Overarching concerns, however, abound with this new guidance:
What is the problem?
A: Essentially, the
complete reversal of long-standing Section 8 contract renewal and rent
adjustment policy for Section 202 and other Option 4 eligible properties; and
other concerns about how changes regarding residual receipts could impact
budget-based service coordination.
Once HUD issues the necessary implementing guidance (in the form of the
revised Section 8 renewal guide or other notice), Option 4 properties will have
their future rents adjustments effectively capped at comparable rent
levels. Previously “exempt” properties will have to
commission and submit a Rent Comparability Study (RCS) to demonstrate that any
budget-based rent increase that is required will not put their new rents in
excess of the local comparable rent. As noted in the HUD
memo, this policy was “commented on over the last year by the
industry.” But our comments, which laid out our understanding that
such a change was not only inadvisable, but contrary to existing legislation,
clearly made no difference.
The memo also indicates that new
residual receipts usage/release policies are being developed. HUD
already has authority under Sec 8 regulations to use residual receipts to
“reduce Housing Assistance Payments and other project purposes.” And we have expected policy to clearly shift along these lines for some
time. But we have
learned that HUD headquarters has now directed its field offices to reject,
until further notice, any future requests for releases from residual receipts,
and to suspend payments on any previously approved but not yet released funds
until HUD HQ can further review and approve them. This
raises concerns about expected release of funds at member properties for such
things as previously-identified building needs, authorized repayments of
secondary financing, and specialized programming purposes (like the inclusion
of a service coordinator in the project budget).
What is LeadingAge going to
do about it?
It
was just over a year ago that LeadingAge (then AAHSA) formally commented to HUD
about the proposed rule change that would cap Option 4 renewals at comparable
rent levels. Our comments were then and remain now the same:
“[Such a proposal]
fundamentally alters the underlying assumptions that are and were made in the
MAHRA statute, as they relate to properties eligible to renew with “exception
rents” under sections 514(h) and 512(2) of the statute. The singular
purpose of this change it would seem is to arbitrarily cap rents adjustments at
the level of comparable rents plus an OCAF with little regard for actual costs
of operations, debt service and future capital needs. This presumably
would be done despite the fact that these properties are excluded from a
mortgage restructuring option leaving many properties with insufficient rent
levels to meet operating and/or debt service obligations and at risk of default
with no option or recourse. This sudden and dramatic change in course
will put a significant portion of HUD 202/8 properties in jeopardy by
essentially removing a budget-based approach that for many of these properties
has kept them viable and [helped to] preserve [them] as affordable housing.”
and
”…that statute provides that
Option 4 renewals are to be treated as exceptions to the rest of MAHRA, which
keys off of comparability, and we therefore believe that the [proposed] changes
are in error and should be removed.”
We are currently working with
members of Congress to seek their intervention to reinforce our interpretation
that such a move is contrary to legislative intent and to find other ways to
block this change from going into effect.
So, what do we recommend?
Completion of any possible
budget-based rent adjustments ASAP should be priority one. It has been
asked, hopefully, whether there are likely to be any modification to the method
of determining comparability for 202s. We don’t expect any.
Rent comparability is something we were very engaged in back when the MAHRA
rules and Section 8 contract renewal guide were first developed. The existing
policies cover the distinct nature of housing that either directly
provides or only coordinates the provision of supportive services. What
makes these properties likely to have rents in excess of comparables is often
the above market interest on the initial financing, the initial rent rent
setting at 20% above FMRs, as well as long-term capital needs costs (addressed
either recently in improvements or increased funding for reserves) for an aging
portfolio of properties financed directly by HUD.
In closing –
We remain very concerned about
the impact this change could have on many Section 202 properties that have
relied on Option 4 for their contract renewals, and about the potential for
problems with the continued use of residual receipts for budget-based service
coordination. We can foresee potential negative impacts on the
sustainability of those that have been refinanced (where the savings was
legislatively allowed to be retained for enhancements to the property and/or
delivery of services to residents), as well as the potential for negative impacts on
refinancing efforts that are currently underway or being considered. If you can
extrapolate the policy change impacts on your existing properties, ongoing
(non-grant funded) service-coordinator operations, and/or planned refinancing,
we’d appreciate hearing the details. And, if you have any issues related to denial or suspension of release
of funds from residual receipts, we ask you to share the details with us.
In the meantime, we will
continue working to have this policy adjusted prior to implementation – though,
given the current focus on reduction of spending, this may only be the tip of
the iceberg.
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