PROGRAM HIGHLIGHTS

SUMMARY OF BUDGET ESTIMATES

1. SUMMARY OF BUDGET REQUEST

   The fiscal year 2001 Budget proposes $1.65 billion for the HOME Investment Partnerships Program, including set-asides. The total of $1.65 billion will provide $1.596 billion for HOME formula grants, consisting of $957 million for local Participating Jurisdictions (PJs) and $638 million for States. Also included under HOME are $22 million for technical assistance (including state and local government and Community Development Housing Organization Technical Assistance), $5 million for and management information systems support, $24 million for Housing Counseling, and $3.2 million for Insular Areas. The requested funding increase reflects the broad recognition of the effectiveness of the HOME program and the need for additional resources for affordable housing due to the growth in the number of participating jurisdictions from 439 in fiscal year 1992 to 585 currently (a 33 percent increase). In its first 8 years, HOME commitments have totaled 465 thousand units.

   HOME Investment Partnerships Program. The HOME Program provides a flexible resource to States, units of general local government, and consortia of units of general local governments to increase the supply of affordable, standard rental housing; to rehabilitate substandard housing for existing homeowners; to assist new homebuyers through acquisition, construction, and rehabilitation of housing; and to provide tenant-based rental assistance. HOME can work well independently or in conjunction with other HUD programs, such as CDBG. HOME also serves as a good complement to HOPE VI public housing revitalization projects. Using HOME along with funding from other HUD programs allows for programs to be designed to address several parallel objectives. For example HOME can be used within an EZ/EC target area to provide for affordable housing to complement economic development strategies. As another example, HOME can be used along with HOPE VI to provide for a greater mix of incomes in PHA managed properties.

   As documented in HUD's March 1999 publication, Waiting in Vain: An Update on America's Rental Housing Crises, affordable housing shortages are worsening, in part because the strong economy is pushing rents faster than wages for millions of Americans. One of the findings of the "State of the Cities 1999" report was that, despite recent gains, the homeownership rate of minorities and the homeownership rates in central cities continue to be disproportionately low. Another finding in that report is the number of households with worst case housing needs is at a record high of 5.3 million, which means that over 13 million Americans, more than ever before, pay more than half their household income for rent, or live in substandard housing. The affordable private rental housing stock has been shrinking rapidly. Between 1993 and 1995, there was a loss of 900,000 rental units affordable to very low-income families--a decrease of 9 percent. The availability of private rental stock affordable to extremely low-income renters decreased by 16 percent during this time.

   The HOME Program is key to addressing the shortages of affordable rental housing and homeownership in America. States, urban counties, consortia of local governments, and cities use their annual HOME allocations to expand affordable rental housing opportunities by building, rehabilitating, and buying multifamily rental properties, and by providing tenant-based rental assistance. Participating Jurisdictions (PJs) use HOME funds to expand and improve homeownership among low-income households by rehabilitating owner-occupied housing, and by providing assistance to new homebuyers. The HOME Program continually exceeds the low-income benefit requirements established by the HOME Statute, which mandates that all households assisted have incomes below 80 percent of area median and 90 percent of those assisted with rental housing have incomes below 60 percent of median.

   The HOME Program advances the Department's Strategic Goal #1, "Increase the availability of decent, safe, and affordable housing in American communities." The HOME Program is one of the Department's primary tools for accomplishing Objective 1.1 "Homeownership is increased," and Objective 1.2 "Affordable Rental Housing is Available for Low-Income Households," by increasing the supply of affordable, standard rental housing; improving substandard housing for existing homeowners; and assisting new homebuyers through acquisition, construction, and rehabilitation of housing; and by providing tenant-based rental assistance. The requested level of funding would provide 92,064 units of affordable housing for owners and renters through new construction, rehabilitation or acquisition. It would also provide tenant-based rental assistance to 10,883 families. Based on historical usage, it is projected that 31 percent of funds will be for new construction, 52 percent will be used for rehabilitation, 13 percent will be used for acquisition, and 4 percent will be used for tenant-based rental assistance. From the program's inception in 1992 through September 30, 1999, funds have been committed to an estimated 464,780 housing units and have provided tenant-based rental assistance to 55,045 families. HOME also contributes directly to Strategic Goal #4: "Improve Community Quality of Life and Economic Vitality." HOME works in partnership with other HUD programs including FHA insurance, HOPE VI, Section 8 and CDBG to help local partners meet local needs. The following efforts also advance strategic goals #1 and 2:

   • increasing the number of units produced with the assistance of HOME funds as measured by the number of rental, new buyer, and existing homeowner units to which HOME funds are committed under a legally binding agreement;
   • increasing the number of units produced with the assistance of HOME funds as measured by the number of rental, new buyer, and existing homeowner units which are completed;
   • ensuring compliance with HOME rent, income, and property standard provisions during the affordability period required by the program; andincreasing the homeownership rates of minorities.

   HOME also supports other outcome indicators in the Annual Performance Plan, including 1.1.1: the overall homeownership rate increases; 1.1.2: the share of all homebuyers who are first-time homebuyers increases; 1.1.3: the homeownership rate among households with incomes less than median family income increases; 1.1.4: the homeownership rate in central cities increases; 1.2.1: the number of households with worst case housing needs decreases; 1.2.2: the share of very-low-income renter households with worst case housing needs declines; programmatic output indicator 1.2.3 among households living in HOME rental developments, the share with extremely low incomes will be maintained; 1.2.5: for extremely-low-income renters, the ratio of affordable units to households increases; 1.2.6: for very-low-income renters, the ratio of affordable units actually available to households increases; 1.2.7: ratios of affordable units to rental households will be higher; 1.2.8: ratios of affordable units to rental households will be higher; 1.3.1: the share of very-low-income households living in units with moderate or severe physical problems decreases; 2.2.1: income isolation declines; 4.2.1: the homeownership rate in underserved neighborhood ceases to decline; 4.2.2: the ratio of central city to suburban average values of owner-occupied homes increases; 4.2.3: the average ratio of vacant units to residential building permits in metropolitan areas decreases; 4.2.4: among low- and moderate-income residents, the average "overall opinion of neighborhood" increases; and 4.2.5: the capital used to rehabilitate housing in underserved neighborhoods increases.

   Also, HOME has historically leveraged at least $2.40 in other resources for each $1 of HOME funds. The actual units of housing produced depend on local decisions on the use of HOME funds, as well as the use of funds from other sources.

   • The HOME program will produce 33,200 rental units with its fiscal year 1999 appropriation; 33,200 with its fiscal year 2000 appropriation; and 40,672 with this 2001 appropriation request.
   • The HOME program is projected to assist 10,700 households with tenant-based rental assistance with its fiscal year 1999 appropriation; 10,700 with its fiscal year 2000 appropriation; and 10,883 with this 2001 appropriation request.
   • The HOME program is projected to assist 17,400 existing homeowners with its fiscal year 1999 appropriation; 17,400 with its fiscal year 2000 appropriation; and 18,265 with this 2001 appropriation request.
   • The HOME program is projected to assist 34,700 new homeowners with its fiscal year 1999 appropriation; 34,700 with its fiscal year 2000 appropriation; and 33,127 with this 2001 appropriation request.
   • The HOME program is projected to leverage at least $2.40 in other resources for each $1 of HOME in fiscal years 1999 through 2001.

   Housing Counseling. The Budget provides a set-aside of $24 million within the HOME program appropriation for fiscal year 2001 Housing Counseling Program. Of this amount, 3 percent will be for housing counseling organizations targeted to Native Americans. The Housing Counseling program provides a wide variety of counseling assistance to clients, including renters and those interested in home purchase and other housing matters. A total of more than 251,000 clients were served by housing counseling agencies in 1998 (using HUD funding), a 22 percent increase from 1997. This illustrates the growing need for resources dedicated to helping Americans attain better and more affordable housing.

   The Housing Counseling program has made significant progress in helping the Department to achieve Strategic Goals 1 and 2, to "Increase the availability of decent safe, and affordable housing in American communities" and to "Ensure equal opportunity in housing for all Americans." Today 67 percent of Americans are homeowners�the highest rate in American history. In fact, since 1993, 8.7 million more households have purchased their own homes, a number attributable in large part to the Administration's Homeownership Strategy. In order to maintain the continued success of these efforts, however, it is vital that homeownership education and counseling be available to those who have little knowledge of the often complicated process of purchasing a home.

   In addition, the program has been particularly successful in its efforts toward achieving Strategic Objective 2.3, "Disparities in homeownership rates among racial and ethnic groups are reduced," by providing counseling to groups who traditionally have been disenfranchised from the home buying process. A summary analysis of HUD housing counseling data revealed that nearly 50 percent of clients served were minorities. Lack of information about the home buying process and financing options often impedes homeownership by these households. The "State of the Cities 1998" report stated that, even among households with incomes that are 20 to 50 percent higher than the area median, the homeownership rate for whites is significantly higher than for African-Americans and Hispanics. HUD's counseling activities are designed to promote more informed decisions about homeownership, by providing information on down payments, interest rates, closing costs, and types of mortgages available. Progress is being made and for the first time in history, more than half of central city households are homeowners.

   To further its success in meeting the above objectives, the Department has placed increasing emphasis on providing counseling through the funding of intermediary organizations. These organizations are National and Regional which have local community-based counseling agencies as members. Funding grants through these arrangements allows the Department to expand the availability of counseling, including activities for difficult-to-reach groups. In addition, grants for State housing finance agencies, funded for the first time in 1998, will increase program performance in this area.

   The need for increased availability of housing counseling is further emphasized in Mortgagee Letter 96-48. This Mortgagee Letter references the President's announcement directing FHA to reduce the up-front mortgage insurance premiums for first-time homebuyers who receive housing counseling. Counseling is thus required for any first-time homebuyer to obtain the reduction in up-front mortgage insurance premium. It is anticipated that the availability of this reduction will directly impact the need for expanded counseling services.

2. CHANGES FROM 1999 ESTIMATES INCLUDED IN 2000 BUDGET

   Obligations were approximately $189 million lower than estimated last year, reflecting that all available resources were not obligated in 1999 because some HOME grantees do not begin their "program years" until September or October (at the end or after the end of the Federal fiscal year), amounts to those grantees are not obligated in the following year. Outlays for 1999 were $153 million less than estimated, and reflecting both the timing of some jurisdictions program years and slower rate of actual outlays by PJs. The estimate for 1999 obligations and outlays were lowered during the 1999 Mid-Session Review of the Budget.

3. CHANGES FROM ORIGINAL 2000 BUDGET ESTIMATES

The 2000 Current Estimate reflects Congressional action funding HOME at $1.6 billion (including set-asides). The enacted grant level is $10 million less than projected. Obligations have been adjusted accordingly. Beyond this change, obligations increase by $181 million over the Budget reflecting the carryover of unobligated balances from 1999 into 2000, as well as the assumption that all 2000 funds will be obligated by the end of this fiscal year. Outlay estimates remain the same reflecting actual recent spendout rates.

EXPLANATION OF INCREASES AND DECREASES

The fiscal year 2001 Budget request of $1.65 billion for HOME (including set-asides) is $40 million greater than the fiscal year 2000 Budget request and $50 million above the Appropriations. A paramount reason for requesting more funding is the fact that the number of HOME PJs has grown substantially since the program began, from 585 PJs in fiscal year 1992 to 585 in fiscal year 2000. This increase in the number of jurisdictions receiving a HOME formula allocation means that the HOME appropriation is stretched thinner each year. This has resulted in substantial decreases in funding for many PJs. For example, in fiscal year 1992, with a national appropriation of $1.5 billion, Birmingham, Alabama received $2,965,000, while in fiscal year 2000 it received $2,297,000, although the national appropriation is higher, $1.6 billion. With an appropriation at the level requested, Birmingham would receive an estimated allocation of $2,360,000 in fiscal year 2001, an amount higher than its fiscal year 2000 allocation, but still well below its fiscal year 1992 amount. The chart below provides examples of how HOME allocations eroded from fiscal year 1992 to fiscal year 2000. It also demonstrates that in many cases PJs would receive less HOME funding in fiscal year 2001 than they did in fiscal year 1992 despite the $50 million increase included in this request. This decrease in funding per PJs is compounded by increasing housing costs and inflation.

a/ Fiscal year 2001 allocation estimates are based on $1.596 billion being distributed by HOME formula after set-asides.

PROGRAM DESCRIPTION AND ACTIVITY

1. Legislative Authority. The HOME Investment Partnerships program is authorized under Title II of the Cranston-Gonzalez National Affordable Housing Act (NAHA) (P.L. 101-625), as amended.

2. Program Purpose.

   HOME Investment Partnerships Program. The purpose of the HOME program is to make funds available to PJs to preserve and increase the supply and affordability of housing for low-income families. States and localities have the flexibility to use HOME funds for a wide range of affordable housing activities for low- and very low-income families, including rehabilitation, new construction, acquisition for homeownership and rental housing, and tenant-based rental assistance.

   The following aspects of the HOME program make it an effective and efficient provider of affordable rental and homeownership opportunities for the Nation's low-income families:

   • Production. The HOME program was first funded in fiscal year 1992. As of September 30, 1999, (based on data from the HOME Cash and Management Information System and estimates of activity in the Integrated Disbursement and Information System as trended over previous years) States and local governments have committed over $8.2 billion in Federally allocated HOME funds. Of this amount, $3.1 billion has been disbursed for completed projects. These funds have leveraged over $7.5 billion in other funds for a total of over $10.6 billion in resources for completed projects. 519,825 low-income households have been assisted. An estimated 464,780 units have been newly constructed, rehabilitated, or acquired in standard condition, and 55,045 families have received tenant-based rental assistance.
   • Low-Income Benefit. The program is benefiting very low-income families. Ninety-seven percent of families receiving tenant-based rental assistance are below 50 percent of median income. Eighty-four percent of rental units are occupied by families below 50 percent of median income, and 69 percent of existing homeowners receiving assistance are below 50 percent of median income, while 54 percent of new homebuyers are below 60 percent of median income. (Despite this low-income targeting, the majority of these new homebuyers are purchasing homes in areas without a concentration of the poor. The average poverty rate of census tracts in which assisted homebuyers purchase new homes is less than 20 percent). Approximately, 45 percent of rental units are occupied by the households most likely to have worst case housing needs, those with income below 30 percent of area median income.
   • Modest Cost Per Unit. The assistance is being provided at a modest subsidy per unit. The average HOME subsidy for a HOME assisted unit continues to decrease each year. In fiscal year 1996, the average unit subsidy was $16,300; in fiscal year 1999, it had dropped to $14,889. Further, this figure drops below $14,000 per unit when tenant-based rental assistance, which averages under $4,698 per family assisted, is included. Other funds are effectively leveraged, with over $2.40 contributed from other public and private funds for every $1 of HOME funds.
   • Flexible Program Design. HOME's flexible program design allows States and local PJs to be successful in meeting their needs in a manner most appropriate to local housing markets. There have been many creative uses of HOME funds, including addressing the needs of special needs populations with both tenant-based rental assistance and units linked to supportive services, new models of assistance to new homebuyers, and large and small rental projects, some newly constructed and some acquired and/or rehabilitated. The program also helps to meet the need for permanent housing for homeless persons and families.
   • No Contingent Federal Liabilities. It is also significant that there are no ongoing liabilities for the Federal Government arising from investment of HOME funds. State and local governments determine the level of subsidy that each project is to receive, and based on the amount of the subsidy, must maintain the projects as affordable housing for a period of time ranging from 5 to 20 years. If the project needs additional subsidy at the end of the affordability period, PJs will make the determination of whether to provide the subsidy, and, if so, whether it will come from HOME funds or other funding sources. If they fail to provide the additional subsidy, there is no impact on the Federal Government's Budget.

     Further, the HOME regulations permit an initial operating reserve during the first 18 months of project rent-up and operation. After that time, the project must be self-supporting, and if tenants require rental subsidies, they receive them in the form of HOME tenant-based rental assistance, Section 8, or State or local assistance. Thus the projects are underwritten without an assumption of ongoing rental subsidies under this program.

     While tenant-based rental assistance is an eligible activity under the HOME program, PJs have used only 3.6 percent of HOME funds to date for this activity. The use of tenant-based rental assistance has been largely focused on providing assistance to special needs populations, e.g., the homeless and the chronically mentally ill, in connection with self-sufficiency programs. Contracts for tenant-based rental assistance committed from an annual allocation of HOME funds may not exceed a 2-year period, but may be renewed by the jurisdiction. Families who receive HOME tenant-based rental assistance may retain their position on a Section 8 waiting list and must be offered Section 8 assistance when they reach the top of the list. The choice to use HOME funds for tenant-based rental assistance is a local one.

   • Capacity. State and local PJs, as well as their non-profit partners, have the capacity to use additional HOME funds. Since the program began in fiscal year 1992, the number of local PJs has increased from 387 to 533 (a 38 percent increase) due to the formation of new consortia and new metropolitan cities and urban counties. At the same time, prior to fiscal year 1998, the funding for the program did not exceed the $1.5 billion appropriated in fiscal year 1992. Thus, the amount of funds going to individual local PJs was diluted and continued to decline as more and more local jurisdictions qualified for allocations. As examples, in fiscal year 1992, with a national appropriation of $1.5 billion, Miami, Florida's allocation was $5,314,000, while in fiscal year 2000 they will receive $4,881,000 although the appropriation is higher, $1.6 billion.
   1. Eligible Recipients. Eligible recipients of HOME funds include States, metropolitan cities, urban counties, and the Insular areas of the Virgin Islands, American Samoa, Guam and the Northern Marinas. Under certain circumstances, a consortium of geographically contiguous units of general local government may also be eligible for funding. In order to apply for HOME funds, State and local governments must develop a Consolidated Plan covering assisted housing and community development activities. The Plan must be approved by the Department before HOME funds can be received. Insular areas are not required to submit a Consolidated Plan to apply for HOME funding.
   2. Allocation of Funds. HOME funds are allocated to PJs on a formula basis: 60 percent to participating local governments and 40 percent to States, after certain amounts are identified for program requirements and other purposes, as described below. In addition, the greater of 0.2 percent of the total allocation or $750,000 is available to Insular Areas. Through 1997, funds for the Native American HOME program were requested as part of this appropriation; beginning in 1998, this funding was included under the Native American Block Grant. For fiscal year 2001, funding for set-asides total $54.2 million, as shown below, leaving approximately $1.596 billion available for the regular HOME program.

      The following table shows the actual 1999 and estimated 2000 and 2001 allocations for the HOME Program:

      

   3. Eligible Activities. HOME funds can be used for tenant-based rental assistance, assistance to new homebuyers, acquisition, and rehabilitation of affordable rental and ownership housing, as well as for construction of housing. By statute, funds may not be used to provide tenant-based rental assistance for certain special purposes of the existing Section 8 program, to provide non-Federal matching requirements for other programs, or to finance public housing operating subsidies or modernization.

   4. Matching Requirements. Effective with the 1993 appropriation, PJs must provide matching contributions of at least 25 percent of HOME funds spent for tenant-based rental assistance, rehabilitation, acquisition and new construction. The Housing and Community Development (HCD) Act of 1992, however, provides that the matching requirement shall be reduced by 50 percent for jurisdictions that are in fiscal distress and by 100 percent for jurisdictions that are in severe fiscal distress. The Secretary may also reduce the matching requirement for jurisdictions that are Presidentially declared disaster areas.

   5. Program Accomplishments. As of September 30, 1999, according to the HOME program Cash and Management Information System and estimates of activity of PJs reporting in the Integrated Disbursement and Information System (IDIS), 585 PJs had committed over $8.2 billion in Federally allocated HOME funds. Of this amount, $3.1 billion has been disbursed for completed projects. These funds have leveraged over $7.5 billion in other funds for a total of over $10.6 billion in resources for completed projects. Four hundred sixty-four thousand, seven hundred and eighty housing units have been funded and 55,045 families have been assisted with tenant based rental assistance. Of these units to which funds have been committed, 266,523 units have been completed and $6.7 billion has been disbursed. The program serves very low-income families well, particularly for rental housing and tenant-based rental assistance, where 98 percent of families assisted are at 60 percent of median income or below.

   6. Reallocation of Funds. The HOME statute provides that HOME funds will be available to PJs for affordable housing projects for 24 months. Thus, the Department must deobligate HOME funds that have been available to PJs for 24 months, but that have not been committed to affordable housing. The Department must also deobligate funds that are required to be reserved for Community Housing Development Organizations (CHDOs) (15 percent of a PJ's allocation) but that have not been reserved for CHDOs at the end of the last day of the month of the 24-month period. As of October 31, 1999, the Department has deobligated $878 thousand in non-CHDO funds and $3.4 million in CHDO funds. The Department estimates that it will deobligate no more than $2.5 million non-CHDO and $4 million in CHDO funds through fiscal year 2001. This is less than .5 percent of appropriated HOME funds.

STATUS OF FUNDS

1. Unobligated Balances. The following table compares the program obligations with funds available by year:

2. Obligated Balances. The status of obligated balances is as follows:

Distribution of Funds by State

The following table shows HOME Investment Partnerships Program allocations, by State, for 1999, 2000, and 2001