HUD Budget Cuts Take a Toll on Section 202 Housing

Budget cuts sustained across the Department of Housing and Urban Development for the 2012 fiscal year come at a bad time, and without any relief in sight for Section 202 housing, says one senior advocacy group. The HUD budget, signed into law this month as the result of an appropriations “mini-bus” bill, provides HUD funding through September 30, 2012, but several of the department’s programs are likely to suffer, the senior advocacy group says.

The funding is seen as a positive, but some programs are likely to see some reductions.

“Several of our key initiatives that help needy families and struggling communities will be reduced,” said HUD Secretary Shaun Donovan upon announcing the new budget.

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Three policy changes will take place in order to address budgetary shifts, as noted by Acting Deputy Assistant Secretary for Multifamily Programs Janet Golrick in email correspondence to multifamily project owners last week. Those changes include funds currently held in project residual receipts accounts being used to reduce assistance payments; limitation of Option 4 renewals and annual rent adjustments to Operating Cost Adjustment Factor (OCAF) increases if proposed rents exceed market price; and requirement of rent comparability studies to justify proposed rents that exceed 110% of Small Area Fair Market Rents. Future guidance on all policy changes is forthcoming, according to HUD.

“Given the current funding pressures, unfortunately, matters may only get worse,” wrote senior advocacy group LeadingAge’s Colleen Bloom in an email to members. The problem, outlined by LeadingAge, is the “complete” reversal of rent adjustment policy for Section 202 and other Option 4-eligible properties.

HUD has yet to state whether there will be changes to the method of determining comparability for HUD 202 projects. Although LeadingAge stated it doesn’t anticipate any changes, it remains watchful of what the new budget will mean for the program.

“We remain very concerned about the impact this change could have on many Section 202 properties that have relied on Option 4 for their contract renewals, and about the potential for problems with the continued use of residual receipts for budget-based service coordination,” Bloom wrote. “We can foresee potential negative impacts on the sustainability of those that have been refinanced (where the savings was legislatively allowed to be retained for enhancements to the property and/or delivery of services to residents), as well as the potential for negative impacts on refinancing efforts that are currently underway or being considered.”

While the organization continues to work on policy changes, the spending issues in Washington present ongoing concerns.

“Given the current focus on reduction of spending, this may only be the tip of the iceberg,” she wrote.

Written by Elizabeth Ecker