PART V: RECOMMENDATIONS

Between now and the year 2020, this Nation must begin to meet one of the most profound domestic challenges it has faced in a century. America must provide — through public and private means — housing, health care, and supportive services for tens of millions of men and women who will reach their senior years as the Baby Boomer generation ages.

Fortunately, the United States has the capacity to meet the needs of an aging population. It takes time, however, to plan for a societal shift of this magnitude. Planning must begin now. In Part V, the Commission presents guiding principles and recommendations that respond to the Mandates in the authorizing legislation.

Understanding the Needs of Seniors

In seeking to understand the needs of seniors, the Commission drew on testimony of witnesses, research reports, informal conversations with the country’s leading authorities on housing and health care facilities for seniors, leaders of advocacy and faith-based groups, and many others. Accessibility, affordability, and availability became key words in describing not only seniors’ housing needs, but their service needs as well. Accessibility is a physical environment free of barriers and open to supportive services, through transportation, service coordination, and local service networks. Affordability is low-cost housing accommodations and the inexpensive purchase of services and health care that contribute to independent living. In many communities — urban and rural alike — availability of housing, services, and health care is a major problem; services are simply not there and no amount of money can buy them.

Commission members repeatedly heard a key message through the words of our witnesses: the importance of their homes to seniors’ dignity and well being cannot be overstated. A senior cannot be healthy or maintain quality of life without a decent home. The home — an apartment, an assisted living residence, a single-family dwelling, or a manufactured home — is central to a senior’s life.

The Commission heard the merits of living in one’s own single-family dwelling in the community as well as the benefits of living in a “seniors only” community. Witnesses shared the positive experiences of intergenerational communities and told of the challenges associated with homeless seniors. Witnesses asked for more flexibility in Federal programs, and told of the current confusing and often conflicting array of program rules. We heard that there are simply not enough resources committed to meeting the housing, health, and supportive services needs of seniors. Seniors who had elected to move to a specialized senior living community told of their reasons for that move — death or illness of a spouse, companionship and socialization, the need to be in an environment that is safe and secure, transportation services, affordability, and access to services.

Developing Policy Responses to Seniors’ Needs

Maximizing independence, staying in control of one’s life decisions, aging with dignity – these are qualities that Americans value as they age. Surveys reveal that, even as people age and begin to need assistance with daily tasks, they want to stay in their own homes for as long as possible. Fear of entering a nursing facility is a serious concern of many seniors, not only because of the high cost of institutional care, but also because of the perceived loss of autonomy and control. Seniors also fear becoming dependent on others, and want to avoid being a burden to their families. This strong desire of Americans — for a healthy and dignified old age is at the heart of this Nation’s long-term care debate.

The Commission's recommendations recognize that appropriate and affordable housing and accessible, high-quality services are equal partners in creating a workable equation for quality of life during the aging process. A person’s ability to function can be enhanced or impeded by his or her physical and social environment. As people age and begin to need help with daily tasks, independence and quality of life can depend on their ability to access and pay for the services they need, in the environment that best supports an appropriate balance between autonomy and safety.

The Commission came to understand the necessity of flexibility in responding to seniors’ needs. For example, diverse paths can lead to a senior’s need for long-term care and supportive services. These paths usually lead the senior, first, to increasing contact with the health care system and the medical professions. Eventually, this path may also lead the senior to a reconsideration of “home” — and a heart-wrenching decision about whether or when to leave for institutional care.

Numerous factors influence an aging senior’s life including chronic and progressive health conditions, such as multiple sclerosis, diabetes, or Parkinson’s disease, any of which can lead to loss of function and mobility. A sudden event, such as a fall or a stroke, can result in long-term functional disabilities. Cognitive impairments, such as Alzheimer’s disease, can make it unsafe for an individual to live in an unsupervised setting. Health conditions such as arthritis, heart disease, and severe vision or hearing loss — alone or in combination — can make it progressively more difficult for seniors to engage in self-care, mobility, and housekeeping tasks.

In addition to physical conditions, economic realities may begin to close in on the senior. Loss of a spouse can diminish or end family income. Taxes and maintenance on the home may rise above ability to pay. Supportive family members may move away. The home itself, lacking appropriate accommodations for senior occupants, may become unsafe or unsuitable for a senior. Failing eyesight or other limitations may prevent the senior from driving — a dramatic change in mobility for anybody, and even more consequential for many seniors. The aging process brings to seniors changing realities both in personal health and in home accommodations.

The Commission found that the first step in developing guiding principles and recommendations is to understand what seniors want, what seniors themselves are ready to do on their own behalf, and where the seeds of solutions can be found. Therefore, the Commission’s approach centers on choice. The Commission believes that seniors should have opportunities to choose the services they use, where and how they receive services, and where they live.

The Commission recommends financing tools and linkage systems that promote choice. Its recommendations take into consideration the projected need for choice in housing and the importance of supportive services to maximize independence.

Based on these considerations, the Commission developed five guiding principles for its recommendations:

Preserve the existing housing stock;
Expand successful housing production, rental assistance programs, home- and community-based services, and supportive housing models;
Link shelter and services to promote and encourage aging in place;
Reform existing Federal financing programs to maximize flexibility and increase housing production and health and service coverage; and
Create and Explore new housing and service programs, models, and demonstrations.

The Commission follows this formula, recommending policies that preserve existing stock, recommending expansion to policies that work, recommending linkages to remove barriers, recommending reforms to improve policies, and recommending new policies to meet changing needs.

RECOMMENDATION NO. 1
PRESERVE THE EXISTING HOUSING STOCK

First and foremost, we must save what we have. Just as the production of new units is critical and necessary to meet the future needs of seniors, so also is the simultaneous need to focus on preserving and improving existing affordable senior housing. While the goal of preservation may be obvious, it is not always clear how this stock can be held in the affordable inventory and be recapitalized and renovated. Affordable senior housing, like its occupants, is undergoing an “aging process.” Much of it was developed through private/public partnerships more than three decades ago and much of the stock is itself in need of updating and repair. In many cases, use restrictions requiring low-income occupancy are expiring. Not surprisingly, as the average age of the population in this housing has climbed, so have the needs of seniors. The dilemma that confronts us is how to both preserve their homes and, simultaneously, meet their changing needs.

This country is losing affordable senior housing in alarming numbers. A report prepared for this Commission by the National Housing Trust noted that 250 properties serving primarily seniors have either prepaid their HUD mortgages or opted out of their Section 8 contracts since 1996, resulting in a loss of 20,000 units of senior housing.⁹³ Moreover, the Trust determined that at least 4,400 older properties, consisting of more than 324,000 Section 8-assisted apartments, are “at risk” of being converted to market rate rentals.⁹⁴

Exhibit 19: Analysis of Primarily Senior Housing and Units Currently At Risk⁹⁵

The States with the greatest potential losses are California with 37,356 units, New York with 25,330 units, Massachusetts with 21,648, Michigan with 19,492 units, and Ohio with 18,448 units. In addition to being at risk of being lost from the affordable housing inventory because of government policy that allowed the prepayment of the mortgages after a certain compliance period, in many cases, these affordable housing units are in need of repair and renovation. Much of the previously constructed senior housing stock did not include space for supportive services and virtually all of the early design was not barrier-free, making it difficult for these developments to serve the frail seniors.

A great many States are already devoting considerable resources, including the creation of “set-asides” under the Low-Income Housing Tax Credit (LIHTC) program, for the preservation of the subsidized housing stock; however, much more can be done. The data reveal that this problem will grow in the coming decades. The Federal Government has an important role to play, including encouraging State and local governments to direct resources to maintaining this unique housing stock.

Congress needs to take immediate steps to ensure that this Nation does not continue to lose its existing stock of senior units as we prepare to meet the coming need for new units in the next two decades.

RECOMMENDATION 1.1: ENCOURAGE THE PRESERVATION, RENOVATION, AND REFINANCING OF AFFORDABLE HOUSING PROJECTS

The Commission is greatly concerned about the potential loss of hundreds of thousands of affordable senior units and has developed the following recommendations to ensure the preservation of existing housing stock.

1. Congress should enact legislation to support preservation, renovation, and refinancing of federally assisted housing for low- and moderate-income seniors, including providing specific appropriations.



2. HUD should establish an ongoing database with project-specific information on primarily seniors, subsidized properties that have a) Section 8 contract rents at or below market, b) loans with significantly high current interest rates, c) low REAC scores, and/or d) high vacancy rates. These properties are potentially at high risk of mortgage prepayment and should be placed on an “early warning” list to be shared with HUD regional offices, State housing finance agencies, the Rural Housing Service (RHS), and the general public.



3. HUD should preserve the Section 236 senior housing stock, through (a) providing information to owners of existing HUD-insured, Section 236 properties primarily serving seniors, including a simple explanation of how the owner can refinance using the value of the Section 236 Interest Reduction Payments (IRP) to leverage additional debt for the purpose of rehabilitating the property and keeping it affordable, and (b) creating a program for use of the recaptured IRPs that are now in a pool at HUD, and using at least a third of these funds for the preservation and improvement of existing HUD-insured, Section 236 properties serving primarily seniors.

RECOMMENDATION 1.2: PRESERVE THE EXISTING STOCK OF SECTION 202 UNITS AS AFFORDABLE SERVICE-ENRICHED HOUSING AND ENCOURAGE THE RENOVATION AND REFINANCING OF SECTION 202 PROJECTS.

The Section 202 program is 43 years old and has financed more than 300,000 units for low-income seniors over the years. The Commission received significant testimony regarding not only the need to preserve the older Section 202 stock because of its physical condition, but also the need to preserve its affordability. The majority of Section 202 mortgages have clauses that require HUD’s permission to prepay, but nearly 100,000 units built from 1977 through 1981 had mortgages allowing prepayment without HUD’s permission.

In an effort to provide incentives to Section 202 sponsors to retain affordability and to finance needed repairs and renovations, HUD has issued guidelines for refinancing those projects that have the right to prepay their mortgages. For those projects requiring HUD’s permission to prepay, HUD guidelines for prepayment approval and refinancing require (a) continuing the project’s non-profit status, (b) executing a Use Agreement assuring long-term affordability, (c) honoring the Section 8 rental assistance contract, (d) maintaining a certain level of reserves, and, more recently, (e) making at least half of the resulting Section 8 savings available to the owner to cover the costs of retrofitting buildings (1) to provide supportive services , (2) to build new service facilities in or adjacent to the building, and/or (3) to build affordable assisted living facilities that could be accessed by the Section 202 residents.

Congress also authorized ownership of a 202 development by a limited partnership, provided a private non-profit organization is the sole general partner of the partnership. This change was intended to allow Section 202 non-profit sponsors to take advantage of the equity that can be raised through the sale of Low-Income Housing Tax Credits (LIHTC). However, HUD has so far implemented this important provision of the legislation only for new Section 202 developments.

In order to preserve this important segment of the senior housing market and to take full advantage of private sector equity and loan resources, the Commission requests the Congress to:

1. Direct HUD to encourage retrofitting of buildings to include necessary space for services and programs, to accommodate an aging, frail population. This is particularly important to projects funded between 1982 and 1989, when HUD introduced a series of cost-containment measures, including a requirement that one-fourth of the units be efficiency units. Projects built during this period have few design features and limited common space for supportive service provision.



2. Direct HUD to streamline and expedite mortgage prepayments and refinancing opportunities that may result in improved quality of life for the senior residents.



3. Direct HUD to utilize its authority to allow limited partnership ownership structures in accordance with legislative authority. This will allow Section 202 projects access to the LIHTC program.



4. Direct HUD to promulgate regulations that allow the Section 202 debt to be subordinated to new debt brought in with tax credits. This would allow some of the earlier Section 202s with interest rates ranging from 3 percent to 8 percent to keep current mortgages in place yet avail themselves of new equity.



5. Encourage HUD to prepare and distribute information to Section 202 owners regarding the comparative costs and benefits of prepaying loans with 501(c)(3) bonds or refinancing with new debt and LIHTCs.



6. Revisit whether to waive all or part of the existing debt on Section 202 properties supported by Section 8, similar to the current 202 PRAC program.

RECOMMENDATION 1.3: CONTINUE TO ENCOURAGE THE RENOVATION OF OUR AGING PUBLIC HOUSING STOCK AND ALLOCATE RESOURCES TO HOUSING AUTHORITIES TO PROVIDE SERVICE-ENRICHED HOUSING

It is estimated that between 600,000 and 700,000 persons over 62 years of age live in public housing.⁹⁹ This number will increase in the coming years due to the aging of those currently living in public housing. In addition, the number of seniors eligible for public housing will dramatically increase.

Public housing for seniors was designed as independent housing. The characteristics of the stock do not make it easy for residents to age in place. Moreover, two-thirds of senior public housing residents live in buildings that are over 30 years old. According to a HUD study, funding the backlog of modernization applications for senior public housing developments will cost $4.8 billion. Some public housing agencies are beginning to make inroads by creatively combining other resources with agency funds to develop service-enriched housing and assisted living facilities. Some interesting examples identified by the Housing Research Foundation include:

• The Miami-Dade Housing Agency in Florida has linked Medicaid waiver funding with low-income housing subsidies to provide basic assisted living and health services to low-income seniors living in an assisted living facility. The Miami-Dade Housing Agency reports that the yearly cost to support one resident is $12,000 versus $38,000 in a nursing facility.



• The Housing Authority of the City of Milwaukee, Wisconsin, transformed an independent living development into a continuing care facility by partnering with local service providers, which provide onsite health care and supportive services.



• The Littleton Housing Authority of Colorado used tax credits, bonds, and its own funds to develop assisted living apartments. ¹⁰⁰

Other examples from testimony before the Commission include:

• The Syracuse Housing Authority has converted numerous units to make them more accessible and has partnered with a local continuum of care provider to ensure access to supportive services for its senior residents.



• The Cambridge, Massachusetts, Housing Authority took over an obsolete city old age home and converted it into an assisted living development using low-income housing tax credits, HUD 232 mortgage insurance, historic tax credits, CDBG and HOME funds, and other funding sources including State, city and Federal Home Loan Bank funds. It is also building a small new nursing facility nearby to replace capacity still needed.

These are noteworthy examples, and Congress and HUD should allocate resources to allow other PHAs to emulate these successful models. One such vehicle could be the Elderly Housing Plus Health Support Demonstration Act, which is legislation pending in Congress.

RECOMMENDATION 1.4: ENCOURAGE UTILIZATION OF HOPE VI MODERNIZATION FUNDS TO BUILD NEW INDEPENDENT AND ASSISTED LIVING FACILITIES FOR SENIORS AND TO RETROFIT HOUSING STOCK TO MAKE THE NECESSARY UNIT AND PHYSICAL PLANT IMPROVEMENTS TO BETTER SERVE SENIOR AMERICANS. REQUIRE THE DEVELOPMENT OF A RELOCATION PLAN FOR SENIORS THAT ASSURES EACH DISPLACED SENIOR AN AFFORDABLE, ACCESSIBLE LIVING UNIT WITH APPROPRIATE SERVICES.

The HOPE VI program, which is used to demolish and revitalize distressed public housing, is the only public housing program that has received significant funding in the Past few years. Between 1996 and 2001, $293 million was appropriated to demolish the housing, and $4.8 billion was dedicated to its reconstruction or revitalization.

Because HOPE VI requires significant displacement, however, it has frequently had a negative impact on senior residents. A comprehensive relocation program for senior residents should be an essential component for approval of any HOPE VI development plan. Because it is the main source of new funding for housing authorities, HOPE VI funds should accommodate the needs of future elderly residents - which includes an affordable, accessible living unit - providing an exemplary model of intergenerational communities.

RECOMMENDATION 1.5: CONGRESS SHOULD FUND THE MODERNIZATION AND REPLACEMENT OF OUT-OF-DATE CAPITAL ITEMS AS WELL AS ADDITIONAL SPACE FOR SUPPORTIVE SERVICES AND PROGRAMMING.

Many senior housing facilities have "aged" and need modernization and/or retrofitting. Congress should provide authority and funding for grants to HUD and RHS multifamily assisted senior housing developments to fund the modernization and retrofit of out-of-date capital items (such as elevators, heating and cooling systems, roofs, plumbing, and sprinkler and security systems) in order to accommodate supportive services to aging residents and assure quality of life, accessibility, and marketability.¹⁰¹ These developments are often facing critical repair and modernization needs. Neither HUD nor RHS is now able to provide direct funding to ameliorate these problems. Although CDBG and HOME funds do pay for such activities, these funds are administered by State and local governments and are available to any low-income housing needing rehabilitation. As a result, HUD and RHS developments do not generally benefit from these block grant funds.

In many cases, such rehabilitation is also necessary to meet new, more stringent architectural accessibility requirements and to provide space for the provision of supportive services. This assistance will maintain a high-quality living environment for the senior residents and will preserve much-needed senior housing stock.

RECOMMENDATION 1.6: CONGRESS SHOULD CONTINUE TO SUPPORT PROGRAMS FOR SENIOR HOMEOWNERS TO MAINTAIN THEIR HOMES AND MAXIMIZE THEIR ABILITY TO LIVE THERE AS LONG AS POSSIBLE.

For most seniors, their housing choice is to remain in their own homes as long as possible. An AARP study finds that more than 80 percent of seniors would prefer to stay in their current dwellings and never move. Approximately 68 percent of Americans now live in homes they own, primarily single-family dwellings, and fewer than 20 percent of seniors live in apartments. ¹⁰²

Many seniors may not have supportive service needs, but their ability to remain in their homes is threatened by health and safety issues resulting from poor maintenance or disrepair. The 1999 American Housing Survey indicates that about 5 percent of senior owners (809,000) and 11 percent of senior renters (447,000) occupied dwellings with either severe or moderate physical problems. Not surprisingly, housing disrepair correlates directly with housing age, the poverty of its occupants, and their age.¹⁰³ Often, a small infusion of financial assistance can enable senior homeowners to make essential repairs or modifications, thus giving them the option to safely remain in their homes much longer.

Currently, the Federal Government funds a number of programs that provide home repair, modification, rehabilitation, and weatherization assistance to senior homeowners and renters and to rental housing owners. These programs include HUD’s CDBG and HOME Investment Partnership programs; the Rural Housing Service’s Section 533 Housing Preservation Grants, Section 504 Rural Housing Repair and Rehabilitation Loans and Grants; the Department of Health and Human Services’ Older Americans Act Title III programs and Medicaid; and the Department of Energy’s Weatherization Assistance for Low-Income Persons.

At the State level, for example, the New York State Division of Housing and Community Renewal (DHCR) has developed a competitively funded home repair grant program called the Emergency Home Repair Program for the Elderly (RESTORE). Thus far, over 150 groups covering 57 counties have received RESTORE awards to repair over 1,500 homes.¹⁰⁴

The most significant issues seniors face that can be helped by home modification and assistive technology are: getting in and out of the house, walking up and down stairs, and safely using the bathroom. The most frequently needed modifications are faucet and cabinet adaptations, stair lifts or elevators, bathroom access, ramps, and curbless or roll-in showers.¹⁰⁵ A well-insulated home or a structure free of physical deterioration allows seniors to focus on other more important aspects of their lives and gives them the freedom to remain safely in their homes.

Moreover, some seniors can be helped by innovations in assistive technology (AT) that can actually be used to substitute for long-term care services in the home and prevent the need for institutionalization. In testimony to the Commission, Johns Hopkins University Professor Sandra Newman noted that, “…housing modifications and assistive devices promote independent living (but)…it is difficult for the consumer to find the right source of help, and (there are) inconsistent standards of need and little coordination among funders.”

Investments in new assistive technologies hold promise for cost savings and better delivery of services. The range of AT is becoming extensive and innovative. Basic assistive devices can include a bath seat or a shower grab bar. The latter may allow the senior to bathe without the help of a caregiver and will decrease the probability of a fall in the shower. Technological devices include in-home personal computers that can be used for telemedicine and teletherapy purposes. Evidence is building that AT can substitute for or lessen the frequency of caregiver visits, both formal and informal. Homes that have been modified to meet the changing needs of seniors can help them safely maximize the years spent in their preferred setting.

RECOMMENDATION 1.7: RECOGNIZE MANUFACTURED HOUSING AS AN AFFORDABLE HOUSING OPTION AND ENCOURAGE REASONABLE FINANCING PRODUCTS.

More than 2.5 million senior households live in manufactured housing.¹⁰⁶ That represents significantly more seniors than all of those served by all of HUD’s assisted housing programs, including public housing, Section 202, Section 236, and Section 8. While manufactured housing is not subsidized by the government and does not have income limits for residents, it serves many lower income households because it costs less than most other homeownership options.

As is evident by findings in a report prepared for the Commission in Appendix G, policymakers at the Federal and local levels need to recognize manufactured housing as an affordable housing option, particularly for low- and moderate-income seniors. As is the case of seniors living in other types of housing, residents of all types of manufactured homes must be protected to ensure that their homes meet basic housing quality and safety standards both in manufacture and installation. In order to keep housing costs stable and affordable, the Commission recommends that financial institutions provide long-term financing of manufactured housing with long-term amortizations and without balloon payments.

RECOMMENDATION NO. 2

EXPAND HOUSING PRODUCTION AND SERVICES

A housing crisis is on the horizon. The dramatic, unparalleled increase in the sheer numbers of persons over age 65 will do more than challenge our housing resources – it will exhaust them, unless we are ready. A major effort at increasing the public and private production of housing designed for seniors must begin immediately if the Nation is to meet the needs of increasing numbers of seniors, especially for those seniors requiring services.

While the Commission first recognizes and urges preservation of existing housing stock, we believe that more housing units must be created. We recommend the production of a variety of housing types, serving persons of low, moderate, and middle incomes, ranging from single-family home communities to service-enriched senior apartments to Continuing Care Retirement Communities (CCRCs).

Financing this broad and far-reaching level of production will be a challenge. At the Federal level, the Commission looks to the Section 202 program and Housing Choice Vouchers to serve extremely low-income seniors. Through recent increases in the per capita allocations on housing tax credits and housing bonds, and emerging State priorities for senior housing, the Commission is encouraged that seniors with low and very low-incomes will benefit from increased housing production. Through Commission recommendations for reform of the HUD mortgage insurance programs, and for greater participation by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, we expect increased production that will help meet the housing needs of low- and moderate-income seniors.

As the number of older age seniors increases, so does their need for health care and supportive services. In 1997, 18 percent of seniors age 65 and over living in the community required assistance with everyday activities--that is, Activities of Daily Living (ADL) or Instrumental Activities of Daily Living (IADL). As seniors age, their need for assistance increases significantly. For seniors 65-74 years old, 1.8 percent needed assistance with three or more ADLs, compared with 5 percent of the 75-84 year old seniors and 11 percent of the 85+ year old seniors in 1997.¹⁰⁷ Buildings need to be designed to accommodate the delivery of services to this vulnerable group.

Reliable data about the number of new units being produced each year for seniors is difficult to obtain and, in some instances, nonexistent. Today’s production programs that serve predominantly seniors with incomes below 80 percent include HUD’s Section 202 program, the LIHTC, HOME, and projects funded with tax-exempt housing bonds. The Section 202 program is currently producing 5,800 units per year. The LIHTC program is currently producing an estimated 13,200 rental units for seniors ¹⁰⁸ each year, and a recent 40 percent increase in the tax credit program could increase this production level to 18,000 units beginning in 2002.

Although not a production program, Housing Choice Vouchers can provide unit affordability for seniors, thus addressing an important need where a suitable housing unit is available, but not affordable. Only 17 percent of Housing Choice Vouchers now in use are held by senior households, and a recent HUD-commissioned study indicates that senior households have only a 54 percent success rate in locating suitable housing under this program.

Through the two major Federal production programs – Section 202 and LIHTC – the Nation has the current capacity to address the needs of an estimated 22,800 new senior households each year. No statistics are available on the number of seniors assisted through home repair programs, HOME, and tax-exempt bond programs. Even more importantly, no statistics are available on the number of seniors served through State and local resources, although the Commission heard of several highly successful programs.

The seniors of America are not going to simply fade away. Their numbers are growing, and with that growth, the challenges presented by senior individuals without the resources to afford appropriate housing and necessary services are going to present themselves. One way or another, unless Americans are willing to abandon their Nation’s fundamental values, they will respond to those challenges, and our society, both privately and publicly, will bear the cost of that response.

RECOMMENDATION 2.1: THE COMMISSION RECOMMENDS AN INCREASE IN THE ANNUAL PRODUCTION OF ALL TYPES OF ASSISTED HOUSING IN ORDER TO MEET THE NEEDS OF FUTURE GENERATIONS OF SENIORS.

As indicated in Section III of this Report, data drawn from the American Housing Survey suggest that the projected rise in senior population will require approximately 730,000 additional affordable rental units by 2020 to serve seniors with unmet housing needs (i.e., those who are living in substandard housing or who pay in excess of 30 percent of income for housing expenses either in homes they own or rent). Obviously, due to the issues associated with the interpretation of any complex data set and the difficulties of drawing global conclusions for circumstances that vary widely in their local manifestations, any such projections should be used cautiously.

For instance, this estimate of need is based on a subset of individual housing and affordability needs and does not reflect that some seniors will move to a senior community for reasons other than substandard housing and affordability; for example, the need for services such as transportation, meals, home chores; the need for socialization, possibly due to the death of a loved one; the need for health-related services; or the inability to maintain one’s home.

Moreover, this estimate cannot factor in uncertainties related to economic conditions and their impact on future income, homeownership rates, and most importantly seniors’ choices, nor can it address the geographical distribution of production programs, geographical shifts in demand, or potentially uneven levels of demand over the next two decades.

Although some of this need can be met through home repair programs, Housing Choice Vouchers, senior developments financed with tax exempt bonds, and state and local programs, the balance will need to be met through increased production under the Federal Section 202, HOME and housing tax credit programs.

The Commission believes that if the Federal government encourages an array of financing tools, with sufficient flexibility capable of serving low- and moderate-income seniors in settings that encourage a continuum of services, then actual market and economic conditions can dictate the levels of need and how resources are distributed.

RECOMMENDATION 2.2: THE SECTION 202 PROGRAM IS THE PRIMARY PRODUCTION PROGRAM SERVING EXTREMELY LOW-INCOME SENIORS, AND FUNDING FOR THIS PROGRAM SHOULD BE INCREASED TO KEEP PACE WITH THE DEMAND.

The most urgent need is that of providing housing and services to seniors with extremely low-incomes, that is, those with incomes at or below 30 percent of area median. The Commission calls on Congress to increase funding for the Section 202 program, the principal production program designed with resources capable of reaching those seniors of greatest need.

HUD’s Section 202 Program is the flagship housing program for seniors and one that has withstood the test of time. Despite an escalating demand, the production of Section 202 units is at one of the lowest points in its history, and falls far below even today’s need.

In the spring of 2002, HUD issued a Notice of Funding Availability totaling only 5,800 units of 202 nationally, an average of fewer than 120 apartments per state. Only year 1990 had a lower production level. The peak production period was 1976-1990, when 197,000 units of Section 202 housing came on line, an average of 13,134 units each year. Since 1990, annual production levels under the Section 202 program have averaged 7,120 units.

The demand for Section 202 has always exceeded supply. Clearly, the very low number of units now funded each year cannot meet either current or future need. According to a survey of Section 202 facilities by AARP,¹⁰⁹ “...in 1999, approximately nine senior applicants were on waiting lists for each Section 202 unit that became vacant within a year.” Based on this strong demand, the Commission calls on Congress to increase funding for this valuable production program.

RECOMMENDATION 2.3: HUD SHOULD INCREASE THE SECTION 202 PER UNIT FUNDING ALLOCATION TO COVER THE REALISTIC COST OF DEVELOPMENT, INCLUDING THE COST OF PUBLIC AND ADMINISTRATIVE SPACES. HUD SHOULD ESTABLISH REASONABLE OPERATING COST STANDARDS TO COVER SERVICE COORDINATION AND OTHER RELATED EXPENSES.

To improve program efficiency, the Commission recommends that Congress direct HUD to make the following program modifications:

1. Establish reasonable cost limits. The Section 202 program was designed to be a simple, one-stop financing program that covered 100 percent of acquisition, rehabilitation, or development costs associated with creating a new 202 property. In recent years, however, due to stringent budget ceilings and accelerating development costs in many parts of the country, the current Section 202 capital advance amounts often fall far short of meeting up-front development costs. In addition, Section 202 developments require substantial common space to provide for supportive programming and staff for residents aging in place.
   
   Although HUD issued increased base cost limits in 2001, concurrently, HUD reduced the multipliers used to reflect geographic differences resulting in lower overall limits in most parts of the country.
   
   Inadequate per unit funding has led to the need for highly complex, layered financing that greatly increases “soft costs” for these projects and also increases processing times. Providing adequate per unit financing will reduce the overall cost of the housing and make possible supportive environments that enable seniors to continue living in their homes and avoid moving to higher care facilities.
   
   If other sources of funding are not available, housing sponsors are left to create “bare bones” housing structures. However, in an environment when most developers understand that housing must be built to accommodate onsite supportive services, the inclusion of common space in new seniors housing is absolutely essential.



2. Establish reasonable operating cost standards. Operating cost standards in PRAC programs need to reflect the costs of operating a building with integrated supportive services. This should include the funding of a service coordinator, as well as a reasonable amount for services such as transportation. Additionally, the PRAC funding should not be limited to 75 percent of the anticipated operating budget.
   
   Several independently conducted program studies ¹¹⁰ conclude that service coordinators provide an important service and are strong determinants of the extended well being of residents. Service coordinators should be fully funded in Section 202 operating budgets. Moreover, existing HUD guidelines for service coordinators should be fully integrated into the training component of the operating budget.

RECOMMENDATION 2.4: CONGRESS SHOULD PROVIDE GREATER CLARIFICATON ON THE RECENT CHANGES THAT PERMIT COMBINING SECTION 202 AND THE LOW-INCOME HOUSING TAX CREDIT.

In 1999, Congress modified the Section 202 program to encourage and foster the creation of mixed-income, mixed-financed senior communities by enabling sponsors to combine their Section 202 allocations with the Low-Income Housing Tax Credit (LIHTC) program. These significant changes make it possible for the development of mixed-income communities for seniors, particularly beneficial in urban areas where larger projects can now be developed and in rural communities where a mix of incomes create enough qualified occupants for a single, feasible project.

Although HUD permitted applicants in the 2001 funding round to combine the two programs, only eight of the funded applicants indicated a desire to do so. To date, none of these has actually combined the programs. The uncoordinated timing of the tax credit applications in conjunction with the Section 202 awards appears to pose an obstacle, along with some technical issues.

At the Commission’s hearing in Ohio, testimony ¹¹¹ was received about the need for technical changes to ensure that the Section 202 Project Rental Assistance Contract is not treated as a Federal grant and subtracted from eligible basis (making it ineligible for tax credits) and also that the PRAC rent subsidy is given the same status as a Section 8 subsidy in considering rental income.

Therefore, the Commission recommends the following:

1. Federal Grants. Add the following at the end of section 42(d)(5)(A): “For the purpose of this section, Federal grants shall not include payments made pursuant to a Project Rental Assistance Contract under section 202 of the Housing Act of 1959.”



2. Computation of Permitted Rents. Add a new subsection (v) at the end of section 42(g)(2)(B): “(v) does not include any payments made pursuant to a Project Rental Assistance Contract under section 202 of the Housing Act of 1959.”

RECOMMENDATION 2.5: AMEND THE LOW-INCOME HOUSING TAX CREDIT PROGRAM TO PROVIDE A CREDIT BOOST OF 15 PERCENT FOR SERVICE-ENRICHED SENIOR HOUSING.

The Low-Income Housing Tax Credit program provides a “credit boost” of 30 percent for housing developments that are located in Qualified Census Tracts (QCTs) – very low-income census tracts – and Difficult to Develop Areas (DDAs), in recognition of the higher costs associated with development in these jurisdictions. As a result, affordable housing developments in these qualifying areas are given 30 percent more tax credits than a similar project located outside a QCT or DDA, thus increasing the amount of equity available to the project.

The Commission recommends that Congress develop a credit boost for senior housing that takes into consideration the significantly higher costs associated with service-enriched senior housing. Some of these higher costs are based on accessibility issues; (e.g., the developer must to either construct single story housing, with significantly higher foundation, roofing, and land costs, or multistory structures with elevators). Units are predominantly one- and two-bedroom units, resulting in higher square footage costs than multifamily complexes with mostly two- and three-bedroom units. These facilities include safety features such as grab bars, emergency call systems, accessible showers and bathtubs, special cabinetry, and accessible and adaptable appliances, all of which add to costs. In addition, common spaces are needed in order to provide services allowing seniors to age in place, so it is fairly typical for senior housing developments to cost 15 percent to 20 percent more than their multifamily counterparts.

To qualify for the credit, the housing would have to meet accessibility standards, offer a program of services for residents, and limit its occupancy to persons at or above 55 years of age.

RECOMMENDATION 2.6: HUD SHOULD REVISE ITS SECTION 202 ALLOCATION SYSTEM TO MORE APPROPRIATELY TARGET GEOGRAPHIC AREAS OF GREATEST NEED.

The current allocation system for Section 202 takes into account the number of seniors, substandard housing, and poverty rate, but not waiting lists and vacancy rates. As a result, there are a few communities in which Section 202 properties suffer from vacancies, yet, there are many other places where the existing supply of housing for seniors cannot begin to meet the demand. For example, a senior housing provider testifying in Commission hearings in Miami reported that 6,800 persons lined up to apply for one nearly completed Section 202 building.¹¹² HUD’s distribution formula should be modified to more appropriately target areas of greatest need.

To better allocate these limited resources, HUD should develop a formula for fund allocation that factors in:

• Waiting lists and turnover ratios of other existing senior housing developments in the area;
• Occupancy and vacancy rates in existing comparable housing;
• Percentages of seniors with incomes at or below 50 percent of Area Median Income (AMI), with higher weights assigned to the numbers of seniors with incomes at or below 30 percent of AMI;
• Demographic trends;
• States with high poverty rates among their senior residents; and
• Substandard housing.

RECOMMENDATION 2.7: MEDICAID FUNDING SHOULD BE ADEQUATE TO SUPPORT QUALITY CARE. PAYMENTS SHOULD BE CONSISTENT WITH FEDERAL QUALITY STANDARDS AND SHOULD BE ADEQUATE ACROSS ALL SETTINGS.

If the Medicaid program is to deliver high-quality care, its reimbursement rates must adequately compensate providers in all delivery settings. Currently, when agencies provide services under Medicaid contract, they must accept Medicaid’s rate of reimbursement, regardless of their actual costs. States determine the level of reimbursement for providers, and currently there is wide variation in the adequacy of Medicaid payments. Inadequate reimbursement rates make it difficult to attract and retain quality providers. When payment rates are inadequate, the quality of services delivered often suffers.

When quality providers choose not to participate in Medicaid, there is the risk of a two-tiered system of health care delivery in which low-income people may receive inadequate care. Poor quality care can lead to deterioration in health conditions, ultimately resulting in higher overall costs to the system. Taking steps to ensure that adequate reimbursement rates exist in all settings will help to minimize both geographical variations in service quality and variations by type of setting.

RECOMMENDATION 2.8: CONGRESS SHOULD MODIFY RURAL HOUSING PROGRAMS TO MORE APPROPRIATELY SERVE SENIORS AND FUND THEM REALISTICALLY.

The Commission has found that senior residents in rural areas, especially those located in remote, lightly populated communities have unique circumstances that set them apart from seniors living in metropolitan or suburban areas. Although seniors in rural areas are more likely to be homeowners, their homes are often in poor condition and the value of their homes is relatively low. Many rural seniors live below the poverty level, their homes are widely dispersed and isolated, and the distance to services, supplies, and medical care is a serious problem.¹¹³

Many rural communities lack adequate independent or assisted living facilities, as well as health and supportive services for seniors. As rural communities begin to confront the reality of a growing number of seniors, financing of housing and community facilities will be required, as will programs to assist single-family homeowners and renters who live in rural communities. However, with added private sector investment and supportive government programs, seniors in rural areas will be able to choose housing and services that address their needs.

In the multifamily housing developments funded under the Section 515 program of the RHS, 56 percent of the residents are over 62 years of age,¹¹⁴ and the Commission expects that number that will increase in coming years. The Commission supports full funding for RHS rental housing programs as a general principle; however, given the challenges that lie ahead, the RHS programs will require significant resources and policy changes so that the funds are used optimally. Below are some areas in which changes are needed to meet the current and future needs of seniors:

1. The Section 515 program project budgets need to parallel actual development costs, including the provision of common and administrative spaces for supportive services and health-related programs. If the RHS program does not offer full funding of development costs, program standards should be flexible enough to reflect the reality of leveraged financing and accommodate the programmatic requirements of other subsidy sources such as the Low-Income Housing Tax Credit, HOME programs, and private sources of financing. For example, if Section 515 does not cover 100 percent of actual costs, RHS should allow subordination ¹¹⁵ of Section 515 project debt commensurate with the percentage of RHS funds in the project.



2. Service coordinator grant legislation should be amended to permit Section 515 facilities, and other rural developments serving senior residents at 60 percent area median income and lower, to apply for HUD service coordinator grants. To facilitate partnerships among senior housing providers, HUD and RHS should encourage federally assisted facilities, including Section 515, Section 202 and other facilities whose residents are at 60 percent area median income and below, to jointly apply for service coordinator grants.



3. The RHS Section 538 mortgage insurance program has been designed as if it were a competitive subsidy program. Although Section 538 was intended to fill in financing gaps in rural areas and attract private sector financing, the program has failed to meet its objective. A key obstacle making it difficult to attract significant developer and lender interest is that insurance commitments are considered in eight funding cycles followed by a 60-day period for review and approval. This design feature is burdensome to the lender, adds costs to the development, and may impede affordable housing developers from securing favorable interest rates, thereby jeopardizing the project or increasing housing costs to borrowers. The program should be redesigned to operate similar to the way the FHA mortgage insurance programs work, that is, with a window open for applications at all times.



4. A large percentage of the housing stock in rural areas consists of owner-occupied, single-family homes. In rural areas, many homes are in poor condition. This is particularly the case in the rural South, where 15 percent of seniors occupied rural housing has moderate to severe physical problems.¹¹⁶ Rural home repair and modification programs, such as the RHS Section 504 repair grants for seniors are essential to ensure that senior homeowners age in place in decent, safe, and affordable housing. This program should be supported.

RECOMMENDATION 2.9: INCREASE THE AVAILABILITY OF APPROPRIATE HOME- AND COMMUNITY-BASED SERVICES IN RURAL AREAS. CONGRESS SHOULD ENACT A NEW FLEXIBLE RURAL WAIVER DEMONSTRATION PROGRAM THAT AUTHORIZES TARGETED FUNDS TO STATES AND THEIR RURAL COMMUNITIES.

In order to adequately serve seniors who live in rural areas, Medicaid Home- and Community-Based Services (HCBS) services should be addressed by a waiver program, initiated on a demonstration basis. We recognize that seniors living in rural areas face housing and supportive service problems that are not encountered by their counterparts living in urban and suburban communities. Existing models of service delivery that may be effective in urban settings are seldom practical in rural areas, generally due to the inability to achieve the economies of scale necessary to offer services at a reasonable cost. In some cases, such economies can be achieved through the building of supportive housing and/or assisted livingfacilities that are associated with and located on the same campus as anursing facility, hospital, or other health care facility. This ability to mass costs can contribute to greater efficiency of human and technological resources as well.

In testimony to the Commission, Anne McKinley, consultant to the Institute for Applied Gerontology, noted the most common barriers and challenges affecting the provision of appropriate housing and supportive services in rural areas as: isolation, economic deprivation, and few, if any, economies of scale.

Operating HCBS programs and providing supportive services in senior housing facilities in rural areas is inherently inefficient, and needs to be recognized in terms of setting public policy and providing financial support. Often there exists an earnest willingness and mission to develop HCBS services and supportive senior housing, but the financial shortfalls prevent it. Optimizing the resources of other health care providers and recognizing the regional variations in service costs will greatly increase the ability to provide services to seniors living in rural areas.

Flexibility and creativity are the keys to addressing the needs of rural seniors. In order to effectively accommodate these unique needs, Federal and State governments need to consider more flexible service standards and targeted demonstration programs and to encourage innovation, e.g., assistive technology and telemedicine.

Seniors living in rural areas face housing and supportive service problems not encountered by their counterparts living in urban and suburban communities. Existing models of service delivery that may be effective in urban settings often are not practical in rural areas.

RECOMMENDATION 2.10: THE COMMISSION STRONGLY SUPPORTS EXISTING EFFORTS BY FANNIE MAE AND FREDDIE MAC TO DEVELOP SINGLE-FAMILY PROGRAMS THAT MEET THE NEEDS OF SENIORS WHO DESIRE TO AGE IN THEIR OWN HOMES.

For many senior Americans, their home is their greatest source of net worth. For senior homeowners with equity in their homes, reverse mortgages and flexible equity lines of credit can serve as a source of income. The Commission encourages the GSEs to continue to develop products that allow seniors to access their equity under flexible terms, thereby enabling seniors to borrow small amounts for home repair and modifications. The Commission also acknowledges the role that GSEs have in protecting the home equity of seniors by preventing predatory lending practices.

RECOMMENDATION NO. 3

LINK SHELTER AND SERVICES

In the area of long-term care services, it is critical that public programs look beyond institutionally based models of service delivery. Seniors want choices as to the type and location of services they receive. Public programs should provide services that are based on the needs and preferences of the individual whenever possible; services that can be delivered in the locations seniors prefer — be they private homes, apartments, or assisted living units.

The goal of allowing seniors to remain active and independent for as long as possible will also be facilitated by expanding transportation options, improving services in rural area, and building upon successful innovations that integrate a range of services needed by seniors whose independence is threatened.

RECOMMENDATION 3.1: CONGRESS SHOULD TAKE ALL NECESSARY STEPS TO IMPROVE AND FUND SERVICE COORDINATION IN FEDERALLYASSISTED SENIOR HOUSING.

The Commission urges Congress to:

• Assure funding for service coordination in all federally subsidized housing with senior populations;¹¹⁷



• Continue and expand the existing HUD service coordinator grant program, especially for HUD and RHS housing developments without project-based subsidies; and provide resources to allow eligible developments to incorporate a service coordinator position into their operating budgets. This provision includes transferring grant-funded programs to operating budgets.¹¹⁸

The first stage in providing a continuum of housing and service choices for seniors often is in-home supportive services. Individuals with ample resources have the greatest choice in how and from whom they receive these services. Those with low-incomes are more reliant on publicly or privately funded services. Publicly subsidized services are often overburdened and available resources often cannot meet demand.

In addition, navigating a system of segmented service providers and benefits is difficult for many seniors. Service coordination is a profession that acts as a bridge between housing and an array of available services and providers.

In the early 1990s, HUD created service coordinator programs to help seniors in subsidized housing find appropriate providers and services. Service coordinators are members of a housing development’s management team. Their role is to assist residents in obtaining affordable supportive services provided by community agencies. The service coordinator facilitates the receipt of home and community-based services to residents in their own homes, thereby promoting aging in place and preventing premature institutionalization. Service coordination also influences the cost of caring for seniors by allowing them to remain in non-institutional settings longer.

Unlike case managers working in the health care field, service coordinators are based at housing sites. They may often be involved in creating new services or educational programs, advocating for residents, working with resident councils to improve the development’s community life, assisting with community outreach, and educating housing management staff on aging issues. They may also act as a broker for services that cannot be obtained through public resources.

Currently, service coordinators work in various types of federally subsidized housing. Although many residents of developments benefit from this program, funding is not permanent and many housing facilities and individuals are still not served. At present, many HUD housing developments must compete for funds each year, with concerns of not being able to continue the program once it is established, because of a complex grant process.

The service coordination movement has grown exponentially over the past 10 years, due to its success with residents and housing managers alike. Service coordinators and housing management staff report noticeable improvements in both the community’s environment and in the everyday lives of residents and their families. In the coming years, service coordination is poised to play an ever more significant role in the services-enriched housing component of the continuum of care options for seniors. In testimony to the Commission, Janice Monks, executive director, American Association of Service Coordinators, stated that, “almost every property that has added a service coordination component to its operation has benefited from significant improvements.”¹¹⁹

RECOMMENDATION 3.2: REVISE THE ASSISTED LIVING CONVERSION PROGRAM (ALCP) TO FACILITATE ITS USE BY HOUSING SPONSORS.

The HUD Assisted Living Conversion Program (ALCP) program provides grants to non-profit providers of projects serving seniors and which are receiving Federal assistance through the following programs: HUD Section 202, 236, 221(d)(3) BMIR, and projects receiving project-based Section 8 rental assistance, including Rural Housing Service 515/8 projects. Funds may be used to pay for the physical costs of converting some or all of the units to assisted living, as well as renovating or reconstructing necessary community spaces generally associated with assisted living facilities.

The first ALCP grants, authorized in the HUD 2000 appropriations bill, were available for Section 202 developments only. Fifty million dollars was appropriated in FY 2000, and again in FY 2001, but the program was undersubscribed in both years. According to testimony received by the Commission from the Elderly Housing Coalition, the program is difficult to use and the application requirements are cumbersome. “A regulatory requirement that resulting units meet assisted living licensing requirements has increased the cost and discouraged use of the program. Indeed, failure to use all of the ALCP’s allocation is due to lack of funding for services,” commented the Coalition.¹²⁰ A witness before the Commission in Florida reported that another factor making assisted living conversions infeasible was high insurance costs.¹²¹

The most feasible projects are those in States that have Medicaid waivers available to help pay the health care and supportive service costs. However, even States with waivers do not fully reimburse the costs of the required/licensed assisted living services. In addition, some States address assisted living reimbursement in their State Plans (e.g., New York and Ohio), and therefore, do not meet the threshold application criteria for the ALCP grant.

The statute establishing the ALCP cross references Section 232 (a) of the National Housing Act (at 12 U.S.C. 1715(w)(a)) for the definition of assisted living facilities and establishes standards for personal care and assisted living. The statute also requires that assisted living facilities be licensed by a State, or, in the absence of State licensing, by a local political subdivision. This requirement has proved to be very difficult and costly to implement.

Congress should authorize the Department of Housing and Urban Development to develop standards that protect residents, but are not so prescriptive as to prevent full utilization of ALCP funds. These standards should enable ALCP funds to be used, under the statute’s “or related use” language, for projects demonstrating intent to facilitate the delivery of enhanced levels of services to help keep at-risk seniors out of more costly institutional settings, but do not necessarily go all the way to a licensed assisted living facility, requiring local/State licensure.