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The pitfalls of “short funding” Section 8

by Michael Bodaken, National Housing Trust and National Housing Conference Board of Governors

NHC invites guest blog posters to write on important housing topics. The views expressed by guest posters do not necessarily reflect those of NHC or its members.

For reasons that fall well beyond this commentary, the federal government is sharply reducing so-called “discretionary” spending. Nevertheless, President Obama’s proposed FY 2013 budget fails the test of reducing the deficit while avoiding harm to our nation’s neediest.

HUD’s budget proposal for next year would “short fund” the Project-Based Section 8 program by over $1 billion. The bulk of this shortfall would be met by not funding housing contracts for a full 12 months. As many as 920,000 apartments may be “short funded” under this proposal. (See my PowerPoint presentation on the consequences of this decision that I shared at NHC’s Annual Budget Forum in Washington last month.)

Short funding is short sighted. Appropriators from both parties have expressed concern over this proposal (as have numerous groups in the affordable housing space). Sen. Murray (D-WA), chair of the Senate THUD Appropriations Subcommittee, and Sen. Collins (R-ME), the ranking member, expressed concerns that short funding contracts could lead to perverse incentives for owners to opt out of the program or under invest in property conditions. House THUD Appropriations Subcommittee Chair, Rep. Latham (R-IA), has asked HUD for more specifics on how this proposal will be implemented.

Here are 5 reasons why short funding Project-Based Section 8 contracts is misguided:

  1. Short funding contracts will NOT reduce federal expenditures. Short funding merely kicks the can down the road. At a recent appropriations hearing, Rep. Olver (D-MA) expressed concern about making up this shortfall in the upcoming FY 2014 budget. We cannot gamble that these funds will be replenished given the political uncertainty concerning future expenditures.
  2. Short funding contracts will harm vulnerable residents. Anything less than full, 12 month funding will increase rent burdens on fixed-income populations, delay critical repairs to affordable housing, and limit a property owner’s ability to provide supportive services to their elderly and disabled tenants. The average income of families that will be affected by short-funding is less than $12,000 annually. 64% of households are either elderly or non-elderly disabled.
  3. Short funding contracts increases both risks and costs to owners, lenders and investors as it becomes increasingly uncertain whether property owners will be able to meet their debt servicing obligations. Tens of thousands of Section 8 apartments are rehabilitated with the low income housing tax credit every year. HUD’s proposal will undermine investor confidence in these transactions.
  4. Short funding contracts will hurt the FHA. More than half of all Section 8 properties are FHA insured to the tune of $14 billion. Without ongoing rental income, owners will be unable to continue payments on existing debt and the FHA will be left holding the tab.
  5. Jobs, jobs, jobs…according to HUD, the Section 8 program supports 100,000 private sector jobs annually.

As HUD itself observed two years ago: “Annual funding should be predictable, timely and sufficient to fund rental contracts for a full 12 months.” HUD must act as a fair and consistent partner by honoring the contracts it has entered into with property owners. Full 12 month funding of the Section 8 program is crucial for Section 8 residents, properties, investors, and the owners of over 1.2 million apartments across the U.S.

Michael Bodaken has served as the president of the National Housing Trust for more than 13 years. Under his guidance, the Trust has become the primary national nonprofit intermediary dedicated to the preservation and improvement of affordable multifamily homes. The National Housing Trust preserves and revitalizes affordable apartments to better the quality of life for the families and elderly who live there.

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