1996 Budget Proposal

Signals `New HUD'

The U.S. Department of Housing and Urban Development ment (HUD) has sent Congress a fiscal 1996 budget that Secretary Henry G. Cisneros said signals the creation of a "new HUD."

The budget, built on Cisneros' blueprint for reinventing the department, would combine 60 programs into eight performance-based funds in 1996 as an interim step toward consolidation into three funds, or block grants, beginning in fiscal 1998.

For 1996, the budget would combine most elements of the Section 8 program, including renewals of expiring contracts, into a tenant-based Section 8 certificate fund; combine several production programs, including Section 202 housing for the elderly, Section 811 housing for the disabled and the HOME block grant program, into an affordable housing fund; and set up a fund for FHA multifamily housing resolution activities that would replace the Low-Income Housing Preservation and Resident Homeownership Act (LIHPRHA), the flexible subsidy program, and the Section 8 loan management and property disposition programs.

The budget would also combine the McKinney Act homeless assistance programs into a block grant and establish a community opportunity fund based on the current community development block grant program.

In 1998, public housing programs and the FHA multifamily resolution activities would be folded into the housing certificate fund, and the affordable housing fund would absorb the homeless assistance block grant and the separate program for housing opportunities for persons with AIDS.

The budget would also convert the Federal Housing Administration into a government-owned corporation, with the aim of giving FHA more flexibility in working with private-sector partners to meet the needs of local markets. The various FHA mortgage programs would be combined into one single-family and one multifamily insurance authority.

Despite the continuing concern about the budget deficit, HUD would actually receive an increase in funding in 1996. The budget would provide $25.655 billion in discretionary budget authority (authority to spend money) and $31.767 billion in actual outlays, up from $25.58 billion and $31.033 billion in 1995.

The housing certificate fund would receive $7.665 billion in budget authority, up from $5.97 billion for the component programs in 1995. The funds would be allocated to state and local governments on the basis of the need to provide continuing assistance to current certificate and voucher holders whose contracts are expiring and unmet needs for housing assistance. HUD says the money would be sufficient to renew all expiring certificate-voucher contracts and to provide 50,000 incremental units of assisted housing. To reduce the need for budget authority, the basic Section 8 contract term would be reduced from five to two years. Assuming all contracts will eventually be renewed when they expire, the reduced contract term would have no impact on outlays.

The affordable housing fund would receive $3.339 billion, about the same as the component programs in 1995. The funds would be allocated to states, cities and urban counties using the current HOME allocation formula, with 60% of the money going to localities and 40% to states.

In setting up the FHA multifamily resolution fund, Cisneros said HUD is abandoning its effort to preserve all assisted housing units, regardless of cost. Specifically, the department will no longer subsidize above-market rents. "There is no reason why assisted-housing landlords should collect more in rent than landlords who operate without taxpayer dollars," he said.

Proposed changes to the LIHPRHA program include limiting assistance to projects with at least $10,000 in equity per unit, reducing the limit on federal assistance from 120% to 100% of Section 8 fair market rents, and providing a debt restructuring plan in which debt service on the first mortgage would be deferred and projects would be recapitalized to cover the owners' equity and the cost of repairs.

The budget includes a mark-to-market plan for FHA-insured assisted projects in which the mortgage would be restructured so that market rents could sustain the project and subsidies could be reduced and transferred from the project to the tenants.

Former Secretary Pierce

Won't Be Indicted

Former HUD secretary Samuel R. Pierce Jr. won't be indicted in the investigation of his administration of the department by independent counsel Arlin Adams. Adams announced that he has completed the major part of the investigation, though additional indictments for obstruction of justice or perjury are possible.

In deciding not to seek an indictment of Pierce, Adams cited the ex-secretary's age and health problems, as well as a statement in which Pierce admitted that he may have helped create conditions leading to improper conduct by others at HUD.

Adams said the admissions "comport with the proof the governent would have introduced at trial and inform the public of these events without the uncertainty and great expenditure of time and money inherent in such a trial."

In his statement, Pierce acknowledged that he delegated authority to people who "clearly were not deserving of either the powers of office or my trust."

In addition, Pierce said he sometimes met with friends who were paid to obtain Section 8 moderate rehabilitation funds, creating the impression in follow-up discussions with HUD staff that these efforts should be favorably considered.

"While I never financially benefitted in any way from these projects," Pierce added, "these meetings and contacts were inconsistent with the HUD standards of conduct prohibiting actual or apparent undue or improper favoritism."