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CAPITOL HILL PERSPECTIVES:

1.   Fitzhugh Elder
2.   William Simpson
3.   Jeff Riley

Question and Answer Session

 

1.   CAPITOL HILL PERSPECTIVE

Fitzhugh Elder, IV
Deputy Clerk
Senate Appropriations Committee
Washington, D.C.

Thank you for having me here today. I appreciate the opportunity to be with you to speak about affordable housing to the rich.

It’s a good time to be in Washington. The State funeral for President Reagan last week showed Washington at its best, showed what Washington can be. Now that we’ve given the final farewell to the 40th President, Washington is going back to the muddling through that usually occurs. Last week and this week will definitely be a study in contrasts.

Budget Deficit

Today I’m going to talk briefly about the Senate Appropriations process. While the House’s is similar, I’ll talk about the Senate process and then briefly touch on the coming election and some of the ramifications it might have.

There is one thing I’d like everyone to keep in the back of their minds, and that is budget deficits. That should temper all the comments I make.

The Senate Appropriations process begins every February, when the President submits his Budget Resolution. This year the practical effect of the new Administration Budget is for about $500 million below the Budget enacted in Fiscal Year ’04. But that number is somewhat deceiving, because when you split those numbers out, the FDA went up $150 million, but USDA in turn went down $650 million.

So it was a positive beginning. Additionally, because interest rates are rising or will rise in the future, you had a subsidy rate go up for loans with RHS, and so it costs more money to do the same loan level that we did last year.

Austere Budget Outlook

So we kind of faced a double whammy on our budget and increased subsidy rates. In fact, based on what we’ve done in the last couple months, at the end of the day we have held our hearings and we’ve reviewed the thousands of pages of Members’ requests, and we’re waiting for a final Budget Resolution.

Currently, we’re drafting this year’s Bill and we’re using an assumed budget level that we cannot share. We’re trying to make the best of the extremely limited dollars across the spectrum of competing programs. It’s good to remember that within the Bill, we find things such as WIC, we find things such as a lot of conservation work that goes on on farms, we find the Rural Utility Service. A lot of competing programs are fighting for these dollars.

Even within RD, you’ve got problems. The subsidy rate increased more than in probably any other program. We’ve seen that across the board, through Community Facilities, through Rural Utilities. So it’s been a very tough year.

And I’ll just say that because of the austere budget situation, we’re not going to have the resources to fully address many of the issues that are important to Rural Housing. And unfortunately I think that’s the way it is, given the budget deficit.

Post-Election Session

Another thing to keep in mind, too. Between now and October 1 of this year, we have only about 36 days in which we can do legislative business. And we’ve got to get through 13 Appropriations bills in that time. Even if the Congress decided it only wanted to do Appropriations for the rest of the session, 36 days is not a lot of time to do those bills. We have to remember, we have recesses July 4, we have a six-week recess between basically the last week of July and the first week of September

So we’ve got not only very tight budgets, we’ve got a very limited time in which to do the things that we have to do to function. So the only thing I can think of, unless something miraculous happens, is that obviously there will have to be a post-Election session. Post-Election sessions can be interesting. They can drag on for weeks and achieve nothing, or, if the mood’s right, they can tie up all of the loose ends of the Congress. We shall see.

Out of Reach

Let me touch on the Election. I think, as I said, the budget deficit as an issue is going to mute the effects of many changes that might come out of the 2004 election. Regardless of which party controls the House, the Senate, the White House, they have to confront the budget deficit. They can make some changes here and there, but the kind of money that everybody recognizes as what’s needed to do the things that need to be done is out of reach in the current budget climate.

And that’s just for RHS. I can’t even imagine what HUD is going to have to deal with.

Senate Changes

That being said, as a Republican, it’s obviously going to be a clean sweep in November.

You will see the individual changes in the Senate, but aside from those, there will be changes in the chamber and within the chamber that are more important. If the signal switches, you will have a new Chairman. And actually for Appropriations, you’re going to have a new chairman either way: It’s going to be either Senator Byrd (D-WV) or it will be Senator Cochran (R-MS). And you know, I can’t speak for Senator Byrd, for whom I haven’t worked, but because Sen. Cochran has an agriculture background; he might, when it comes down to an allocation for the Agriculture Sub-Committee, be more understanding of some of the needs in that area. That might bode well for us.

Change in Committee

Additionally, with the retirement of Sen. Hollings (D-SC), the Democrats will have a new Member to put on the Committee, and so that calls for shuffling among Committee Chairmanships and for shuffling Committee memberships. So I think the election, even if the status quo is maintained, could cause some minor changes. If it does switch control, I think there will probably be some interest in and some focus on some programs that probably won’t pass, because the Budget Resolution is going to be a confining feature.

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2.   CAPITOL HILL PERSPECTIVE

William Simpson
Democratic Staff Member,
Senate Appropriations Committee
Washington, D.C.

Obviously I disagree with my good friend Fitz on several things. Fitz was talking about how few days are left in the legislative session reminds me of something my uncle, who was in the Mississippi Legislature forever, once said: “A lot of folks should be arrested for loitering in a public place.” That might come back on us someday. I’ll get to the political issues in a minute.

Effective Advocate

I think elections do make a difference. You can see that in budgets. Even a Multifamily Housing study, this long-term study, I know we put in a Bill a couple years ago. And it needed to be studied, but it does cost money to house poor people. I think we can come to that conclusion. And I think we need to move ahead in the meantime.

I have to recognize CARH for being an effective advocate and educating us in a lot of things that we need help on, for example, ANs that have gone out on the management and the insurance issues. CARH’s been a very effective advocate, and I thank you for this help. We need help.

Home Ownership Initiative

Fitz talked about the thousands of requests. We literally do have thousands of requests, they’re in binders this big, a whole shelf we have to go through from Alligator Breeding Research to — whatever. And honestly, as you know, Rural Housing Service is a stepchild in the Department of Agriculture. You’re competing against Mad Cow Disease, aid for Sudan, and other things. And it is really hard to get a focus on housing.

The President did do an initiative on home ownership, which came basically from the Rural Housing Service, entitled, I believe, “Leveling Barriers to Minorities for Homeownership.” And it was small changes. In fact, I’ve got to say, Sen. Kohl (D-WI) had recommended these years before, and the Administration had said they couldn’t do it because of costs, but the next year they did it. So we appreciate that they accepted that. But they just dropped the origination fee from 2% to 1.5% and made some slight modifications. Ironically they are increasing that same barrier this year.

But my point is that it did focus attention on an issue and give the people in the Executive Branch and OMB and even Congress some cover to say, “Hey, if it’s these limited resources we’re competing with, this is an issue for the President.” So that helps. It even helped when the Appropriations Committee had to help in this 502 Guarantee program. We put $900 million in the Supplemental to keep it going. So it helps that it’s on the President’s agenda. And I look forward to when affordable rental housing is on this President’s or a future President’s agenda.

Hurt in the Bills

Fitz talked about the allocation, and he’s exactly right. It’s very difficult. We had a big mandatory pot over here, but we can’t touch that. We can rob it a little bit, but we really can’t touch it. Then we have a discretionary slice over there, and that’s what everything comes out of. That’s actually the first time that this discretionary pot went down since Abraham Lincoln created the Department. And that’s a problem.

So if you look at all Bills, and the 13 Appropriations Bills — of course Defense is doing great, Homeland Security is doing great, and military construction. Things that you can’t really question politically, they’re doing great. The ones that have really been hurt are Agriculture and, I believe, Transportation and D.C. Government. Who cares? (I care!)

So if we want to do some extraordinary things and, say, Health and Human Services and the D.C. government collapse, we’ll be OK. But it’s going to be a tough Bill.

Nonprofits and Preservation

And we do have some good news.

Fitz and I are working on a few things — proposed; we have to put that in. And Fitz talked about the number not being public, but the number is very close to the number that’s been reported in the press.

We went through a few things. The 538 program has had a problem in the past because Congress didn’t get its act together in time. Imagine that? We had to go into a Continuing Resolution, and when you go into a Continuing Resolution OMB looks back at the previous year’s funding in that quarter and gives you an allocation based on that.

But because 538 didn’t have that in the last three years, we’re going to propose to put in that it’s No Year money so it can carry over and you don’t have to go through the OMB process like we did on the 502 Single Family Guarantee program. We will put in language to say the Secretary should apportion the correct amount needed in the first quarter of ’05 irrespective of previous year allotments so we keep the train flowing. We’ll do that.

The rest of the proposal is a new Preservation Program, outside of the Rural Housing Service, and this also has been reported a little bit in the Housing and Development Reporter. It’s going to be a Multifamily Housing Preservation program for nonprofits. Third parties could be limited partnerships, state housing finance agencies, and others. It’s basically an intermediary re-lending program that’s going to go out through intermediaries, and then they turn around and lend the money, and it’s going to be very flexible and do 1% interest for a term not to exceed 30 years. We can defer the interest and the principal payment for the first 3 years.

That way an intermediary can get the money and lend it out, and you have the flexibility to build in basis points for administrative costs or, when you do the interim financing to flip a property, or you want to do long term, you have the flexibility to go to the Applicable Federal Rate to do 9% Tax Credits or drop it down. So this is a thing that we are working on to give a tool to all of you in the Preservation train wreck. I hope you’re all supportive of that. Fitz has been very helpful about it.

Rehabilitation, RA

We’re going to have to look at rehabilitating the Multifamily Housing portfolio, get a realistic number, what can the Agency actually, reasonably do, what can they get out for Fiscal Year 2005. We’ll look at that.

I have to compliment Carl Wagner for getting up here and saying the truth. As we say in Mississippi, he told it like Peter running on a rock. So we’re going to look realistically at some funding issues, like the cost of Rental Assistance, how much RA will be needed in rehab loans, unused Rental Assistance and so forth.

I thank you all because we really don’t have many people speaking for rental housing on Capitol Hill, and it’s really helpful that you give us some support so that we can do some things, especially when we’re in conference working with our House counterparts.

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3.   CAPITOL HILL PERSPECTIVE

Jeff Riley
Counsel (Democrats)
House Financial Services Committee
Washington, D.C.

Thank you for having us this morning.

Thanks to Colleen for inviting me, and thank you, Mr. Alsop from the RHS; he was just in and met with Congressman Barney Frank (D-MA) a couple of weeks ago and he’s pleased you’re again the Acting Administrator.

And Linda Goldstein, it’s nice to see you, too. Linda was the one who introduced me to all that stuff about five years ago, when I was on my way to a law firm for five years to do a lot of consumer finance and represent Fannie Mae and Freddie Mac. Now I’m on the other side, doing affordable housing for Barney Frank, and I have to say that this is a welcome change. I’m happy to be making a difference very day.

But that being said, I am new. I’m only about a year old up on the Hill, so I don’t have the experience of these two war horses over here. I don’t know if that’s a good thing or a bad thing. I’ve been spending most of my time lately on the National Flood Insurance program. I don’t know if that means anything to those of you out there. The Flood Insurance program is going to expire on June 30. Our bill was sent over to the Senate in December or January. It was supposed to expire March 30, but somebody snuck into the Omnibus Bill an extension to June 30, which is now approaching, and the Senate is still going back-and-forth on that. So if anybody has any interest in that bill and wants to give Senator Landrieu (D-LA) a call, or Senator Shelby (R-AL) or Senator Sarbanes (D-MD), and tell them to get to work on that, that would be welcome. If it passes, people can have flood insurance again on July 1.

Indian Housing

We had a Hill hearing about a month ago in Arizona for Native American housing. And that was great. We went to the Navajo Indian Reservation. Congressman Renzi (R-AZ) and Congressman Matheson (D-UT) hosted the event, and Congressman Ney (R-OH) and Congresswoman Waters (D-CA) were also in attendance. I learned a lot out there.

One thing we are doing to follow up that is a clause to Title VI. That’s a 1996 Loan Guarantee program at HUD that is a 95% loan guarantee. HUD in all its wisdom all of a sudden realized that the loan guarantee wasn’t set by statute at 95%, that the statute was silent, so they said therefore it has to be 80%. I’m happy to say that just last week we got a Bill out of our Committee, the Ramsey-Matheson Bill, setting the loan guarantee at 95%, and hope it gets before the full Senate in the next couple of weeks.

Manufactured Housing

We’re also working on manufactured housing. I don’t know if anybody here has an interest in that. Barney Frank, along with Mr. Ney, is hosting a non-Committee conference shortly. Mr. Frank and Mr. Ney are doing that on their own. They will talk about the need for mortgages and equity money for people who own manufactured housing. As you probably know, the bulk of manufactured housing comes out of the factory on wheels, so therefore it’s personal property, which makes it difficult for people who own that kind of housing to get mortgage money and equity money out of it. We’re working hard with Fannie Mae and Freddie Mac to find ways to help get some money for those folks. Manufactured housing is a great resource for affordable housing in the country.

3+ Years!?

Of course the other thing I’m working on, and the reason that I’m here today, is Preservation issues.

The one that I’ve been working most closely on is the 515 Program. I actually came to this last fall when we learned that there was a $500,000 Volunteers of America loan out there that had been languishing for something like three or five years. And Congressman Frank said, “What is the deal? $500,000? Franklin Raines (Chairman, CEO of Fannie Mae) makes that in one month.” So we went to work on that, and we’re pleased to say that Fannie Mae finally floated that loan last December after three and a half years.

Prodding Fannie, Freddie

One thing that we were very concerned to learn when we looked at that loan and how it was put together, is that it was really built from the bottom up. You guys, I guess, and lawyers and other folks were putting this program together for Fannie Mae, and in our vision it should be the other way around — Fannie Mae should be building projects with these programs, especially with the giant government funding that they get. And so we thought that that was not quite the way it should be, and so we’ve been prodding Fannie Mae and Freddie Mac ever since then.

And we’re pleased to say that they’ve come out and have pledged to do — it’s a drop in the bucket — 20 to 100 Section 515 loans this year to finance those projects, and we’re very pleased to learn from Mr. Alsop that RHS is hoping to do upwards of 20 of those loans. So we’re very pleased with the progress that’s being made on that.

You now, we just looked at Fannie Mae and Freddie Mac and asked, “Where did we go wrong?” Especially with the way that Linda Goldstein and Volunteers of America put this together — the government loan is subordinate to the Fannie loan. So Fannie Mae would be paid off first, so it’s really a win-win thing. It’s unfortunate that they could not have had that put together two years ago so that the loan could have been made and the program up and running full speed ahead right now to save about 16,000 properties out there in need of financial assistance.

Preservation Conference

In connection with Preservation, Barney Frank is going to host a Preservation Conference. If anybody’s interested in coming to that, let me know. It’s going to have a broad agenda, not just rural, but everything, just Preservation generally. But we will talk about the 515 program. And Fannie Mae and Freddie Mac will be there. It’s just a working session where Mr. Frank hopes we can sit down around the table with lenders, borrowers, developers and government and hash out the problems.

And that’s it.

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Question and Answer Session

Q. There was a study put together for Rural Housing Service that talked about the portfolio. Would you guys want to go into that?

A. We’ve not seen it. Obviously we’re very interested in it. It should help us put together funding recommendations for Appropriations for programs. So I know from conversations with people who have seen it that a draft was ready this spring and that the final will be available this fall.

Q. Who has it?

A. The Administration. We still don’t have our answers back from our hearing in April from the Rural Housing Service, which helps us do policy, too — questions like, “How much Rental Assistance do you need for rehabilitation?” Not that it’s RHS’s fault, I understand the Agency goes through this seventeen-tier process with OMB.

 

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