As indicated earlier this week, HUD is seeking comments to inform revisions to its Affirmatively Furthering Fair Housing rule. We have been waiting for official publication of the advance notice of proposed rulemaking (ANPR) in the Federal Register to determine when these comments will be due. HUD today published the ANPR.  We now know comments are due October 15, 2018.

Yesterday, HUD announced that it intends to amend its 2015 regulations on affirmatively furthering fair housing, or AFFH. HUD is giving the public 60 days from publication of its advance notice of proposed rulemaking to provide comments on the current AFFH rule.  HUD seeks comments that will help it revise the rule to:

  • “Minimize regulatory burden” while more effectively fulfilling the AFFH requirements
  • Focus on “positive results” rather than “analysis of community characteristics”
  • Allow “greater local control and innovation”
  • Increase housing choice, including greater supply
  • “More efficiently use HUD resources”

This announcement comes after HUD first extended the deadlines for, then withdrew, its AFFH Local Government Assessment Tool, which had been the subject of some controversy related to the reporting burden associated with the tool and other criticisms.  The Local Government Assessment Tool is to be used by cities and other entities that receive Community Development Block Grants, HOME Investment Partnerships Program, Emergency Solutions Grants, or Housing Opportunities for Persons With AIDS formula funding from HUD.  HUD’s announcement also comes while HUD is being sued by advocacy groups related to these actions regarding the assessment tool.

The 2015 AFFH rule contemplated that public housing authorities, states and insular areas would also use a different tool to conduct assessments of fair housing, but those tools have not yet been finalized.

These actions by HUD do not eliminate the Fair Housing Act’s requirements for recipients of HUD funds to affirmatively further fair housing. Indeed, most recipients certify that they further fair housing in connection with various applications for HUD funds and other HUD submissions. Instead, HUD’s actions return most entities to the requirements in effect prior to the 2015 rule, in which they must conduct an analysis of impediments rather than use an assessment tool.

We are working on comments on the AFFH rule, and encourage any entities impacted by the AFFH rule to consider commenting on it.

Ballard Spahr lawyers, Molly Bryson, Doug Fox, Wendi Kotzen and Linda Schakel, recently offered a  presentation regarding the Opportunity Zones established as part of the Tax Cuts and Jobs Act .  As a new program established to encourage capital investment in the over 8,700 Opportunity Zones selected by each of the states, District of Columbia, and U.S. possessions, this new program has the potential to provide investors in Opportunity Funds with deferral of tax on gains rolled over into an Opportunity Fund and potential elimination of tax on the appreciation recognized on the investment in the Opportunity Fund. Opportunity Funds and their investors will be looking to make investments in businesses and property located in Opportunity Zones. Investments in Opportunity Zones could be used in conjunction with the low-income housing tax credit and help bolster affordable housing and community development projects in these neighborhoods.

The linked materials and the session recording provide steps you can take to benefit from this new federal tax program, including:

·        Establishing and qualifying an Opportunity Fund

·        Investing gains into Opportunity Funds

·        Obtaining the maximum benefit of investing in Opportunity Funds

·        Structuring Opportunity Fund investments

·        Locating designated Opportunity Zones

·        Positioning your business or property to qualify as eligible for investment capital from an Opportunity Fund

·        Combining the benefits of an Opportunity Zone with other federal tax programs, such as Low Income Housing Tax Credits (LIHTC), Historic Tax Credits, and New Markets Tax Credits.

Should you have a project that you think could benefit from Opportunity Zones investments or are seeking ways to facilitate investments, please reach out to members of the Ballard Spahr team for guidance and help brainstorming around issues and questions.

HUD recently issued a set of answers to frequently asked questions to provide further guidance on a new method of disposing of public housing in conjunction with a RAD conversion (the “FAQ”).   Earlier this year, HUD issued Notice PIH 2018-04 (HA) (the “PIH Notice”) addressing a number of public housing demolition and disposition issues.  In particular, Section 3.A.3.c of the PIH Notice permits a housing authority implementing a Rental Assistance Demonstration (“RAD”) project that involves new construction or substantial rehabilitation (defined as involving hard construction costs inclusive of general requirements, overhead and profit, and payment and performance bonds exceeding 60% of the HUD-published Housing Construction Costs) without the benefit of a 9% low-income housing tax credit financing.

For such projects, HUD will allow up to 25% of the units within the RAD project to be disposed under Section 18 of the U.S. Housing Act of 1937 (the “Housing Act”) and eligible for Section 8 tenant-protection vouchers with a means of project-basing the vouchers to be administered pursuant to 24 CFR Part 983 (the “PBV”).  At least 75% of the units within the project are to convert in accordance with RAD. The PIH Notice relies on the RAD definition of “project” (defined as “a structure or group of structures that in HUD’s determination are appropriately managed as a single asset. In determining whether a combination of structures constitute a project, HUD will take into account types of  buildings, occupancy, location, market influences, management organization, financing structure or other factors as appropriate. For a RAD PBV conversion, the definition of ‘project’ in 24 CFR § 983.3 continues to apply for all references to the term in 24 CFR § 983.”)  The total number of replacement units created through the combination of the RAD and Section 18 disposition processes must also satisfy RAD’s “substantial conversion of assistance” standards, meaning that conversions may not result in a reduction of the number of assisted units, except by a de minimis amount.

The FAQ offers examples and explanations of opportunities that could further enhance the viability of a RAD conversion, including the following:

  • The “substantial conversion of assistance” requirements, for example, could be applied in a manner that would designate more than 25% of the units within a project as regular PBV units under 24 CFR part 983 by placing both the TPVs realized under the Section 18 disposition process, together with the 5 units or 5% RAD de minimis allowance under the regular PBV HAP (FAQ 5).
  • A RAD/Section 18 project would utilize two HAPs – the RAD form of HAP (using the CHAP rents to be adjusted annually pursuant to the Operating Cost Adjustment Factor or OCAF) and the standard Part 983 AHAP/HAP (with rents determined based on the lesser of reasonable rent and up to 110% of the fair market rent subject to annual adjustment) (FAQ # and Initial Processing Instructions).
  • TPVs issued for the public housing units removed pursuant to Section 18 of the Housing Act can be directly project-based when the property “substantially meets Housing Quality Standards” (FAQ 3).
  • The application of relocation protections for all residents across a project regardless of the type of unit occupied by the resident (FAQ 6).
  • While conversion of public housing under RAD does not trigger eligibility for the housing authority to receive Demolition Disposition Transition Funding (i.e., formerly known as Replacement Housing Factor funding) or Asset Repositioning Fee, the housing authority would have access to such funds for the portion of the units removed through Section 18 (FAQ 7).

 

On March 23, the President signed the Consolidated Appropriations Act, 2018 (H.R. 1625), a $1.3 trillion dollar spending bill that funds the federal government through September 30, 2018. In addition to preventing a government shutdown, this omnibus spending bill incorporated the following key provisions that help to strengthen and expand the Low Income Housing Tax Credit (LIHTC):

  • A 12.5% increase in the annual per capita LIHTC allocation ceiling (after any increases due to the applicable cost of living adjustment) for calendar years 2018 to 2021.
  • An expansion of the definition of the minimum set-aside test by incorporating a third optional test, the income-averaging test. Pursuant to the Code, a project meets the 40-60 minimum set aside test when 40% of the units in the project are both rent restricted and income restricted at 60% of the area median income. Under the new law, the income test is also met if the average of all the apartments within the property, rather than every individual tax credit unit, equals 60% of the area median income. Notwithstanding, the maximum income to qualify for any tax credit unit is limited to 80% of area median income.

This legislation is a great win for affordable housing advocates who have been pushing for LIHTC improvements through the Affordable Housing Credit Improvement Act, introduced in both the Senate (S. 548 sponsored by Senators Cantwell and Hatch) and the House (H.R. 1661 now sponsored by Congressmen Curbelo and Neal) in 2017, as discussed previously in a prior blog post.

We will continue to provide updates on legislation related to Tax Reform. Just in case you missed it, last month Ballard Spahr hosted a webinar on the impact of Tax Reform on the Low Income Housing Tax Credit with our colleagues from RubinBrown LLP, Enterprise Community Partners, Inc. and Red Stone Equity Partners. Presentation slides and a recording of the webinar are available on our event page.

On February 12, 2018, the White House released its “Legislative Outline for Rebuilding Infrastructure in America” proposing a legislative framework for the nation’s infrastructure needs. Key components of the proposed infrastructure plan include (i) developing a new federal Incentives Program intended to spur State, local and private investment for innovate projects; (ii) streamlining permitting and approval processes for infrastructure projects; (iii) delegating increased responsibility to States and local governments; (iv) developing a Rural Infrastructure Program; and (v) improved workforce training.

As noted in the transmittal, the infrastructure framework is intentionally broad, and seeks to address traditional infrastructure systems like transportation, as well as a wider range of public needs such as drinking and wastewater systems, energy production, veterans’ hospitals, and public land use. For more detailed analysis, see Ballard Spahr’s summaries of the proposed infrastructure plan’s funding mechanisms, and the plan’s treatment of private activity bonds.

We note that the White House’s FY 2018 budget proposed significant cuts in HUD funding, including a zeroing out of public housing capital funds. There had been hope among many that the infrastructure proposal would include affordable housing, but aside from modifications to private activity bonds, it did not directly do so. It does not appear that the Administrations intends for its proposed HUD funding cuts to be addressed through infrastructure spending.

 

Yesterday, the Trump administration released its proposed budget for the 2019 fiscal year. Overall, the budget proposes an $8.8 billion (18.3%) reduction in the HUD budget from the 2017 enacted level, a more drastic cut than the $6 billon HUD budget reduction the Administration proposed for fiscal year 2018. Significant proposals in the budget include:

  • Elimination of several programs including the Community Development Block Grant (CDBG), HOME Investment Partnership Program, Public Housing Capital Fund and Choice Neighborhoods
  • $17.5 billion in Section 8 annual contribution contract renewals (an $800+ million decrease from 2017 enacted level)
  • $10.866 billion in project-based rental assistance (a $50 million increase from the 2017 enacted level)
  • $110 million decrease in Housing Choice Voucher administrative fees
  • $100 million request for the Rental Assistance Demonstration (RAD) program to cover the incremental subsidy for public housing properties that would otherwise be unable to covert to Section 8 assistance
  • Proposed elimination of the unit cap for RAD conversions and September 30, 2020 deadline for RAD application submissions
  • In addition to the elimination of the Capital Fund, $1.7 billion in reductions to the Public Housing Operating Fund
  • $75 million request for the Family Self-Sufficiency program (same as 2017 enacted level)
  • $10 million request for the Jobs Plus Initiative (a $5 million decrease from the 2018 Senate recommendation)
  • Maintained funding levels for lead-based paint mitigation efforts
  • Unspecified funding request to evaluate and improve the EnVision Centers recently launched by Secretary Carson
  • $20 million increase to the Federal Housing Administration (FHA) operations (although a new fee would be imposed on FHA lenders)
  • Requirement that non-disabled persons receiving HUD assistance contribute more than 30% of their adjusted income to their housing costs

Other housing and community development components of this budget include an elimination of the Community Development Financial Institutions (CDFI) Fund grant and direct loan program, $1.8 billion request for veteran’s homelessness programs, and a funding increase for the U.S. Department of Agriculture (USDA) single family housing guaranteed loan program. A full copy of the budget proposal and related materials are available at be www.whitehouse.gov/omb/budget.

Remember that Congress is responsible for passing the budget; this is just a proposal. It remains to be seen if Congress will adopt the President’s proposal. We will continue to provide updates the budget throughout the appropriations process.

 

Just in time for the end of the federal fiscal year (September 30), the HUD Office of Inspector General (OIG) issued a flurry of internal and external audit reports over the last few weeks on a wide variety of topics. They include:

Today, the HUD Office of Inspector General (OIG) published a bulletin indicating that it is unclear if undocumented immigrants have access to certain HUD Community Planning and Development (CPD) programs – namely the Housing for Persons with AIDS (HOPWA) and homeless assistance programs.

The bulletin explains that undocumented immigrants do not typically have access to HUD programs such as public housing or Section 8 because such programs are explicitly unavailable to such immigrants.  For many HUD-assisted programs, there is a regulation that specifies which types of non-citizen families may have access to those programs and that instructs PHAs and owners on how to prorate assistance to families that include eligible and ineligible persons.

Exempt from this regulation, however, are programs that provide assistance that protects life and safety – essentially emergency services.  The OIG explains that, unlike the public housing and Section 8 programs, “there does not appear to be any clear guidance” as to whether undocumented immigrants can (or cannot) access programs that are funded through HUD’s community development programs and administered through nonprofits, including HOPWA and homeless assistance. Accordingly, the OIG recommends that HUD clarify this issue.

On July 12th, Ballard Spahr hosted a reception honoring Ms. Adrianne Todman and her new position as the Chief Executive Officer of the National Association of Housing and Redevelopment Officials (NAHRO). The event attracted over 50 predominantly female professionals in diverse affordable housing and community development practices across the nation.

Prior to joining NAHRO, Ms. Todman served as the Executive Director of the District of Columbia Housing Authority from 2009-2017. As the first female CEO in NAHRO’s 84 year history, Ms. Todman’s remarks to the audience highlighted her continued dedication to affordable housing, the importance of celebrating sisterhood, and the dynamic problem solving capabilities women bring to the housing industry.

Ballard Spahr wishes Ms. Todman great success in this new role, and we are excited to see all she will accomplish in the future.