Congressional Justifications for 1998 Budget Estimates

Office of Housing
Housing Flexible Subsidy Fund

Program Highlights

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

Summary of Budget Estimates

Summary of budget request

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 reservations and other discretionary expenditures, but would no longer be used for new Flexible Subsidy reservations for 1996 and thereafter. However, other unreserved balances carried over from fiscal year 1995, or recaptured in 1996, remain available for reservation. The Budget assumes utilization of these remaining resources prior to fiscal year 1998 for emergency structural, health and safety needs in Section 202 projects. No new reservations are projected for 1998. No new reservations are projected for 1998.

Changes from 1996 estimates included in 1997 budget

The 1997 Budget estimated the reservation of $72.9 million in Flexible Subsidy assistance to support 108 projects during 1996. Actual reservations of $17.9 million will support 28 projects.

Changes from original 1997 budget estimates

The 1997 Budget projected no new reservations of Flexible Subsidy assistance would take place during fiscal year 1997. The 1998 Budget estimates are that $60 million will be reserved during 1997 to assist projects financed under Sections 202 or 811 of the National Housing Act, and to support implementation of the Safe Neighborhood Actions Plans (SNAP) for eligible projects.

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 1988 Act requires the use of Flexible Subsidy funds for major capital improvements. The Act requires that not less than $30 million or 40 percent (whichever is less) of the amounts available for Flexible Subsidy be used for capital improvement loans, to the extent there are approvable applications.

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 planned use of other tools to address the needs of insured multifamily 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 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.