Statement of Administration Policy: H.R. 1180 - Housing and Community Development Act

(House)
(Gonzalez (D) TX and 20 others)

The Administration remains fully committed to working with Congress to enact a fiscally-responsible housing and community development authorization bill. Such a bill must focus on certain objectives, which we are confident we share with Congress. These include: (1) authorizing the Administration's Homeownership and Opportunity for People Everywhere (HOPE) initiatives; (2) making the Federal Housing Administration's (FHA) single-family insurance fund financially sound; (3) directing housing resources more effectively to the neediest poor families, those with severe housing problems; (4) increasing the power of poor people in the housing marketplace; and (5) meeting the overall tests of fiscal responsibility. The Administration is pleased that progress toward meeting these principles was made in the House during markup of the bill, particularly the adoption of most of the President's HOPE proposal. However, neither H.R. 1180, as reported, nor the proposed substitute amendment, H.R. 5157, meet all these important objectives. Consequently, if either one were presented to the President in its current form, his senior advisers would recommend that it be vetoed.

The Administration has demonstrated that it is willing to be considerably flexible on funding, but only after the program integrity and financial soundness of the authorization proposals are assured. Because the Administration has worked productively with the Chairman and members of the House Banking, Finance and Urban Affairs Committee to modify H.R. 1180 to bring it closer to meeting the Administration's objectives, the Administration is confident that further improvements can be made to H.R. 1180 consistent with the shared principles stated above. Yet, since certain provisions currently contained in H.R. 1180 do not uphold those principles, they would require major revision or elimination. In particular, the Title III Rental Housing Production program and the Title IV Community Housing Partnership program encourage costly, developer-driven new construction in lieu of more efficient tenant-based housing assistance, and both are very poorly targeted to low-income families.

In addition, it is necessary for the House bill to include a responsible proposal to restore financial soundness to the FHA. Such an amendment must assure that:

—  the minimum 1.25% capital ratio for FHA is met within two years and that a 2% ratio can be achieved over the next ten years;

—  insurance premiums are varied to reflect default risk;

—  homebuyer equity is increased above currently inadequate levels; and

—  the needs of low and moderate income homebuyers continue to be met by a financially sound FHA insurance fund.

An amendment to be offered by Reps. Vento and Ridge does not meet these minimum standards. It would fall at least two years short of achieving adequate capital for the FHA fund and actually increase defaults well above the current high level. Although the Administration strongly opposes the Vento-Ridge proposal, the Administration would support an amendment consistent with the principles in its own FHA reform proposal. We understand that an effort is underway to develop a bipartisan compromise FHA amendment, and we look forward to its presentation. The Administration is willing to consider modifications to the FHA reform proposal which are consistent with the principles listed above.

The Administration opposes H.R. 1180 in its current form because of the following major problems:

—  The bill would exceed the President's FY 1991 Budget for HUD and Department of Agriculture housing programs by over $6 billion in budget authority and by $1.3 billion in outlays. A fiscally responsible funding level for a new housing bill will depend upon (1) the substantive character of the housing provisions, and (2) agreement on domestic discretionary spending limits pursuant to the ongoing budget summit discussions.

—  The bill does not include an FHA reform proposal that meets the standards described above.

—  The bill creates several additional housing programs which fail to adequately target Federal funds to very low-income households. While current rental assistance programs provide 95 percent of funds to very low-income households (below 50 percent of local median income):

• Under the proposed Rental Housing Production program, localities would be required to provide only 20 percent of Federal funds to very low-income households or 40 percent to households with incomes below 60 percent of median income. A full 60 percent of these housing resources could be provided for non-poor households. (The current Low-Income Housing Tax Credit, supported by the Administration, permits projects to be either (1) 20 percent very low-income or (2) 40 percent below 60 percent of median income. In either case, every Federal dollar must be spent on low-income households.)
• The Community Housing Partnership (CHP) program rental component would provide 25 percent of Federal funds to households below 30 percent of median income and 50 percent to households below 60 percent of median income. Over one-half of these funds would be available for non-poor households.
• The homeownership component under the proposed CHP program would target only 25 percent of Federal assistance to households below 80 percent of median income and 75 percent to households below 115 percent of median income.
• Homeownership opportunities under the proposed National Housing Trust Fund would target Federal assistance to households below 115 percent of median income. This homeownership income target is too high, especially in light of evidence that a family at 100 percent of median income has 108 percent of the income needed to afford a median-priced existing home.
• Similarly, additional homeownership assistance would be provided to middle-income homebuyers under the Nehemiah program (up to 115 percent of median income), Homeownership Made Easier Demonstration (20 percent below 80 percent of median income; 100 percent below 115 percent), and Second Mortgages for First-Time Homebuyers (all Federal funds for households below 80 percent of median income).

—  The bill would authorize $2. 1 billion in FY 1991 for Farmers Home Administration new rural housing construction direct loans. This would be $1. 1 billion more than in the President's Budget. The bill also would authorize deferred mortgage payments for very low income borrowers. These provisions are contrary to Administration policy. Instead of increased direct loans, the Administration supports the use of a combination of direct and guaranteed loans as well as tenant-based housing vouchers. The bill's proposed deferral of mortgage payments would increase Federal credit risks.

—  The bill reverses existing targeting of public housing and Section 8 assistance to the point that, in aggregate, fewer additional "worst-case" very low-income households, e.g., those paying more than 50 percent of income for rent or living in substandard housing, will be served by these programs in FY 1991 than in FY 1990 — even though an additional 69,000 public housing units, Section 8 vouchers and certificates are proposed to be authorized.

—  The bill would make housing assistance an entitlement for families whose lack of adequate housing is a primary factor in their children being in foster care. Such a provision would result in significant pressure on local welfare agencies to certify families requiring housing assistance to avoid foster care. In addition to creating a perverse incentive, the program would establish an untenable precedent for requiring housing assistance for this group over other deserving groups, such as the elderly or handicapped-specific individuals.

—  The bill also would establish new programs and set-asides to assist certain individuals with AIDS. While well intentioned, these provisions would override preferences for families who are homeless or live in severely inadequate housing. These provisions would set an undesirable precedent for creating special programs or entitlements for other groups.

—  The bill creates more than 10 new HUD programs and imposes significant additional requirements on existing HUD programs. There are no program terminations. In fact, the bill reauthorizes the scandal-ridden Section 8 Moderate Rehabilitation program ($220 million).

—  The bill authorizes a program for modernizing vacant public housing. This would be an unnecessary discretionary program that would encourage public housing agencies to allow units to deteriorate and become vacant.

—  The bill includes the Administration's Operation Bootstrap proposal, but would oversubsidize PHAs by including an increase of Section 8 fees to 9 percent of the local fair market rent (FMR). HUD and GAO are reviewing the existing fee structure of the Section 8 program, and preliminary evidence shows that the current rate of overpayment may cover the cost of this new activity.

—  The bill modifies current income deductions for determining tenant rents in Section 8 and public housing. This provision, along with others, would increase Federal spending annually without any appropriation action.

—  The bill authorizes several programs that duplicate activities covered in existing programs. In public housing, the bill creates a new perinatal services demonstration to provide facilities and renovate existing structures, activities that are eligible for funding under the public housing modernization (CIAP) program.

—  The bill authorizes unlimited use of Federal operating subsidies for services costs in public housing and Section 202.

—  The bill authorizes Fair Market Rents (FMRs) to be established in smaller areas within a housing market area. If these submarket FMRs are increased only 5 percent, the net Federal cost of providing vouchers and certificates in that locality would be increased 15 to 20 percent. The Section 8 FMR-based system authorizes the distribution of over $10 billion annually; any small change to this program would be expensive and could result in a significant reduction of the number of new households served — every $30, 000 diverted to existing households eliminates a new housing voucher.

—  The bill reauthorizes the existing Congregate Services program while authorizing a "Revised" Congregate Services program. The bill authorizes overlapping activities, such as the formation of a new Asset-Recycling Housing Funds Grant program to create homeownership opportunities in vacant properties, activities covered in other parts of the bill, in this case, as authorized in HOPE Subtitles B and C.

—  The bill creates a new program to convert State and local government in rem properties for permanent affordable housing. Such activities are already eligible under the current CDBG program.

—  The bill creates an Energy Efficiency program, an unnecessary categorical program to improve the energy efficiency of existing housing.

—  The bill authorizes significant improvements to existing preservation requirements, but would be overly generous in providing monetary incentives to landlords and developers for not prepaying their mortgages. Such incentives should be reduced.

—  The bill authorizes PHAs to project-base a separate 15 percent of Section 8 certificates to State mortgage programs threatened with prepayment. Such a provision disregards existing waiting lists and preferences for obtaining rental housing assistance, reduces tenant choice as to where to live, and substitutes Federal subsidies for those already provided by states to carry out their existing low-income housing programs.

—  The bill's emphasis on new housing construction, namely the creation of six new housing production programs, fails to provide necessary flexibility or appropriate matching incentives. Under each program, including the Community Housing Partnership Block Grant program, States and localities are prohibited from using funds for tenant-based rental assistance. In addition, there is no distinction between using matching resources for light or substantial rehabilitation, or outright new construction. In most communities, new construction and substantial rehabilitation are the least efficient uses of Federal funds — and the most prone to scandals. These program uses should be required to meet a more stringent State and local match.