On February 2, President Barack Obama introduced his fiscal year (FY) 2016 budget, requesting a total of $49.3 billion for Department of Housing and Urban Development (HUD) programs. The FY 2016 budget request for HUD is approximately $4 billion more than the FY 2015 enacted level, and is the highest the agency has requested since the start of the Obama Administration.
The FY 2016 budget proposal also includes significant policy proposals aimed at improving the Low-Income Housing Tax Credit (LIHTC) program and a proposal to modify and permanently extend the New Markets Tax Credit (NMTC) program.
Department of Housing and Urban Development
President Obama’s budget request funds the U.S. Department Housing and Urban Development at $49.3 billion, which is about $3.9 billion more than the total amount allotted to the agency in the recently-passed FY 2015 appropriations budget.
Rental Assistance Demonstration
The FY 2016 budget proposal offers major support behind HUD’s Rental Assistance Demonstration (RAD) program, which allows Public Housing Authorities (PHAs) and owners of affordable rental properties assisted under the Public Housing, Moderate Rehabilitation (Mod-Rehab), Rent Supplement (Rent Supp) and Rental Assistance Payment (RAP) programs the opportunity to convert their properties to long-term, project-based Section 8 contracts while leveraging private financing for capital improvements. The budget proposal requests $50 million for targeted expansion of RAD, targeted to to Public Housing properties in high-poverty neighborhoods, including designated “Promise Zones”. The budget also proposes to eliminate the 185,000 cap on the number of units eligible for RAD and clarifies the sunset date for conversations of Rent Supp, RAP and Mod Rehab properties under the second component of RAD has been eliminated.
HUD has requested $1.425 billion for FY 2016 Salary & Expenses (S&E), approximately $110 million more than FY 2015 enacted, part of which will be used to add staff in order to address an anticipated increase in RAD program volume.
Project-Based Rental Assistance
The 2016 budget requests $10.76 billion for the Project-Based Rental Assistance (PBRA) Program, which represents about 10.6 percent more than the FY 2015 enacted levels. HUD expects that this funding level will fully fund all PBRA contracts for at least 12 months from January to December 2016. Beginning in 2016, all PBRA contracts would be on the same calendar year funding cycle.
The 2016 budget proposes several policy changes to the PBRA program, including establishing a pay for success demonstration program (Multifamily Performance-Based Energy Conservation) allowing HUD to enter multi-year agreements to repay private investors who provide up front funding for energy and water conservation improvements of HUD-assisted housing with the intent of reducing utility costs. The demonstration, proposed through 2018, would provide the authority to make improvements in up to 20,000 assisted multifamily housing units. The term for payments made under agreements would last up to 12 years and includes a provision for energy savings audits. The FY 2016 budget proposal also suggests amending the Low-Income Housing Preservation and Resident Homeownership Act (LIHPRHA) to align prepayment and owner distribution policies in properties governed by LIHPRHA with other PBRA-assisted properties in order to facilitate preservation transactions and proposes to make PBRA property owners eligible to compete for funding through the Family Self Sufficiency (FSS) program.
Tenant-Based Rental Assistance
The 2016 budget proposes $21.12 billion for the Tenant-Based Rental Assistance (TBRA) Program, which is about 9.43 percent more than the FY 2015 enacted level. HUD expects that this funding level will provide housing assistance to about 2.4 million extremely low- to very low-income families, and provides sufficient funding to fully fund all contract renewals.
The proposed FY 2016 budget proposes new special purpose voucher initiatives modeled on Veterans Affairs Supportive Housing (VASH) successes:
- $177 million to create 22,500 new vouchers specifically for for families, veterans, and tribal families experiencing homelessness
- $37.5 million in funding for approximately 5,000 new vouchers for victims and survivors of domestic or dating violence, sexual assault, and stalking requiring an emergency transfer from their current assisted housing. These vouchers would be administered in a centralized fashion to address occurrences as they arise.
- $20 million for 2,500 Family Unification Program vouchers, which would ease and facilitate children’s transition from foster care to independent adulthood as well as assist families who have children in foster care due to lack of safe and adequate housing.
- $277 million for approximately 37,000 vouchers distributed to PHAs via an allocation method based on relative need.
In total, HUD expects that the incremental need-based assistance combined with special purpose vouchers will restore the approximately 67,000 vouchers lost as a result of sequestration cuts in 2013.
Choice Neighborhoods Initiative Program
The administration’s 2016 budget proposes $250 million for the Choice Neighborhoods Initiative (CNI) program, which is about $170 million more than FY 2015 enacted level. HUD expects that this will fund approximately 5-8 Implementation Grants and 5-10 Planning Grants. HUD also specifies that CNI will specifically support the administration’s Promise Zones initiative, which will be expanded to additional 15 Promise Zones by the end of calendar year 2016. The budget includes a general provision to make the allocation of CNI funding for the HOPE VI Main Street Housing Grants program optional rather than required.
Public Housing Capital Fund and Public Housing Operating Fund
The budget proposes $1.97 billion for the Public Housing Capital Fund, which represents a 5 percent increase in funding over the 2015 enacted levels. Of the amount requested, over $1.8 billion is intended to fund capital grants to Public Housing Authorities (PHAs), an additional $100 million is requested to scale up the Jobs-Plus Pilot, up to $20 million for emergency capital needs resulting from disasters or emergencies, and $3 million for financial and physical assessments of public housing / HUD-assisted properties. The proposed FY 2016 budget provides $4.6 billion for the Public Housing Operating Fund, which is about 3.6 percent more than the FY 2015 enacted amount.
Similar to previous years, the FY 2016 budget recommends two new policy proposals including allowing PHAs to use operating funds for capital fund activities as well as the creation of a Utilities Conservation Pilot to encourage PHAs to undertake energy and water conservation measures and subsequently reduce federal costs. The budget would increase funding for the Jobs-Plus Pilot Initiative to $25 million from $15 million for FY 2016.
Homeless Assistance Grants
HUD has requested $2.48 billion for Homeless Assistance Grants (HAGs) which provide funds for the Emergency Solutions Grant (ESG) and Continuum of Care (CoC) programs. The 2016 budget proposal represents about 16 percent more than FY 2015 enacted funding level. This funding will support $2.223 billion for the CoC program, including funding for competitive renewals, as well as $250 million for ESG formula funding for communities to address emergency homeless needs.
Community Development Block Grant Program
HUD has requested $2.8 billion for the Community Development Block Grant (CDBG) program, and an additional $ 80 million for the Indian CDBG program, which is about 6 percent less than the FY 2015 enacted level. The budget would also provide about $15.2 billion in CDBG funding for Presidentially-declared disasters. While the agency has requested less funding than year’s past, HUD has developed some policy proposals to help modernize the program:
- Encourage CDBG grantees to collaborate across regions to achieve administrative savings and pool resources in order to make more strategic investment decisions.
- Increase the set-aside for colonias from 10 to 15 percent to allow for more funding to be directed to rural border communities in Texas, New Mexico, Arizona, and California.
- Upward Mobility Project, allow states, localities or a consortia of the two to blend funding across four block grant programs (HUD’s CDBG and HOME Investment Partnerships Program as well as Department of Housing and Human Services’ (HHS) Social Services Block Grant and Community Services Block Grant). Grantees would be able to use funds beyond current allowable purposes of programs to implement evidence-based or promising strategies for helping individuals succeed in labor market and improve economic mobility.
HOME Investment Partnerships Program
The FY 2016 budget requests $1.060 billion for the HOME Investment Partnerships Program (HOME), which is about $160 million more than FY 2015 enacted. HOME maybe used by participating local governments to increase the supply for affordable housing and expand homeownership opportunities.
National Housing Trust Fund
In late 2014, Federal Housing Finance Agency (FHFA) Director Melvin L. Watt instructed Fannie Mae and Freddie Mac to begin setting aside and allocating funds for the Housing Trust Fund and the Capital Magnet Fund. Fannie Mae and Freddie Mac began setting aside payments January 1, 2015. HUD estimates that $120 million will be allocated to the Housing Trust Fund in 2016, while $64 million will be allocated to the Capital Magnet Fund. The Housing Trust Fund dollars will be used to provide grants to states to increase and preserve the supply of affordable rental housing and homeownership opportunities for extremely low- and very-low income families. Funds will be distributed by formula to states or state-designated entities to be used primarily for the construction, preservation, and rehabilitation of affordable rental housing.
Section 202 Housing for the Elderly Program
The FY 2016 budget would provide $455 million to the Section 202 program, about 8.33 percent more than the FY 2015-enacted levels. $10 million is designated to extend and expand the Section 202 Demonstration authorized by FY 2014 appropriations act, and $3 million for property inspections and related expenses. HUD’s budget requests renewed authority to make better use of existing resources, namely to identify residual receipts collections, recaptures, and other unobligated balances to redirect as additional investments in housing for the elderly.
Section 811 Housing for Persons with Disabilities Program
The president’s FY 2016 budget request proposes $177 million in Section 811 funding, including $25 million for new Project Rental Assistance (PRA) awards to state housing agencies, which is about 31 percent more than both the FY 2015-enacted level.
Housing Opportunities for Persons with AIDs (HOPWA)
The HOPWA program would receive $332 million to provide housing and supportive services to persons living with HIV and AIDs, which represents a modest increase of the FY 2015 enacted funding level of $330 million.
HUD Budget Chart
| HUD Programs | Proposed Budget (PB) FY 2016 |
Enacted FY 2015 | PB FY 2015 |
Difference ($) FY16 PB / FY15 Enacted |
|---|---|---|---|---|
| Project-Based Rental Assistance | $10,760,000,000 | $9,730,000,000 | $9,750,000,000 | $1,030,000,000 |
| Tenant-Based Rental Assistance | $21,124,000,000 | $19,304,160,000 | $20,000,000,000 | $1,819,840,000 |
| Veterans Affairs Supportive Housing | Included in TBRA | $75,000,000 | $75,000,000 | |
| Public Housing Capital Fund | $1,970,000,000 | $1,875,000,000 | $1,925,000,000 | $95,000,000 |
| Public Housing Operating Fund | $4,600,000,000 | $4,440,000,000 | $4,600,000,000 | $160,000,000 |
| HOME Investment Partnerships | $1,060,000,000 | $900,000,000 | $950,000,000 | $160,000,000 |
| Choice Neighborhoods Initiative | $250,000,000 | $80,000,000 | $400,000,000 | $170,000,000 |
| Housing for the Elderly Program | $455,000,000 | $420,000,000 | $440,000,000 | $35,000,000 |
| Housing for Persons with Disabilities Program | $177,000,000 | $135,000,000 | $160,000,000 | $42,000,000 |
| Housing Opportunities for Persons with AIDs | $332,000,000 | $330,000,000 | $332,000,000 | $2,000,000 |
| Community Development Block Grants | $2,800,000,000 | $3,000,000,000 | $2,800,000,000 | ($200,000,000) |
| Homeless Assistance Grants | $2,480,000,000 | $2,135,000,000 | $2,406,000,000 | $345,000,000 |
| Rental Assistance Demonstration | $50,000,000 | $0 | $10,000,000 | $50,000,000 |
| National Housing Trust Fund | $120,000,000 | $0 | $1,000,000,000 | $120,000,000 |
Resources:
FY 2016 Proposed HUD Budget
FY 2016 “Green Book”
Low-Income Housing Tax Credit
Significant LIHTC program proposals include:
- Allow states to increase LIHTC authority by up to 50 percent by converting a portion of Private Activity Bond (PAB) volume cap into LIHTC allocations. Under the proposal, States would be authorized to convert PAB volume cap to be received for a calendar year into LIHTC allocation authorization applicable to the same year. The conversion ratio would be reset each calendar year to respond to changing interest rates. In addition, each State would be subject to an annual maximum amount of PAB volume cap that can be converted. For each $1,000 of PAB volume cap surrendered, the State would receive additional allocable LIHTCs for the calendar year equal to $1000 x twice the applicable percentage that applies for PAB-financed buildings and that is determined for December of the preceding calendar year.
- Similar to a proposal included in the FY 2015 and FY 2014 budget proposals, the Obama administration proposes a third income election criteria whereby at least 40 percent of the units in the project would have to be occupied by tenants with incomes that average no more than 60 percent of AMI. No rent-restricted unit, however, could be occupied by a tenant with income over 80 percent of AMI; and, for purposes of computing the average, any unit with an income limit that is less than 20 percent of AMI would be treated as having a 20-percent limit. Maximum allowable rents would be determined according to the income limit of the unit.
- Allow the 9-percent temporary minimum applicable percentage to remain expired and increase the discount rate used in the present value calculation for allocated LIHTCs. The new discount rate would better reflect private-market discount rates and would apply to both 70 percent and 30 percent allocated LIHTCs.
- Add an eleventh “preservation of federally assisted affordable housing” selection criterion that HFAs must include in QAPs.
- Remove the current limit which stipulates that the aggregate population in census tracts designated as QCTs cannot exceed 20 percent of a metropolitan area’s population. This would allow HUD to designate census tracts with a poverty rate of at least 25 percent or 50 percent or more of households with incomes less than 60 percent of AMI as a QCT.
- Provide protections for victims of domestic abuse in all Long-Term Use Agreements. This policy proposals stipulates that owners may not refuse to rent any unit in a LIHTC-produced building to person who has experienced domestic abuse and moreover such an experience of domestic abuse would not be cause for terminating a tenant’s occupancy. Under an agreement, owners could bifurcate a lease so that the owner could (1) remove or evict a tenant who engaged in criminal activity directly relate to domestic abuse and (2) avoid evicting, terminating, or otherwise penalizing a tenant who is a victim of that criminal activity. The proposal would clarify that the continuing occupant could become a tenant and would not have to be re-tested for low-income status. The policy proposal would also clarify that occupancy restrictions or preferences that favor persons who have experienced domestic abuse would qualify for the “special needs” exception to the general public use requirement.
New Markets Tax Credit
The administration’s 2016 budget includes a proposal to modify and permanently extend the New Markets Tax Credit (NMTC) program. The proposal would provide the NMTC program with an annual allocation amount of $5 billion and would permit NMTC amounts resulting from QEIs made after December 31, 2013, to offset Alternative Minimum Tax (AMT) liability.
Other Tax Provisions
Renewable Energy Production and Investment Tax Credits: In addition to the LIHTC and NMTC proposals, the FY 2016 budget proposes to extend prior law related to the renewable electricity production tax credit for facilities on which construction begins before the end of 2015. For facilities on which construction begins after December 31, 2015, the proposal would permanently extend the renewable electricity production tax credit and make it refundable. The tax credit would also be available to otherwise eligible renewable electricity consumed directly by the producer, rather than sold to an unrelated third party and solar facilities that currently qualify for the investment tax credit would be eligible for the renewable electricity production tax credit for construction that begins after December 31, 2015. The proposal would also allow individuals to claim the production tax credit for residential energy efficient property installed on a dwelling unit. The current credit for energy efficient property would be allowed to expire at the end of 2016.
The proposal would also permanently extend the investment tax credit, specifically the 30-percent investment credit for solar, fuel cell, and small wind property and the 10-percent credit for geothermal, microturbine, and combined heat and power property. The proposal would also make permanent the election to claim the investment tax credit in lieu of the renewable electricity production tax credit for qualified facilities eligible for the production credit.
Manufacturing Communities Tax Credit: The budget proposes a new Manufacturing Communities Tax Credit to support investments in communities that have suffered a major job loss event. The proposal would provide $2 billion in credits per year for 2016 through 2018. This credit would be structured similarly to the NMTC and would support investments in communities that have suffered a major job loss event such as a military base or major employer closure or a substantial reduction in a facility or operating unit, resulting in a long-term mass layoffs.
America Fast Forward Bond Program: The budget proposes the creation of an America Fast Forward Bond program as an optional alternative to traditional tax-exempt bonds, designed to attract new sources of capital for infrastructure investment.
