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Congress approves HUD Section 202 Reform Bill

Posted: December 21, 2010

Today the House passed the Section 202 housing reform legislation, which had won the Senate’s approval yesterday. We want to extend a hearty thanks to Carol Gallante, the Assistant Secretary of HUD, for her leadership, and AAHSA (American Association of Housing and Services for the Aging) for their advocacy to get to this point.  The bill will soon head to the President’s desk to be signed into law.

I recently heard Gallante speak at AAHSA’s annual meeting in Los Angeles. Her federal agency oversees the Section 202 program, which has been the bread-and-butter program for creating and supporting senior affordable housing for over 50 years.  I was encouraged as she presented the proposed changes that HUD was seeking.  It also raised some concerns, which we will be a focus in upcoming advocacy effort.

The new HUD proposal is a major overhaul of the Section 202 as it has historically worked.  Developers received a large, up-front capital grant to fully fund construction, followed by annual operating allocations to allow tenants to pay ~1/3 of their income in rent.  This is similar in concept to the public housing program, except that it is targeted exclusively to seniors and operations have always been funded at responsible levels.  In the earlier days, HUD allowed operating funds to support services to allow seniors to live in the housing even as frailty and support needs increased.  In our Brighton properties, for instance, we are able to offer 24/7 staffing to help with individual needs as they arise—unscheduled and planned.   However, because the needs of aging residents has grown increasingly over time, Section 202 projects can no longer support the array of services needed to support seniors to live independently for the longest possible time.

As I understand it, under the new program, Section 202 would fund only a portion of development costs.  Sponsors would need to line up tax credits and private philanthropic dollars, cobbling together an array of funding sources. (In the affordable housing world we often joke that to make a project work these days, you need to have almost as many funding sources as you do apartments!)  To make this at least somewhat feasible, HUD offers to replace the operating funding mechanism with Section 8 funding.  This is based on a formula tied to market rents, and it would make it predictable and involve less HUD-sponsor project-specific negotiations.  The rates are generally higher as well, allowing for some debt coverage in the projects.  This should also allow some operating dollars to once again support services.

There are many attractive elements to this bill – the ability to provide services being highest on my list.  There will also be some streamlining of the development and refinancing processes of the 202 buildings, and that is always welcome.  And while the complexity that the multiple sources in one deal introduces is expensive and unwieldy, there are two realities:  (1) the 202 grants have been covering less and less of a share of development, meaning we’re already into these multi-source deals; and (2) the dollars that Congress will be allocating for affordable housing in the foreseeable future are shrinking.  In fact, in the world of affordable housing overall (i.e., not just for seniors), this model is already the norm.

The one glitch that causes me to lose sleep is that the success of the “new 202” depends on a state government ‘s willingness to allocate tax credits to senior housing as it does for family housing.  In Massachusetts, there’s a strong preference for family housing, which stems at least in part from the fiscal imperative.  To the extent families don’t have housing, the state is responsible for paying to shelter them at a cost far greater than housing.  If seniors don’t have housing, the state has no such responsibility.  The reality is that we KNOW that supportive senior housing in fact saves the federal government ten times more than it costs because it makes it possible for most seniors to avoid nursing homes.  However, the federal government saves that money while the state allocates tax credits

There are many reasons to change state policy to better promote senior housing development, and we will undoubtedly return to this theme many times.  For today, I simply want to express our appreciation for Congress’ approval.  If the legislation is enacted, we will turn our attention to the Commonwealth to make sure state tax credit allocations reflect the new program’s needs.

As always, I welcome your comments.  Please send me an email.



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