The Council for Affordable and Rural Housing ("CARH") and I thank you for the opportunity to speak and for your interest in the needs of the elderly in rural America.
CARH members own or operate affordable housing across rural America. My own business has developed, managed and owned about 1,700 units of affordable housing over the past 20 years. If there is one thing we have learned it is that there is no more effective method of delivering affordable housing than a public-private partnership between government and its citizens. We have also learned that too often the special needs of seniors and the disabled are not properly addressed. Our comments below are very specific and they are intended to broaden rural housing assistance and create greater flexibility in rural programs.
CARH members have often included private for-profit and non profit developers and managers, as well as federal, state and local housing and finance agencies. We know from experience that each entity brings special talents and each share a common goal of providing decent, safe and affordable housing for lower income Americans, and particularly for elderly Americans. There is no magic solution, but there are tried and true programs that have been successful and that need some modification, and some money, to continue and expand this success. Housing is an ongoing process that requires us to adequately maintain the existing affordable housing stock, as well as develop new housing in the areas that need it.
We definitely know the need for housing persists. Recent studies conclude that there are 13.7 million families and elderly persons with critical housing needs, which includes a significant proportion of rural residents. Stegman, Quercia, McCarthy "Housing America's Working Families," New Century Housing (June, 2000). This need falls disproportionately on rural areas, as concluded by the General Accounting Office's September 2000 report entitled "Rural Housing Options for Optimizing the Federal Role in Rural Housing Development." As such, federal programs addressing housing needs also need to address rural housing needs to include all Americans in our national economy.
CARH members have had a series of discussions concerning the most efficient method for the delivery of affordable rural housing. We believe any such analysis must include the Rural Housing Service ("RHS"), the federal agency principally charged with providing affordable rural housing, and the Low-Income Housing Tax Credit ("Tax Credit"), which has become the central focus for the production of rural and non-rural affordable housing. Private and local agencies working within the RHS multifamily program provide housing to significant numbers of elderly and disabled persons. Indeed, of the nearly 18,000 RHS assisted apartment complexes, 56% of the residents are age 62 or older or disabled. Yet RHS programs to not allow owners and managers to use RHS assistance to provide services that these special needs populations require.
With this in mind, I would like to comment on RHS matters, along with other programs and concerns.
- Restore RHS' Budget.
RHS' budget has been severely limited in recent years and the multi-family housing production budget is a fraction of that appropriated by Congress in years past. The RHS' main multifamily program is Section 515. In Fiscal Year 1994, funding for the program was at $540 million. In Fiscal Year 2001 funding is at $114 million and a large portion of these funds will be used for rehabilitation of existing Section 515 properties, not for new construction. This decrease in funding over the last several years, has resulted in relatively little new housing for rural America. Accordingly, we believe that, in all events, rural housing production appropriations should be increased to historical levels of the early 1990s. We expect that any funding increase would be modest in the current federal budget environment, but even a modest increase would be important.
Additional revenue will not only provide for housing, but for services and service providers. Currently, RHS does not permit owners to use rent revenue to pay for special resident events or programs. However, elderly and disabled residents located in relatively remote areas frequently need additional services, ranging from transportation to physical therapy and medical related-services. Affordable housing can better attract, retain and provide for elderly and disabled residents if it can provide or coordinate services.
- New Cost Effective Program.
In light of funding shortages, we have analyzed various ways to utilize federal funds to achieve maximum financial leverage. Our best suggestion outside of restoring budget funds is to leverage federal appropriations through a new program under the Federal Home Loan Bank system (the "Banks"). The Banks and their members ("Members") are an appealing source of financing because Members are largely located in or near rural areas. In our experience, Members also tend to be familiar with the development of rural housing.
This program would provide an interest credit in which a lump sum is paid to the Banks or the Federal Housing Finance Board, to be used to buy-down mortgage interest rates to support the below-market mission that RHS serves. The Banks' Affordable Housing Program and Community Lending Program already support and encourage members to loan funds to rural multi-family housing. This interest credit program would facilitate greater lending at a below-market interest rate, and the savings can be passed on to residents in the form of below-market rents.
This program can assist different types of housing, but rural housing development largely means elderly and disabled housing development. As noted above, a majority of RHS assisted housing helps elderly and disabled persons. Similarly, we believe that the majority of new rural affordable housing units will house elderly or disabled residents.
- Tax Credit -- Addressing Rural Housing Needs.
We believe that the Tax Credit rules under Section 42 of the Internal Revenue Code should be clarified to permit the 9% credit for RHS programs, similar to the treatment of HUD programs. RHS provides rental assistance, direct loans and loan guarantees. RHS subsidies are often regarded by the Tax Credit investment industry as below-market federal finance, disqualifying RHS properties from the 9% Tax Credit, for all practical purposes. An amendment to specifically provide for 9% Tax Credit eligibility will help make additional rural housing possible. We believe that such legislation could even be targeted to very low income populations (such as the HOME program, where the minimum set aside for 9% Tax Credit is heightened to at least 40% of units occupied by persons at no more than 50% of a median income).
Similarly, we recommend that Section 42 be amended to provide for a small statutory set aside for properties located in rural housing areas as designated by RHS. This will also help open credit to needy, rural areas. A minimal set aside of at least 10% would be consistent with past set-asides, such as for non-profit entities.
We also believe that the current rent limit rules need to be addressed. Under existing law Tax Credit residents can earn no more than 60 percent of their median income. Apartments financed by the credit can have rents at no more than 30 percent of 60 percent of the area median income. In many areas across the country, particularly rural areas, the median income is simply too low to support the development of new multifamily complexes therefore, making development in those areas very difficult or infeasible. Recent data from the Department of Housing and Urban Development ("HUD") demonstrates that current income limits inhibit housing credit development in as many as 1,700 of the 2,364 non-metropolitan counties across the country.
CARH supports H.R. 951, introduced by Representatives Amo Houghton (R-NY) and Richard Neal (D.-MA) and S. 677 introduced by Senators Orrin Hatch (R.-UT) and John Breaux (D.-LA). These bills would amend the Internal Revenue Code to allow states to use the higher of the area median income ("AMI") or the statewide median income for the purpose of calculating application income limits. This technical change to the Tax Credit program would greatly enhance the tax incentive's ability to help low-income renters that live in the nation's rural areas.
RHS properties would benefit greatly from an allotment of Section 8 vouchers. Currently, rural properties cannot easily access Section 8 vouchers. There is virtually no coordination between HUD and RHS on voucher allocation. Moreover, rural areas do not attract significant allotments of new vouchers and seem left out of this funding pipeline. An allotment of rural Section 8 vouchers (like the rural housing set aside for project-based Section 8) will open subsidy to very low-income rural residents.
- RHS Structural Issues.
RHS has national programs that should operate under basic national standards. However, RHS is administered on a state-by-state basis with state directors reporting to the Undersecretary for Rural Development instead of the Administrator. Each state office has leeway to establish and implement the same federal programs in vastly different ways than other offices, creating a jumble of interpretations to what should be a uniform set of standards. We believe that RHS should have uniform national standards and lines of authority, similar to current HUD operations.
- Refinancing Barriers.
There are nearly 18,000 RHS multifamily properties, and at least two-thirds are 15 years and older. These properties need to be refinanced and redeveloped over the next several years to prevent this productive and successful portfolio from decaying. Two statutory changes are needed to accomplish this goal.
The Internal Revenue Code should be amended to provide for a tax forgiveness or deferral for persons who transfer their properties at a loss that there are no tax costs in excess of distributions at Closing. Currently, owners are "locked-in" by exit tax liability, which prevents transfer and refurbishment. This barrier is particularly intractable because many of these owners invested in these properties for tax benefits contained in the pre-1986 Tax Code, which were deleted with the 1986 amendments.
We would expect taxes to still be levied on any net income or profits received in a sale. Indeed, we believe that this proposal will actually increase tax revenues. Owners would be willing and able to transfer their properties, possibly realize a small profit and pay taxes on those profits.
Separately, the Low-Income Housing Preservation and Resident Homeownership Act of 1990 removed multifamily owners' right to prepay their RHS loans. This right was abridged at the same time a similar bar went into effect for HUD properties. The right to prepay was restored for HUD properties, but inexplicably, not for RHS properties. We believe restoring these rights will accelerate refinancing and refurbishment of aging properties but with little risk of removing such rural properties from the affordable housing stock. The current restriction acts as a barrier to progress even where the goal is to maintain the low-income nature of the properties.
- Assisted Living
Just as the population is aging in urban areas and there is a need to build assisted living facilities, so too in rural areas rural housing providers are being asked to build this type of housing for elderly residents. Building affordable assisted living facilities has become an almost impossible task in many states. This is primarily due to states not granting Medicaid waivers. There are approximately 39 states that provide these waivers. However, we recommend that all of the states grant Medicaid waivers so that affordable assisted care facilities can be built in areas that need this important housing.
We have addressed a variety of issues that we believe can profoundly improve the delivery of assisted housing to rural areas and in particular to older Americans in rural America. Let me reiterate that providing housing is an ongoing process, and our suggestions will help maintain the existing affordable housing stock, provide for developing new housing in the areas that need it, and provide services that certain residents typically need.