Remarks by:
Richard Michael Price, Esq.
Counsel to CARH
Nixon Peabody LLP
202.585.8716
www.nixonpeabody.com
News From Washington
There’s a real sense of uniformity at HUD, in particular, about public statements, mission statements, that sort of thing. As a result there is not a lot of rumor or a lot of innuendo. In most Administrations there’s usually a healthy amount of back stabbing rumors, which is really helpful to folks like us because that’s how we learn about what’s going on.
But without being too facetious about it, there does tend to be a bit more background discussion than there has been. What I’ve heard — and I don’t know how realistic it is, maybe it’s more rumor than anything else, or maybe I’ve just been reading the right newspapers — but there’s apparently a move afoot to revamp domestic budgets in 2005, in particular at HUD, and to essentially to Pass Back — though that’s a loaded term — proposed cuts from the Agency to the Administration.
That would happen more after the election than before, which is probably one of the reasons that you’re likely to see a delay in the actual timing of the budget cycle for the Fiscal Year that ends September 30. We’re supposed to have a budget at that point.
Continuing ResolutionI remember when I was at HUD years ago and we were prepared to eat tuna fish for a couple days because we wouldn’t have been paid because of a standoff up on Capitol Hill as both parties got in their last licks in before that deadline of September 30.
You don’t seem to have those standoffs these last few years. This year, too, there seems to be a spirit of Continuing Resolution. There’s a concern about that, you know, but when you’re spending a lot of money, and the economy is responding positively to that additional spending, it will be easier to put off that sort of standoff. So especially if the Democrats win and take the White House, they would have more leverage, so it would be better for this Administration to wait until after the election because then they can make some additional cuts without perhaps near-term political fallout.
One thing that I thought I would raise in earnest concern, is the number of recent attacks on the Administration’s Community Development Block Grant (CDBG) program. This probably isn’t a program that a lot of people in this room use, but the point is that since it started in 1974 it has been one of the biggest and most popular programs. Governors and mayors love it because it gives block grants to local jurisdictions.
Sea Changes in DCIndeed, it’s been universally popular until this year, when the Administration issued a report critical of the CDBG program. Nobody’s ever done that before. It reminded me of what happened in the last Administration, under HUD Secretary Andrew Cuomo, with the Title I program. Title I was essentially a rehab loan program that had been active and quite successful for about fifty years. It originated back in the 1930s. Now you really don’t see Title I rehab loans at the same volume as you used to see them because there was a concern that we were spending too much money on very small sorts of Title I rehab projects. They still have the Title I lenders and so forth, but it didn’t have the same impact after that. My concern is that we’re heading that way with the CDBG. And as the CDBG goes, so go a lot of other programs.
It’s Washington. There are always currents, always sea changes — things move back and forth. And really what this is, is a time where if we don’t worry too much about the Tax Credit this year, we can focus some of our attention and lobbying efforts back on some of these old programs.
Quiet on LIHTC FrontSomebody asked which Congressmen we should go to when we go up on the Hill. I look to the people on the Agriculture Committee, on Financial Services, on Senate Banking, on Appropriations. Those are the key Committees. Those are the folks that we want to reach out for, to tell them that we need their support for these programs.
That kind of rejuvenation, that kind of renewing the message, is very important. Oftentimes at these meetings I’ll stand up here and talk about Tax Credits. You know, all’s quiet on the Tax Credit front. Tax Credits haven’t been under the kind of assault they’ve been under in past years.
We had the Charles L. Edson Awards up on the Hill a couple weeks ago; we had a very nice showing from Congressmen, Republicans and Democrats, talking various platitudes about Tax Credits and, sure, a couple of them used it to talk about single-family housing as well. That’s OK, they showed up, they had smiles on, they were there to be counted, at least for the moment. We’re all for that.
Quiet ChangeThere are a few lingering questions about Tax Credits. The IRS took a position adverse to owners and developers regarding treatment of casualty loss — that you couldn’t use credits during the repair period for a casualty loss. It would be nice if somebody on the Hill went to the IRS and forced them to change their position. That’s not happening, but that’s OK, we can work with that position. And there has been some very good stuff and efforts underway.
As for a few items that we might want the IRS to take a look at, the IRS has told us they’re not interested in taking a look. Rather than have a sea change, we have a quiet change, under the wire, things like providing 9% Credits with 236 Projects. The IRS had that on their list of items to look at. But there doesn’t really seem to be a big impetus to do that at the moment. Section 202 sets up a subsidy that’s very similar to Section 8, with a Tax Credit in a new effort to syndicate Section 202. Again the telephonic, verbal, oral communication with the IRS is that they’re not interested. They don’t see any problems, and they don’t have any real positions or concerns about it, but they’re also not going to tell us that in writing. They’re not going to spend the time on it. It’s not important enough.
There are two kinds of good development-type things. The best is when the Federal Government tells you they agree with you. Second best is when they just don’t care, when they don’t disagree. When it’s OK enough, when a program’s successful enough, that it’s just not of significant concern. There’s something positive you can take out of that.
So we have a good healthy sense of support for Tax Credits. It’s basically taken care of. We have a healthy sense of support for New Market Tax Credits, and a number of deals that are now closing, mainly financed by the Historic Rehab Tax Credit, and that’s good news.
Section 8 Voucher Cuts?We have a bit of tension building with our current HUD Secretary, who really started out as a very liberal public housing official, and in later life has found out that he’s a very conservative, anti-affirmative-action (by his own terms), sort of right-wing type of personality. And that’s not very constructive to housing.
Indeed, there was a column this month about how HUD Secretary Jackson is conspiring to kill HUD. I don’t know if I could go that far, but with the Section 8 program we’re seeing a narrow mean-spirited sort of approach.
The current problem with the vouchers — which is stating to scare off the project phasing, is starting to scare off redevelopment of 236s, is starting to create real havoc — is caused by some language in the Consolidated Omnibus 2004 Appropriations Act that you can read objectively in one of two different ways. You can read it basically to require a retroactive application back to August 1, 2003, or you can read it to have a more balanced approach as to current funding levels in effect as of the date of the Appropriations Act itself.
Unintended ConsequenceThere’s the strongest bit of evidence Congress did not intend that kind of narrow retroactive application, but with that kind of narrow retroactive application they will probably be under-extending by about $300 million that will remain in the Treasury, unspent, because of HUD’s interpretation. (Estimates vary from about $150 million up, but I like the $300 million number.) I agree that there is money to pay for all the vouchers that are out there, and that there’s a potentially narrow interpretation to prevent spending it. True, HUD has found $150 million to make up for the shortfall, but it’s also true that HUD has recently announced a reduction in the public housing admin reserves. That’s important because the original announcement that came out from HUD that housing authorities would have to fund up to the August 1, 2003, level even though they have perhaps appropriated or spent higher levels since then. The first six months they can make up that difference using public housing reserves.
90,000 Vouchers at RiskNow in the past month there’s been another HUD Notice on this essentially cutting those reserves, and so the solution has already been taken away. I think the NAHRO study on this that came out in the past month or two is probably the most accurate. It seems to estimate that 40% of the housing authorities probably have more than enough money to fund their vouchers, but that about 60% don’t. That’s my assessment of the percentage. If that’s accurate, it means that something in the neighborhood of 90,000 vouchers are in jeopardy.
To the BrinkMy own personal feeling is — harsh as it sounds — we didn’t get Mark Up to Market on the HUD side until there was the very real risk of tenants being evicted as properties converted over. When that real risk started showing up in the newspapers five years ago, that’s when we got Mark Up to Market. I think likewise we’re not going to end the voucher assaults. I think we’re just seeing the beginning of it, until we push back in and start visiting some folks. It’s a harsh and nasty thing to say, but I’m telling you.
Say you have a troubled property, and HUD folks, in particular, come in and say, “Why do you have this tenant that didn’t clean their stove?” Well, you can’t evict somebody for not cleaning their stove, but HUD folks a few times have basically said, “Well, if you have these housekeeping violations, we’re going to cut off your Section 8.”
So my answer to the client is, try it, try it once. When you get the judge to essentially issue a scathing statement that you can’t evict somebody for not cleaning their stove, then you take it back to HUD, and all of a sudden, lo and behold, they shut up about the absurdity of evicting somebody just because of their cleanliness.
Get the Word OutI think there needs to be that kind of gamesmanship, for lack of a better description. It’s a terrible thing to say that some of these residents are hogs, but they are, and if we don’t start essentially meeting the challenge of what’s been exposed and what folks in the Administration want us to do, we’re going to find that whole chunks of our funding disappear.
So I think part of it’s lobbying, part of it is getting the word out to the media, and part of it is we need to know what we’re doing. I think probably in the next cycle we may be a little less concerned about the principle and more concerned about the old line programs.
While it’s not cheery, it’s not as depressing as it’s coming out either, and it’s not as threatening and not as mean-spirited. Basically we have to understand the context in which we’re having a dialogue right now, and that there are a number of folks in the Administration that, particularly after the election, are going to continue to push in this direction. So frankly we have to do a little pushing back.
Small, Important MessagesWe’re not the Administration, we don’t have the kind of leverage they do, but we do have Representatives, both Democrat and Republican, who are sensitive to these issues. Indeed, the month before last, there was a published article that had Congressman Davis, Congressman Renzi, and so forth, talking about Rural Housing. Congressman Davis supports us, and a number of our folks have been quite active in his camp. And those are the kinds of contacts that, when these issues come to the fore, might not get us additional funding on something, but we won’t lose. We might not get as much as we want, but we’ll get something. And that’s why we keep up those kinds of contacts.
Small messages, small lessons, but important ones for this election cycle. That’s my report from Washington.
Next: News From Washington, cont'd