NLIHC signed on to a letter submitted by the National Housing Law Project (NHLP) to U.S. Senate and House of Representatives Appropriations Subcommittee leaders, urging Congress to place tighter guardrails on funds intended to be used to preserve properties assisted with Section 8 Project-Based Rental Assistance (PBRA) in order to ensure that HUD and owners of PBRA properties are held accountable for keeping these properties in decent, safe, and healthy condition. As shown again and again through extensive documentation and reporting, many tenants throughout the country are living in housing that is harmful to their health and that does not meet federal physical conditions standards. Tenants are directly harmed by HUD’s failure to hold those owners accountable and to use its existing tools to improve housing conditions and protect tenants.
HUD’s Office of the Inspector General’s fiscal year (FY) 2023 Report on Top Management Challenges identifies eliminating hazards in HUD-assisted housing, including improving physical conditions in units, as a continued top management challenge. President Biden’s FY24 budget request for HUD’s Project-Based Rental Assistance program seeks a total of $53 million for troubled properties, $28 million of which is to be targeted to properties that remain in poor physical conditions because their owners consistently fail to correct deficiencies. While the letter supports the proposed funding, there is serious concern that many owners caused or contributed to the poor conditions and that HUD has continued to fail to exercise its existing enforcement authority.
Two Key Provisions in the President’s Budget Proposal
Section 233 of the General Provisions (page 53-16 and 53-17) of the budget request permits HUD to make direct loans, including forgivable loans, to owners of PBRA properties at risk of physical obsolescence with rents that are not adequate to cover debt needed to make necessary physical improvements. In exchange for a loan to rehabilitate a property, an owner must agree to extend the property’s affordability period for an additional 30 years. Page 23-4 of the PBRA “Congressional Justification” (CJ) seeks $25 million for this new “Distressed Properties Capital Loan Program.” HUD estimates this amount will support rehabilitation of 12 properties containing 500 units.
Section 234 of the General Provisions (page 53-17) adds a provision to Section 524 of “The Multifamily Assisted Housing Reform and Affordability Act of 1997” (MAHRAA). This would enable owners of at-risk PBRA properties that have health and safety deficiencies to request rent adjustments to either a budget-based rent (rent based on the actual cost of operating a property) or a comparable market rent, whichever is lower, so that the property owner could obtain financing needed to cure the health and safety deficiencies. Pages 23-4 and 23-9 of the PBRA CJ seeks $3 million for this amendment and anticipates increasing contract rents for 10-15 properties.
MAHRAA already allows HUD to make “Budget-Based Rent Increases” (BBRIs) for post Mark-to-Market (M2M) Section 8 properties to prevent them from becoming distressed and to facilitate rehabilitation, provided the adjusted rents are at or less than comparable market rents. M2M contract rents are initially set at market levels and currently may be adjusted by annual Operating Cost Adjustment Factors (OCAFs), unless HUD approves a budget-based rent. For this set of at-risk properties, HUD requested $25 million (page 23-4 of the CJ) and anticipates serving 100 at-risk properties, out of an estimated 1,800 properties that have rents less than the Fair Market Rent (FMR).
The Letter’s Recommendations
The letter recommends that the Committees include eight provisions intended to ensure the $53 million in proposed preservation investments in HUD’s budget yield habitable, preserved HUD-assisted housing. The recommendations include:
- Requiring a 50-year affordable use restriction (instead of 30 years) as a condition of receiving a direct loan, and applying the same 50-year use restriction for properties granted increased rents. Owners of these properties must also agree to a perpetual, required Housing Assistance Payment (HAP) renewal if HUD offers a contract for renewal.
- Requiring use restrictions expressly enforceable by tenants, including for a failure to meet decent, safe, and sanitary requirements.
- Requiring owners receiving a direct loan or increased rents to agree to promptly make all required repairs, and when required by HUD, to develop a rehabilitation plan in consultation with tenants to be approved by HUD; and requiring owners to undertake capital needs planning and accumulate higher required reserves to cover repairs and replacement needs.
- If there is a material violation of the terms of the contract or program standards that remains unremedied, HUD must seek specific performance of the contract, judicial receivership, or a transfer of the property to a capable preservation purchaser, prior to terminating a contract.
The letter also notes that HUD provides an explicit right to organize in HUD’s Multifamily programs but does not fully fund tenant organizing activities in project-based properties. Under MAHRAA, Congress allows HUD to allocate up to $10 million per year (under Section 514) for tenant groups and nonprofit organizations to provide capacity building and technical assistance to tenants in HUD-assisted properties that have issues regarding conditions, contract restructuring, or other threats to long-term affordability. The letter states that Congress should make these funds available for use to support legitimate tenant organizations’ preservation efforts.
Read NHLP’s letter at: https://bit.ly/3Agsi0S
Read the Project-Based Rental Assistance Program budget request at: https://bit.ly/3otfdym (see pages 23-4 and 23-9)
Read the budget request General Provisions at: https://bit.ly/43M0QFF (Sections 233 and 234 are on pages 53-16 and 53-17)
More information about the Project-Based Rental Assistance Program is on page 4-77 of NLIHC’s 2023 Advocates’ Guide.