H.R. 4213, the “American Jobs and Closing Tax Loopholes Act of 2010,” the so-called tax extenders bill remains stalled in the Senate. Senate Democrats are looking for the 60 votes needed to end debate. The bill had contained a short term extension of unemployment benefits, but that has been stripped from the bill and is expected to pass this week by itself.

The pending Senate version of H.R. 4213, like the House-passed version, would reauthorize through 2012 the popular “Build America Bonds” (BAB) program. Under the program, which was authorized in the American Recovery and Reinvestment Act of 2009 (ARRA), issuers receive a direct payment of 35% of the interest costs on these taxable bonds. Under the bill’s provisions, the interest subsidy would be reduced to 32% in 2011 and to 30% in 2012. The bonds, which are a compliment to traditional tax-exempt bonds, have been mainly used for infrastructure as they require the facility financed to be governmentally-owned. Their use for housing has been quite limited, although it is expected to grow in the future. In his FY 2011 budget President Obama urged Congress to make the program permanent. The Senate bill’s BAB provision is estimated to cost the Treasury $4 billion over 10-years.

The bill also authorizes through 2011 another ARRA bond program known as “Recovery Zone Bonds,” which may be used by communities for infrastructure, job training, education, and economic development in areas with significant poverty, unemployment or home foreclosures. The bill makes a change in the redistribution of bond authority such that each municipality gets a minimum allocation equal to its share of the national unemployment in December 2009.

Also extended through 2010 is a provision authorized by ARRA that permits 9% Low-Income Housing Tax Credits to be exchanged for cash. Under the provision housing credit allocating agencies may exchange for $.85 on the dollar all credits carried over from prior years as well as 40% of the current year’s allocation. This provision is intended to compensate for the withdrawal of Fannie Mae and Freddie Mac from the tax credit market. The bill also extends the exchange program to 9% credits allocated in response to Hurricane Katrina and to credits allocated in 2007 for floods in the Midwest. The bill does not extend the exchange program to 4% tax credits that accompany tax-exempt bonds, something that a coalition of national housing organizations is seeking. S. 3326, introduced by Senator Maria Cantwell (D-WA), would extend the exchange to the 4% credit. Such a provision was included in H.R. 4849, a small business jobs bill passed by the House in March. That provision could be added to a small business jobs bill that is to be considered by the Senate in the near future.

The tax extenders bill also provides $5 billion for an additional round of New Markets Tax Credits in 2010. It also permits investors to claim these credits against the Alternative Minimum Tax for investments made between March 15, 2010 and January 1, 2012. Also extended through 2010 is the designation of certain economically distressed census tracts as Empowerment Zones and Renewal Communities, to which are provided tax incentives for investments in these areas.

The bill also extends through 2011 a Housing and Economic Recovery Act of 2008 (HERA) provision permitting the Federal Home Loan Banks to guarantee tax-exempt bonds used for infrastructure. Tax-exempt housing bonds have for sometime been afforded this treatment on a permanent basis. In addition, the bill extends through 2011 the ceiling on “qualified small issuer” of $30 million, a provision also authorized by HERA. NACCED and NACo have supported this provision.

Both the House and Senate versions of the bill provide a one-time, $1 billion capitalization of the National Housing Trust Fund, a program authorized by HERA. Under the program, whose funding is allocated among the states, the bulk of these capital funds must be used for housing benefitting households at or below 30% of median income. Also provided is $65 million in project-based vouchers to provide rental assistance, the only way that households of extremely-low income can be served. According to the provisions authors the funding will support 10,000 multifamily units and create 15,000 construction jobs and 4,000 permanent jobs.

One of the provisions that “pays” for the bulk of the bill is a change in the tax law treatment of “carried interest.” Current law provides that carried interest that arises from venture capital, private equity and real estate partnerships be taxed entirely at the 15% capital gains tax rate rather than the much higher ordinary income rate. The House version of the bill would require that some portion of income (50% in 2011 and 2012 and 65% thereafter) arising from the cashing out of these partnerships to be taxed as ordinary income. The Senate version provides that, to the extent carried interest reflects a return on invested capital, it would be taxed at capital gains rates. To the extent carried interest does not reflect a return on invested capital 75% of it would be taxed at the higher ordinary income and the balance at the capital gains rate beginning in 2011. The tax at ordinary income would be reduced to 50% for carried interest on the sale of assets held for five or more years.

Proponents have criticized current law as permitting hedge fund managers to reap a tax windfall. NACCED and NACo passed a resolution at the March Legislative Conference urging Congress to preserve the present law treatment of carried interest, arguing that applying the change to real estate partnerships will serve as a disincentive for real estate investments in distressed neighborhoods which often is the only reason that such investment takes place.

The House and Senate Democratic leadership hope to have the final bill on President Obama’s desk prior to the August recess.

Update from Steve Johnson, Director of HUD’s Office of Entitlement Communities

CDBG-R progress update:

Grantees are reminded that they have until July 14 to submit their next quarterly reports.  As of July 9, only 36% of CDBG-R grantees had submitted their report in FederalReporting.gov.  Grantees should not wait until the last few days to submit their reports – remember that in April, the FederalReporting site crashed on the deadline day because too many users attempted to access the website at one time!

As of July 6, over $308 million (31.46%) of CDBG-R funds have been drawn down program-wide.   149 grantees have expended 100% of their funds, and another 81 grantees have drawn down 90-99.9% of their funds.  Union County, NJ is the first $1 million-plus grant to be fully drawn down.  The number of grantees who have drawn nothing is down to 125, with another 174 grantees having drawn down 0-9.9% of their funds.  Thus, 20% of all grantees have drawn down at least 90% of their funds, and 25% of grantees have drawn down less than 10%.  Nationally, 87.6% of funds have been associated by grantees to specific activities in IDIS; only 52 grantees have not yet associated any of their funding to activities in IDIS.  See the attached CDBG-R expenditure report and the Recovery Office’s weekly summary report on all HUD Recovery funding.

55% of all grantees are above average (meaning they have drawn down 31.46% or more of their funds), but their performance is offset by a small number of large grants with very low expenditures.  An analysis of expenditure data as of June 28 showed that large entitlement grantees (grant amounts over $3 million) are expending their CDBG-R funds at a significantly slower rate than are smaller-sized grantees  (See table below).  The average drawdown rate for entitlement grantees receiving $3million or more was just under 16%, whereas for grantees receiving less than $300,000 the average drawdown rate was over 46%.  States’ collective expenditure rate was 19.9%.  Strong performance by a large number of small grantees does not overcome slow implementation rates by the small number of large grantees:  814 of the 1167 CDBG-R grantees received less than $500,000, but cumulatively they received only 36% as much money as the largest 63 grantees, and they have cumulatively drawn down less money than the largest 63 grantees.   Improving the performance of the very largest grantees will pay the largest dividends in terms of overall program performance. 

Reminder regarding NSP1 and NSP2 Quarterly Progress Report deadlines:

The Disaster Recovery Grant reporting (DRGR) system has become inaccessible due to a database server malfunction. As a result, the Quarterly Progress Reports that are due Saturday July 10 for NPS2 grantees will now be due on Monday July 12. The NSP1 grantee QPRs are still due July 30, 2010.

Revised Entitlement Communities Division Staff Assignments:

With the imminent retirement of Margy Coccodrilli and the assignment of several ECD staff to the new NSP program team, we have revised the geographical & program assignments of ECD staff.  The assignments listed below are effective as of July 5.  Additional information will be forthcoming in the near future on NSP team assignments.

Additional IDIS On Line Training Announced:

The Office of Block Grant Assistance is offering 8 more two-day IDIS OnLine training sessions over the remainder of the fiscal year.  All remaining sessions currently have ample space available. These sessions will provide instructions for navigating through the new system and will include policy and programmatic guidance for reporting in IDIS OnLine.  These sessions will cover all subjects needed for grantees to successfully process their CDBG activities and comply with CDBG reporting requirements.  Topics will include activity funding, drawdowns, activity set-up, accomplishment reporting, the new IDIS OnLine reports function, and new system features.  The training in Chicago on August 12-13 is specifically for State CDBG grantees.  The training agenda and schedule of sessions can be found at http://www.comcon.org/programs/idis.html.

Due to limited resources, these sessions will be able to accommodate only one representative per grantee.  Additional grantee staff who are interested in receiving the training are encouraged but will be placed on a waiting list and will be notified if space becomes available.  A registration website is available at www.CDBGIDISTraining.org.

NACCED Holds Committee and Board Meetings at the NACo Annual Conference Last Week in Reno

Last week NACCED held its Board and Committee meetings in Reno during the 75 th Annual Conference of the National Association of Counties. Three of NACCED’s standing committees recommended a series of policy resolutions that were subsequently adopted by the NACCED Board of Directors and subsequently by the NACo Community and Economic Steering Committee and full NACo membership.

Among the resolutions adopted were:

• Supporting FY 2011 appropriations for HUD
• Supporting the vital role of the Government-Sponsored Enterprises, Fannie Mae and Freddie Mac, in the housing finance system
• Supporting the integration of housing, transportation, energy and environmental planning trough regional efforts
• Supporting the Section 8 Housing Choice Voucher program
• Urging Congress to maintain the current law capital gains treatment of “carried interest” used by real estate partnerships
• Clarifying the eligibility of community action agencies for CDBG funding
• Supporting legislation to provide permanent authority for the federal home loan banks to issue stand-by letters of credit for tax-exempt infrastructure bonds
• Urging Congress to maintain the current cap on use of CDBG funds for public services
• Supporting the Community Building Code Administration Grant Act
• Supporting federal funding for the federal Empowerment one program.

NACCED and NACo also approved two last minute resolutions, one urging that federal policy makers treat “Property Assisted Clean Energy (PACE) programs as assessments rather than loans. A furor has developed among more than 200 communities across the country that have adopted PACE programs as a means of assisting homeowners in financing major energy efficient improvements. In early July the Federal Housing Finance Agency (FHFA), which is the conservator of Fannie Mae and Freddie Mac, told those agencies that they may not purchase mortgages that have PACE attached to them. FHFA considers PACE to be loans and not property assessments, which proponents say they are, and will not allow them to be in the first position to the mortgage should a default occur.

The second last minute resolution endorses the findings and recommendations of the Federal Interagency Council on Homelessness’s recently unveiled report, “Opening Doors: Federal Strategic Plan to End Homelessness.” The plan builds on the efforts of more than 300 communities that have developed plans to end homelessness, with four key goals:

• End chronic homelessness in five years
• Prevent and end veterans homelessness in five years
• Prevent and end homelessness for families, youth, and children in ten years, and
• Set a path to ending all types of homelessness

NACCED Holds Member/Non-Member Outreach Session in Sacramento County

A representative of the City and County of Sacramento Housing and Redevelopment Agency played host to a NACCED Member and Non-Member Outreach session this past Monday. Joining the discussion were representatives from Fresno and Contra Costa Counties and the HUD Community Planning and Development representative from the San Francisco regional office. Attendees hear Executive Director John Murphy provides a history of NACCED, how it’s structured, and a description of the many member benefits. NACCED Immediate Past President Gary Bachman, Program Manager for the Neighborhood Stabilization Program in Pima County, AZ provided his perspective as to the value of membership to his county as did Gigi Gibbs of Fresno County.

House Appropriations Committee Approves FY 2011 HUD Appropriations Bill; Senate Subcommittee Approves its Version

This week the House Appropriations Committee and a Senate Appropriations Subcommittee approved their versions of the FY 2011 Transportation, Housing and Urban Development and Independent Agencies appropriations bill. The House Committee-approved bill sets total funding for these agencies at $124.6 billion, while the Senate Subcommittee-approved version totals $122.5 billion. A chart reflecting the House and Senate amounts for HUD programs is attached.

Under both of the bills funding for the formula portion of the Community Development Block Grant program is frozen at $3.99 billion, the same level provided in FY 2010 in both bills. Both bills also provide $150 million for the Obama Administration’s “Sustainable Communities” Initiative to integrate transportation, affordable housing, environment and energy planning.

The report accompanying the House version of the funding bill, in referring to the interagency cooperation paid to the Sustainable Communities Initiative, states that the “… the level of attention paid to this effort is impressive and the Committee urges HUD to continue to work with DOT and EPA, as well as other agencies as appropriate, to the advance the goals of sustainable communities [integrated planning and project-programming]. HUD is encouraged, along with its partners, to address the needs of rural areas as well as urban centers with these resources.”

The House report further states that the Committee denied the Administration’s request for $150 million for Catalytic Competition Grants, saying “the Committee recognizes the great need for capital assistance for stalled industrial and commercial development projects in distressed areas across the country. However, the Committee believes localities could undertake these efforts with their regular Community Development Block Grant funds. In addition, creation of a new program to target the complex needs of distressed areas should be developed through the regular appropriations process.”

The CDBG Section 108 loan guarantee gets a boost under the House Committee-approved bill to a total of $427 million in loan guarantee authority. The report accompanying the bill states that the Committee rejected HUD’s proposal to impose a fee on the use of Section 108. “in fact, the fee proposal will increase the cost of capital for these projects, which will negatively impact the ability of local governments to carry out revitalization efforts in areas of low capital investment. Further, the type of redevelopment projects funded through the Section 108 program are similar to the investments the Department anticipates making in the Catalytic Competition Grants program. Since 1977, HUD has issued 1,781 commitments totaling more than $8.3 billion without a single default or delinquent payment.”

Both the House and Senate bills rejects the Administration’s proposed $175 million cut in the HOME Investment Partnerships Program. Instead, it is level-funded at $1.825 billion. Included in the House bill is language requiring HUD to notify grantees of their formula allocation under HOME within 60 days of enactment of the FY 2011 appropriations bill.

Both bills includes $19.5 billion for the renewal of all expiring Section 8 tenant-based rental assistance contracts, an increase of $1.34 billion over the FY 2010 enacted level. Included within this amount is $75 million for Veterans Affairs Supportive Housing, the same level provided in FY 2010. The funding level will support 10,000 vouchers. This funding, together with the 30,450 vouchers that have been provided in previous years, is intended to end chronic homelessness among veterans within five years. Also included within the overall Section 8 funding level in the House version is $85 million for HUD to use in coordination with the Department of Health and Human Services in a “Housing and Services for Homeless Persons Demonstration program. The demonstration is intended to break down silos among HUD and HSS programs that should be focused on homeless individuals in a holistic manner. Also included in both bills is $9.4 billion for the renewal of Section 8 project-based rent subsidy contracts, the same level recommended in the Obama Administration’s budget request. This amount is $825 million above the level of funding provided in FY 2010.

The House bill does not include any funding for the Administration’s “Choice Neighborhoods” Initiative. Instead it would provide $200 million for the HOPE VI demolition and replacement of severely distressed housing. The report accompanying the bill refers to the fact that the program has not been authorized (although Congress provided $65 million in FY 2010) and that the Committee believes that funding provided should further complete the replacement of severely distressed public housing. Choice Neighborhoods is intended to build on the success of HOPE VI and expand it to cover other assisted housing stock. The Senate version does include the Administration’s full request of $250 million for the Choice Neighborhoods Initiative.

Both bills also include $2.5 billion for the Public Housing Capital Fund, the same as the FY 2010 level and $456 million above the budget request. A total of $4.8 billion is included in both bills for the Public Housing Operating Fund. This is the same as the budget request and a $54 million increase over FY 2010.

The Housing Opportunities for Persons with AIDS gets a $15 million increase in the House Committee-approved bill to $350 million over the amount provided in FY 2010. The Senate bill provides $340 million for HOPWA. The Brownfields Redevelopment program is level funded at $17.5 million in the House bill. The budget request for this program was zero.

The House bill rejects the Administration’s call for a new $60 million capacity building program for local non-profit organizations. Instead, it would appropriate $82 million for the Self-Help and Assisted Homeownership Opportunity program.

Homeless Housing Assistance grants get a $190 million increase over FY 2010 to $2.055 billion in both bills, the same amount that President Obama asked for in his budget. The higher funding level recognizes the enactment in 2009 of the Homeless Emergency Assistance and Rapid Transition to Housing (HEARTH) Act and the desire on the part of the House Appropriations Committee for grantees to make significant progress in the prevention of, and rapid resolution of, homelessness in the Nation.

The House bill provides $825 million for the Section 202 elderly housing and $300 million for the Section 811 disabled housing programs in the House bill and $200 million in the Senate version. HUD had not requested funding for either program saying it wanted to put in place reforms to increase program efficiency.

The Senate bill provides $225 million for housing counseling, a far higher amount than the House level of $88 million, which was the amount requested in the President’s budget.

The House bill is expected to be considered by the full House prior to the August recess. Senate floor action is uncertain.

President Obama Signs Wall Street Reform Bill. $1 Billion Provided for NSP 3

This week President Obama signed the 2,300 plus page Wall Street regulatory reform bill that was passed by Congress and includes $1 billion for a round three of the Neighborhood Stabilization Program (NSP) to be made available after October 1, 2010. Earlier, NACCED, NACo and others had urged the Congress to include the funding in the bill. The provision, contained in the original House-passed version of H.R. 4173, like NSP 2, requires that grantees spend at least 50% of their funds within 2 years of receipt and 100% within 3 three years.

The provision in H.R. 4173 would allocate the $1 billion by a formula established like it was in NSP 1, and it must be established within 30 days of the legislation’s enactment. It also requires that each state receive 0.5% of the appropriation, the same as NSP 1. This provision, which reflects the Senate’s inclination toward states, has proved problematic under NSP 1for states to spend in a timely manner. The provision also permits the Secretary of Housing and Urban Development to establish a minimum grant size for direct allocation to units of local government but it may be no more than $1 million. Grantees are directed to establish procedures to create preferences for the development of affordable rental housing for properties assisted with grant funds. In addition, grantees must, to the maximum extent feasible, hire employees and use contractors that reside in the vicinity of the project.

The provision modifies current law by repealing a portion of Section 2301(f)(3)(A)(ii) of the Housing and Economic Recovery Act of 2008 (HERA) . It strikes language in HERA “for the purchase and redevelopment of abandoned and foreclosed upon homes or residential properties that will be used” with respect to the 25% set-aside for households at 50% of median income. This will give grantees more flexibility in meeting the set-aside as now they will only have to use set-aside funds to house individuals and families whose incomes do not exceed 50% of median income. This amendment applies to any unexpended or unobligated balances, including recaptured and reallocated funds, under NSP 1 and 2.

The provision also includes a definition of a notice of foreclosure as “…the date of a notice of foreclosure shall be deemed to be the date on which complete title to a property is transferred to a successor entity or person as a result of an order of a court or pursuant to provisions in a mortgage, deed of trust, or security deed.” This applies to funding under all three Neighborhood Stabilization Programs.

Finally, the bill provides that up to 2% of the funds may be used by the Secretary for technical assistance through the year 2013.

Tax Extenders Bill Remains Stalled in Senate