Eileen Fitzgerald
Special Assistant to the Administrator
Rural Housing Service, USDA
Washington, D.C.Addressing the National Association of Home Builders:
The Administrator, Maureen Kennedy, asked me to go over several things with you.
We are committed to the 515 program. We believe that this is one of the most critical programs in rural America; it is the only program that is really getting to Very Low-Income residents of truly rural areas. We are committed to making sure that it continues. The President’s budget requests $220,000,000 for the next Fiscal Year. This demonstrates the Administration’s commitment to the program. We are focusing on servicing initiatives and and on ensuring that we are providing rehab loans and rehab assistance to those projects.
It’s a fact of life that the projects are aging. I was in Oklahoma just a few days ago. We have a lot of projects there that are 15 years old. We’re seeing even with our best owners and managers that the projects are aging. Obviously, we also have situations where folks were not as responsible and didn’t keep their projects up. But even where they do keep them up (we had that boom in funding in the early 80’s), we’re going to have to start putting in more rehab resources to keep the projects up. We’re aware of that. Maureen is committed to thinking through how we’re going to be using our RA in the future. I think in this budget time, we have to be very committed in trying to ensure that we continue to get increased or at least the same level of RA, but a lot of these projects only had 50% or 20% RA to make the project viable. With the rehab, we need more than that. It’s really a challenge for us. We appreciate any thoughts anyone has to share with us on that issue. It’s on our radar screen for the coming year.
I’m sure you are aware of how much centralization we’re doing in Single Family in St. Louis. We’re also looking very hard at what automation and technology can do for us in the 515 program so that we can be working better, smarter, and cheaper to make life better for all of you. We hope the Industry Interface will be up and running at least within the next year so that it can help you, the managers, and the Agency.
As you know we have a regulation out as a proposed rule on Leveraging. Maureen is considering the Final Rule. She is looking at the issues on that. We are certainly trying to encourage Leveraging and expanding our resources as much as possible. There are a lot of issues that are pretty complex, such as how you combine Leveraging with RA. In some ways, we have been doing Leveraging a lot with Low Income Housing Tax Credits — we’ve just never called it that before. We’re going to try to come up with a policy that makes sense. That might be something that will change over time as we get more experience and you get more experience. I think Leveraging will help our program a lot if we can be committed to trying to make leveraged projects work.
We are aware that the Inspector General and the General Accounting Office are doing a Tax Credit audit. They have come in and talked with us. We have a Subsidy Layering Proposal that, we hope, will clear the Department one of these days as a legislative proposal. It would essentially try to ensure there is no excess subsidy in a Tax Credit deal. I think this is a timely proposal, because that is what the various oversight bodies are looking at — to make sure there’s not a lot of excess subsidy out there. In general, we think there isn’t as much as perhaps there was years ago when Tax Credits started. We think a lot of States are doing a really good job at managing now. That would help us. In conjunction with that, we are looking at doing a spread sheet program that we would share with our State Offices so they could do a more sophisticated level of analysis that would be consistent across the board in how to think about Tax Credits. How to ask about syndication proceeds that should be going back into the deal. And, again, to make sure that we have a consistent policy. I know a lot of developers work across State lines and I think you should be getting the same story, no matter where you are. That may or may not be happening right now.
As you all may know, the program is reauthorized for this Fiscal Year through September. We hope there will be another Bill up. Part of the issue is that there is not a lot of time left in this session of Congress. The Public Housing Bill that passed last week was very controversial; there was no way we could get any legislation with that. We are very committed to reforms. We’re committed to reauthorization. We think that the reforms all make sense. I don’t think any of them is really pushing the envelope by doing something radically different. I want to be quite frank with you that we need a very clear message on where everyone stands on the reforms. There have been a lot of mixed signals which have been hurting our ability to get the reauthorization passed. The point system is probably the one that raised the most issues. As I’m sure you all know, Congressman Durbin is very concerned about reforms; he brought them up again in the House Appropriations hearing this year. He basically said they’d been promised, and if he doesn’t get them, he will fight the program getting any money this next year. The Agency got some mixed signals in the comments on the regulation. It would help to have a clear signal on where you’re coming down. We believe that the reforms make a lot of sense; we’re very supportive of them. They’re not that radical and they really show that we’re trying to keep our own house in order.
Finally, in the Reauthorization Bill that passed, we were provided a Section 538 Multifamily Guarantee program. We are in the process of trying to get that off the ground. We have authority to take some money from this year’s 515 program (up to $1,000,000 in Budget Authority — it will probably be less than that) to use for a guarantee program. We’re trying really hard to pull this off this year. We think Congress was very clear in it’s intent and we’re trying to meet their expectations. We had some concerns; Obie Baker has been in the middle of this and trying to get the Office of General Counsel’s agreement to do a demonstration program. We finally got this. A demonstration makes a lot of sense because we can then go out with Interim Demonstration Rules. We can try that instead of going through proposed rules, final rules and realizing that we made some fatal error — we’re hoping it might be possible to try three or four or five different models of how the guarantee might work, and learn from that and use the experience to make the final rule for next year. We’re having a Stakeholder’s Meeting June 5 and hope to have something then to present to you as a proposed program that we could have some quick feedback on, and then get the Demonstration out there. Realistically, the projects that would get financed under a demonstration are projects that are pretty much done and need some help with a guarantee to make the cash flow more affordable (obviously we can’t be looking at something from scratch to commit money this year). We’ve been talking to State HFA’s; they’re very interested in it. We have some non-profits that are interested. We’ve talked to Fannie Mae and Freddie Mac about purchasing the mortgages for the secondary market — that seems very doable. I think we may be able to pull something off here. The challenge is going to be how to do this without any significant subsidy by the Government. We do not want this program to duplicate the Direct program; we see them as two very different vehicles, just as we have in Single Family. You could use a guarantee with Tax Credits, so it gets a little mushy in talking about subsidies and non-subsidies. You could certainly use one with a 9% Tax Credit. A lot of folks have talked to us about that, and there’s some interest there.