Flexible Subsidy Fund

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

HOUSING

FLEXIBLE SUBSIDY FUND

PROGRAM HIGHLIGHTS

Program Highlights

    a/ Excludes expired amounts from the 1994 earthquake supplemental.
    b/ Included in the outlay figures above.

SUMMARY OF BUDGET ESTIMATES

  1. SUMMARY OF BUDGET REQUEST

    2. No further appropriations of budget authority are proposed for the Flexible Subsidy Fund. The Budget assumes that the Flexible Subsidy Fund will continue to serve as a repository for excess rental charges appropriated from the Rental Housing Assistance Fund. This transfer will continue to offset the spendout of Flexible Subsidy obligation but will no longer be used for new Flexible obligation reservations. In fiscal years 1996 and thereafter, collections in the Flexible Subsidy Fund have not been made available for use in Appropriations acts. Only carryover from fiscal year 1995 remains available for new reservations.

  1. CHANGES FROM 1998 ESTIMATES INCLUDED IN 1999 BUDGET

    2. The 1999 Budget estimated the reservation of $43 million in Flexible Subsidy assistance to support 30 projects during 1998. Actual reservations were $9.4 million which supported 80 projects.

  1. CHANGES FROM ORIGINAL 1999 BUDGET ESTIMATES

    2. Current 1999 estimates have been revised to reflect technical adjustments since the 1999 Budget. Flexible Subsidy assistance is provided in the form of direct loans for operating assistance and capital improvements.

PROGRAM DESCRIPTION

The Flexible Subsidy Fund was initially authorized by the Housing and Community Development Amendments of 1978, subsequently amended by the Housing and Community Development (HCD) Act of 1987, and further amended by the McKinney Homeless Assistance Amendments Act of 1988. The HCD Amendments of 1987 established the Flexible Subsidy Fund into which repaid funds would be credited along with any transfer from the Rental Housing Assistance Fund.

The projects eligible for Flexible Subsidy assistance originally included those assisted under the Section 236 interest reduction program, the Section 221(d)(5) below market interest rate program, and the Section 101 rent supplement program. Eligibility was expanded in 1983 to include projects converted from Section 236 or Section 101 to assistance under Section 8 of the 1937 Housing Act; and in 1987 to include certain projects which had received Section 202 loans for elderly or handicapped housing, and projects assisted under Section 23 of the 1937 Act (as in effect prior to 1975).

Projects under Sections 236, 221(d)(5), 101, and 202 which are acquired and subsequently sold by HUD with mortgage insurance and affordability restrictions also were eligible for Flexible Subsidy assistance.

The original objectives of the Flexible Subsidy program were to: (1) reduce claims on the Department's mortgage insurance funds by aiding projects in financial distress where existing sources of financial relief are inadequate to cure the projects' problems, and (2) preserve and protect the existing supply of low- and moderate-income housing by upgrading the quality of management services and effecting short-term improvements which will enable projects to become self-sustaining and remain affordable.

The enactment of the Multifamily Assisted Housing Reform and Affordability Act of 1997 expands the tools available to address the needs of insured and HUD-held multifamily projects. The use of alternative measures for FHA-insured projects has narrowed the scope of the purposes Flexible Subsidy assistance is currently applied to.

Assistance for capital improvements, which was authorized by the HCD Act of 1987, includes major repair or replacement of capital items in eligible projects, including repairs or replacements which occur as a result of inadequate project maintenance. Project owners receiving direct Federal loan assistance under this program are expected to contribute at least 20 percent of the cost of the improvements unless the Secretary determines that a contribution of this magnitude is not financially feasible for the project. Interest charges on the loans (including any allowance for administrative cost and probable loss) will be limited to between 3 percent and 6 percent. To minimize rent increases attributable to the added loan debt service, the Secretary may reduce the capital improvement loan rate to not less than 1 percent; increase the loan term to the remainder of the first mortgage term; or increase owner contributions up to 30 percent of cost.

 
Content Archived: January 20, 2009