Future Increases in Funding for Housing and Community Development Programs in Doubt after Bailout

The final agreement for the largest bailout in US history makes it highly unlikely there will be any significant increases in funding for housing and community development programs in 2009 and beyond. The final cost of the bail out could reach upwards to $1 trillion leaving serious questions about how other critical issues will be funded. These issues include affordable health care, alternative energy, the fight against terrorism, Social Security, Medicare and Medicaid reform. According to The Washington Post, in 2011 the Social Security Trust Fund will no longer be an option for Members of Congress to tap into when they need additional funds. That year is when the first wave of baby boomers will retire. Even thought the bailout is expected to be off-budget, significant increases in public funding will probably not be available.

While details of the bailout are still being finalized we do know it does not include funding for the housing trust fund which was part of the Housing and Economic Recovery Act of 2009. That bill was enacted to assist homeowners who are facing foreclosure. Failure to include funding for this initiative is a clear indication that funding for affordable housing and community development programs may be difficult to secure in 2009 and beyond. Given the way the community development block grant (CDBG) and HOME programs are structured, they are more likely to see increases in funding. A case can be made they can stimulate local economies.

Public housing authorities in particular need to change their relationship with the Federal government and more aggressively seek deregulatory flexibility to pursue private capital. It may seem counter intuitive given the financial situation the country finds itself in, but private money will be available for those agencies with strong financials. This fiscal crisis is a result of mortgages issued to families and individuals who could not afford the homes they were buying. Those with good credit and strong financials should find private money available.

All of this comes at potentially a bad time for housing authorities. If Democrats control Congress in significant numbers, there could be efforts to restrict the ability of housing authorities to act in a timely and appropriate manner to meet their agency’s needs. For example, there could include efforts to reinstitute the one-for-one replacement rule which requires one new unit of public housing for every unit demolished. This provision could increase the cost of funding affordable housing initiatives and in some markets, restrict new production due to the cost of land and buildings. Agency efforts to convert public housing units to vouchers will be more difficult as will efforts to expand the Moving to Work (MTW) demonstration. MTW allows an agency to combine housing funds into a program which better suits its local needs. This new design could be in the form of a block, categorical program or both. Community development agencies could face deeper targeting of local resources which could inhibit community and economic development efforts.

Groups representing these agencies need to rethink their strategies. A predominately Democratic Congress will, by and large, not be hospitable to the agencies; they are more likely to be resident friendly. While there may be a token increase in funds, there will also be an increase in regulations negating local flexibility. These groups need to be more aggressive in challenging Congress and the Department in Housing and Urban Development (HUD) in pursuing deregulation.

In order for housing agencies to function in this current environment, the following needs to occur:

- HUD also needs to be restructured in wholesale way. The department’s current structure is outdated and too slow to respond to local needs. It needs to b restructured in a way which allows quick decisions to respond to local markets.
- The CDBG program should be the model for how programs are administered.
- Current staff needs to be revitalized but more importantly new staff needs to be brought in with the understanding of how public-private ventures operate in real time. Local housing and CD agencies, including public housing authorities, need staff at the Federal level with the knowledge, expertise and experience to oversee mixed finance projects in a timely fashion.
- Local agencies need to learn how the Community Reinvestment Act (CRA) can be used to assist in the acquisition in private capital.
- Agencies need to pursue increases in the low income housing tax credits (LIHTC).
- Local housing authorities should pursue Medicaid waivers to convert properties to assisted living facilities to meet the needs of their elderly residents.

Magazine Offers White Paper on Housing Policy

Affordable Housing Finance Magazine in conjunction with its advisory board is prepared to present a housing policy white paper to each of the presidential candidates soon. The white paper is summarized in the magazine’s October 2008 issue.

Among the recommendations to be presented to the candidates are:

1. To shift decision-making from the central offices of the Department of Housing and Community Development (HUD) to its field offices;
2. HUD, not the Federal Emergency Management Agency (FEMA) should be the lead agency for permanent replacement housing and not emergency housing who people are displaced due to floods, hurricanes and other disasters
3. In disseminating funds from the Housing and Economic Recovery Act of 2009 to assist state and local government efforts to halt foreclosures, HUD should delegate authority to these entities to ensure quick action is taken before marginally healthy neighborhoods decline too steeply.
4. In reviewing regulations, efforts should be made to ensure energy efficiency is achieved through any changes in regulations.
5. HUD should embrace public/private partnerships versus the current model of program administration and implementation. The Low Income Housing Tax Credit (LIHTC) is a perfect model according to the magazine.
6. A homeownership tax credit should be created and directed at homebuilders not buyers.
7. More money should be invested in the rural rental housing assistance program.
8. Finally, there should be a national discussion on a variety of topics including infrastructure improvements, integrating housing and health care for the elderly and creating an intersection between housing and transportation.

Interesting Reads

Bailout Plan Gains Key Support
By Henry J. Pulizzi, Corey Boles and Michael R. Crittenden
The Wall Street Journal

MORTGAGE CRISIS
How Fannie -- and You -- Bought a Hapless House
By Joel Achenbach
Washington Post Staff Writer

How the Rescue Affects Homeowners
By Kenneth R. Harney
The Washington Post

Smaller Banks Thrive Out of the Fray of Crisis
People Shift Money From Wall St. to Main St.
By Binyamin Appelbaum
Washington Post Staff Writer

FROM THE ACADEMICS
Away from Wall Street, Economists Question Basis of Paulson's Plan
By Neil Irwin and Cecilia Kang
Washington Post Staff Writers

A Bailout We Don't Need
By James K. Galbraith
The Washington Post

Affordable-Housing Goals Scaled Back
Fannie Mae, Freddie Mac to Provide Less Support Than in Years Past
By Zachary A. Goldfarb
Washington Post Staff Writer