Developments in Aging

order. Revision took many months and involved careful consideration and input from many sources. 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.

MULTIFAMILY HOUSING: SECTION 236 AND RENT SUPPLEMENT

tion 236, the interest-subsidy program,14 and the rent supplement 'm were given a new lease on life in the new Act-but only ited degree. Several million dollars in appropriated funds for ion 236 program were impounded by the Nixon Administrarly January 1973. To date over $100 million remains unspent. Act extends the life of Section 236 to June 30, 1976, and an additional $75 million for Fiscal Year 1975.

supplement program is now merged into Section 236, and deep subsidy down to utility costs for up to 20 percent of Section 236 project.

ference Report, Congress indicated that it expects the 'UD to use the impounded money for new projects, but ommunity has identified its special housing needs and d that these needs cannot be met through the new Sec

TS MUST SUPPORT OLDER AMERICANS ACT

The Secretary of HUD is required to consult with the Secretary of Health, Education, and Welfare (HEW) to insure that special projects for the elderly or the handicapped approved under public housing or under Section 8 meet acceptable standards of design, and provide quality services and management consistent with the needs of the

tenants.

In addition, these same projects are required to be equipped with such "related facilities" necessary to accommodate the special environmental needs of the elderly or the handicapped, and such projects must be in support of applicable State and local plans for comprehensive services as outlined in legislation such as Title III of the Older Americans Act of 1965.

HOUSING ALLOWANCES

Finally, the 1974 Act directs HUD to continue experiments in the cash assistance program, and authorizes an additional $40 million annually for cash assistance payments. A report with recommendations will be required within eighteen months.

II. THE NEW COMBINATION: SECTION 8 AND SECTION 202-HOW VIABLE?

Then HUD Secretary James T. Lynn, on January 20, 1975, announced that his Department intended to "move ahead" with Section 202. The press release for this announcement also included some disturbing language. While acknowledging that HUD was authorized to make direct loans for rental housing for the elderly and handicapped, the Secretary indicated that the loans "will be available for

14 Section 236 of the Housing Act of 1968 is an interest-subsidy program for multifamily housing construction. The owner or sponsor pays off a loan as low as 1 percent and the Federal Government pays the interest difference between 1 percent and the interest charged by the financing agency.

15 Section 101 of the Housing and Urban Development Act of 1965, as amended, provided a program of rent supplements on behalf of needy tenants living in privately owned, privately operated, and privately financed housing. Eligible tenants must pay 25 percent of their income toward the rental rate with the difference between the tenant payment and the monthly rental made up by a rent supplement payment to the project owner.

48-635 O-75-7

in the community and assesses the housing assistance needs of lowerincome persons (including the elderly).

Section 105 of the Act defines what activities are eligible for assist

ance.

An application submitted by a community may include plans for the acquisition, construction, or reconstruction of neighborhood facilities and senior citizen centers. Other eligible activities include special projects directed toward the removal of architectural barriers which restrict the mobility of the elderly and handicapped.

The new Act also permits the use of Community Development funds to finance public services; however, it must be clear that such services are not available through other forms of Federal assistance.

Eighty percent of funds will go to metropolitan areas and 20 percent to non-metropolitan areas. For the next three years no city will receive less under the combined block grant approach than it was receiving under the various categorical programs (the so-called "hold harmless" provision).

CONVENTIONAL PUBLIC HOUSING

A total of $1.225 billion in new contract authority is authorized for public housing under the new Act. However, the large bulk of this amount will go to finance the Section 8 Housing Assistance Payments program. Latest estimates predict that 38,000 units of conventional public housing will be approved in Fiscal Year 1975, followed by approval of only 6,000 units (Indian housing) for 1976.10 There is no budgetary request for additional authority for this program because HUD wishes to use the Section 8 program instead.

Despite HUD's reluctance to continue the public housing program, the new Act did encourage important programs in the public housing sphere.

For the first time, the law specifically approves the use of operating subsidy funds for security services including the cost of security personnel. This new language is the outgrowth of the Housing Security Act of 1973 (S. 2180) introduced by Senator Williams. Further language in the Act requires HUD to consider the factor of security in developing prototype costs for public housing units.

Congregate housing-defined as housing in which some or all units lack kitchens, and connected with which there is a central dining facility is also emphasized in the Act.

The Secretary of HUD is required to encourage public housing agencies to provide this type of housing for the elderly.12

Several other public housing provisions are of interest to the elderly including the following:

(1) For the first time minimum rents have been established at 5 percent of gross income, or that portion of a welfare payment specified to meet housing needs, whichever is greater.

(2) No bill language specifies the amount to go for modernization; however, there is report language explaining Congressional intent that $40 million be used for this purpose in Fiscal Year 1975.13

10 Summary of The HUD Budget Fiscal Year 1976, U.S. Department of Housing and Urban Development, Office of the Budget, February 1975, at p. I-7.

11 See Congressional Record, July 13, 1973, at p. 13363.

12 On Mar. 20, 1975, HUD issued a Request for Proposals to conduct a year-long research effort to appraise congregate housing to determine its effectiveness in meeting resident needs.

13 Conference Report No. 93-1279, Housing and Community Development Act of 1974, Aug. 12, 1974, at p. 137.

MULTIFAMILY HOUSING: SECTION 236 AND RENT SUPPLEMENT

Section 236, the interest-subsidy program,14 and the rent supplement program were given a new lease on life in the new Act-but only to a limited degree. Several million dollars in appropriated funds for the Section 236 program were impounded by the Nixon Administration in early January 1973. To date over $100 million remains unspent. The 1974 Act extends the life of Section 236 to June 30, 1976, and authorizes an additional $75 million for Fiscal Year 1975.

The rent supplement program is now merged into Section 236, and authorizes a deep subsidy down to utility costs for up to 20 percent of the units in a Section 236 project.

In the Conference Report, Congress indicated that it expects the Secretary of HUD to use the impounded money for new projects, but only when the community has identified its special housing needs and has demonstrated that these needs cannot be met through the new Section 8 program.

PROJECTS MUST SUPPORT OLDER AMERICANS ACT

tenants.

HOUSING ALLOWANCES

II. THE NEW COMBINATION: SECTION 8 AND SECTION 202-HOW VIABLE?

48-635 O-75-7

the construction phase of projects sponsored by non-profit organizations that are assisted under the Section 8 Housing Assistance Payments program.'

Permanent financing will be arranged "through the same avenues of FHA-insured or conventional permanent financing as are available for all other Section 8 projects." 16

CONSTRUCTION VS. PERMANENT FINANCING: THE NEW WRINKLE

The Administration's decision to use Section 202 solely for construction financing could have serious ramifications. In fact, it could mean no program at all.

HUD procedures for implementing a Section 202 program are not now known; regulations are not expected to be published until late April at the earliest. The long delay in setting regulations may be a severe drawback in itself. Normally, after publication, there is a 30day period for comment before regulations become final. If this procedure is followed, the regulations may not become final until June 1, 1975. The Congress has approved a funding limit of $215 million for Section 202, but that amount is slated for Fiscal Year 1975 which ends on June 30. Consequently, there will be very little time to process enough applications to utilize the full authority.17

Experts in the field of housing for the elderly is are in full agreement that limiting Section 202 to construction financing without providing an adequate avenue for permanent financing will clearly rule out the participation of the non-profit sponsor. They argue that permanent financing is the major obstacle-non-profits cannot compete with builders and developers on an equal basis and do not have the economic "clout" to convince lending institutions to provide financing.

It is significant to note that Congress recognized this dilemma when it passed the 1974 Housing Act. As written, the law clearly provides for permanent financing for non-profit sponsors through direct loans at the Government interest rate (see above). A total of $215 million has been approved for the first year for just this purpose. Why, then, is HUD choosing to implement the program by restricting the loans to construction financing only?

In a letter to Senator John Sparkman, Chairman of the Subcommittee on Housing and Urban Affairs, James L. Mitchell, Under Secretary of HUD, explained the reasons behind this approach:

First, it significantly reduces one of the major front-end costs in today's construction market, that of high construction

16 A construction loan is a short-term loan (usually 18-24 months) that is advanced by a commercial bank or other lending institution for the purpose of paying for the physical construction of the building (i.e., labor, supplies, fees, etc.). This loan must be repaid shortly after construction is complete. Permanent financing takes the form of a long-term mortgage (usually 20-50 years), secured by the improvements placed on the property. This loan goes into effect beginning with the end of the construction period, and it usually includes conditions requiring that the building be completed and that a certain level of occupancy has been attained. Construction financing is almost always impossible to obtain unless permanent financing commitments have already been secured.

17 There is some speculation that the regulation procedure will be speeded up. The regulations may be out earlier, as interim rules, to take effect quickly, or with shortened public comment time so the program can begin yet this fiscal year. See Housing Affairs Letter, No. 75-13, Mar. 28, 1975, at p. 4.

18 An Ad Hoc Housing Coalition representing many national organizations for the elderly has kept constant pressure on HUD to implement the Section 202 program. Organizations involved include National Council of Senior Citizens, American Association of Retired Persons--National Retired Teachers Association, American Association of Homes for the Aging, National Council on Aging, B'nai B'rith, American Baptist Churches, Lutheran Housing Coalition, National Caucus of the Black Aged, United Presbyterian Church in the USA, National Rural Housing Coalition, and the National Tenants Organization.

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