The Department of Housing and Urban Development has submitted draft legislation to Congress that would authorize and implement HUD's Transforming Rental Assistance (TRA) initiative. The legislation is called the Preservation, Enhancement, and Transformation of Rental Assistance Act of 2010, or PETRA. To read HUD’s section-by-section analysis of PETRA, click here.
PETRA allows public housing authorities and owners of certain HUD-assisted housing to convert to property-based Section 8 contracts. It also modifies the project-based voucher (PBV) statute, including adopting some provisions of the House version of the Section 8 Voucher Reform Act (SEVRA).
PETRA adds two sections to the United States Housing Act of 1937―Sections 8(m) and 8(n)―and modifies existing Section 8(o)(13).
Under new Section 8(m), "Transformation of Rental Assistance," owners of eligible properties may request to voluntarily convert to a property-based Section 8 contract (PB contract) or, in some cases, to a PBV contract. Eligible properties are defined as those assisted under:
- Section 8 of the Housing Act (including, but not limited to, Mod Rehab)
- Section 9 of the Housing Act (public housing)
- The Rent Supplement program
- The Rental Assistance program
- Other federal affordable housing programs to be identified by the HUD Secretary
The Secretary is to issue a notice specifying the conditions and procedures for approval of a conversion request.
Section 8(m) authorizes an appropriation of $350 million for TRA for fiscal year 2011 and additional funding as necessary through 2015. A Rental Assistance Conversion Trust Fund would be created as a depository for funds, such as fees that may be charged for conversion and amounts de-obligated under prior contracts as a result of conversion.
Section 8(m) requires one-for-one replacement of assisted units upon conversion, with certain exceptions, including the possibility of transferring assistance to another property. For public housing, converted properties would be subject to at least a 30-year use restriction. For other properties, the use restriction would be the remaining term of any prior restriction or the term of the new assistance contract, whichever is greater.
This section also provides that most properties that have undergone conversion may not be sold without first offering HUD the option to purchase. The legislation clarifies that converted public housing is not subject to the disposition process under Section 18 of the Housing Act and provides that, with public housing conversion, the Secretary may consider a project owned by a housing authority instrumentality as being owned by the housing authority. Unexpended assistance provided under the prior HUD contract may be used to pay for transaction costs, such as financing of property renovations and contract administration.
Section 8(m) also addresses tenant organization and procedural rights, as well as resident choice, under which tenants of converted properties would be permitted to obtain a tenant-based voucher after two years. Housing authorities would be required to make available no more than one-third of their turnover vouchers for these tenants. The section states that this resident choice option also applies, "to the extent of available resources," to "other rental assistance programs administered by the Secretary."
New Section 8(n), "Property-Based Contracts," authorizes PB contracts for properties that have been converted. For public housing, the initial contract term must be 20 years or longer, and owners must agree to accept extensions offered by the Secretary, unless there is a compelling reason not to. For other properties, the maximum term for a PB contract is 20 years, and the minimum term is the term remaining on the prior contract.
Section 8(n) provides that rents may not generally exceed 110 percent of the Fair Market Rent. Properties may be eligible for "exception rents," however, if necessary to meet a property’s financial and physical needs. Contract rents would be adjusted annually using a new index, to be established by the Secretary, that reflects changes in the rents of multifamily properties. An owner may request a rent increase above the index based on making significant improvements to the property, and rents would have to be re-benchmarked at least every five years.
The section also allows the Secretary to limit an owner’s access to cash flow. For public housing, one significant difference between Section 8(n) PB assistance and public housing operating assistance is that Section 8(n) assistance may be used to underwrite capital improvements.
Lastly, PETRA would modify existing Section 8(o)(13) of the Housing Act and change the rules governing PBV. One of the changes is that the number of a housing authority’s vouchers that may be project-based would be determined based upon the number of units assisted rather than the percentage of funding going to the units. In general, that number would be 20 percent of the units. However, agencies that administer vouchers for projects that have converted to PBV under TRA would be permitted to project-base up to 40 percent of units.
PETRA would allow PBV assistance for a property at the greater of 25 units or 25 percent of the property’s units, with some exceptions. The maximum contract term and extension term would be increased from 15 years to 20 years, and the owner of a PBV-assisted property would be permitted to utilize a site-based waiting list.
Ballard Spahr will continue to monitor the TRA initiative and PETRA and report on developments. For more information, please contact Mary Grace Folwell at 202.661.7605 or email@example.com.
In the area of housing law, Ballard Spahr has a nationally recognized practice marked by a history of leadership in the development and financing of housing and community development projects. The firm represents numerous state and local housing finance agencies and public housing authorities, as well as developers, mortgage and investment bankers, commercial lenders, and low-income housing tax credit investors, in housing and community development transactions. The firm also advises clients on the programs and requirements of HUD, FHA, Fannie Mae, Freddie Mac, and GNMA. For a fuller description of our practice, click here.