Update on Congressional Action on Housing Funding and Hurricane-related Housing Assistance.

From FEMA Answers

Center on Budget and Policy Priorities

Before adjourning for the year, Congress approved two major pieces of legislation that will impact housing assistance to families affected by hurricanes Katrina, Rita, and Wilma. Congress also enacted a one percent across-the-board cut in federal spending in fiscal year 2006 for housing programs (and other programs subject to annual appropriations). In addition, several other important hurricane-related bills are expected to be taken up soon after the House and Senate return at the end of January. This memo provides a summary and initial analysis of these legislative developments.

Contents

Across-the-Board Cut in Discretionary Spending for FY 2006

The Defense Department FY 2006 Appropriations bill (HR 2863) approved by Congress this week includes an across-the-board cut of one percent below discretionary spending levels agreed to in all FY 2006 bills. Every federal discretionary program will be affected, except for those administered by the Department of Veterans’ Affairs.

This cut – amounting to about $8 billion – will have a strong impact on a wide range of federal programs, including affordable housing programs. For instance, we estimate that a one percent funding cut will eliminate funding for 17,000 housing vouchers in 2006. For more information on the impact of the across-the-board cut, including state-by-state data on a broad range of programs, see “What Do Across-the-Board Cuts Mean for Domestic Appropriations?,” available at: http://www.cbpp.org/12-8-05bud2.htm.

Spending Reallocation for Hurricane Relief

The Defense Department FY 2006 Appropriations bill also contains $29 billion in emergency supplemental appropriations “to address hurricanes in the Gulf of Mexico.” (Of these funds, $23.4 billion is reallocated from funding previously appropriated for FEMA disaster relief.) Note that the one percent cut does not apply to the hurricane relief package or to any other spending designated as “emergency” spending by Congress.)

With the consideration and passage of the hurricane spending package as part of the Defense Appropriations bill, Congress had a golden opportunity to implement needed improvements to disaster housing policy and to redirect funding to programs that could assist families more effectively. In the end, Congress directed FEMA and HUD to make some important changes, yet failed to act on other measures that would also have been helpful.

Overall, the package contains $11.9 billion in spending reallocations for hurricane-related housing and community development assistance, including $11.5 billion for Community Development Block Grant (CDBG) funding and $390 million for housing voucher assistance. Notably, Congress expanded eligibility for these funds beyond Katrina-affected areas. States declared major disaster areas due to hurricanes Rita and Wilma as well as Katrina are eligible for the CDBG funds, and some families displaced by hurricane Rita are included among those eligible for special housing vouchers.

The bill and conference report also include important directives to HUD and FEMA aimed at improving existing disaster housing assistance programs. In particular, Congress has directed FEMA to provide clear guidance on the eligibility and extension of housing assistance for displaced families, which could make it much more likely that families will get the housing assistance they need over the next year or more. Congress also adopted significant enhancements to the voucher assistance provided to families that lived previously in HUD-assisted housing.

In addition, Congress rejected the funding rescissions from HUD programs proposed by the Administration as part of its request, including the proposal to rescind $100 million in unobligated funds from the Section 811 housing program for people with disabilities. (Some rescissions from other federal programs are included in the bill.)

Unfortunately, the final reallocation package falls short in other ways. Congress did not expand eligibility for HUD-administered housing vouchers beyond displaced households who previously received HUD assistance or were homeless, for example, and no additional funding is provided to rehabilitate damaged public housing units.

FEMA Transitional Housing Assistance and Long-Term Recovery Plan

Under the Stafford Act, families displaced by disasters such as Hurricane Katrina are eligible to receive rental assistance for up to 18 months so long as they have been unable to secure adequate housing on their own. Yet FEMA has failed to provide clear guidance to families regarding their eligibility for ongoing rental assistance. This failure has created unnecessary anxiety and instability for families, as well as uncertainty among landlords about the prudence of renting available units to Katrina evacuees.

In the joint explanatory statement (JES) accompanying the conference report, members of the House-Senate Conference Committee expressed concerns about this lack of clear guidance, and directed FEMA to issue within two weeks guidance on how the eligibility for, and extension of, housing assistance under the Individuals and Households Program is to be determined.

Noting that a comprehensive long-term recovery plan is critical for the rehabilitation of the Gulf Coast, the conferees also charged FEMA to provide the House and Senate Committees on Appropriations with its long-term recovery plan by February 28, 2006.

In the same section of the JES, the conferees also expressed concerns about the Small Business Administration’s (SBA) slow pace of approving disaster loan applications, and directed SBA to report immediately to the Committees on Appropriations on its efforts to expedite the disaster loan approval process.

Tenant-Based Rental Assistance

The bill allocates $390 million to HUD for housing voucher assistance for families who were homeless or living in HUD-assisted housing prior to the Hurricanes Katrina or Rita. This assistance will be administered through the Housing Choice (“Section 8”) Voucher Program (HCV) rather than through the Katrina Disaster Housing Assistance Program (KDHAP), for which funding is likely to run out early in 2006. This administrative switch – combined with other modifications inserted by Congress – will benefit many displaced families.

• Rent subsidies will be set according to local payment standards rather than capped at the local Fair Market Rent (FMR), as they have been under KDHAP. In areas directly affected by the hurricanes, HUD allows public housing agencies the flexibility to set payment standards up to 120 percent of FMR, or higher with HUD approval, to help families to access housing in tight rental markets. Voucher program rules also allow agencies to authorize higher payment standards on an individual basis in order to assist people with disabilities who require housing with special accommodations.

• Housing voucher assistance will cover the costs of utilities; these costs have not been covered under KDHAP assistance. This will help low-income families to maintain stable and healthy housing.

• Housing vouchers provided to evacuees will be fully portable in accord with the rules of the HCV program. This will allow families to return to their home areas or to move to regions where they may rejoin family or access jobs, without losing their voucher assistance. In contrast, portability has been sharply limited under KDHAP.

• There is no time limit on the voucher assistance provided under the bill. (KDHAP assistance is limited to 18 months.)

In addition, the bill includes language affirming that families receiving assistance shall be eligible to reoccupy their previous assisted housing if and when it becomes available.

Community Development Block Grant (CDBG) Funding

The spending reallocation includes $11.5 billion in CDBG funding for disaster relief, long-term recovery, and restoration of infrastructure in the states most heavily impacted by hurricanes Katrina, Rita, and Wilma. (The Administration proposed $1.5 billion in CDBG funds and $70 million HOME funds solely for areas affected by Hurricane Katrina.) Under the language of the bill, no state will receive more than 54 percent of the total funding (which in effect means a maximum of $6.210 billion for Louisiana), and funding for each state is to be administered by an entity or entities designated by the state governor. (The Administration’s bill would have allowed the HUD Secretary to determine whether to allocate funds to any specific localities in addition to state agencies.) At least 50 percent of the funds must benefit primarily people in each state with low and moderate incomes, unless the Secretary of HUD finds that there is a compelling need to waive this requirement.

Each state must submit a plan for the proposed uses of the special CDBG funds to HUD; this planning process could provide an opportunity for advocates to influence the plan. States have very broad leeway on how much of the funds to use for housing and what type of housing activities to fund. While Senator Cochran (R-MS), the leading proponent of expanding CDBG funding in the disaster assistance package, has indicated that a large share of the funding is intended to be used to assist homeowners who were not covered by flood or disaster insurance, states are not required to use funds in this way.

Waiver of Regulations Regarding the Use of Public Housing and Voucher Funds

In its reallocation request for Katrina relief, the Bush Administration had proposed to grant the Secretary of HUD broad authority to allow public housing agencies in over 40 states to combine public housing and voucher funds as needed to assist families displaced by Katrina and to restore public housing units damaged by the storms. While public housing agencies and low-income families in the disaster areas would benefit from additional funding to rehabilitate public housing units, CBPP and other advocates argued that the voucher program is the wrong source for this funding. For one, the voucher funding available to PHAs in the disaster area is extremely modest, and would provide no more than a drop in the bucket of resources needed to restore damaged public housing. Equally important, voucher funding will soon be needed to provide vouchers to low-income families who wish to return to their home areas.

Although Congress included a waiver on the use of public housing and voucher funds in the final spending reallocation package, it narrowed the Administration’s proposal in two important ways. First, fungibility waivers can be granted to housing agencies only in the most heavily-impacted areas of Louisiana and Mississippi, rather than to agencies in any of the 40-plus states that received a federal emergency declaration. Second, the waivers may be granted only for calendar year 2006. In addition, Congress specified that the purpose of such waivers should be to assist families displaced by the hurricane. This suggests that Congress intends the waivers to be used either to provide voucher assistance to families that need housing assistance now, or to make modest repairs on public housing units that can quickly be occupied by displaced families.

Preserving Housing That Receives Project-Based Assistance

The conference report includes two directives intended to promote the preservation of affordable housing that relies on project-based assistance. First, Congress directed the Secretary of HUD to preserve, to the extent possible, all housing within the disaster area that is supported by the Section 8, public housing, Section 202, Section 811, HOPWA, or McKinney Homeless Assistance Grant programs. Second, the Secretary of HUD is ordered by Congress to report within 4 months on the status of these housing units and the costs of repairing any that were damaged in the storms.

Rural Housing

The bill appropriates $65 million in additional disaster-related funding for programs administered by the Rural Housing Service of the U.S. Department of Agriculture, rather than the $37 million requested by the President. Of this amount, $45 million is set aside for the cost of loans and loan guarantees, and $20 million is provided for home repair grants, but the bill allows the Secretary of Agriculture to adjust these funding levels within the overall $65 million total provided for these purposes. The bill also allows the Secretary to convert project-based rental assistance allocated to properties that have become uninhabitable as a result of the 2005 hurricanes to housing vouchers for a period of six months from the date the bill is signed by the President.

Low-Income Home Energy Assistance Program (LIHEAP)

For those of you following the LIHEAP funding issue, Congress at the last minute jettisoned the $2 billion in additional emergency LIHEAP funds that were to be provided through the Defense Appropriations bill to help families cope with high home heating prices this winter. For more on this, see “Senate Cuts LIHEAP Funding: Despite Claims, There Is No Legitimate Connection Between ANWR and LIHEAP,” available at http://www.cbpp.org/12-22-05bud.htm .

Other Hurricane-Related Legislation

Gulf Opportunity Zone Act of 2005 (HR 4440)

Congress passed legislation (HR 4440) on December 16 that provides a substantial increase in low-income housing tax-credit funds in hurricane damaged states, as well as increases in tax-exempt bond authority for housing and other purposes and a number of other tax benefits. In each year from 2006 to 2008, the law provides about $57 million in added low-income housing tax credits in Louisiana, $35 million in Mississippi, and $15 million in Alabama. In addition, it provides $3.5 million each to Texas and Florida in 2006 only.

In addition, Congress made several temporary changes to tax credit rules in the damaged areas. The legislation designates the Katrina, Rita, and Wilma "individual assistance disaster areas" (which cover most areas that experienced any direct damage from the storms) as "difficult development areas" under tax credit rules in 2006, 2007, and 2008. This has the affect of allowing tax credits to cover a larger share of the cost of a housing unit, making it easier to use them as a tool for developing housing in areas with high costs and potentially allowing credits to bring rents down to a more affordable level than they otherwise could.

The legislation also makes a modest increase in the income limits for tax credit units in rural counties and parishes in the Katrina individual assistance disaster area in those same three years. In those places, income limits will be set at 60 percent (or under some circumstances 50 percent) of the national nonmetropolitan median income, rather than 60 percent or 50 percent of the median income of that particular county or parish as would normally be the case.

In addition, the legislation requires that tax credits be allocated to projects in the year in which they are provided to a state. This is a stricter requirement than exists under regular tax credit rules, which allow credits to be carried over into later years under some circumstances. As a result, it will be particularly important that states act promptly to put the credits to use.

Pending Disaster Assistance Legislation

Dozens of bills addressing needs in the disaster areas have been filed over recent months. It is expected that some of these bills – as well as a follow-up Katrina supplemental spending proposal – will be considered by Congress soon after members return in late January. Below is a brief summary of the three pieces of legislation most likely to be active early in 2006.

Louisiana Recovery Corporation Act (HR 4100)

Sponsored by Rep. Richard Baker (R-LA), the Louisiana Recovery Corporation Act would establish a new federal agency, the primary purpose of which would be to promote economic stability and redevelopment in areas of Louisiana that have been impacted by the hurricanes. The LRC would be charged with purchasing, aggregating, and reselling property that has been damaged and, without action by the LRC, would not be redeveloped. In carrying out this mission, the LRC would partially compensate property owners who are unable to rebuild homes and other property that has been damaged, and also partially compensate lenders who have issued mortgages and other loans on the property.

As approved by the House Financial Services Committee on a strong bipartisan vote on December 15, 2005, the bill would also authorize funding for housing assistance in disaster areas, including $2.5 billion for housing vouchers, $100 million for the rehabilitation of public housing, $100 million for HOPE VI, $1.5 billion for HOME, and $13 billion for CDBG. (Note that $11.5 billion in CDBG funding was already passed as part of the Defense Appropriations bill.) These authorization levels, however, would not be effective without further action in an appropriations bill.

On December 22, Senator Landrieu filed a companion bill in the Senate. The Senate Banking Committee is expected to hold a hearing on the bill soon after it returns in January.

Hurricane Katrina Recovery Homesteading Act (S 2088, HR 4514)

The Bush Administration has proposed to make unused federal property in disaster areas available to low-income families for the purpose of building affordable homes. Senator Wayne Allard (R-CO) and Rep. Bobby Jindal (R-LA) have sponsored bills that would implement this proposal (S 2088, HR 4514). While unobjectionable in principle, this proposal would facilitate the development of no more than a few thousand units of housing, and many questions remain to be answered, e.g., how many properties are available in areas that are economically viable for families? And will low-income families be able to access the assistance they will need to build homes, even if they are granted the property at no cost? The Administration had requested $250 million in its reallocation request to support an urban homesteading initiative. Congress did not include any funds for this purpose in the disaster assistance package passed this week.

Katrina Supplemental Spending in 2006

When the Bush Administration submitted its reallocation request for disaster relief on October 28, 2005, it noted that an additional supplemental spending request is anticipated in early in 2006. It is very likely that the Administration will submit such a request in 2006, although the content of the request remains unclear. In a recent news report, FEMA Director Paulison remarked that $11 billion remains unspent from the $62 billion that Congress allocated to FEMA earlier this year, and that he expected this funding to be sufficient to provide housing and other disaster assistance for up to 18 months. If this is true, a supplemental spending bill would likely focus on other needs, e.g., long-term rebuilding in disaster areas, rather than on providing transitional assistance to displaced families.