In a frank and probing discussion, representatives of NH&RA’s HOPE VI Council and Policy Leadership Committee met with representatives HUD’s Offices of Multifamily Housing, Public & Indian Housing, Urban Revitalization and the Office of the Secretary on January 19 in search of common ground on the Administration’s Transformation of Rental Assistance (TRA) proposal.  The meeting at the Washington offices of NH&RA legal counsel, Bingham McCutchen, was organized in response to HUD’s proposal to streamline 13 existing rental assistance programs and to create a more financially sustainable public housing portfolio.  The TRA proposal seeks to streamline the administration of rental assistance, add flexibility to address the capital requirements of the public housing and assisted portfolio and enhance the housing choices available to residents.

The legislation was originally introduced by the Obama Administration as the Preservation, Enhancement and Transformation of Rental Assistance Act (PETRA).  On December 1, Representative Keith Ellison, a Democrat representing Minnesota’s Fifth Congressional District, introduced a modified version called the Rental Housing Revitalization Act.  Ellison’s legislative counsel, Carrie Johnson, also participated in the meeting.

“Congressman Ellison’s passion comes from making sure affordable housing doesn’t get to a place where it’s easier to kill the programs than sustain them,” Johnson said of the Representative, who lives in East Minneapolis and whose district includes the city and its surroundings.  “He sees affordable housing at a tipping point and feels something needs to be done soon.”

Participants expressed support for the proposal’s goals and, as articulated by NH&RA’s General Counsel Ken Lore provided feedback to “make sure it’s achievable and doesn’t fall from its own weight.”   Lore then turned to the provisions of the proposal “that could cause problems even though they may be attractive from the policy perspective.”

Portability, Choice and Market Discipline

One of the most important themes discussed across a number of topics was encouragement of market discipline and market-based financing tools.  In particular, the discussion centered on the concerns that debt and equity underwriters would have with the program as currently conceived. 

One widespread concern is the proposal’s portability provisions.  While both HUD and Congressman Ellison are intent on providing affordable housing residents with the ability to move, there is a concern within the lending community about the loss of a housing voucher and the affect of this on cash flow.  Becky Koepnick, special assistant to HUD Secretary Shaun Donovan, assured the gathering that project-based vouchers would remain attached to developments that opt-in to this new initiative, even if residents exercise their right for a portable voucher. 

Additional safeguards will also be included in the proposal including limits to the number of voucher-assisted tenants that can move out with a voucher at any time.   Johnson also expressed that Ellison was focused on maintaining the livability of the buildings so that there was not a lot of motivation for relocation.

Other discussion items included concerns on how to finance projects with Section 8 “overhang” (where Section 8 contract rents exceed the area’s LIHTC rents). Without assurances that the Section 8 contracts will be both funded and renewed for the duration of the compliance and/or extended use agreements it will be difficult to finance these projects without prohibitive operating reserves to hedge against the uncertainty.  A combination of longer term contracts, HUD/FHA guarantees of full funding and/or some type of “second strip” subordinate financing in proportion to the “overhang” could help address these concerns.

Ultimately, the government representatives expressed Secretary Donovan’s desire to “reduce the isolation of public housing” while affirming the need to provide better safeguards to investors and lenders in order to leverage their participation and solicited NH&RA to provide feedback and solutions to address provisions that the private sector would find most difficult to work within.

Private-Sector Participation

Much of the discussion also focused on barriers to entry of NH&RA’s core constituency””for-profit and non-profit developers and owners of affordable housing.  NH&RA urged HUD to reconsider provisions in the measure that prohibit and/or discourage private sector participation. 

NH&RA’s Executive Director Thom Amdur observed that private sector participation is critical to the proposal’s long-term success.  “We believe that TRA’s goals can be best achieved by encouraging private-sector participation.  Our members can bring to the table much needed preservation and mixed-finance experience, market discipline and access to balance sheets that will be critical in attracting debt and equity participants, which will prove essential to the proposals success.” 

Participants also observed that many of the provisions pertaining to streamlining HUD’s “orphan” programs (e.g. Section 8 Moderate Rehabilitation, Rent Supplement Programs, etc”¦) would discourage owners from opting into the program.  NH&RA observed that the protections or remedies HUD is seeking are times too broadly construed and do not take into account the broad array of circumstances that may occur in any particular transaction.  In some cases, the proscribed remedies are inappropriate and other cases are already ensconced in HUD’s regulations and are thus redundant.  Practical improvements can be made to provisions governing enforcement, on site and off site replacement of units, interaction with residents, and other areas that could effectively meet HUD’s public policy goals while addressing owner concerns. 

NH&RA was greatly encouraged by this frank and honest dialogue with HUD.  Our Legislative Leadership Committee and HOPE VI/Mixed-Finance Committee will be providing HUD with a set of in-depth follow-up recommendations in the coming weeks, which we hope will be incorporated into a new version of the legislation.

Competition Over Scarce Resources

NH&RA also expressed concern that the new program has the potential to create even more competition for already limited federal, state and local housing resources including vouchers, LIHTCs and gap financing.  In a very interesting development, Koepnick stressed that the Administration has long been considering this dynamic and is poised to make a major announcement in February that could address these concerns.  While HUD did not indicate the exact nature of the announcement, speculation includes the announcement of a major new funding resource or an administrative rule changes that would result in additional financing resources dedicated to affordable housing preservation and LIHTC development.

TRA Next Steps

By the close of the meeting, the consensus within the room was articulated best by David Reznick of the Reznick Group who concluded that the “public and private sector have a commonality of goals.” NH&RA is committed to working with our partners in Congress and at HUD to find solutions that will achieve the proposal’s public policy goals while maximizing our members ability to participate in a meaningful and effective manner. A written exchange of suggestions is the next step and additional meetings would seem to be warranted. To learn more contact Thom Amdur at 202-939-1753 or [email protected].