Rural Housing Budget Disappointing, But Not Surprising

Unfortunately, but not unexpectedly, the Obama administration’s rural housing budget continues trends that were evident in the last several budget requests.

The guiding principle seems to be, as it is for “safety net” programs generally, reducing spending rather than meeting needs.
The USDA’s flagship rural housing efforts have long been direct loan programs: Section 502 for homebuyers and Section 515 for those who provide rental housing. Like past Obama administration budgets, the FY14 request emphasizes USDA’s loan guarantees rather than direct lending. The guarantee programs—Section 502 guaranteed for homebuyers and Section 538 for rental housing—are “budget neutral” because participants pay fees that cover the programs' costs. They carry higher interest rates, however, and therefore serve residents with somewhat higher income levels than those using the direct loan programs.

It is clear that rural Americans with lower incomes desperately need decent, affordable housing. There is no shortage of evidence provided by, among others, HUD’s Worst Case Needs reports, the National Low Income Housing Coalition’s Out of Reach research, and the Housing Assistance Council’s Taking Stock analysis. Yet the budget would cut not only the Section 502 and 515 direct loan programs, but also other new production rural housing programs.

The administration again proposes to reduce funding for the Section 523 self-help program by two-thirds. The Section 514/516 farm labor housing program would be cut by a lesser amount. Even Section 504 loans and grants to help extremely low-income rural homeowners repair major defects in their homes would be reduced.

Presumably the administration hopes to increase the affordable housing stock through the National Housing Trust Fund, for which the budget request is $1 billion. It does not, however, identify a source for that funding.

To preserve existing housing and continue assistance to those who currently receive it, the budget suggests $20 million, a slight increase over FY13 funding, for USDA’s major rental preservation program, the Multi-Family Housing Preservation and Revitalization Demonstration Program (MPR). Last year the budget requested $34.4 million for MPR.

The FY14 budget also proposes to increase USDA’s Section 521 Rental Assistance (RA) funding. The budget documents assert that the proposed $1 billion will be enough to renew all RA contracts due to expire during FY14, but data are not available that would enable others to verify that claim. Advocates would like to doublecheck USDA’s figures because there is evidence that the agency may be trying to reduce the number of RA contracts in order to limit the increasing costs of RA.

In August 2012 USDA re-issued a May 2011 letter informing field staff that the national office intended to “retire” unused Section 521 Rental Assistance—rather than shifting it to different properties—to reduce the program’s cost. Responding to questions, USDA officials have stated that they intend to reuse all RA, not retire it. Yet the contradictory letter has not been withdrawn.

Concerns also remain about sequestration’s effect on Rental Assistance. USDA has stated that it will continue to renew contracts as they expire in FY13, until it uses up all its RA funds for the year. It anticipates that sometime in September it will run out of RA funds, and then will not be able to renew RA contracts for more than 10,300 households. It is not yet clear what other steps USDA may consider in order to aid these tenants, and whether its FY14 budget request would cover their contracts.

The recent Bipartisan Policy Center Housing Commission’s report strongly supported USDA’s rural housing programs. It is disappointing that the Administration is not doing the same on behalf of the lowest income rural Americans.

(A budget table for the rural housing programs is available on the Housing Assistance Council’s website.)

(This post is part of a series on the president's 2014 budget.)

(Photo By Justin Sloan CC BY-ND-NC)

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