NCSHA Analysis of the Administration's Fiscal Year 2013 Budget Proposal

Summary
 
On February 13, the Administration sent Congress its FY 2013 Budget, proposing funding for all federal programs, including HUD and the Department of Agriculture’s (USDA) rural housing programs.  It also contains the Administration’s tax proposals, including changes to the Housing Credit program to provide incentives for creating mixed-income housing and to allow a 30 percent basis boost for some 4 percent Credit, tax-exempt bond-financed preservation deals. 

The Budget also proposes repealing the Mortgage Revenue Bond (MRB) program purchase price limit and re¬financing restriction.  It also says the Administration will increase by 10 basis points every Federal Housing Administration (FHA)-insured loan, subject to further notice later this year.  For loans greater than $625,500, HUD will impose an additional 25 basis points premium.  The Budget does not include provisions related to housing finance reform.

NCSHA’s analysis of the Budget’s housing proposals follows.

HUD and USDA Highlights
 
            The Administration proposes $35.3 billion in HUD budget authority, a $2.9 billion, or 7.6 percent, decrease from the $38.3 billion HUD appropriation provided under the FY 2012 spending bill the President signed November 18, 2011.  After accounting for offsetting receipts, mostly from the FHA mortgage insurance program, the Budget proposes to spend $44.8 billion on HUD programs, a $1.5 billion, or 3.2 percent, increase over its FY 2012 funding level.

The Budget increases funding for Housing Choice Vouchers by 1 percent, homeless assistance by 17 percent, and Section 202 Housing for the Elderly by 27 percent.  It cuts funding for the project-based Section 8 program by 7 percent and funding for Section 811 Housing for Persons with Disabilities by 9 percent.  It provides level funding for HOME and the Community Development Block Grant (CDBG) programs.  The Budget also again proposes $1 billion in new funding to launch the Housing Trust Fund.

The Budget again proposes to eliminate the Rural Housing and Economic Development program, the Brownfields Economic Development Initiative, and the Self-Help and Assisted Homeownership Opportunity program (SHOP).  The Budget also again proposes to replace the HOPE VI program with the Choice Neighborhoods Initiative.
 
HOME:  The Budget proposes $1 billion for HOME, equal to its FY 2012 funding level.

The Budget also proposes statutory changes to allow recaptured CHDO funds to be reallocated by formula and to facilitate eviction of HOME renters who pose an imminent threat.

The Budget again proposes to eliminate funding for the SHOP program, stating that all SHOP activities are eligible under the HOME program.  The Budget states that the Administration plans to encourage state and local HOME grantees to fund SHOP projects.

Housing Choice Vouchers:  The Budget proposes $19 billion for Housing Choice Vouchers (vouchers), 1 percent more than the FY 2012 appropriation of $18.9 billion.  The Administration proposes $17.2 billion for expiring voucher renewals, $4 million less than the FY 2012 appropriation.  The Budget also proposes a $75 million fund for adjusting Public Housing Authority (PHA) renewal allocations to account for unforeseen circumstances, including portability-associated cost increases, $28 million less than in FY 2012.

            The voucher program funding includes $1.58 billion for PHAs’ administrative costs, $225 million more than the FY 2012 appropriation.  The proposed administrative fee total includes $50 million for the Secretary to allocate as he deems necessary to PHAs requiring additional administrative funds and for fees associated with tenant protection vouchers. 

    In addition to funding all existing vouchers, the voucher program funding level includes $111 million to move Section 811 Mainstream vouchers into the voucher program.  It includes $75 million for an estimated 10,000 new vouchers for homeless veterans through the HUD-Veterans Affairs Supportive Housing (HUD-VASH) program. 

HUD expects to assist approximately 2.2 million families by renewing existing vouchers and issuing new incremental vouchers to homeless veterans, and other vulnerable families.

    The Budget proposes to move the Family Self-Sufficiency (FSS) program outside of the voucher account and fund it as a separate program.  It proposes $60 million for FSS, equal to its FY 2012 funding level.  The Budget proposes to consolidate the two separate FSS programs administered for the voucher and public housing programs into one FSS program.  It also proposes to make FSS available to beneficiaries of project-based rental assistance.  The Budget provides flexibility for PHAs to combine and use a portion of Public Housing Operating and Capital Funds and voucher administrative fees towards additional service coordination.

Section 8 Project-Based Rental Assistance (PBRA):  The Budget proposes $8.7 billion to renew expiring Section 8 project-based contracts, a $640 million, or 7 percent, decrease from the FY 2012 appropriation of $9.3 billion.  The amount includes $260 million for performance-based contract administrators’ administrative fees, $29 million less than appropriated in FY 2012.

The decrease in the funding level represents a reduction in upfront funding on some PBRA contracts that straddle fiscal years.  The Budget indicates that this change will not reduce or delay payments to landlords nor impact the number of families served by the program.  With this level of funding, HUD expects to continue serving approximately 1.2 million low-income families.
   
Rental Assistance Demonstration (RAD):  The Budget indicates that in FY 2013 HUD will continue efforts to preserve and improve public and assisted housing through RAD.  HUD’s FY 2012 Appropriations Act authorized RAD to test new preservation tools for its assisted housing stock allowing for:

•    Public Housing and Moderate Rehabilitation (Mod Rehab) properties to convert to long-term Section 8 rental assistance contracts, capped at 60,000 units of converted assistance; and
•    Rent Supplement (Rent Supp), Rental Assistance Payment (RAP), and Mod Rehab properties, upon contract expiration or termination, to convert TPVs to project-based vouchers (PBVs).

The Budget does not propose additional RAD funding.  Instead, RAD will make use of funds requested under:

•    Existing programs, such as public housing operating and capital subsidies or Mod Rehab appropriations, to fund PBRA contracts at current funding levels; or
•    TPVs that would have been issued to tenants upon contract expiration or termination in the Rent Supp, RAP, and Mod Rehab programs.

Rental Assistance Reforms:  The Budget includes several reforms to HUD rental assistance programs designed to save more than $500 million in FY 2013 without reducing the number of families served.  These reforms include improved oversight of market rent studies used to set subsidy payment levels, caps on annual subsidy increases for certain properties, and use of excess reserves to offset HUD payments to landlords. 

The Budget also increases the minimum rent to $75 per month for all HUD-assisted households, which is comparable to the minimum rent enacted in 1998, adjusted for inflation.  HUD says this proposal is intended to align policy across rental assistance programs and reduce Federal costs.  The Budget maintains the current exemption for families facing financial hardship.  In addition, the Budget reduces costs by simplifying administration of the medical expense deduction, to improve the targeting of rental assistance to the working poor, and setting Public Housing flat rents closer to market levels.

Housing Trust Fund:  The Budget requests $1 billion in mandatory spending, subject to PAYGO legislation, to capitalize the Housing Trust Fund.  The Administration has proposed $1 billion for the Housing Trust Fund in each of the past three years.

Federal Housing Administration (FHA) Single-Family Insurance Program:  As mandated by the December 2011 payroll tax-cut legislation, FHA's annual premiums will increase by 10 basis points for every FHA-insured loan, subject to further notice later this year.  For loans greater than $625,500, HUD will impose an additional 25 basis points premium.  The Budget projects that the FHA single-family insurance fund will remain solvent this year and grow its capital through 2015, but warns that unforeseen economic changes could result in wide swings in expected claims and the fund’s capital ratio.

Ginnie Mae Securitization of FHA-HFA Risk-Sharing Program Loans:  The Budget proposes to allow Ginnie Mae to securitize FHA-HFA Risk-Sharing program loans, mirroring NCSHA’s legislative proposal.  HUD officials have indicated verbally that this provision would apply only within the Department’s new small loan program, which is intended to provide financing for small multifamily properties, primarily in rural areas.  The Budget document does not provide any information about the small loan program.

FHA Multifamily Mortgage Insurance Premiums:  The Budget proposes increases in mortgage insurance premiums for newly insured market rate multifamily housing and healthcare facility loans.  The Budget proposes increases of 20 basis points for 221(d)(4) loans, five basis points on 223(a)(7) refinances of current FHA loans, and 15 basis points on all other types of healthcare and multifamily loans.  These premium increases will not apply to affordable housing projects, such as those receiving federal rental subsidies, Housing Credits, or involving FHA Risk-Sharing agreements.

Housing Counseling:  The Budget proposes $55 million for housing counseling, a $10 million, or 22 percent, increase from its FY 2012 appropriation.  The Budget also proposes $86 million for the Neighborhood Reinvestment Corporation’s National Foreclosure Mitigation Counseling program, a $6 million, or 8 percent, increase over the FY 2012 funding level.
 
Community Development Fund:  The Budget proposes to fund the Community Development Fund at $3.14 billion, a $165 million, or 5 percent, decrease in the FY 2012 appropriation.  It proposes to fund CDBG at $2.95 billion, equal to its FY 2012 appropriation.

Sustainable Communities:  The Budget proposes $100 million for the Sustainable Communities Initiative.  The Initiative was not funded in FY 2012.  Of the proposed amount, $46 million would be used for Sustainable Regional Planning Grants and $46 million would be used for Community Challenge Grants.  The initiative is designed to complement the Department of Transportation's funding for state and local infrastructure and the Environmental Protection Agency's technical assistance program.
  
Homeless Assistance:  The Budget proposes $2.23 billion for homeless assistance, $330 million, or 17 percent, more than its FY 2012 appropriation. 

    In 2013, the Administration will continue to implement the HEARTH Act, which combined HUD’s three competitive grant programs: Shelter Plus Care, Supportive Housing, and Section 8 Moderate Rehabilitation Single Room Occupancy.  HUD estimates it will use $1.91 billion for competitive renewals in the CoC program, $286 million for the Emergency Solutions Grant program, and approximately $35 million for new competitive projects in the CoC, the Rural Housing Stability Assistance program, the homeless data analysis project, and authorized administrative costs.

Housing for the Elderly and for Persons with Disabilities:  The Budget proposes $475 million for the Section 202 Housing for the Elderly program, $100 million more than appropriated in FY 2012.  The Budget proposes $150 million for the Section 811 Housing for Persons with Disabilities program, $15 million less than appropriated in FY 2012. 

    For Section 202, the Budget provides $285 million to renew and amend operating subsidy contracts for existing housing, $100 million for new awards of operating assistance to expand the number of housing units, and $90 million for service coordinators.  In FY 2013, the Administration will seek further legislative and administrative reforms, including a proposal to carry over the Project Rental Assistance authority under the Section 811 program to Section 202, which would allow HUD to provide Section 202 operating assistance directly to states.

    For Section 811, the Budget provides $96 million to renew and amend operating subsidy contracts for existing housing, and includes $54 million to allocate Section 811 Project Rental Assistance through states that demonstrate an integrated health care and housing approach to serving households with disabilities.
 
Public Housing:  The Budget proposes $2.07 billion for the Public Housing Capital Fund, $195 million, or 10 percent, more than in FY 2012.  The Budget proposes $4.52 billion for the Public Housing Operating Fund, $562 million, or 14 percent, more than in FY 2012. 

    The Budget proposes to combine the separate Operating Fund and Capital Fund into a single public housing subsidy stream.  The proposal would provide PHAs with the flexibility to use their operating and capital funding for any eligible capital or operating expense.  The Budget also includes a $50 million pilot expansion of the Jobs-Plus demonstration.  The demonstration provides public housing residents with job search assistance, financial incentives to work, and supportive services.
 
HOPE VI/Choice Neighborhoods Initiative:  The Budget proposes no new funding for the HOPE VI program for revitalization of severely distressed public housing, as it proposes to provide instead $150 million for the Choice Neighborhoods Initiative.  HOPE VI was not funded in FY 2012 and Choice Neighborhoods was funded at $120 million in FY 2012.

AIDS Housing:  The Budget proposes $330 million for the Housing Opportunities for Persons with AIDS (HOPWA) program, a $2 million, or 1 percent, decrease from FY 2012.
 
Rural Housing and Economic Development (RHED):  The Budget proposes no new funding for RHED, which received no funding in FY 2012.  RHED provides capacity-building and program grants to nonprofits and public agencies supporting housing and community development in rural areas.  The Budget also proposes no new funding for the Rural Innovation Fund within the Community Development Fund; the fund was also not funded in FY 2012. 

Lead-Based Paint Hazard Reduction:  The Budget proposes $120 million for the Lead Hazard Reduction Program, the same as its FY 2012 appropriation. 
 
Capacity Building:  The Budget proposes $35 million under the Community Development Fund for the Capacity Building, or Section 4, program.  This program provides grants to national intermediaries to develop, enhance, and strengthen the technical and administrative capabilities of community development corporations to carry out community development and affordable housing activities for low- and moderate-income persons.  Grants provided under this program require a three-to-one match from private sources.

Energy Innovation Fund:  The Budget does not request new funding for the Energy Innovation Fund, as the Administration anticipates that the $50 million FY 2010 appropriation will fund the pilot program activities through 2013.  The Energy Innovation Fund is intended to stimulate and enhance private investment in cost-saving energy efficiency retrofits of existing housing, through improved use of FHA single-family and multifamily mortgage products.  Half of the funding will be used to support the FHA PowerSaver loan guarantee program, which will provide eligible homeowners with Title I Energy Efficient Property Improvement loans of up to $25,000.  The remaining $25 million will be used for the Multifamily Energy Innovation Fund Pilot, which will identify solutions to challenges to implementing energy efficiency improvements in affordable multifamily housing.

Transformation Initiative:  The Budget does not propose any new funding for the Transformation Initiative (TI) to transform and revive HUD.  However, it proposes to transfer up to 0.5 percent of each program’s funding to this fund for four purposes:  research, evaluation, and program metrics; program demonstrations; information and technology; and technical assistance and capacity building. 

USDA Rural Housing Programs:  The Budget proposes $652.8 million for the Section 502 single-family subsidized direct loan program, a $247 million decrease from its FY 2012 appropriation.  The Budget states that this is the minimum funding level to allow for targeted support for teachers in rural areas and beneficiaries of the mutual self-help housing program, along with other very low- and low-income individuals in rural areas still needing mortgage credit assistance.  For 2013, the program will continue to have a combination annual and up-front fee structure for both new purchase and refinanced loans.

The Budget recommends funding the Section 502 unsubsidized guaranteed loan program at $24 billion, equal to its FY 2012 funding level.

The Budget proposes no new funding for the Section 515 rural rental housing loan program.  It was funded at $64.5 million in FY 2012.  According to the Budget, the Administration is not requesting any funding because it is focused on rehabilitation of the Section 515 multifamily housing portfolio in 2013.  The Budget proposes $34.4 million for the Multifamily Preservation and Revitalization (MPR) demonstration program.
   
The Budget proposes $150 million for the Section 538 multifamily loan guarantee program, a $20 million increase from its FY 2012 appropriation.  It proposes $12.6 million for the Section 542 rural housing voucher program, an increase of $1.6 million from the FY 2012 appropriated amount.  The program provides vouchers for families living in Section 515-assisted properties whose owners prepay their mortgages.

Other Budget Proposals Relevant to Housing

Housing Credit:  The Budget re-proposes Housing Credit changes from last year’s Budget, with amendments, and requests two new program changes.  The Budget proposes to modify the program’s income limits to allow project owners to serve families with incomes above 60 percent of area median income (AMI), as long as at least 40 percent of the units in a development average not greater than 60 percent of AMI.  None of these units could be occupied by an individual with income greater than 80 percent of AMI, and any units with income limits less than 20 percent of AMI would be treated as being at 20 percent of AMI.  This provision was also proposed in the FY 2012 Budget but was not enacted. 

The FY 2013 proposal contains a special rule for Credit-financed rehabilitation of HUD-assisted developments.  The proposal would allow existing tenants whose incomes have increased above 60 percent of AMI but are less than 80 percent of AMI to remain in the development without jeopardizing the development’s eligibility for Credit financing.  Under current law, units occupied by tenants with incomes above 60 percent do not qualify for Credit assistance. 

To increase funding for preservation, the Budget proposes to allow a 30 percent “basis boost” for Housing Credits for developments involving preservation, recapitalization, and rehabilitation of existing federally assisted housing that is subject to a long-term use agreement limiting occupancy to low-income households.  The proposal creates a new “Federal-Investment Protection Designation,” which if applied by a HFA to a rehabilitation project, would result in two favorable consequences.  First, the rehabilitation would qualify for 30 percent present value (4 percent) Credits without tax-exempt bond financing as long as the rehabilitation receives a tax-exempt volume cap allocation that is not less than the amount of bonds that would be necessary to qualify for the Housing Credits, and the state’s remaining bond volume cap is reduced as if tax-exempt bonds had been issued.  Second, if the rehabilitation is eligible for 30 percent present value Credits, then the HFA would be able to designate some or all of the qualified basis of the rehabilitation for a 30 percent basis boost.  In each state, the basis receiving the boost designation in a calendar year would be limited to an amount equal to 0.8 percent of the state’s volume cap for that calendar year.  The aggregate amount of basis annually eligible for the boost could be carried forward and added to subsequent years’ authority for up to five years.  A variation of this proposal was included in the FY 2012 Budget but was not enacted.

To increase demand for the Housing Credit, the Budget proposes to make Credit investments more attractive to Real Estate Investment Trusts (REITs).  The proposal would permit a REIT that receives Housing Credits to designate as tax-exempt some of the dividends that it distributes to its shareholders.  These dividends would be excluded from the gross income of the shareholders that receive them.  If the REIT did not have sufficient earnings and profits to support a dividend for the entire amount, it could carry forward indefinitely the ability to make the designation. 

The Budget proposes to require Housing Credit developments to provide appropriate protections for victims of actual or threatened domestic violence.  Under the proposal, long-term use agreements would have to contain protections comparable to those required of federally financed affordable housing by the Violence Against Women Act.  The proposal would be effective for long-term use agreements that are either first executed, or subsequently modified, on or after the date that is 30 days after the date of enactment of legislation adopting the proposal.

Housing Bonds:  The Budget proposes to limit the tax rate at which upper-income taxpayers can use tax-exempt interest to reduce tax liability to a maximum of 28 percent.  This limitation would affect married taxpayers filing a joint return with adjusted income of over $250,000 and single taxpayers with income over $200,000.  The limit would be effective for taxable years beginning after December 31, 2012.

The Budget proposes to repeal the Mortgage Revenue Bond (MRB) purchase price and re¬financing limitations.  It would retain other targeting requirements, including the MRB income limits and targeted areas requirement.  This provision was also proposed in the FY 2012 Budget but was not enacted.  

Build America Bonds:  The Budget proposes to extend the Build America Bond program for two years at a subsidy rate of 30 percent, and to extend it permanently thereafter at a subsidy rate of 28 percent.  The Budget also proposes to expand the program to include certain additional program uses for which State and local governments may use tax-exempt bonds under existing law, including capital projects; current refundings of prior public capital projects; short-term governmental working capital financings; and Section 501(c)(3) nonprofit entities, such as nonprofit hospitals and universities.  The proposed expansions do not include housing bonds. 

Project Rebuild:  The Budget proposes $15 billion in mandatory spending, subject to PAYGO legislation, for Project Rebuild.  Project Rebuild was first proposed in the President’s American Jobs Act, introduced in September 2011.  Building on the Neighborhood Stabilization Program (NSP), Project Rebuild would authorize $15 billion in investments to rehabilitate and refurbish hundreds of thousands of vacant and foreclosed homes and businesses.  The proposal would allocate $10 billion by formula to state and local governments and $5 billion by competitive distribution to governmental entities, nonprofits, and for-profits.

Home Energy Score Program:  The Department of Energy completed a set of successful pilots for the Home Energy Score program in FY 2011 and hopes to complete 10,000 more home scores in FY 2013.  Funded as part of the $47.9 million Residential Buildings Integration activities, the program allows trained and certified contractors to rate homes on a 1 to 10 scale, give homeowners information on how their homes compare to other homes in the area, estimate potential savings from energy retrofits, and supply a personalized list of recommended improvements.

Weatherization:  The Budget proposes $139 million for the Department of Energy’s home weatherization assistance program, $71 million more than the enacted FY 2012 level of $68 million.