Remarks by:
Richard Michael Price, Esq.
Counsel to CARH
Nixon Peabody LLP
202.585.8716
Addressing CARH:
Running Out of Juice
I’ve got some really good jokes. I’m going to steal one from my nine
year old son. His favorite joke is: Why didn’t the orange cross the road?
Because it ran out of juice.
Some of these are running out of juice, which is not such a bad thing.
I’m going to go down a list of legislation, and I’ll tell you what I think
is good and maybe a little funny.
Hope For TAMS
A good one is H.R. 3324, which is Nancy Johnson’s (R-CT) Bill, which has
been setting around for a while in Ways and Means, that would correct the
TAMs. There’s a lot of support for this Bill, and there’s a companion Bill in
the Senate. You’ve probably heard by now about the TAMs and then about the
reversal that the IRS issued on impact fees. There has not been a
reversal on the other categories such as certain construction costs, certain
developers fees, and so forth. There’s still a push under way on the
administrative side to get the IRS to reverse the position on that, also on
the legislative side to have a legislative solution. What these two pieces of
legislation would do is to redefine the building costs, come up with the
definition of associated development costs that would be part of Basis, and
all these things would come into Basis by legislation.
One Bill which I thought was interesting was S. 652, the Jeffords (I-VT)
Bill. It looked like a HOME program, but I haven’t heard anything about it. Then there’s
H.R. 4194, which is Representative Lewis’s (D-GA) Bill. This is a good one: It would extend the 30% bump up you get in Tax Credits to areas around
Qualified Census Tracts. Now if you’re in a Qualified Census Tract you can
get 130% Basis; this Bill would allow State Housing Finance Agencies to extend
that 30% to areas surrounding Qualified Census Tracts. That gives people who had buildings or projects that spilled over from
Qualified Census Tracts into a neighboring tract some
flexibility. This will help solve those problems
if it gets through.
Other Legislative Proposals
Maybe it’s just my Inside-the-Beltway cynicism, but one is
just funny: S. 2479 comes from Senators Kerry (D-MA) and Orrin Hatch (R-UT), showing that bipartisanship is alive and well. Unfortunately all this Bill does
is amend the Tax Credit law so that State HFA’s can require high speed internet access in Tax Credit projects. That seems to be
the way this is written.
Don’t get me wrong, I’m very much in favor of high speed access, but I think
there are more important things to worry about.
Wes Watkins (R-OK) has an interesting Bill, which I also find funny in a
kind of sinister sense — H.R. 4712. What this Bill basically says is, if
you have a 515 project with Tax Credits and you run afoul of those Tax Credits,
you can avoid recapture if you transfer your project to a nonprofit. That’s
fine and I’m happy for nonprofits to have housing, but this just feels too
much like a provision of Mark-to-Market which we call the Bad Boy provision:
If you get crosswise with HUD, HUD will not restructure mortgages unless you
sell to a nonprofit. It smacks too much of extortion to me.
H.R. 951 and S. 677, two companion Bills, would amend Section 42 (G) (4)
to allow you to get the greater of either the statewide median or area income in
your Tax Credit project. There’s also a Mortgage Revenue Bond provision which
really doesn’t affect us.
State Legislation
Going outside the Beltway, I’ve noticed an uptick in state activity. Most
recently, Virginia passed a piece of legislation that allows a state Tax
Credit for Seniors, Disabled and Recently Homeless. I think there was also a
recent change in the Kansas State Tax Credit. There’s a lot of legislation
around the country on State Tax Credits, which segues nicely with the
Federal, which is something to keep an eye on.
In preparing for this panel, Ray and I talked, and he asked me what I was
working on that might be of interest to folks. I told him that I have been
preoccupied with terrorism.
One of the reasons Congress is a bit backed up, and one of the reasons
funding has been sucked out, is because of terrorism and security concerns. I
think this is entirely appropriate. It is important to address them. But
obviously we have to adapt on several levels.
FBI Warning of Threat
The terrorism and security issues we’ve been dealing with have centered
around the concept of the warning on the general nonspecific threat that the
FBI issued for apartment buildings. It is so general and nonspecific we don’t
even know exactly when they issued it, but it was sometime around May 15th or
16th or so. It has really caused a lot of anxiety and a lot of tension, and it’s
been difficult to get past this issue to a lot of other issues in dealing
with some of the Agencies.
The big problem with this is that it started out — well, we’re not exactly sure
how it started. There are two stories I’ve heard, one that a prisoner at
Guantanamo Bay said that terrorists were interested in blowing up American apartment
buildings, and then a report about materials having been captured in Afghanistan
that instructed terrorists on how to rent apartments in the U.S. That’s all very
alarming, but other than those sort of secondhand stories in the press,
there has not been any confirmation as to the source of the general
nonspecific threat — no confirmation other than it is general and has not been confirmed.
Suspicious?
However, we should all keep a lookout for anything that looks suspicious. Here’s
the next problem: What’s suspicious? In talking to folks from the FBI,
“suspicious” includes anything from a false visa (that would indeed be
suspicious) to a photocopy of paperwork, or even paint, as in buildings being
marked for some reason. They haven’t been terribly helpful.
The Apartment Association issued a very comprehensive package of notices to
owners, owners’ handouts to residents, and whatnot. We at CARH sent around an e-mail.
I think that package has backfired a bit — not CARH’s, but the Apartment
Association’s. I think CARH took the right approach. There was a report in
the Washington Post about an owner who gave out the Apartment Association’s
notice to residents and scared the living daylights out of them. There was then a report of a couple of Arab-Americans who
felt harassed. For that reason the folks at HUD have chimed in and said it is
fine to comply with the FBI’s general nonspecific warning, but they will be
watching in case you accidentally violate someone’s civil rights. So you’re
sort of caught in the middle.
Change In Focus
The best approach is to treat it like any other kind of potential crime:
You have folks who are trespassing, or someone hands you a false visa, these
are the kinds of things that would attract anybody’s attention. I don’t
think one would treat these things differently from anything else. In talking with
HUD and USDA and, actually, the FBI, attention is being moved away from
this original threat to taking essentially any opportunity they can to gather any information they can regarding potential
suspicious activity. Understandably so.
There has been some talk about what you should do with in site inspections if you
see something that you regard as suspicious: Contact the local FBI office.
Again, I think if you see several hundred gallons of fertilizer and some
other stuff where it shouldn’t be, you could call the FBI. If you see someone
with tinfoil and paperclips, you could just let it go. That’s my own thinking
on that.
Emergency Plans
It is good advice to have an Emergency Plan or Emergency Evacuation Plan.
If you have an apartment complex located near an industrial facility
or such, I’m not sure about the possibility of an incident, but it’s probably
not a bad idea to have some plan in place at least to try to communicate with
site staff and residents, maybe something to hand out to residents in case of
some kind of announcement. I think it is possible in the next year or so that
there will be some kind of more specific alert or warning regarding apartment
buildings. That’s not to say that I think anything will come of it, but it’s
probably good just in terms of a client relations standpoint.
HUD v. Rucker
There have been some interesting cases in the Courts this past
year. The decision in HUD v. Rucker is the Public Housing case in the
Supreme Court which affirmed HUD rules regarding eviction of residents
with guests or co-residents, not just on properties, but also off site, with
drug-related crimes. That’s just Public Housing, but there are corollary
rules for Section 8 that both put a burden on owners to do initial screening
for residents, but also provide additional rights and benefits. The
regulations are couched in compliance with State and local eviction laws, but
still this gives you a Supreme-Court–affirmed tool to deal with problem
residents.
Another interesting case which came out recently in the Supreme Court is
the Tahoe Sierra case, which isn’t directly applicable but does talk in terms
of what happens and what rights there are in regulatory takings. Basically,
on a 32-month delay for some land use issues, the Court said a
delay is not compensable, although they did say they would look at the facts
and circumstances in each case.
HAP Voucher Case
Moving from the Supreme Court to a few other cases that are not the law
of the land but are the law in certain Circuits and are quite interesting,
one is Southland Management, a HUD case in the 5th Circuit. That was
a a HAP Voucher
case reversing a decision of a District Court judge. This one I’m watching very closely. It’s already had direct
impact on some things I’m working on. This case concerned a property manager that had managed a couple of properties in the South that
were not in good shape. Everyone knew they were not in good shape. There was
a lengthy negotiation with the owner, manager and HUD on how to work out the
property. The owner had taken Returns many years ago, but not in
the last decade or so. A Work-Out couldn’t be reached, and the Government
sued the management company for False Claims, which is kind of like civil
fraud, in that it carries triple damages. The District Court judge said there
was no fraud because HUD knew the condition of the property all along and that that was why HUD was negotiating. That was a nice decision to have, from my
perspective. It went up to the Fifth Circuit, where there was a 2-1 decision: One judge agreed wholeheartedly with the District Court judge, but, unfortunately,
two did not. It wasn’t a terrible decision, but it wasn’t quite as helpful.
Basically, the two judges said this was a factual issue, so we can’t make a
rush to conclusion. This decision has, however, emboldened HUD, though not so much RHS
(although HUD will liaison with RHS).
Increased HUD Activity
We’ve already seen HUD get active on a couple of cases because of this
decision, which came out about five weeks ago. HUD has already taken an
increased enforcement posture. The idea is that, until we can get this case sorted
out, HUD’s position is that even when you fill out a Voucher, that Voucher is not
really accepted until some time in the future.
Two other cases which have come out recently are a HUD case affirming the one-year HAP notice legislative requirement for anyone interested in allowing a HAP
contract to expire and go into Vouchers. Copa Equities v. City of Los Angeles is an interesting case on the
prepayment side for HUD. HUD said the LIPHRA statute had a preclusive effect
which pre-empted local rent control, but Copa basically says that
once you pay off that loan, local rent control laws apply directly. I’m not
quite as bothered by this case as are some of my colleagues of the Bar. There
were some on the HUD side that relied on some of the language of the Cienega
Gardens decision, or one of those, that said there was a continuing
preemption after prepayment. I don’t know if that’s of importance to anyone,
but some folks have been agitated by that.
Thank you.
Next: “What’s up with the 3560 regulation?”