February 20, 2018

Capitol Express Newsletter: Congress Lifts Budget Caps, President's Budget Request Proposes Cuts to Housing Programs

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Congress Raises Budget Caps and Extends Government Funding Through March 23

Congress passed the Bipartisan Budget Act of 2018 on February 8, increasing spending caps for defense and non-defense discretionary spending by $300 billion over two years. Non-defense discretionary budget caps will be raised by $63 billion in fiscal year (FY) 2018 and by $68 billion in FY 2019. The deal also includes an $89.3 billion disaster-recovery package (see more below), as well as a six-week continuing resolution (CR) to extend government funding through March 23 to allow lawmakers additional time to complete a FY 2018 appropriations package. Congressional appropriators are now in the process of setting new spending levels for the appropriations subcommittees, which will determine how much additional funding for housing and community development programs will result from the higher budget caps.

Congress Passes $89 Billion Disaster Aid Package

The legislation raising the spending caps also provided $89.3 billion to help communities recover and rebuild from natural disasters occurring in 2017. The package provided $28 billion for the Community Development Block Grant Disaster Recovery (CDBG-DR) Program, $23.5 billion for the Federal Emergency Management Agency (FEMA) Disaster Relief Fund, $17.39 billion for the U.S. Army Corps of Engineers, and $1.65 billion for the Small Business Administration disaster loan program. Of the CDBG-DR funds, $16 billion will be used to address unmet needs in disaster areas — including at least $11 billion for areas damaged by Hurricane Maria, and $2 billion for repairing and improving the electric grid in Puerto Rico and the U.S. Virgin Islands. The other $12 billion will be used for mitigation activities that will be awarded to prior CDBG-DR grantees in proportion to CDBG-DR grants awarded in 2015, 2016, and 2017. Up to $15 million of the appropriation will be used for capacity building and technical assistance to help states and local governments more effectively rebuild and administer disaster resources — the first time Congress has dedicated technical assistance for recipients of CDBG-DR.

President’s FY 2019 Budget Request Proposes Cuts, Eliminates Key Housing Programs

The Trump Administration released its FY 2019 budget request last week, proposing to eliminate funding for more than a dozen housing and community development programs and cut funding for most others across HUD, the Department of Agriculture’s Rural Housing Service, and the Department of Treasury. The Administration proposes eliminating the HOME Investment Partnerships program, the Section 4 Capacity Building Program, Community Development Block Grants (CDBG), the Choice Neighborhoods Initiative, and the Public Housing Capital Fund at HUD; the Community Development Financial Institutions (CDFI) Fund at Treasury; and Section 502 Single Family Direct Loans, Section 515 Rental Housing Direct Loans, and Section 523 Mutual and Self-Help Housing Grants, among other programs at USDA’s Rural Housing Service. The request also calls for reduced funding for Tenant-Based Rental Assistance, the Public Housing Operating Fund, and Section 811 Housing for Persons with Disabilities. Overall, the budget proposal would reduce HUD’s funding by roughly 14 percent. Read more about the President’s budget request on Enterprise’s website.

The President’s budget also proposed amending the U.S. Housing Act to allow public housing agencies to introduce minimum employment requirements and increase rent payments from 30 to 35 percent of gross monthly income for about 4 million federal public housing and voucher recipients. 

Advocates Circulate Letter Urging Congress to Fund Section 4 at $40 Million

Following the President’s FY 2019 budget request, which proposed eliminating the Section 4 Program, Enterprise and its partners are circulating a letter urging Congress to fund the Section 4 Capacity Building Program at no less than $40 million in FY 2019. Section 4 is the only federal program that exclusively focuses on improving the effectiveness of local community development organizations. It has been funded at $35 million since FY 2012, but the demand for affordable housing and small business investments in low-income communities continues to grow, necessitating an increase in resources. A modest $5 million increase in Section 4 will enable local nonprofits to meet the growing needs of the communities they serve, especially since a federal dollar invested in Section 4 typically leverages $20 in other funds. Congress must now hear from local stakeholders about how vital Section 4 funds are in rural and urban communities nationwide. The deadline to sign your organization on to the letter is February 27. 

New Guidance on Opportunity Zones as March 21 Designation Deadline Nears

The IRS released guidance this month clarifying the designation process for Opportunity Zones, a new tax incentive created in the Tax Cuts and Jobs Act that allows investors to defer paying capital gains taxes by investing their unrealized capital gains into a new investment vehicle, Opportunity Funds. Enterprise's Rachel Reilly Carroll noted in a recent Next City article on Opportunity Zones that “there’s room to create products with the potential to unlock new capital for the broader community development ecosystem.” However, governors only have until March 21 to either nominate 25 percent of their state’s distressed census tracts as Opportunity Zones or request a 30-day extension from the Treasury Department. If governors do not nominate census tracts or request an extension, they essentially opt their state out of receiving these investments for the tax incentive’s entire ten-year authorization.

To assist states with these decisions, Enterprise has created a new tool to map Opportunity Zone eligibility by state, with the ability to add related information – including New Markets Tax Credit (NMTC) investments, CDBG projects, and Choice Neighborhoods – for each census tract. See Enterprise’s Opportunity Zones page for additional resources, stay tuned to the Enterprise blog for more Opportunity Zones information, and view a recording of a February 7 webinar that provides an overview of Opportunity Zones.

White House Releases Infrastructure Plan

Last week, the White House released a 55-page proposal for President Trump's long-awaited infrastructure plan. It lays out a framework for crafting legislation structured around four main goals: generating $1.5 trillion to fund an infrastructure package; streamlining the permitting process down to two years; investing in rural infrastructure projects; and advancing workforce training. According to the proposal, the federal government would contribute $200 billion – raised largely through spending cuts – to the infrastructure package. That contribution would include $100 billion for an incentives program that would encourage increased state, local and private investment, $50 billion for capital investments in rural infrastructure projects, $20 billion for the Transformative Projects Program that would support exploratory ideas, $20 billion to expand the use of loans and private activity bonds, and $10 billion for a revolving fund that would finance purchases of federally owned property. It is assumed that states, localities and the private sector would be expected to contribute the remaining $1.5 trillion, though the proposal does not address how these funds will be raised. 

Fannie and Freddie Request Funds from Treasury after Reporting Losses

For the first time since 2012, both Fannie Mae and Freddie Mac require funds from Treasury to cover quarterly losses. Fannie Mae's reported earnings showed a net loss of $6.5 billion for the fourth quarter of 2017, attributed in part to a re-measurement of the company's deferred tax assets following the large tax package passed at the end of 2017. Fannie Mae expects to request $3.7 billion from Treasury to eliminate its deficit. Likewise, Freddie Mac reported a $3.3 billion loss and will require $300 million from Treasury. Fannie and Freddie have both indicated that they will continue to contribute to affordable housing trust funds on the grounds that their deficits are due to one-time tax losses and don't suggest any underlying financial instability. 


Racial Discrimination Still Prevalent in Mortgage Loans

New analysis by Reveal from the Center for Investigative Reporting shows that African Americans and Latinos continue to be denied conventional mortgage loans at rates higher than similar white applicants. The analysis, based on records publicly available under the Home Mortgage Disclosure Act, shows that black applicants were denied mortgage loans at significantly higher rates than counterpart white applicants in 48 cities, Latino applicants in 25 cities, Asian applicants in nine cities, and Native American applicants in three cities. The analysis controlled for nine economic and social factors, including income, the loan amount, the ratio of the size of the loan to the applicant’s income and the type of lender; however, credit score was not included because that information is not publicly available. According to the analysis, there is a persistent pattern of troubling denials for people of color across the country, including major metropolitan areas such as Atlanta, Detroit, Philadelphia, St. Louis and San Antonio. 

Urban Institute Examines Impact of Instituting Work Requirements for HUD-assisted Households

The President’s FY 2019 budget request proposes changes to the U.S. Housing Act that would allow public housing agencies and owners of HUD-subsidized properties to institute work requirements – up to 32 hours of work per week per adult household member – as well as raise rent payments from households receiving federal rental assistance from 30 to 35 percent of gross monthly income. A blog post by the Urban Institute notes that these changes would reduce low-income household’s ability to pay for other essential costs that support employment, such as childcare and transportation. In addition, there is no evidence that increasing rent or instituting work requirements for HUD-assisted households would increase employment or income for lower-income households.

An analysis by the Center on Budget and Policy Priorities also shows that nearly 90 percent of the more than 4.6 million households that receive rental assistance through HUD are elderly, disabled, working/worked recently, or likely had access to work programs under the Temporary Assistance for Needy Families (TANF) program. The analysis also shows that HUD-assisted households that are not working, particularly those detached from the labor force for an extended period, are more likely to face significant barriers to work, including chronic health problems, low levels of education, full-time caretaking responsibilities and domestic violence. 

New Report Analyzes the Cost-Effectiveness of Green Infrastructure

A new report, Delivering Urban Resilience, looks at the cost-effectiveness of adopting citywide smart surface technologies that help manage sunlight and rain, including solar PV roofs, green roofs, reflective pavements and urban trees. The report examines in detail El Paso, Philadelphia, and Washington, D.C., and is built on more than two years of data collection and research in collaboration with 15 organizations, including Enterprise Community Partners. The findings suggest that cities would realize significant savings if they adopt city-wide smart surface features. According to the report, El Paso would save $540 million, Washington, D.C. would save $1.8 billion and Philadelphia would save $3.5 billion – even factoring in the cost of investing in adding new, green infrastructure. 


San Diego Affordable Housing Production Threatened by Changes in Tax Law

Because the Tax Cuts and Jobs Act has lowered the top corporate tax rate from 35 to 21 percent, prices for the Low-Income Housing Tax Credit (Housing Credit) have fallen. In San Diego, the lower prices for Housing Credits will cut production of affordable homes: according to Sue Reynolds, President & CEO of Community Housing Works, and Matt Schwartz, President & CEO of California Housing Partnership, San Diego may build or preserve 5,000 fewer affordable homes over the next 10 years because of the reduced value of the Housing Credit. Reynolds and Schwartz note that the Housing Credit has created more than 23,000 affordable rental homes and 14,000 jobs in San Diego County, but that impact will be decreased because of changes from the tax law. They urge lawmakers to pass the Affordable Housing Credit Improvement Act, bipartisan legislation in the Senate that would expand the Housing Credit by 50 percent, noting that strengthening the Housing Credit is critically important to addressing San Diego’s homelessness and affordability challenges. 

Advocates Urge Georgia Governor to Request 30-Day Opportunity Zones Extension

Opportunity Zones present a significant opportunity for the Atlanta region to benefit from an influx of private capital, but nominating census tracts that demonstrate the capacity and willingness to equitably channel investments in distressed neighborhoods need to be a cornerstone of this new tax incentive’s success. This includes aligning Opportunity Zone investments with current initiatives such as transit, housing, healthcare, education and employment opportunities. In an op-ed last week, Enterprise’s Meaghan Shannon-Vlkovic and Olivia Barrow urged Georgia Governor Nathan Deal to request a 30-day extension to ensure time to consult with residents and local stakeholders about which tracts demonstrate the capacity and willingness to equitably channel investments in distressed neighborhoods.


In recent Community Developments, we highlighted California’s Transformative Climate Communities (TCC) program to address challenges like public health disparities and housing shortages, a San Diego County program that offers health services to homeless individuals, a report by CoreLogic that shows that home prices were up both year-over-year and month-over-month in December, and much more. Sign up here to receive the Community Developments newsletter.


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