CHAPTER VI

LANDMARK LEGISLATION ON HOUSING, BUT SLOW PROGRESS AND NEW PROBLEMS

Congress and the Administration-after four years of disagreement and stalemate-finally passed a housing act in 1974.

That important legislation, the Housing and Community Development Act of 1974 (Public Law 93-383), provided $11.9 billion over three years. It is designed to implement a new overall block grant strategy.

Housing needs of older Americans were recognized with a "revised" Section 202 program to enable sponsors to build specially designed, subsidized housing for the elderly, in conjunction with a new Section 8, program intended to provide help for renters.

But enactment of a law is one thing. Implementation is another. Early in 1975 would-be sponsors under 202 were urging the Department of Housing and Urban Development (HUD) to take unmistakably affirmative steps to fulfill Congressional intent. And yet at this writing, supporters of 202 still await final regulations.

In addition, HUD is being asked whether 202 with Section 8 will guarantee the availability of long-term financing. HUD has indicated their intention to use this program solely for construction financing. These questions and others have brought requests for new HUD Secretary Carla Hills to give them early attention, and she has promised to do so.1

Even as HUD and its critics dealt with issues arising from enactment of legislation, housing problems deepened for many Americans of all ages, but particularly for the elderly.

Major increases in the costs of fuel and utilities have resulted in sharp rent rises and desperate situations for older persons in many parts of the nation.

For example:

-After going several years without a rent hike, a New Jersey Section 202 project will soon have its second one in a year. -HUD recently approved a 48 percent rent increase at a federally assisted project in New York City.

-And in that same city, the Housing Authority reported an increase in fuel oil costs from $18 million in 1973 to a projected $43 million for this year.

Letters from elderly tenants and homeowners reach this Committee and the offices of members of Congress.

They ask: Where will we go when the next rent increase comes and we can find no way on earth to pay it?

1 Meeting with Secretary Hills and spokesmen for elderly, Apr. 4, 1975.

I. THE 1974 HOUSING ACT: WHAT'S IN IT FOR OLDER AMERICANS?

As enacted last August 22, P.L. 93-383 embraces a strategy calling for "flexible" block grants to replace the old categorical grant programs such as urban renewal and Model Cities.

The subsidized housing spigot-turned off by a housing freeze declared by the Administration in early 1973-has been turned on once again. Old programs have been given only a very limited new lease on life, however, because the new bill places great emphasis on a substantially expanded, subsidized-leasing program known as Section 8.

A. THE HOUSING ASSISTANCE PAYMENTS PROGRAM: SECTION 8

In September 1973, the Nixon Administration identified direct cash assistance, or housing allowances, as the "most promising" approach for meeting the housing needs of lower-income families. The Ford Administration endorsed this policy,2 and HUD soon designed a Section 8 program intended to provide both new and existing subsidized housing in a manner as consistent as possible with the direct cash assistance approach.

Very simply, Section 8 allows the Federal Government to contract with private owners to pay the difference between (1) the fair market rent and (2) the amount the tenant is required to pay which is not less than 15 percent nor more than 25 percent of the family's adjusted income. The new Act authorizes HUD to approve such payments for 400,000 units for fiscal year 1975. Separate regulations have been provided under Section 8 for varying sites: new construction, substantial rehabilitation, and existing housing.

As conceived by the Administration, the new Housing Assistance Payments Program would replace all the old subsidized programs (public housing, Section 236, and Section 202) as the vehicle for new approvals. The advantages to this new approach, as argued by the Administration, include:

-Costs can be better controlled because rents will be determined by the market; competition will exist between private developers and local housing authorities, and payments will be made only for units which are occupied;

-The lowest-income family can be reached since the formula will always pay the difference between what a family can afford and what it costs to rent the unit;

-Eligible families will have more freedom of choice to negotiate with various landlords instead of being limited to particular projects in set locations; and

-Maintenance and operation will be improved because the owners will have full responsibility for all management functions including tenant selection and rent collection.

Other features of Section 8:

(1) In order to prevent large concentrations of low-income housing in one area, preference is given to projects which request subsidy

2 White House Press Release, "The Housing and Community Development Act of 1974 (S. 3066) Fact Sheet," Aug. 22, 1974.

for less than 20 percent of the units. However, projects for the elderly which are 100 percent subsidized will share the same priority level as non-elderly projects that are partially subsidized.

(2) Tenants are eligible for assistance if their income does not exceed 80 percent of the median income for the area.3

(3) In addition, at least 30 percent of the families assisted annually must have gross income not in excess of 50 percent of the median income for the area.

(4) The Conference Report on the new Act expresses the Congressional expectation that HUD will take into account the need to provide housing with suitable amenities and sound architectural design in establishing fair market rents.

B. THE REVISED SECTION 202 PROGRAM

First introduced as part of the Housing Act of 1959, the original 202 program offered direct 3 percent government loans (for 50-year terms) to non-profit sponsors. The low interest rate made possible very reasonable rents for low- and moderate-income elderly. This program successfully built more than 45,000 units (330 projects) with only one mortgage foreclosure. Unfortunately, the "old" 202 program came under severe administration criticism because of its apparent impact on the national budget: every dollar loaned had to be appropriated by Congress. Consequently, in 1969 this program was suspended, by executive order, in favor of the newly created Section 236 "interestsubsidy" program. In January 1973, Section 236 was frozen as part of the housing moratorium declared by the Nixon Administration. Since that time there has been no program for building subsidized housing for older Americans.

Senator Harrison A. Williams, as he had done in previous years, introduced a bill (S. 2185) in July, 1973, to extend the authorization level of the original 202 program by $100 million. Prior efforts to renew the "3 percent" 202 program had been unsuccessful, however, and it soon became clear that some revision of the original concept was in

3 The 1970 Census reveals the following median incomes for the cities and standard metropolitan statistical areas listed:

NOTE. The median income figures for the city and SMSA were obtained from the U.S. Department of Commerce, Social and Economic Statistics Administration, Bureau of the Census, vol. 1, 1970 Characteristics of the Population, pt. 1, U.S. Summary, ch. C: General Social and Economic Characteristics, table 184.

* See Congressional Record, July 14, 1973, at p. S. 13474.

order. Revision took many months and involved careful consideration and input from many sources.5 Finally, a new approach offered three distinct advantages:

(1) It did not require a direct appropriation, and would not increase the national Budget;

(2) It would combine with the new Section 8 Housing Assistance Payments Program (see above) so favored by the Administration; and

(3) It would provide assistance to elderly persons with much lower incomes than had previously been possible.

Instead of Congress appropriating money, the revised 202 program authorizes the Secretary of Housing and Urban Development to borrow from the Treasury up to $800 million, which can then be loaned to eligible sponsors of housing for the elderly or handicapped.

Eligible sponsors include nonprofits, limited dividend organizations, consumer cooperatives, and public agencies.

No longer will the loans be made at 3 percent. Instead, loans will be made to sponsors at the prevailing Government interest rate, plus an amount to cover administrative costs on the loans. Today, that interest rate is estimated between 7 and 8 percent. In effect then, the funds are paid back to the Government at the same rate it took for Government to borrow the money in the first place. In this way there should be no loss to the Treasury Department in the transaction.

However, with the end of 3 percent loans, low rental schedules for poor elderly would not be possible. This is where Section 8 comes into play. The new Act clearly intends for the Section 8 program to be used in tandem with the revised Section 202. As explained previously, the most important feature of Section 8 is that eligible tenants will not pay more than 25 percent of their income for rent.

In short, the 1974 Act creates a revised program-a combined Section 202/Section 8 mechanism-that preserves many of the advantages of the original 202 program and, at the same time, provides greater rental assistance to older Americans, including those in the very lowest income range.

Perhaps the advantages of this new approach can best be illustrated with an example. Assuming a newly constructed housing project for the elderly, a tenant with a monthly income of $200 would pay the following for a one bedroom apartment:

Even though the revised 202 program does not require an actual appropriation of funds, the annual "level of borrowing" must be approved by the Appropriations Committees. In a Supplemental

5 Former Congressman Robert Steele, as Chairman of the House Republican Task Force on Aging, led the push for a renewed 202 in the House. He had the full backing of the House Republican Policy Committee.

Appropriations Act for Fiscal Year 1975 (H.R. 16900) the Congress approved a borrowing level for 202 of $215 million. This funding amount is made up of two parts: (1) $100 million from the total of $800 million authorized in the new Act, and (2) $115 million from the old 202 "revolving" fund."

How does the $215 million approval translate into units? Per unit construction costs vary from region to region, but using a reasonable estimate of an average of $20,000 per unit, the Fiscal Year 1975 funding would produce 10,750 units (or approximatey 70 projects). Should Congress, in the future, approve the full $800 million authorization on top of the revolving fund, an estimated 45,750 units could be built (or more than 300 projects).

In the Report accompanying the Supplemental Appropriations Act, the Senate expressed its intent that the new Section 202 program be used in conjunction with the new Section 8 leasing program. Significantly, the Committee stated:

*** the new Section 202 program should be employed as the primary vehicle for providing housing for the elderly, and [it should] not be a residual program to be used only when other programs fail.

C. OTHER RELEVANT PROVISIONS OF THE 1974 ACT

The new strategy for Community Development represents perhaps the most fundamental change contained in the new Act. For housing, the old programs-while still alive-are given only a very limited future, and HUD continues to pursue its efforts to study the direct cash assistance program as a long-range goal.

COMMUNITY DEVELOPMENT THE NEW BLOCK GRANT PROGRAM

The new Community Development approach is, in essence, a "special" revenue sharing program wherein block grants are awarded to local units of government to assist them in combating specified problems including the elimination of slums and blight, and the conservation and expansion of the nation's housing stock to provide a decent home and a suitable living environment for all persons. This new block grant program replaces seven categorical aid programs such as urban renewal, Model Cities, Water and Sewer Facilities, and the Neighborhood Facilities program.

The new bill authorizes $8.6 billion over three years for Community Development. For Fiscal Year 1975, Congress has appropriated over $2.1 billion for this purpose.9

No grant of funds under Community Development may be made unless an application has been submitted, including a "housing assistance plan" which accurately surveys the condition of the housing stock

Under the original 202 direct loan program, loans are continually being repaid (principal plus 3 percent). These payments are paid into a "revolving" fund. The initial intention was to loan these monies out again as they came in. Instead, HUD has allowed them to accumulate to an estimated level of $115 million as of last fall.

7 Senate Report No. 93-1255, to accompany H.R. 16900, Supplemental Appropriations Bill, 1975, Oct. 9, 1974, at p. 9.

8 Page 9, report cited in footnote 7.

9 Public Law 93-554.