 2018 recommendations as it takes up the FY 2019 budget in the coming weeks and months. It is going to be critical for CARH, our members, and the rural housing industry to fight for restoration of funding from the programs that have been targeted both at USDA and HUD. This includes funding that is either reduced or eliminated.

USDA’s Rural Development (RD) housing, as well as other program such as water and wastewater, have been particularly hit hard in this budget. In addition, Rural Business Loans and Community Facilities programs would be eliminated. As you can see from the attached chart, the proposed budget would provide $1.351 billion for RD’s Section 521 Rental Assistance (RA) program. While the Administration’s proposed level of funding appears larger than what is expected for the FY 2018 approved funding level of $1.345 billion, this number is misleading. When factoring in $20 million for vouchers, the proposed budget is actually a reduction from previous years. Voucher funding has been under the Multifamily Housing Revitalization Program (MPR); however, in the FY 2019 budget, vouchers would be moved under the RA program since the MPR program would be eliminated. Residents would be required to pay a minimum of $50.00 per month unless the Secretary determines a lower amount because the resident in a unit qualifies for a hardship exemption. The Section 515 program would also be eliminated. The only multifamily housing program not to experience reductions would be the Section 538 Guaranteed Rural Rental Housing program which would have $250 million in budget authority, an increase of $20 million over what is expected for FY 2018. As CARH members will remember, the Section 538 program does not cost the government money because of the fee structure that CARH, working with the department several years ago, was able to have approved. The only costs to the government are the administrative expenses associated with the program.

HUD’s proposed budget is equally as worrisome, similar to FY 2017, as noted above, but more aggressive, with an 18.3% cut from FY 2017 enacted levels. The goal is to reduce the federal involvement in housing assistance and “recognizing” that states and local governments should shoulder that responsibility. Tenant rent contributions would increase to 35 percent of income. As you can see from the attached chart, the Community Development Financial Institutions (CDFI) Fund, which plays an important role in generating economic growth in distressed communities throughout the country, would be eliminated, as would CDBG, HOME, the Housing Trust Fund, and the Capital Magnet Fund. There would be no funding for the Public Housing Capital Fund. Choice Neighborhoods would also be eliminated. The budget proposes work requirements for housing and would create EnVision Centers to encourage self-sufficiency.   Project Based Rental Assistance would be funded at $10.9 billion, approximately $200 million below FY 2017 levels. The Budget proposes $19.3 billion for Housing Choice Vouchers, approximately $1 billion less than FY 2017 actuals.

In an addendum for the FY 2019 proposed budget, the Administration suggests providing an additional $2 billion, of which $1 billion would be used to protect elderly and disabled residents from rent increases (spread among Public Housing, Housing Choice Vouchers and Project Based Rental Assistance). The addendum also provides $700 million to restore 200,000 Housing Choice Vouchers; and $300 million for public housing operating funds. However, there is no assurance that funding will be allocated or that such protections will be afforded to these households in future years.

The proposed budget also gives the HUD secretary the authority not to provide rent adjustments for properties under Section 202 and 811. This could make it more financially difficult to operate these properties.

One program that would not be eliminated is the Rental Assistance Demonstration (RAD) program. RAD would be funded at $100 million. The budget would allow Section 202 Project Rental Assistance Contract (PRAC) properties to convert under RAD. However, the ability to successfully convert public housing to more stable footing through RAD requires fully funding Section 8, which the budget proposal would significantly cut. The budget also proposes removing the cap on public housing RAD units.

The direct funding programs are vital as they provide a depth of commitment that only the government can provide. At the same time, the government cannot and should not do it all and the system works best in a public-private partnership. Much of the private capital is raised through tax incentives. While the Housing Credit and Private Activity Housing Bonds survived Tax Reform, with the reduction in the individual and corporate rates, the value of both will no doubt be less, putting further pressure on the need for direct spending programs to increase.

It will be vitally important for CARH members and your residents to weigh in on the importance of these vital affordable housing programs to their Congressional delegations and the Administration. We know first-hand what cuts will mean to the Section 521 RA program because of the budget issues three years ago. Congress should not want a repeat of that issue, but such an outcome is possible on a much larger scale if this proposed budget is enacted.

It is more important than ever for CARH members to invite their Members of Congress and staff to your multifamily properties for them to see the work that you do and its importance to the residents and rural communities throughout America. It is also important that members of Congress and staff understand that the direct funding programs help the Housing Credit and Housing Bond programs work and vice versa.

Finally, CARH remains very engaged on legislative proposals which would make enhancements to the Housing Credit and Housing Bond programs (see S. 548 introduced by Senators Maria Cantwell (D-WA) and Orrin Hatch (R-UT) and H.R. 1661 introduced by Representatives Carlos Curbelo (R-FL) and Richard Neal (D-MA)). As mentioned above, it remains unclear how Tax Reform will impact both programs over the long term. Efforts were made to include the legislation as a provision in the two-year Budget Agreement. However, the final bill did not contain the legislation.

CARH is a member of the Steering Committee for “A Call to Invest in Our Neighborhoods” (ACTION) Campaign promoting the Housing Credit and Housing Bond programs. The Steering Committee, which is composed of the leadership of housing industry stakeholders, plays an active role in advocating for the Housing Credit and Housing Bond programs by developing initiatives which demonstrate the strong need for both programs. Working with the ACTION Campaign, we will continue to advocate that some form of S.548/H.R. 1661 be included in another piece of legislation that Congress will consider this year.

CARH’s Board of Directors will be meeting on March 7-8, 2018, in Washington, D.C. Meetings will be scheduled with key members of Congress and their staff where discussion will center on the proposed budget and other issues of concern to the industry. We will continue to keep CARH members apprised of any developments that may occur.

If you have any questions, please contact CARH at carh@carh.org or 703-837-9001.