HUD's Budget Proposal Calls for Changes and Cuts
HUD's Budget Proposal Calls for Changes and Cuts
By Sule Aygoren Carranza
Published: February 9, 2010
WASHINGTON, DC-The Obama Administration's unveiling of the proposed budget
for fiscal year 2011 last week was received with both praise and
criticism. Soon after but to less fanfare, individual government
agencies broke down their own budgets, including the Department of
Housing and Urban Development. While Congress has yet to approve
the Obama proposal, some of HUD's plans for 2011 may spell good
news for developers looking to capitalize on the Administration's
goals of recovery and reinvestment.
Reflecting overall budget cuts, HUD, which received $43.6
billion in funding for fiscal year 2010, has requested $41.6
billion for FY2011, a 5% decrease. That capital will be
supplemented with an expected $6.9 billion in FHA and Ginnie Mae
receipts, resulting in a total 2011 budget of $48.5 billion, up by
$1.6 billion in FY2010.
With a focus on fiscal discipline, reform and job creation, the
HUD budget seeks to build on its goal of streamlining the
department's housing and community development programs. On the
multifamily front, spending for some programs was reduced, while
others were cut altogether.
"After a year of progress, we no longer confront an economy or a
department in crisis," HUD Secretary Sean Donovan stated. "But much
work remains, in much-changed fiscal circumstances. Now that the
economic crisis has begun to recede, President Obama has committed
to reducing the federal deficit. HUD's fiscal year 2011 budget
reflects that fiscal discipline."
The main point Donovan stressed was HUD's primary mission of
making "targeted investments in people and places," rather than
programs and policies. This, according to the department, will
support its mission while holding it accountable to taxpayers.
"With the Recovery Act and fiscal year 2010 funding having
stabilized HUD's programs after years of slow starvation, the time
has come to begin transforming them," he said.
Amid the terminated programs is the Multifamily Housing
Revitalization Demonstration Program, part of the Department of
Agriculture's Rural Housing Service. While the department proposes
to eliminate the program, it's planning to increase the multifamily
housing direct loan program from $70 million to $95 million so
housing opportunities in rural areas can be met.
Funding has been reduced (by 10% YOY to $1.65 billion) for the
HOME Investment Partnerships Program, a formula block grant program
whose funds help increase the supply of affordable housing for
low-income families. Current fiscal constraints and the program's
scalability were the main reasons behind the decision. Additional
affordable housing needs could be met through other programs,
including the Neighborhood Stabilization Program through the
Housing and Economic Recovery Act of 2008, American Recovery and
Reinvestment Act of 2009 and Affordable Housing Trust Fund.
The Administration also proposes to reduce funding for the
Section 202 Housing for the Elderly program and the Section 811
Housing for Persons with Disabilities program, which funds the new
construction of housing for those groups. These programs will be
reassessed to make future projects more cost effective and well
targeted. Fiscal responsibility for the Section 811 program would
be shifted to the Tenant-Based Rental Assistance Program.
Despite the spending cutbacks, the agency believes targeted
investments will allow the department to provide housing and
assistance to almost 5.5 million households, an increase of more
than 200,000 over last year, and create and retain over 112,000
jobs through its community development investments.
Among HUD's major goals relating to the multifamily sector are
to increase funding for the Housing Choice Voucher Program. As
such, it has allotted $19.6 billion, an 8% increase from FY2010,
for the program to provide rental assistance to in excess of two
million extremely low- to low-income households so they can live in
neighborhoods of their choice. All existing mainstream vouchers
would continue to receive funding, and the program would have the
flexibility to support both new vouchers that were leased and $85
million in special-purpose vouchers for homeless and
at-risk-of-homelessness families with children and disabled
persons.
Some $9.4 billion would go toward preserving affordable rental
housing through the Section 8 Project-Based Rental Assistance
program, a 9% increase over the prior year's budget. Increased
funding for contracts with private multifamily owners would
preserve 1.3 million affordable units.
HUD has allocated $350 million to fund the first phase of
proposed "long-term fundamental reforms" that include a new
initiative, Transforming Rental Assistance, intended to modernize
its rental assistance program. Namely, the multi-year effort would
convert public housing to project-based vouchers and regionalize
the housing choice voucher program. The goals are to improve the
physical condition and management of public housing stock by
enabling its owners to address the current and future capital needs
of their properties and to streamline HUD oversight of its 13
separate rental assistance programs. The allocation would help
preserve some 300,000 units of public and assisted housing.
In one of the biggest funding increases, HUD would infuse the
Choice Neighborhoods program with $250 million, up from a
$65-million allocation in 2010. While its primary aim is to fund
the preservation, rehabilitation and transformation of public and
HUD-assisted housing, the department also hopes to continue to make
a variety of "transformative" investments, such as improved
transportation, services and job opportunities, in distressed
communities-high-poverty neighborhoods with concentrations of
public and assisted housing. The Choice Neighborhoods Initiative
would also replace the HOPE VI program, which was funded at $200
million in FY2010. Entities that would receive grants include
public housing authorities, local governments, nonprofits and
for-profit developers.
HUD is maintaining its funding of the Community Development
Block Grant ($3.99 billion in FY2011), but as part of reforming
such programs, it has proposed allocating an additional $150
million to the new Catalytic Investment Competition Grants program.
Under the auspices of the CDBG, the new program would provide
capital to innovative economic development projects in targeted
neighborhoods. The grants are meant to supplement the Choice
Neighborhoods Initiative, Promise Neighborhoods, HOPE VI,
Sustainable Communities or other place-based strategies.
The budget proposal also calls for the extension of the Housing
Credit Exchange program for another year. If approved by Congress,
the program would allow states to exchange their unused 2009
housing credit ceiling; credits returned in 2010; up to 40% of the
state's 2010 per-capita authority; and up to 40% of their share of
the 2010 national pool allocation. The program applies only to 9%
LIHTCs, not 4% or disaster credits. Assistance can come in the form
of a grant or a loan, and projects can include non-tax-credit
developments that meet LIHTC income, rent and use requirements.
For the second year of its Sustainable Communities Initiative (a
partnership between HUD, the Department of Transportation and the
Environmental Protection Agency), the department intends to use
$150 million to encourage regional and community planning efforts
around transit-oriented, environmentally sound projects.
The department also outlined some high-priority performance
goals for itself to achieve over the next two years, primarily to
increase efficiency and sustainability, and to meet the
ever-increasing need for affordable rental homes. The HUD budget
seeks $20 million in capital to be able to implement the proposed
changes. It once again requested that up to 1% of program funding
be funneled into the Transformation Initiative Fund, for research,
evaluation and program metrics; program demonstrations; information
and technology; and technical assistance and capacity building. HUD
is also requesting $1 billion in mandatory spending to capitalize
the Housing Trust Fund.
Congress has yet to approve these proposals, but already the HUD
budget has attracted some criticism. For one, the Administration is
seeking to increase the Federal Housing Administration annual
mortgage insurance premium for single-family housing, but no clues
have been given as to the potential implications for multifamily.
And a major factor of note is the lack of attention given to the
GSEs. Though the Administration has stated repeatedly that it would
unveil a plan for Fannie Mae, Freddie Mac and other housing GSEs
with its 2011 budget, any reform measures were conspicuously
absent. Government officials say they continue to monitor the GSE
situation, and Secretary Donovan indicated that reform proposals
will come soon, but no further information was provided.
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