Congress Authorizes Rental Assistance Demonstration for Public Housing Preservation

    

Congress Authorizes the Conversion of Up To 60,000 Public Housing and Other Multifamily Units to Section 8 Assistance to Finance Capital Improvements

 

One of the few bright spots in an otherwise difficult FY2012 HUD appropriations act is the enactment of the Rental Assistance Demonstration (RAD), which seeks to preserve and improve public housing and certain other multifamily housing by authorizing the voluntary conversion of up to 60,000 units to Section 8 assistance that can be used to finance capital improvements.  Reno & Cavanaugh attorneys have been working with senior HUD officials, congressional staff, and a coalition of affordable housing stakeholders to develop, advocate for, and enact this important new tool for PHAs to address their capital needs.

 

RAD provides PHAs the opportunity to convert public housing subsidies to funding under one or more of HUD's Section 8 programs, which historically have had a more stable funding and regulatory structure, so that PHAs can more easily leverage private financing.  This concept emerged from the Summit on the Future of Public Housing in 2008 and was subsequently endorsed by the Obama Administration.  After it initially failed to gain traction in Congress, the RAD coalition was formed to streamline the proposal and work out differences among stakeholders.  Although there are some changes in the final product, that basic work has now emerged as law in the form of RAD.

 

HUD Will Select Properties for RAD on a Competitive Basis

 

Congress has directed HUD to select properties for conversion under RAD through a competitive process that includes criteria for demonstrating the feasibility of conversion (1) in different markets and geographic areas, (2) for PHAs of varying sizes, and (3) by leveraging other sources of funding to recapitalize properties.  HUD must also provide opportunity for comment on the draft eligibility and selection criteria and procedures for the competition.  HUD may accept applications until September 30, 2015.

 

To Fund Conversions, HUD Will Transfer Public Housing Subsidies to Section 8 Accounts

 

RAD permits PHAs to convert public housing either to project-based vouchers (PBVs) or to long-term project-based Section 8 rental assistance contracts that are eligible for renewal under MAHRA.  To implement such conversions, HUD will transfer amounts from the public housing Operating Fund and Capital Fund to the relevant Section 8 account.  A significant limitation on the demonstration and a key difference from the RAD coalition's proposal, is language limiting any increase in costs to the federal government in the Section 8 accounts to the amount of funds transferred from the public housing accounts.  Further, the initial long-term contract for converted properties may allow for rental adjustments only by an operating cost factor established by HUD.

 

This "no cost" provision in RAD certainly narrows the field of properties which could take advantage of a conversion to those which have relatively lower levels of capital need and/or higher public housing subsidies as compared with Section 8 Fair Market Rents.  We are continuing to analyze these provisions in an effort to make RAD as flexible as possible and expand the universe of viable RAD properties.  There may also be opportunities in future appropriations acts to build on the current authorization as it becomes clearer that conversion is a feasible capital financing tool for public housing generally.

 

HUD May Grant Statutory Waivers to Facilitate Conversions Under RAD 

 

To facilitate conversions, RAD authorizes HUD to waive statutory provisions governing the PBV program and the use of funds appropriated for the Public Housing Capital or Operating Fund or for Project Based Rental Assistance in FY 2012 or prior fiscal years.  However, HUD may not grant waivers of requirements related to fair housing, nondiscrimination, labor standards, and the environment.

 

Ownership and Use Restrictions for Converted Properties  

  

Converted properties must be owned or controlled by a public or nonprofit entity, except as otherwise determined by HUD to be necessary in the event of foreclosure, bankruptcy, or substantial default.  However, ownership may be transferred to a for-profit entity in a tax credit project, provided that the PHA preserves its interest in the property in a manner approved by HUD.  For all converted properties, HUD must require long-term renewable use and affordability restrictions, and upon expiration of the initial assistance contract and each renewal contract, HUD must offer, and the owner must accept, a further renewal of the contract.

 

Next Steps 

 

HUD has already begun work on the criteria and process for selecting properties for RAD.  While the funding constraints mean that conversion will not be feasible in all markets, it is likely that selection for RAD will be very competitive.  PHAs may want to begin now to assess properties which would be good candidates for RAD.

 

Reno & Cavanaugh attorneys are available to answer questions regarding RAD and to assist PHAs in using the program as it evolves.  We will continue working with HUD and program stakeholders on the development and implementation of RAD and other initiatives to preserve and improve our nation's vital public housing assets.  Updates will be forthcoming in future client alerts.

 

Issued December 5, 2011.  Reno & Cavanaugh represents developers, housing authorities, lenders and other industry participants in matters of housing development, financing and other areas.  This memorandum provides general information and should not be viewed as specific legal advice.  For additional information concerning attorney-client privilege for PHAs, feel free to contact:

  

Stephen Holmquist   

sholmquist@renocavanaugh.com  

(202) 349-2462   

 

Julie McGovern

jmcgovern@renocavanaugh.com 

(202) 349-2472

   

Martin Walsh  

mwalsh@renocavanaugh.com 

(202) 349-2670

 

Sarah Molseed

smolseed@renocavanaugh.com 

(202) 349-2678