News

White House Releases Budget Request and Addendum, 14.2% Cut for HUD

On February 12, the White House released the President’s Budget Request for FY 2019 which originally called for an 18.3% cut to the Department of Housing and Urban Development. Later that same day, Mick Mulvaney, Director of the Office of Management and Budget, released an addendum to the budget request, modifying the initial request to reflect increased budgetary spending caps that were recently adopted by Congress. Notably, the White House addendum requests additional funding for defense that is in line with the new spending caps but only requests a modest increase, well below the statutory limit, for non-defense spending. The addendum increases its request for HUD by $2 billion, accounting for a 14.2% overall cut to the Department’s budget. Before delving into details, it’s important to remember that the Congress is not obligated to follow the President’s budget request and will very likely strike its own balance.  However, policy issues and themes outlined within the Budget request are taken into consideration and will likely frame the FY-2019 appropriations debate.

NH&RA Executive Director Thom Amdur observes, “Affordable housing is a critical part of our nation’s economic infrastructure. HUD’s programs are vital tools that have leveraged billions of dollars in private-sector capital for community development, contributed to the economic revitalization of countless communities, and have expanded opportunities to millions of our most vulnerable fellow Americans. At a time when Harvard University’s recent “State of the Nation’s Housing Report” finds that affordability pressures continue at near record levels, we cannot afford to eliminate so many vital community development resources. If we really want to get America “winning again” then we need to renew our commitment to expanding affordable housing options, particularly for low and moderate-income Americans.”

What we do not know

The President’s Budget Request is lacking in many details. While we know rental assistance programs in general would receive a cut of roughly 11%, we do not yet know the exact proposed funding numbers for programs like Project-Based Rental Assistance, Tenant-Based Rental Assistance, the Housing for the Elderly Program, the Public Housing Operating Fund, Housing for Persons with Disabilities, and Sec. 515.

Oddly, the addendum calls for adding back $300 million to the Public Housing Operating Fund, though the original budget document does not specify how much funding the Department is requesting to receive (enacted funding in 2017 was $4.4 billion). The same is true for Tenant-Based Rental Assistance, which the addendum calls for adding an additional $700 million; however, since the budget gives no specific number, we do not know what the final request for the program is (2017 enacted levels were $20.29 billion).

What we know

Programs Proposed for Elimination

The following programs are proposed to be eliminated or “zeroed-out” in the President’s Budget Request:

  • Public Housing Capital Fund
  • HOME Investments Partnership Program
  • The CDFI Fund
  • Choice Neighborhoods Initiative
  • Community Development Block Grants
  • Native Hawaiian Housing Block Grants
  • FHA General and Special Risk Insurance Fund
  • S. Interagency Council on Homelessness
  • Neighborhood Reinvestment Corporation
  • Low Income Home Energy Assistance Program
  • Weatherization Assistance Program
  • Delta Regional Commission

Policy

The majority of HUD’s budget each year goes to rental assistance programs. The budget suggests reforming rental assistance by requiring able-bodied individuals to pay more than the current 30% of adjusted income towards rent. Increased payments for able-bodied individuals is meant to balance overall funding decrease rental assistance programs would receive. The addendum specifies that an additional $1 billion be added to rental assistance programs solely for the benefit of elderly and disabled families.

While Congress is not likely to follow the numbers outlined in the budget request, the proposal to have stricter requirements on able-bodied people is a popular idea amongst many Republicans, and we could potentially see such a rent increase or work requirements placed on able-bodied families receiving rental assistance. There are several issues with this, as pointed out by the Urban Institute:

  1. Most able-bodied households on rental assistance are already working
  2. Putting a higher cost-burden on these households may make it more difficult for those without a job to find one. Employed individuals may find it more difficult to stay employed as it reduces their ability to pay for employment-supporting items like transportation and childcare.
  3. There is no evidence that rent increases or work requirements would lead to an increase in employment or income for lower income households.

Some Programs Receive Praise

The budget request singles out RAD as a successful example of leveraging private financing, and requests $100 million for the program, lifting the project cap, and expanding RAD for Project Rental Assistance Contracts (PRAC). Unfortunately, the same budget document also eliminates the Public Housing Capital Fund and cuts the Public Housing Operating Fund budget. If implemented, such cuts would effectively hamstring the program. An additional $100 million for the program would go a long way in assisting deeper needs projects but without adequate Capital and Operating fund budgets, the program simply will not work. If PHAs are to use RAD to leverage private sector capital to address their $40 billion backlog of capital needs and health and safety repairs, then Capital and Operating fund budgets must be maintained at current levels.

The budget also requests $75 million for the Family Self-Sufficiency program (equal to 2017 funding) and $10 million for the Jobs-Plus Initiative. $2.4 billion is also requested for the Homeless Assistance Grants program (equal to 2017 funding).

Reactions to the Budget and How You Can Participate:

National Housing Conference President and CEO David M. Dworkin was quoted saying “the best thing one can say about this budget is that it is dead on arrival…it undermines years of public-private investments in housing and community development that have had broad bipartisan support, like the CDFI Fund and block grant funding for neighborhood redevelopment. It even cuts the Capital Magnet Fund and National Housing Trust Fund, which aren’t even paid for by taxpayers.”

While the proposed budget may in fact be dead on arrival, it sets the stage for another year of needed advocacy on behalf of our most vital programs.

  • Campaign for Housing and Community Development Funding (CHCDF) will be holding a webinar about the Administration’s budget request on February 20 at 3:00 pm ET. Register here.
  • Sign two national letters urging Congress to reject the president’s harmful proposals.  Please share these letters and sign on by March 16.
    • One letter – READ AND SIGN HERE – urges Congress to provide the highest level of funding possible for affordable housing and community development programs.
    • The other letter – READ AND SIGN HERE – asks Congress to oppose any proposals that would cut housing benefits by increasing rents and imposing work requirements on current and future tenants.

 

HUD / RD PROGRAMS ENACTED FUNDING FY 2017 FY 2018 CR ANNUALIZED PRESIDENT’S FY 2019 BUDGET REQUEST
Project-Based Rental Assistance  $           10,816.00  ?
Tenant-Based Rental Assistance  $           20,292.00  ?
Public Housing Capital Fund  $             1,941.50  $ 1,941.50  $                 –
Homeless Assistance Grants  $             2,383.00  $ 2,383.00  $     2,383.00
Choice Neighborhoods Initiative  $                138.00  $    137.50  $                 –
Housing for the Elderly Program  $                502.40  ?
HOME Investment Partnerships  $                950.00  $    950.00  $                 –
Community Development Block Grants  $             3,060.00  $ 3,060.00  $                 –
Public Housing Operating Fund  $             4,400.00  ?
Housing for Persons with Disabilities Program  $                146.20  ?
Section 515 Rental Housing  $                  35.00  ?
Section 521 Rental Assistance  $             1,405.00  ?
RD Multifamily Preservation & Revitalization  $                  41.00  ?
Family Self-Sufficiency Program (FSS)  $                  75.00  $      75.00  $          75.00
Native American Housing Block Grant  $                654.00  $    654.00  $        600.00
RAD  $                         –  $             –  $        100.00
Native Hawaiian Housing Block Grants  $                     2.00  $        2.00  $                 –
HOPWA  $                356.00  $    356.00  $        330.00
FHA MMI Fund Account  $                130.00  $    130.00  $        150.00
FHA — General and Special Risk Insurance Fund  $                         –  $             –  $                 –
Fair Housing Programs  $                  65.90  $      65.30  $          62.30

Shut Down Ends After Congress Passes Stopgap Measure; Government Funding Expires Feb. 8

The Federal Government has reopened after a three day shut-down.  Congress passed a short-term funding bill that will continue to fund government activities through February 8, 2018.  The measure passed the House of Representatives on a  266-150 with all but 6 Republicans voting for the measure, who were joined by forty-five Democrats.  In the Senate the measure passed on an 81 – 18 vote.  A breakthrough was achieved with Majority Leader McConnell agreed to allow a vote in the Senate on a Deferred Action for Childhood Arrivals (DACA) measure.  There is still much to be sorted out before the expiration of the short-term Continuing Resolution (CR) and it seems unlikely that Congress will strike upon a compromise that funds the government through the September 30 fiscal-year end, likely resulting in another short-term or another potential government shutdown.


Earlier version: Unlike tax reform, which was passed under budget reconciliation rules only requiring simple majorities and thus could be passed on a partisan basis in the Congress, a spending measure will likely require at least 60 votes in the Senate to overcome a potential veto, thus requiring support from at least some Senate Democrats.

One significant hurdle to passage concerns a lack of compromise over the Deferred Action for Childhood Arrivals (DACA) program, which the Trump Administration announced will no longer be honored after March 5 – resulting in the deportation of roughly 690,000 people. Democrats have floated withholding their votes on any stopgap funding measure that lacked language addressing the DACA issue.

On January 16, the House of Representatives offered stopgap legislation which they believe includes enough perks to encourage Democratic support – including a six-year reauthorization of the Children’s Health Insurance Program.  The Senate failed to secure enough votes to pass the House Resolution.

HUD’s Office of Recapitalization Opens “Office Hours” for RAD Questions

HUD’s Office of Recapitalization (Recap) is hosting “Mod Rehab Talk” office hours for Moderate Rehabilitation (Mod Rehab) owners to schedule times to speak with HUD staff one-on-one to discuss their properties, questions about Rental Assistance Demonstration (RAD) conversion, preservation strategies, and the RAD application process. Owners will be able to sign up for individual 30-minute sessions with HUD staff during designated times each week on Tuesdays and Thursdays from 2:00 – 4:00 PM EST. After this initial call, owners who need further consultation and guidance may be referred to TA providers for on-call direct TA.

Sign up today for one of the 30-minute sessions. You may also sign up on the RAD and Multifamily Housing Preservation pages on the HUD Exchange.

In addition to these scheduled sessions, you are always welcome to contact HUD Recap staff by emailing rad2@hud.gov at your convenience to discuss your property and RAD conversion questions.

Webinars Available for CORES and Fannie Mae Enhanced Resident Services Initiative

Presented by Stewards of Affordable Housing for the Future (SAHF) and Fannie Mae

Enhanced Resident Services is the next stage of Fannie Mae’s Healthy Housing Rewards initiative, which aims to advance the development of sustainable communities and the availability of affordable housing by encouraging affordable multifamily borrowers to implement healthy design features and resident services that improve the health and stability of residents.

Fannie Mae is implementing Enhanced Resident Services with Stewards of Affordable Housing for the Future (SAHF). SAHF offers initial and ongoing certifications for both the organization and the multifamily affordable housing property providing quality resident services.

The Certified Organization for Resident Engagement & Services (CORES) Certification recognizes organizations that have developed a robust commitment, capacity, and competency in providing resident services coordination in affordable housing communities.

Please join us for one of two introductory webinars to learn more about the Healthy Housing Rewards – Enhanced Resident Services initiative and the CORES Certification!

___________________________________________________

To register for the presentation on Wednesday February 21st at noon: https://attendee.gotowebinar.com/register/3511728377674540289

To register for the presentation on Tuesday February 27th at 2pm: https://attendee.gotowebinar.com/register/7362225794728162562

 

Please note: after registering, you will receive a confirmation email containing information about joining the webinar.

To learn more about CORES Certification, please visit: https://coresonline.org

To learn more about Fannie Mae’s Healthy Housing Rewards Initiative, please visit: https://www.fanniemae.com/multifamily/healthy-housing-rewards

CDFI Fund Awards $3.5 Billion in New Markets Tax Credits

On February 13, the CDFI Fund made $3.5 billion in NMTC Awards to 73 Community Development Entities. The Fund received 230 applicants this year requesting a total of $16.2 billion in NMTCs.

The Fund estimates that of the award total this year, over $685 million in NMTCs will be invested in non-metropolitan counties. The NMTC Program has historically created $8 of private investment for every $1 worth of tax credits. The program also boasts the creation or retention of almost 750,00 jobs and the construction or rehabilitation of over 190 million square feet of commercial real estate from program inception in 1994 through 2016.

No Affordable Housing Funds In President Trump’s Infrastructure Plan; Proposal to Lift Volume Cap Could Help Affordable Housing

President Trump’s Infrastructure Plan was officially released on February 12. As previously reported, the plan would perhaps inadvertently benefit affordable housing by lifting state volume caps on Private Activity Bonds, but it does not outline additional funding for affordable housing. What’s worse, writes Jacob Leibenluft of the Center on Budget and Policy Priorities, is that the Infrastructure Plan is essentially a bait and switch. The plan only promises $200 billion in federal funding which is expected to come from “budget cuts to programs in the same agencies that would receive new grant-making authority under [the] infrastructure proposal.” (The recently released budget takes a 19% cut to the Transportation Department while the Infrastructure Plan focuses primarily on improving transportation infrastructure).

The Trump Administration expects the remaining $1.3 trillion of investment to come from the private sector as well as state and local governments with no proposal for how these localities would raise such a large amount of money. Leibenluft postulates that much of the eventual cost will be borne by low- and moderate-income people.

While savings from cuts to the Department of Transportation would be sent back to that same Department in the form of grants, the same would not be true for HUD, whose cuts would also ostensibly pay for the infrastructure plan, but as affordable housing is not a part of the plan, HUD would receive nothing back in return.

Economic and Fixed Income Insights as of February 13, 2018

Presented by Stifel, Nicolaus & Company, Incorporated

U.S. consumer prices rose by more than projected in January as apparel costs jumped the most in nearly three decades. The consumer price index (CPI) rose 0.5% in January, surpassing expectations of a 0.3% rise, according to Bloomberg. The 1.7% monthly gain in apparel prices, which account for about 3% of the CPI, was the biggest since 1990. Also this morning, retail sales declined 0.3% in January, significantly lower than the 0.2% rise expected, according to Bloomberg, and following no change the month prior. Bond yields continued their climb on inflation expectations. The 10-year UST note finished the week 3 basis points higher to yield 2.83% while the 30-year UST bond finished 4 basis points higher to yield 3.11%.  In the tax-exempt market, the 10-year MMD ticked up 5 basis points to yield 2.42% while the 30-year MMD was 6 basis points higher at 2.98%.

Interest Rate Observations

Benchmark Current Previous
Week
(+/-) Change Previous
Year
(+/-) Change
10-Year UST 2.83% 2.80% 3 2.49% 34
30-Year UST 3.11% 3.07% 4 3.08% 3
10-Year MMD 2.42% 2.37% 5 2.43% (1)
30-Year MMD 2.98% 2.92% 6 3.17% (19)
Federal Funds Rate 1.50% 1.50% 0 0.75% 75
1-month LIBOR 1.59% 1.58% 1 0.77% 82
SIFMA 0.98% 1.08% (10) 0.65% 33
10-year LIBOR Swap 2.84% 2.83% 1 2.43% 41

Source: Thomson Reuters, Bloomberg. The table above reflects market conditions as of February 13, 2018.

Important Disclosures

This material was prepared by Stifel, Nicolaus & Company, Incorporated (“Stifel”). This material is for informational purposes only and is not an offer or solicitation to purchase or sell any security or instrument or to participate in any trading strategy discussed herein. The information contained is taken from sources believed to be reliable, but is not guaranteed by Stifel as to accuracy or completeness. Past performance is not necessarily a guide to future performance. Stifel does not provide accounting; tax or legal advice and clients are advised to consult with their accounting, tax or legal advisors prior to making any investment decision.

Stifel, Nicolaus & Company, Incorporated is a broker-dealer registered with the United States Securities and Exchange Commission and is a member FINRA, NYSE & SIPC. © 2018

Senate Agrees to $300 Billion Spending Increase Over Next Two Years, CR Likely

The Senate announced on February 7th that a deal had been reached on raising the spending caps set forth under the Budget Control Act of 2011 (PL 112-25) – without an agreement, the law would reduce spending to $549 billion for defense and $516 billion for nondefense. Under the bi-partisan deal, those caps would be increased in FY 18 by $63 billion for non-defense domestic spending and $80 billion for defense spending. The increases would be $68 billion and $85 billion, for domestic and defense, respectively, for FY 19. A short-term CR is likely needed to allow the Appropriations Committees to work out the final FY18 funding bills with the new spending caps.

Assuming the Senate passes the measure, it would still need to be approved by the House of Representatives, where Democratic votes will likely be necessary given concerns from conservative fiscal hawks concerned with increased spending as well as issues around raising the debt ceiling.

After extensive advocacy efforts by NH&RA members and others in the industry we were initially hopeful that the agreement would contain language from the Cantwell-Hatch bill to improve the LIHTC; unfortunately, these provisions were ultimately stripped out of the final compromise.  We are hopeful that there will be another opportunity to incorporate LIHTC improvements to another legislative vehicle later this year.

Economic and Fixed Income Insights as of February 7, 2018

Presented by Stifel, Nicolaus & Company, Incorporated

Federal Reserve officials, meeting for the last time under Chair Janet Yellen, decided to maintain the target range for the federal funds rate at 1.25-1.50% while adding emphasis to their plan for more rate hikes in the coming months. The Federal Open Market Committee stated that “the committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate.” The Fed also said inflation “is expected to move up this year and to stabilize” around the 2% threshold. At the same time, the Fed repeated language saying that “near-term risks to the economic outlook appear roughly balanced.” With her term ending later this week, Chair Janet Yellen is handing the reins to Jerome Powell, who has backed her gradual approach and is expected to raise interest rates at the Fed’s next meeting in March. Both taxable and tax-exempt yields trended higher last week amid stronger economic growth and tightening labor market conditions. The 10-year UST finished the week 8 basis points higher to yield 2.80% while the 30-year UST finished 10 basis points higher to 3.07%.  In the tax-exempt market, the 10-year MMD ticked up 3 basis points to yield 2.37% while the 30-year MMD was 1 basis point higher at 2.92%.

Interest Rate Observations

 

Benchmark Current Previous
Week
(+/-) Change Previous
Year
(+/-) Change
10-Year UST 2.80% 2.72% 8 2.34% 46
30-Year UST 3.07% 2.97% 10 2.95% 12
10-Year MMD 2.37% 2.34% 3 2.25% 12
30-Year MMD 2.92% 2.91% 1 3.03% (11)
Federal Funds Rate 1.50% 1.50% 0 0.75% 75
1-month LIBOR 1.58% 1.57% 1 0.77% 81
SIFMA 1.08% 1.16% (8) 0.65% 43
10-year LIBOR Swap 2.83% 2.74% 9 2.26% 57

Source: Thomson Reuters, Bloomberg. The table above reflects market conditions as of February 6, 2018.

Important Disclosures

This material was prepared by Stifel, Nicolaus & Company, Incorporated (“Stifel”). This material is for informational purposes only and is not an offer or solicitation to purchase or sell any security or instrument or to participate in any trading strategy discussed herein. The information contained is taken from sources believed to be reliable, but is not guaranteed by Stifel as to accuracy or completeness. Past performance is not necessarily a guide to future performance. Stifel does not provide accounting; tax or legal advice and clients are advised to consult with their accounting, tax or legal advisors prior to making any investment decision.

Stifel, Nicolaus & Company, Incorporated is a broker-dealer registered with the United States Securities and Exchange Commission and is a member FINRA, NYSE & SIPC. © 2018