HUD's FY99 Budget
Congressional Justifications
Community Planning and Development

Home Investment Partnerships Program

PROGRAM HIGHLIGHTS

   

SUMMARY OF BUDGET ESTIMATES 1. SUMMARY OF BUDGET REQUEST     The Budget proposes $1.9 billion for the HOME Investment Partnerships Program and the Housing for Special Populations (Housing for the Elderly or Handicapped) Program in 1999. The total of $1.9 billion includes $1.55 billion for HOME (including $25 million for Housing Counseling), $109 million for Supportive Housing for the Elderly, $50 million for Section 8 Incremental Vouchers for the Elderly, and $174 million for Supportive Housing for the Disabled. In addition, a HOME Loan guarantee program is proposed to complement the existing HOME program. Authorizing legislation is being forwarded concurrently with this Budget.     HOME Investment Partnership Program     The purpose of the HOME basic grant program is to make funds available to Participating Jurisdictions (PJs) to increase the supply and affordability of housing and homeownership 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. Increased funding for the HOME basic grant program is also part of our effort to expand this program's use as a vehicle for meeting the unmet housing needs of low- income renters. This level of funding would provide 78,520 units of affordable housing for owners and renters through new construction, rehabilitation or acquisition. In addition, tenant based rental assistance will be provided to 11,200 families.     The 1999 HOME request excludes funds for the Native American HOME program, which is included in the new Native American Block Grant (see separate justification). The total amount available for formula distribution in 1999 will be $1.493 billion, an increase of $55 million over 1998. In addition, this level of funding provides for $25 million for Housing Counseling (described further in a separate justification), $3.1 million for Insular Areas, as provided by law, and $29 million for Technical Assistance (including Community Development Housing Organization Technical Assistance) and Management Information Systems Support.     The proposed increase for HOME is based on the following: the program has demonstrated that it is an efficient producer of affordable housing for low-income families at a modest cost; the program provides State and local governments with a great deal of flexibility to meet local needs, including the ability to target populations with special needs (e.g., permanent housing for homeless persons completing the continuum of care; persons participating in self-sufficiency programs; and persons with disabilities); there is no continuing Federal liability for funding of the units; State and local governments and their nonprofit and for-profit partners have the capacity to use the funds; and the program produces results quickly; Participating Jurisdictions (PJ's) are required to meet performance standards for timely commitment and disbursement of funds or have those funds deobligated and reallocated to other jurisdictions.     HOME Loan Guarantee Program     A HOME Loan Guarantee program is proposed that would complement the existing HOME program and would be an important tool in financing large-scale housing developments. This new program would greatly magnify the impact of Federal HOME housing dollars by allowing loan guarantees for up to five times a PJ's latest allocation and enabling jurisdictions to formulate and implement neighborhood strategies to build or rehabilitate large numbers of units as a single undertaking within a relatively short period of time. The ability of States and localities to borrow a large sum of money for construction would result in economies of scale, and would provide the opportunity to make a visible impact on a neighborhood and to enable low-income housing production in the short term. In many neighborhoods, providing wide-scale physical change is critical to reversing the deleterious effects of crime, poverty, and structural decay that pervades such neighborhoods. Loan guarantee commitment authority of $100 million is proposed for the first year of the program. Credit subsidy budget authority of $11.1 million, based on a credit subsidy rate of 11.07 percent, is also proposed.     Supportive Housing for the Elderly and Persons with Disabilities     This Budget includes funding for a new formula-based component of the HOME program, for which authorizing legislation will be submitted, representing a further consolidation of HUD programs by integrating housing assistance for the Elderly and Persons with Disabilities into the HOME account. The consolidated program will preserve the integrity and mission of the current Section 202 and 811 programs, including project-based assistance through the current non-profit delivery system, but will be administered more efficiently at the State and local levels. For the Elderly, a total of $159 million is proposed, including $50 million to fund an estimated 8,839 Section 8 vouchers to further expand their affordable housing options and opportunities. For Persons with Disabilities, $174 million is proposed, of which at least 25 percent will be used for tenant-based rental assistance.     The merging of programs accomplishes two other key Departmental objectives. First, HUD will be consolidating its housing functions consistent with its ultimate downsizing. Consolidation of programs responds to the General Accounting Office (GAO) and Office of Inspector General (IG) concern that HUD is attempting to accomplish too many missions with too little staff. Second, the Department will be promoting local flexibility and local decision making by merging the special needs housing resources into the HOME program. Although the identity of the funds will be retained, the administration of the program will be in local hands and will respond to local housing needs and planning. Localities may even introduce program design features reflecting local practices and priorities. This differs from the previous approach which depended on national and prescribed HUD program requirements and a national competition. 2. CHANGES FROM 1997 ESTIMATES INCLUDED IN 1998 BUDGET     HOME obligations were $209 million less than previously estimated, primarily reflecting a change in the assumption that all available funds would be obligated in that year. The majority of HOME funds go to Participating Jurisdictions which have program years beginning anywhere from January to October. For those communities that begin their program years on October 1, obligation of grant funds occurs in the subsequent fiscal year. Outlays of $1.211 billion were $234 million lower than projected in the 1998 Budget, reflecting in part the lower obligation level as well as a slower expenditure of funds by grantees. 3. CHANGES FROM ORIGINAL 1998 BUDGET ESTIMATES     The 1998 Current Estimate reflects the enacted level of $1.5 billion, $191 million above the 1998 Budget. Obligations are expected to increase by $388 million above the Budget reflecting the higher appropriation level as well as the anticipation that all funds will be obligated by the end of 1998. The increase of $119 million in outlays reflects both the significant increase in the Current Estimate of obligations and, to a lesser degree, a modest shift in the anticipated expenditure rate of the remaining obligated balances at the beginning of the year. EXPLANATION OF INCREASES AND DECREASES     The 1999 Budget request of $1.55 billion for HOME represents an increase of $50 million over the enacted 1998 level. The HOME program has proven to be an effective contributor to several of HUD's Strategic Objectives, as described in the Department's Strategic Plan. HOME obligations are expected to decrease by $147 million from 1998 to 1999, reflecting the assumption that all available funds will be obligated in 1998, and that there will be no carryover of unobligated funds into 1999. Outlays are also expected to decrease, although by a lesser percentage, reflecting the second year spendout of the 1998 obligations.     This Budget also proposes a total of $333 million for Supportive Housing for Special Populations (Elderly and Disabled). Obligation of this full amount is expected to occur in 1999. Consistent with the predecessor grant programs, no outlays are expected to occur until 2 years after obligation from the grants programs. However, the $50 million for elderly vouchers are expected to outlay at $10 million in Fiscal Year 1999.     Finally, this Budget proposes a $100 million commitment level for the HOME Loan Guarantee program. Credit subsidy budget authority of $11.1 million, based on a credit subsidy rate of 11.07 percent, is also requested. This initiative, for which authorizing legislation is being submitted concurrent with this Budget, is an important tool in financing large-scale housing development and will greatly enhance the enhance the impact of HOME dollars.     The proposed increase for HOME is based on the following: Production. The HOME program was first funded in fiscal year 1992. As of September 30, 1997, (based on data from the HOME Cash and Management Information System and estimates of activity in the Integrated Disbursement and Information System) States and local governments have committed $5.9 billion in HOME funds under written agreements. Of this total, $4.7 billion in HOME funds and $8.5 billion in other public and private funds had been committed to projects yielding 279,652 units. Over 166,000 units have been completed, and 36,058 families have received tenant-based rental assistance. Low-Income Benefit. In addition to being an efficient producer of housing, 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-five 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 more than half of new homebuyers are below 60 percent of median income. Modest Cost Per Unit. The assistance is being provided at a modest cost per unit--$16,300 on average for units, and $3,900 per family receiving tenant-based rental assistance. Other funds are effectively leveraged, with $1.80 contributed from other public and private funds for every $1 of HOME funds. Flexible Program Design. Success is possible because of the program's flexible design which allows States and local participating jurisdictions to meet 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; rental projects both large and small, 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 how much subsidy 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, participating jurisdictions have used only 3 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. Assistance committed from an annual allocation of HOME funds is limited to a 2-year period which may be renewed by the jurisdiction. For applicants who receive HOME tenant-based rental assistance but are on the Section 8 waiting list, those tenants retain their position on the list and must be offered Section 8 assistance when they top the list. The choice to use HOME funds for tenant-based rental assistance is a local one and has been generally focused on creating affordability for special needs populations. Capacity. State and local participating jurisdictions, 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 participating jurisdictions has increased from 387 to 524 (a 35 percent increase) due to the formation of new consortia and new metropolitan cities and urban counties. At the same time, until fiscal year 1998, the funding for the program has been less than the $1.5 billion appropriated in fiscal year 1992. Thus the amount of funds going to individual local participating jurisdictions has been diluted and continues to decline as more and more local jurisdictions qualify for allocations. 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. A legislative proposal for the HOME Loan Guarantee program is being forwarded with this Budget. 2. Program Area Organization.     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 and homeownership 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 ongoing emphasis on performance with measurable results, as required by the Government Performance and Results Act, will increase grantee effectiveness and strengthen their ability to increase the impact of Federal housing dollars.     The HOME program's primary contributions to the Department's Strategic Plan are to Strategic Objective #3, "Increase access by families and individuals to affordable housing in standard condition," and to Objective #7, "Increase homeownership opportunities, especially in Central Cities, through a variety of tools, such as expanding access to mortgage credit." The HOME program also facilitates the achievement of other HUD Strategic Plan Objectives, including #4, "Reduce the isolation of low-income groups within a community or geographical area," and #5, "Provide empowerment and self-sufficiency opportunities to support low-income individuals and families as they make the transition from dependency to work."     The HOME program provides opportunities to both renters and owners in a variety of locations through tenant-based rental assistance, assistance to new homebuyers, and location of projects. Seventy-eight percent of HOME units are located in census tracts with poverty rates of less than 40 percent. New homebuyers receiving assistance are located in tracts with poverty rates under 20 percent, as are new construction rental projects. Jurisdictions may use HOME funds to provide tenant-based rental assistance to assist welfare recipients as they transition to jobs. HOME tenant-based rental assistance is a flexible resource which communities can integrate into locally designed plans to assist persons with special needs, including those participating in self-sufficiency programs.     HOME Loan Guarantee Program. A HOME Loan Guarantee program is proposed that would complement the existing HOME program. Under this program, HOME PJs would be authorized to request and receive a Federal loan guarantee for up to five times their most recent allocation. Such financing would enable the PJs to formulate and implement neighborhood strategies to build or rehabilitate large numbers of units as a single undertaking within a relatively short period of time. Loan guarantee commitment authority of $100 million is requested for the first year of the program. Credit subsidy budget authority of $11.1 million, based on a credit subsidy rate of 11.07 percent, is requested.     Less than 6 percent of HOME funds is used for projects of more than 100 units. A PJs ability to finance large-scale development for rent or homeownership is often restricted by the size of its HOME allocation and by competing local priorities and demands. Reluctance by private credit institutions to invest in projects that are located in low-income neighborhoods or that serve low-income families further diminishes its ability to undertake large-scale housing development. The credit enhancements provided through a loan guarantee would allow HOME funds to leverage significant amounts of private funds to finance large-scale housing development and serve as a catalyst for development of partnerships to foster vital new investment in communities across the nation.     While both thrift and commercial lenders are able to finance large-scale development of affordable housing and may in some instances provide short-term financing for such projects, most private lenders are unwilling to provide the long-term financing necessary to make such projects feasible. This reluctance stems from insufficient return available from low-income housing projects and the increased risk involved in providing financing to projects that generate little excess cash flow and may be located in deteriorated or marginal neighborhoods. Because the HOME program requires long-term rent controls, occupancy and use restrictions, private lenders are even more reluctant to provide permanent financing to these larger projects.     Currently, most low-income rental and homeownership projects are financed through proceeds from bond issues, equity raised through low-income housing tax credits and lending of State, local or private corporate funds such as LISC's National Equity Fund. Such financing sources are very competitive and limited. The value of the loan guarantee is the jurisdiction's ability to leverage greater sums of money to finance larger-scale development, while providing the lender with a credit enhancement to reduce the potential risks, particularly those associated with large-scale multifamily development.     Clearly, the general unavailability of multifamily financing beyond a 5- to 7-year period is a market imperfection. The shortage of construction financing, whether for multifamily rental or single family homeownership projects, could also be alleviated by substantially increasing a jurisdiction's ability to leverage funds through a loan guarantee program. Low-income families lack access to decent and safe housing because of the widespread shortage of affordable housing that is affordable to low-income persons. Direct lending of public funds for rental or homeownership housing helps to meet this need, but can only assist a limited number of low-income families. Using HOME funds to guarantee loans will leverage additional private financing and expand exponentially the number of eligible families who stand to benefit.     Two types of projects would be accomplished under the HOME Loan Guarantee program: revenue generating (25 percent of all projects) and nonrevenue generating (75 percent of all projects). Revenue generating projects are those that have a clearly defined revenue source dedicated to repaying the loan, including construction financing of large-scale, single-family subdivisions and gap financing for Low-Income Housing Tax Credit projects for which equity will be contributed incrementally over a period of years rather than up-front. Non-revenue generating projects would be those which generate cash flow sufficient to service only a portion of the debt necessary to make the project feasible, and would include primarily large multifamily rental projects. Other funding sources that would be used to make up the rest of the debt service include HOME program income (funds generated by the use of programs funds), tax increment financing, State and local housing trust or revolving loans, or other State or locally appropriated funds.     A loan guarantee option would greatly magnify the impact of Federal housing dollars. The ability of a jurisdiction to multiply the amount of its HOME allocation by as much as five-fold offers a tremendous opportunity for those jurisdictions wishing to undertake large-scale development or neighborhood revitalization efforts. It could likely mean the difference between developing tens or hundreds of affordable housing units in 1 year. This can be accomplished with a relatively small commitment of Federal funds (credit subsidy) that provide local lenders a measure of security to encourage participation in affordable housing projects.     a. Eligible Recipients. Eligible recipients include States, metropolitan cities, urban counties, and the Insular areas of the Virgin Islands, American Samoa, Guam and the Northern Marianas. 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 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.     b. 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, as described below. Up through 1997, funds for the Native American HOME program were requested as part of this appropriation; beginning in 1998, however, this funding is included under the Native American Block Grant. In 1999, set-asides for Insular Areas (0.2 percent), Management Information Systems support ($7 million), Technical Assistance, including CHDO technical assistance ($22 million), and Housing Counseling ($25 million) total $57.1 million, as shown below, leaving $1.493 billion available for the regular program.     The following table shows the actual 1997 and estimated 1998 and 1999 allocations for the HOME program: a/ Beginning in 1998, funding for the Native American HOME program is requested in the Native American Housing Block Grant.     c. Eligible Activities. 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, such as protection of families living in projects that prepay mortgages with use restrictions, provide non-Federal matching requirements for other programs, finance public housing operating subsidies or modernization, or provide assistance for preservation of Federally subsidized housing under 1987 or 1990 preservation laws, except for priority purchasers (community-based nonprofit organizations).     d. 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 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 which are Presidentially declared disaster areas.     e. Program Accomplishments. Commitments of funds and disbursements have been rapidly increasing. As of September 30, 1997, 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), 555 PJs had committed $5.9 billion under written agreements and $4.7 billion to 144,000 projects having 279,652 housing units, and had provided tenant-based rental assistance to 36,058 families. Of the projects/units to which funds had been committed, 109,500 projects having 166,086 units had been completed and almost $3.8 billion had 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. Based on historical usage, it is anticipated that 1997 funds will be used as follows: 30 percent for new construction; 57 percent for rehabilitation; 10 percent for acquisition; and 3 percent for tenant-based rental assistance.     The 1999 appropriation request of $1.55 billion for the HOME program is expected to provide tenant-based rental assistance to some 11,200 families. Additionally, an estimated 78,520 units are projected to be acquired, rehabilitated or constructed with the 1999 funding. Of those units, it is projected that approximately 57 percent will involve rehabilitation, about 30 percent will be new construction units, and 10 percent will involve acquisition of standard units.     f. 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 CHDO's (15 percent of a Participating Jurisdiction'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. The Department estimates that no more than $2 million will be deobligated in 1999. 3. Performance Indicators.     a. Mission. To expand decent and affordable housing; and to make homeownership a reality for more Americans.     b. Objective and Benchmarks. The overall objective of the HOME program is to provide decent, safe, and affordable housing. Benchmarks are estimates of expected activity. The actual units of housing produced depends on local decisions on the use of HOME funds, as well as the use of funds from other sources. The five performance indicators identified for this program are: units of affordable housing assisted; number of new homeowners; number of rental units; other dollars leveraged; and percentage of families less than 60 percent of median income receiving rental assistance or occupying rental units. Benchmarks for the first indicator include the number of units produced for new construction, rehabilitation, acquisition and the number of families receiving tenant based rental assistance. A further performance indicator is that rental units remain affordable. The attached table provides estimates of activity for 1997, 1998 and 1999. STATUS OF FUNDS 1. Balances Available     a. Unobligated Balances. The following table compares the program obligations with funds available by year:     b. Obligated Balances. The status of obligated balances is as follows: DISTRIBUTION OF FUNDS BY STATE The following table shows HOME Investment Partnerships program allocations for 1997, and estimated allocations for 1998 and 1999 by State. NOTE: Columns may not add due to rounding. a/ Funding for the Native American HOME program is requested under the Native American Block Grant program beginning in 1998. HOME LOAN GUARANTEE PROGRAM 1. Legislative Authority. Authorizing legislation is being submitted with this Budget.