Real estate provisions will find way into new budget

President Clinton may have consigned the Republicans, original budget-balancing bill to complete oblivion, but relatively non-controversial housing-related provisions are likely to be included in any compromise measure.

The now-vetoed bill would have made two changes in the use of annual adjustment factors (AAFs) to adjust contract rents on Section 8 rent subsidy units. AAFs are based on the consumer price index (CPI) and market rent data.

One revision would reduce the AAFs by one percentage point if there has been no tenant turnover since the last adjustment. Under the second change, if current rents in new construction and substantial rehabilitation projects exceed 100% of the Section 8 existing housing fair market rents, adjustments would generally be made only to reflect increases in operating costs. However, if an owner could show that the operating cost adjustment would not result in a rent exceeding the rent for a comparable unassisted unit, the full AAF adjustment would be allowed.

The fate of the GOP budget legislation's tax provisions is more problematic, however.

Probably the most controversial real estate-related tax change in the bill would have ended the permanent status of the low income housing tax credit, adding a Dec. 31, 1997, sunset date and again making the credit subject to periodic renewal.

The Clinton administration has been a strong supporter of the tax credit and can be expected to fight to drop the sunset date from the new budget bill. However, the sunset provision raises about $3.5 billion over the seven-year period of the budget legislation, and those funds would have to be made up somewhere else. Moreover, sunset supporters can argue that tax credit advocates will still have two years to make their case for renewal before the credit is actually terminated.

Some type of capital gains cut seems certain to be a part of any budget legislation Congress will pass, though the size of the cut and, especially, indexation of assets for inflation will be subject to negotiation.

The GOP budget legislation also included real estate investment trust (REIT) provisions that attracted relatively little attention and involve relatively small amounts of revenue. Accordingly, the REIT provisions stand a good chance of making it into a second budget bill.

Section 515 rural rental housing extended

The House of Representatives has passed legislation, H.R. 1691, extending the authorization for the Agriculture Department's Section 515 rural rental housing program.

The Section 515 authorization expired at the end of fiscal 1994 (Sept. 30, 1994) though funds were appropriated for fiscal 1995, and the program has continued to operate because of a favorable opinion from the Agriculture Department's general council and the Office of Management and Budget.

The House-passed bill would extend the Section 515 program authorization through fiscal 1996, setting aside 9% of program funding for projects developed by nonprofit organizations.

The bill also would establish a new project selection system based on local need for rural rental assistance. Factors to be taken into account in determining need include poverty, substandard housing, lack of mortgage credit and lack of affordable housing.

In addition, the bill would set up a $ 1 million pilot Section 515 guaranteed loan program for fiscal 1996. Eligible borrowers would include state and local government agencies, nonprofit organizations and for-profit entities. Project occupancy would have to be limited to households with incomes no higher than 115% of area median for the full loan term, which could be up to 40 years. Only fixed-rate loans would be eligible for the program.

Senate approves 55-and-over housing bill

The Senate Judiciary Committee has approved legislation, H.R. 660, simplifying the elderly housing exemption from the Fair Housing Act ban on discrimination against families with children. The bill has already been passed by the House.

Under current law, rental housing qualifies for the elderly housing exemption if it is provided under a HUD-designated state or federal elderly housing program, if it is occupied solely by persons 62 and over or if it is intended or operated for occupancy by at least one person 55 or older per unit, with "significant facilities and services" specifically designed to meet the physical or social needs of older persons and at least 80% of the units are actually occupied by someone 55 or older.

The pending legislation would eliminate the "significant facilities and services" requirement for 55-and-over housing. Instead, a project would qualify for the fair housing exemption if at least 80% of the units are intended for occupancy by at least one person 55 or older.

The project operator would have to follow published policies and procedures for providing housing for persons 55 or older and comply with HUD regulations on the verification of occupancy.