FY 2012 T-HUD Conference Agreement: Public Housing Programs
As NAHRO previously reported, Senate and House conferees on November 14 released a compromise FY 2012 ”minibus” appropriations measure (H.R. 2112) that includes funding for HUD programs. Today’s Direct News item is intended to provide NAHRO members with a comprehensive summary of the conference report’s treatment of public housing programs, including the Operating Fund, Capital Fund, and HOPE VI. NAHRO will issue similar pieces covering Section 8 and Community Planning and Development programs, respectively, in the coming days.
Public Housing Operating Fund
The conference report provides $3.962 billion for the Public Housing Operating Fund for 2012, matching the administration’s request and the Senate-passed version of the FY 2012 Transportation, Housing and Urban Development, and Related Agencies (THUD) appropriations bill, an amount equivalent to 80 percent of HUD’s estimate for subsidy eligibility for the year. The conference report adopts the Senate’s approach to an offset of PHAs’ “excess” operating reserves, placing additional limitations beyond those in the administration’s request or the House THUD appropriations subcommittee’s version of the bill. Although the conferenced bill still allows the Secretary to “take into account PHAs’ excess operating reserves, as determined by the Secretary,” when determining PHAs’ 2012 funding, the conference report includes several measures intended to address concerns raised by NAHRO and others regarding the offset:
- The bill limits the offset to $750 million. Whereas the administration’s original proposal assumed 1) that agencies with inadequate operating reserves would be funded at 100 percent of operating subsidy eligibility for 2012, and 2) that for agencies subjected to the offset, the amount of 2012 subsidy added to the amount of the offset would equal 100 percent of eligibility, the $750 million offset cap in the conference agreement will most likely require HUD to assume a baseline proration of approximately 95 percent of formula eligibility prior to the calculation and imposition of individual agency offsets.
- The conference agreement requires that no PHA be “left with less than $100,000 in operating reserves” as a result of the allocation reduction. Because the bill authorizes an offset but not a recapture, there are questions about how this provision will be implemented.
- The bill stipulates that Moving to Work agencies shall “receive a pro-rata reduction consistent with their peer groups.”
- The bill directs the Department to establish an appeals process that will allow PHAs to challenge initial allocation amounts. The Secretary is required to “consider adjustments” due to factors such as “prior funding reservations, commitments related to mixed finance developments, or reporting errors.” The Secretary is required to notify PHAs of the appeals process “and what documentation may be required as part of such appeal,” and final allocations cannot be made until the appeals process has concluded. NAHRO believes that this requirement cannot be satisfied by the now-concluded process for requesting exclusions as outlined under PIH 2011-55.
- The conferenced bill allows the HUD Secretary to set aside up to $20 million from the Operating Fund appropriation “to provide assistance to any [PHA] who encounters hardship as a direct result of an excess reserve offset.”
In addition to these limitations, the Joint Explanatory Statement accompanying the conference agreement directs HUD to “submit an implementation plan to offset 2012 allocations based on reserve balances to the Committees on Appropriations within 30 days of the enactment of this Act.” The conferees further instruct HUD to include in its report a “clear methodology for determining excessive reserves and the impact of the plan on each PHA.” This requirement is based on House report language offered by Rep. Price (D-NC) in response to industry concerns. However, unlike the House report, this language does not explicitly require the committee to approve the plan before HUD is allowed to move forward with implementation.
Use of Operating Reserves for Capital Improvements: In a welcome development reflecting NAHRO advocacy, the conference report requires the Department to “provide flexibility to [PHAs] to use excess operating reserves for capital improvements.” NAHRO has been highly critical of the Department’s arbitrary policy change, communicated through the Assistant Secretary’s February letter to PHA executive directors, restricting the use of reserves for capital expenditures. NAHRO has been particularly concerned about the confusion the Department’s actions have created among agencies with fewer than 250 units of public housing. Under the 1937 Act as amended by the Quality Housing and Work Responsibility Act, these small agencies have total fungibility between operating and capital subsidies and have the right under statute to use operating subsidy and reserves for any Capital Fund eligible activity.
The Joint Explanatory Statement accompanying the bill directs the Secretary to “establish clear guidance on how operating reserves can be used going forward, and in the interim expects this flexibility to be granted to PHAs to make capital improvements, but not to include large modernization projects.” Unlike the Senate report, it does not provide a timeline for this guidance. HUD has repeatedly promised to issue guidance on eligible uses of operating reserves, including so-called “expanded use” funds, as well as a clarification regarding the inapplicability of the Assistant Secretary’s letter to small PHAs, but no such guidance has yet been released.
Federalized Units: Unlike the House THUD subcommittee’s version of the bill (which was never taken up by the full House Appropriations Committee), the conferenced bill contains no prohibition against use of funds for public housing units that were federalized under ARRA. NAHRO was vocal in its objections to that prohibition and is pleased that conferees rejected it.
Public Housing Capital Fund
The conference bill provides $1.875 billion for the Public Housing Capital Fund for FY 2012. This amount is equivalent to the Senate bill, and $343 million more than the House subcommittee mark. This appropriation represents a new low watermark for the program, which was funded at $2.040 billion for FY 2011 and $2.5 billion for FY 2010. Put another way, the Capital Fund has over the past two years experienced an unprecedented 25 percent reduction from what was already an inadequate funding level given the inventory’s annual accrual of capital needs. Furthermore, in July of this year, HUD released the Capital Needs Assessment completed by Abt Associates, which estimated that the backlog of capital needs in the public housing portfolio is about $26 billion, with an annual accrual rate of approximately $3.4 billion.
Capital Fund Set-asides
Emergency Capital Needs: The conference bill sets aside up to $20 million for emergency capital needs “including safety and security measures necessary to address crime and drug-related activity as well as needs resulting from unforeseen or unpreventable emergencies and natural disasters, excluding emergencies and disasters with a Presidential declaration.” This language is equivalent to the Senate mark, and rejects the administration’s recommendation to remove safety and security from the eligible purposes. The House subcommittee mark would have eliminated this set aside.
ROSS: The conference committee’s bill maintains the traditional set aside of $50 million for the Resident Opportunities and Self-Sufficiency (ROSS) program. This set aside mirrors the Senate bill, although it was not included in the House subcommittee mark. For the third year in a row, the administration’s FY 2012 budget proposed eliminating funding for ROSS. The administration continues to justify its decision not to seek ROSS funding by arguing that self-sufficiency activities are currently an eligible expense under other programs, including the Operating Fund.
REAC and Receiverships:The conference bill provides up to $10 million to support the financial and physical assessment activities of the Real Estate Assessment Center. It also provides up to $5 million for the cost of administrative and judicial receiverships.
Community Facilities: No funding has been set aside for the construction, rehabilitation or acquisition of community facilities for early childhood education, adult education, job training and other appropriate services for public housing residents. The Capital Fund Community Facilities program was funded at $40 million for FY 2011, but the President’s FY 2012 budget did not request set-aside funding for this program.
Rental Assistance Demonstration
The conference bill includes a modified version of the language included in the Senate bill authorizing the administration’s Rental Assistance Demonstration (RAD), which would allow for the voluntary conversion of up to 60,000 public housing and Mod Rehab units to project-based contracts or project-based vouchers under Section 8. The bill provides no additional funding for the demonstration, but includes language mandating that the price tag associated with conversions to a new subsidy form be met entirely through transfers from the Operating and Capital Funds. Regarding such transfers, Senate report language had previously clarified that “increases and decreases will be directly related to the units of housing that are part of the demonstration” and, “as a result, the changes should not adversely impact PHAs that continue to rely on the public housing programs,” although NAHRO notes this same clarification was not included in the Joint Explanatory Statement accompanying the conference report. It should be noted, however, that the conferees indicated through the Joint Explanatory Statement that “the conference agreement includes language for a Rental Assistance Demonstration, as proposed by the Senate with modifications” (emphasis added).
The conference report contains two provisions that were not included in the Senate language. The first specifies that initial long-term contracts “may allow for rental adjustments only by an operating cost factor established by the Secretary and shall be subject to the availability of appropriations.” NAHRO is concerned that not only does the bill fail to specify any mechanisms for setting the initial rent, this provision is equally unclear with respect to annual rent adjustments. The bill also includes a provision stating that “the Secretary shall offer and the owner of the property shall accept renewal of the contract subject to the terms and conditions applicable at the time of renewal and the availability of appropriations each year of such renewal.” In effect, this provision would require owners to maintain the properties’ affordability in perpetuity with no ability to negotiate the terms of future contracts. NAHRO has long argued that adequate, stable funding must be an essential element of any effort to preserve public housing through conversion.
Although the text of the conference bill does not reflect HUD’s proposal to attach a mobility requirement (Resident Choice Option) to public housing units converted to PBRA contracts, it does provide the Secretary discretion to “waive or specify alternative requirements for any provision…necessary for the effective conversion of assistance under the demonstration.” This extremely broad provision remains a source of concern for NAHRO. NAHRO notes that the Senate Appropriations Committee’s earlier report accompanying its version of the bill stated that “the Committee supports the objective of offering public housing choice mobility as an important component of this demonstration in a manner that serves residents and provides flexibility for PHAs to work with HUD, to determine how to meet this objective.” NAHRO and others have repeatedly raised concerns about the potential consequences of the proposed mobility feature within the context of conversions to PBRA, arguing that it is likely to freeze Section 8 waiting lists while destabilizing rental income and increasing turnover costs, thus making it more difficult for PHAs to attract the private capital needed to preserve units.
NAHRO is working to gain a better understanding of how HUD would implement RAD under the terms of the conference bill - and without incremental appropriations. We will provide a more comprehensive review when additional information is available.
HOPE VI/Choice Neighborhoods
The conference bill mirrors the Senate by including no funding for HOPE VI but providing $120 million for the administration’s still-unauthorized Choice Neighborhoods Initiative. The bill requires that “not less than $80 million shall be awarded to public housing authorities,” although no language is included to ensure that Choice Neighborhoods awards directly target public housing units. In addition, no more than $5 million may be used for planning grants. The House subcommittee’s bill provided no funding for either the HOPE VI program or Choice Neighborhoods. HOPE VI was funded at $100 million for FY 2011, although HUD (over NAHRO’s objections) set aside $65 million of this funding for its demonstration of Choice Neighborhoods. These funds were awarded under the FY 2010 NOFA, with only four of the six successful applicants including any public housing in their redevelopment plans. The bill also contains a provision to extend the authorization of HOPE VI through 2012.
PHA Employee Compensation
The conference bill prohibits PHAs from using any Tenant-Based Voucher, Operating Fund, or Capital Fund dollars to pay any amount of salary above the base rate of pay for level IV of the Executive Schedule, the salary grade of the Assistant Secretary for Public and Indian Housing, or $155,000 for FY 2011. There are some indications that despite a federal pay freeze this level could be increased to $160,000 for FY 2012, and NAHRO is seeking further clarification on this issue. Although a similar provision in the House subcommittee’s mark would have prohibited the use of federal funds for any part of a salary whose total exceeds this level, the provision in the final conference agreement is limited to only the portion of the salary above this level. This restriction applies to salaries for each PHA’s FY 2012, and takes effect 120 days after the date of the bill’s enactment. NAHRO will seek additional clarification and guidance from HUD on how this provision will be implemented.
Exemption from Asset Management
The conference bill leaves unchanged the language included in recent HUD appropriations bills providing an exemption from asset management requirements for smaller agencies. For the past several fiscal years, Congress has, through a provision in the annual appropriations bill, provided PHAs that own and operate 400 or fewer units with the ability to "elect to be exempt from any asset management requirement imposed by the Secretary of [HUD] in connection with the operating fund rule." The President’s request, as in the past, did not include this language for FY 2012.
Working Capital Fund
The bill provides nearly $200 million in direct appropriations for development of and modifications to the Department’s IT systems, with no transfers from other programs. NAHRO has long advocated against the use of set-asides and transfers from program funds to support these efforts. The bill prohibits HUD from obligating more than 25 percent of the funds until the Secretary submits an expenditure plan that identifies the functional and performance capabilities to be delivered and the mission benefits to be realized, the estimated life-cycle cost, and key milestones to be met. In addition, the Department must demonstrate that each modernization project meets a set of standards and has been reviewed by the Government Accountability Office.
Transformation Initiative
The bill provides $50 million in direct appropriations, slightly above the amount proposed by the House subcommittee, for program research and evaluation, demonstrations, and technical assistance. Unlike in previous years, the administration’s request to capitalize this fund through transfers of up to .5 percent from program accounts, limited to a total of $120 million, was rejected. The Joint Explanatory Statement requires that at least $23 million of these funds be for OneCPD, and recommends that the rest of the funds be used for continuation of several studies, continuation of the pre-purchase counseling study, and physical needs assessments for PHAs, among other purposes. NAHRO notes that this amount appears inadequate to support the Department’s previously proposed $50 million demonstration of mobility in converted public housing.
For more information or questions regarding this Direct News item, contact Tamar Greenspan, NAHRO’s Policy Analyst for Public and Affordable Housing.