PROGRAM HIGHLIGHTS

SUMMARY OF BUDGET ESTIMATES

1. SUMMARY OF BUDGET REQUEST

   No appropriation is requested for the Rental Housing Assistance program in 2001. No new commitment activity has occurred since the program was terminated in 1973. However, the program does have activity from amendments or recaptures in connection with State-aided projects.

   Preservation Prepayment. As an incentive to attract developers into the original Section 236 program, participants were given the right to prepay their subsidized mortgage after 20 years.

   In the 1990's, when mortgages began to hit the 20-year mark, the Department implemented the Preservation program to encourage project owners to continue in the low-income housing program. Approximately 14,000 units were prepaid in 1999, and prepayments are anticipated at 10,000 units in 2000 and 11,600 units in 2001. An additional 1,000 units in 2000 and 2001 are expected to be recaptured as a result of Multifamily Enforcement and Portfolio Re-Engineering activity.

   When owners prepay, some of the units are already occupied by tenants receiving Section 8 assistance. Other tenants may be income eligible but not presently receiving assistance. These tenants may face rent increases and will be assisted with Tenant Protection vouchers.

   Because the Section 236 mortgage is prepaid and liquidated, the IRP interest subsidy contract terminates. Previously obligated contract authority and imputed budget authority is subject to recapture. In 1999, $119 million had been recaptured. For fiscal years 2000 and 2001, amounts recaptured due to preservation prepayments, or from mortgage terminations due to enforcement actions or mortgage restructuring will be available for use in the IRP grant program.

   Multifamily Enforcement. Housing is undertaking an expanded program of addressing insured multifamily projects experiencing operating problems that include: poor housing quality standards, financial problems, and poor owner administration. It is anticipated that some projects will experience a termination or non-renewal of Section 8 assistance. Tenants living in affected projects may have converted existing project-based Section 8 assistance to tenant-based vouchers. Additional Tenant Protection vouchers may be used to aid income eligible families not presently receiving assistance but who would be adversely affected by HUD enforcement actions.

   IRP Grant and Loan Program. Title V of the 1998 Appropriations Act makes IRP recaptures available for grants to project owners. Fiscal year 2000 program activity is expected to reflect the previously planned obligation of IRP budget authority becoming available as a result of Preservation prepayments that occurred during fiscal year 1999. Recaptured authority from fiscal year 2000, together with re-use of a portion of IRP recaptures anticipated in 2001 comprise the obligation estimate for fiscal year 2001. Section 533 of the 2000 Appropriations Act amended the IRP rehabilitation program by providing authority to make loans as well as grants (grant authority was originally provided pursuant to Section 531 of P.L. 105-65) with recaptured funds. It is anticipated that this revised program will be initiated during fiscal year 2000, and will expand during the subsequent fiscal year.

2. CHANGES FROM 1999 ESTIMATES INCLUDED IN 2000 BUDGET

   The 2000 Budget estimated that $60 million would be used in 1999 for assistance to State-aided projects. Actual obligations were $20.7 million.

3. CHANGES FROM 2000 BUDGET ESTIMATES

   No IRP Grant program obligations were entered into in fiscal year 1999. Anticipated program activity, with the inclusion of loans, has shifted to fiscal year 2000 and fiscal year 2001 due to changes in the program legislative authority and structure.

EXPLANATION OF INCREASES AND DECREASES

The fiscal year 2001 Budget reflects an increase in IRP Grant activity from an estimated $190 million in fiscal year 2000 to $300 million in fiscal year 2001. The fiscal year 2000 program reflects the use of IRP budget authority associated with Preservation projects, which were prepaid in 1999, along with a portion of fiscal year 2000 recaptures. Fiscal year 2001 reflects use of the balance of resources recaptured in 2000, along with a portion of that anticipated for fiscal year 2001.

PROGRAM DESCRIPTION

1. Original Program. The Section 236 program, as enacted in 1968, provides a subsidy to reduce mortgage interest payments. The maximum subsidy available to a project was set at the difference between the monthly payment for principal, interest, and mortgage insurance premium on the outstanding mortgage at the market rate of interest and the monthly payment that would be required under a mortgage bearing an interest rate of 1 percent.

   A basic rental charge that was deemed sufficient to meet operating expenses plus debt service expenses at the 1 percent rate of interest was determined for each unit. Every tenant is required to pay the basic rental charge or up to 30 percent of income, whichever is higher. Contract approvals for new projects were discontinued in January 1973, except for "bona fide" commitments outstanding at that time and for amendments to prior contracts.

2. "Deep Subsidy" Program. The Rental Assistance Payments (RAP/"deep subsidy") program, authorized by the Housing and Community Development Act of 1974, was designed to aid very low-income families in Section 236 projects by permitting HUD to provide additional subsidies equal to the difference between the basic rent and 30 percent of income for a certain percentage of units in a project. Most insured projects receiving RAP funding have converted to Section 8 assistance. The remaining inventory of RAP assisted projects is largely limited to State-aided, bond-financed, projects which continue to receive amendment funding from a special set-aside.
3. State Agency Financed Projects (RAP funding). Amendments to State agency sponsored RAP projects will continue to be funded utilizing the set-asides of contract authority provided for in the 1983 Supplemental Appropriations Act. The following table provides the status of the set-aside of contract authority established for non-insured RAP assisted projects and the estimated use of the set-aside during fiscal years 1999-2001:

The Housing and Urban Development Act of 1968 authorized the Secretary to establish a fund for the deposit of rental collections in excess of the established basic rent for units in subsidized Section 236 projects. Pursuant to Section 201 of the Housing and Community Development Amendments of 1978, excess rental collections that continue to be deposited into the fund are to be paid to the Flexible Subsidy Fund. However, recent Appropriations Acts contain provisions likely to result in reductions of the collections of these excess receipts. The following table reflects the status of funds: