National Trust Fund Likely to Fund First Projects in 2010
A major new resource for funding affordable housing projects nationwide will make its debut soon. After years of debate in Washington, it appears that Congress and the Obama Administration will get the National Affordable Housing Trust Fund operational for the first time in late 2009 and 2010.
This is good news for site owners and managers. The Trust Fund will provide new funding for rehabilitation and preservation of affordable housing as well as for development of new housing. Rather than reshuffling money from other housing programs, the Trust Fund resources are new and specifically targeted to affordable housing preservation and development. Advocates have called for an annual distribution from the Trust Fund of $5 billion and set a goal for it to produce, rehabilitate, and preserve 1.5 million housing units over the next 10 years.
Your site may be eligible for new types of assistance from the Trust Fund. The program funding and administrative details are being worked out now. Keep an eye on your state government and state housing finance agency in the coming months for program developments and funding announcements.
Obama Requests First Funding
President Obama has proposed $46.3 billion in funding for HUD in FY 2010, a significant increase from the $41.8 billion level in FY 2009. In addition to providing full and adequate funding for paying existing housing assistance payment (HAP) contracts for multifamily sites, part of the increase at HUD is in funding for the new National Affordable Housing Trust Fund. For the first time since the Trust Fund was created, the president has requested funding. The Obama Administration has asked Congress for $1 billion for the development, rehabilitation, and preservation of affordable housing for very low-income residents.
Larry Minnix, president and CEO of the American Association of Homes and Services for the Aging, praised Obama's proposed FY2010 budget: “The proposal to allocate $1 billion to capitalize and launch the Affordable Housing Trust Fund to develop, rehabilitate, and preserve affordable housing and increase funding for the project-based rental assistance program to preserve 1.3 million affordable rental units will help moderate-income elders find and keep a place to call home.”
Bush Signed Legislation
President George W. Bush signed the Housing and Economic Recovery Act of 2008 (H.R. 3221; P.L. 110-289) into law on July 30, 2008. The law created the National Affordable Housing Trust Fund, which was to be funded annually by a contribution from Fannie Mae and Freddie Mac.
The law passed last year shortly before the Treasury Department intervened and took control of the financially troubled Fannie Mae and Freddie Mac. The entities are no longer able to fund the Trust Fund. Instead, President Obama has recommended initial funding of $1 billion in an appropriation while the administration and Congress seek another source of regular funding for the Trust Fund that is not subject to the annual appropriations process.
According to the Congressional Research Service, if the Trust Fund had been in effect in calendar year 2007 when Fannie Mae and Freddie Mac purchased $1.2 trillion in mortgages, the enterprises would have been required by law to contribute $500.8 million to the Trust Fund.
HUD to Administer Through States
Under the statute, the new Trust Fund will fund the development, construction, acquisition, rehabilitation, and preservation of affordable housing for very low-income and extremely low-income households. Although the word “operation” of housing appears in the statute, it is likely that the grants will be limited to capital needs rather than operations.
HUD will manage the program. The Housing Department is already preparing the first Trust Fund regulations and developing the formula it will use to distribute funds. Each year HUD will make Trust Fund grants to each state, the District of Columbia, and U.S. territories, which, in turn, will provide funds to eligible recipients for affordable housing projects. The minimum allocation for states and the District of Columbia is $3 million per year.
Each state must designate an agency to receive and manage the funds. That agency must create a needs-based state allocation plan to govern the award of grants locally. Under the statute, both for-profit and nonprofit entities are eligible to receive Trust Fund grants.
The goal of the Trust Fund is to increase housing opportunities among very low-income families and families in low-income areas. Three-quarters of funds for rental housing must benefit extremely low-income renters (defined as people earning 30 percent of the area median income or less per year). All funds must benefit people with very low income (those earning 50 percent of area median income or less). The law requires that 90 percent of funds be used for rental housing (production, preservation, and rehabilitation); 10 percent may be used for the production, preservation, and rehabilitation of housing for homeownership for extremely and very low-income first-time homebuyers. Homeownership assistance may be offered through downpayment assistance, closing cost assistance, and assistance for interest-rate buy-downs.
In its first years, some funds from the Trust Fund will go to the Federal Housing Administration (FHA) for reserves, but an increasing level will go to states every year for affordable housing, part through the National Affordable Housing Trust Fund and part through the new Capital Magnet Fund (CMF). CMF, which is part of the Community Development Financial Institutions Fund at the Treasury Department, is not yet funded or operational. Its goal is to provide competitively awarded grants to CDFI institutions and nonprofits to support affordable housing for primarily extremely low-, very low-, and low-income families.
PRACTICAL POINTER: Development of state allocation plans is required to be a public process. There may be good opportunities soon for you to weigh in on how your state will use its Trust Fund resources and how it will manage the program. Pay attention to state housing news for notices of public meetings so you don't miss the chance to make your voice heard.
Long Struggle to Enact Measure
There are hundreds of housing trust funds already in existence at the city, county, and state levels. The idea of a trust fund is to tie annual funding to a dedicated funding source, like a local tax or user fee, rather than to fluctuating legislative appropriations. Low-income housing advocates have sought since 2001 to create a trust fund on the national level. A coalition of hundreds of organizations and individuals organized to press Congress to enact the Trust Fund in 2008. Despite reservations about the Trust Fund, President Bush signed the legislation as part of a larger measure. Senator Bernie Sanders (I-Vt.), one of the earliest sponsors of the National Trust Fund legislation, said, “This provision will play a significant role in building affordable housing for low- and moderate-income people, as well as the disabled.”
Another leading sponsor of the Trust Fund, Congressman Barney Frank (D-Mass.), remarked when the measure passed his committee in 2007, “The growing shortage of affordable housing is one of the most serious social and economic problems facing our country. Given our severely constrained fiscal realities, we are today doing the best we can to address this—creating a low-income housing trust fund that will be paid for in ways that do not draw from federal tax revenues.”
In supporting Trust Fund legislation, the National Association of Realtors argued “that accessibility to safe, decent, and affordable housing at all levels—rental or ownership—must be one of our nation's highest priorities.”
Greg White, a policy analyst with the National Low Income Housing Coalition, said, “This is the first real bricks-and-mortar type of program since Section 8. It's really targeting a group that has been neglected.”
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