Federal and State Housing

You asked (1) what the federal guidelines are for terminating the subsidy on, transferring or the selling of, subsidized federal housing units if doing so will result in the units no longer being affordable; (2) how many Connecticut housing units are federally subsidized; (3) for state requirements for the disposing, transferring, or selling subsidized state housing and for the legislative history of CGS § 8-64a; and (4) how does Connecticut’s law compare to that of Rhode Island and Massachusetts for both state and federal housing projects.

We are currently gathering information about Rhode Island and Massachusetts and will update this report when we receive it.

Federal Department of Housing and Urban Development (HUD) programs insure mortgages that finance the construction or rehabilitation of various rental housing projects. Additionally, under HUD’s Project based Section 8 program, landlords can apply for subsidies for units they rehabilitate and subsequently rent to eligible households.

Federal law authorized in 1996 allows the owner of HUD subsidized projects to prepay or to voluntarily terminate a mortgage insurance contract, thus ending the subsidy, according to the National Housing Law Project (NHLP), a national housing law and advocacy center. Owners must give between 150 days and 270 days notice that they may end the subsidy by prepayment to tenants, HUD, and local government.

When an owner decides not to renew a project-based Section 8 contract, he must give one-year notice to HUD and tenants. Owners who fail to give proper notice when a contract expires may (1) renew the contract for up to one year or (2) allow tenants to pay the same share of the rent that they paid under the subsidy until one year after he serves proper notice (42 USC 1437f(c)(8)).

In both pre-payment and non-renewal instances, when the owner gives proper notice, tenants are eligible for enhanced vouchers (which give them an opportunity to qualify for more expensive but reasonable rents or remain in their unit at the market rent level). But the vouchers have limitations, according to NHLP, such as losing the enhancement when a tenant moves.

There are nearly 20,000 federally subsidized units in 350 developments across Connecticut, according to the testimony of attorney Mary Conklin of Connecticut Legal Services before the Housing Committee on February 17, 2004. Attachment 1 contains a list of HUD subsidized properties and their locations.

State funded housing units cannot be disposed of (e. g. , sold or replaced) in anyway that would make them unavailable to low- or moderate-income families, unless the Department of Economic and Community Development (DECD) commissioner allows it after a public hearing and notification process (CGS § 8-64a). Notably, in March 2004, the Attorney General’s office sent a letter to DECD stating that the requirements under 8-64a apply to a housing project that has received federal funding, but no state funding, if the housing authority operating the project has received any state financial assistance. Attachment 2 is a copy of the letter.

The legislature enacted CGS § 8-64a in 1988 and most recently amended it in the 2004 Session under the provisions of PA 04-2, May Special Session (MSS), which added housing projects that are exempt from the disposal and notification provisions.

Certain HUD programs insure mortgages that finance the construction or rehabilitation of various affordable rental housing projects. For example, the purpose of Mortgage Insurance for Rental Housing program, “Section 207,” is to increase affordable rental housing units for middle-income families by providing Federal Housing Administration (FHA) mortgage insurance for lenders that HUD approves. (FHA insures mortgages on multifamily homes and single family homes. )

HUD no longer uses Section 207 for new construction and substantial rehabilitation (although it is still authorized to do so). It has become the primary insurance vehicle for the Section 223(f) refinancing program. New construction and substantial rehabilitation multi-family projects are now insured under the Section 221(d)(3) and Section 221(d)(4) programs, which provide housing for moderate-income people, elderly people, and the people with disabilities, according to HUD’s website.

Section 8 is the federal rent subsidy program for low-income households. Congress created the Section 8 program in 1974 to subsidize rents in privately owned housing for low-income households. HUD’s Section 8 program provides project-based subsidies to landlords to make units affordable and tenants with housing vouchers (subsidies) that allow them to afford rent.

With the project-based Section 8 program, landlords can apply for subsidies for units they rehabilitate and subsequently rent to eligible households. These subsidies stay with the units after the households move. Under the Section 8 tenant-based housing choice voucher program, a public housing authority (PHA) issues an eligible family a voucher and the family finds a unit. If the family moves, it maintains the voucher. In both cases, the PHA must annually certify the person’s or household’s eligibility.

Federal law allows the owner of a HUD subsidized project to prepay or to voluntarily terminate a mortgage insurance contract, thus ending the subsidy. But an owner can only do so if:

1. the owner provides notice of intent to prepay or terminate, as prescribed by the HUD Secretary, to each tenant of the housing development, the Secretary, and the chief executive officer of the appropriate State or local government with jurisdiction where the housing is located, between 150 days and 270 days before the prepayment or termination;

2. such prepayment or termination is consistent with the terms and conditions of the mortgage on or mortgage insurance contract for the project; and

3. the owner involved agrees not to increase the rent for any unit in the project during the 60-day period beginning on the prepayment or termination date.

1. it is necessary to effect conversion to ownership by a priority purchaser (as defined in section 231(a) of the Low-Income Housing Preservation and Resident Ownership Act of 1990 (12 U. S. C. 4120(a)) or

2. the owner will otherwise ensure that the project will continue to operate, at least until the maturity date of the loan or mortgage, in a way that will provide rental housing on terms at least as advantageous to existing and future tenants as those required by the program under which the loan or mortgage was originally made or insured (42 USC 1437f(c)).

Enhanced Section 8 Vouchers. Federal law requires HUD to provide enhanced Section 8 vouchers to eligible tenants residing in a project at the time of a prepayment or termination that ends a subsidy (42 U. S. C. § 1437f(t)). The enhanced vouchers allow tenants to afford the rent increases when the project converts to higher market rents. But, according to the NHLP, tenants often have problems with the enhanced vouchers. For example, a tenant may lose the enhancement when he or she moves and PHAs may re-screen the tenants using stricter standards than those for the project-based subsidies.

Project-based vouchers are a component of a PHAs Section 8 housing choice voucher program. An owner signs a contract to either rehabilitate or construct the units and to set-aside a portion of those units as affordable. When an owner decides not to renew a project-based Section 8 contract, he must give one-year notice to HUD and the project’s tenants (42 USC 1437f(c)(8)).

State law prohibits a housing authority that receives or has received any state financial assistance from selling, leasing, transferring or destroying (or contracting do so) any housing project or part of a housing project if the project or portion of it would no longer be used as low- or moderate-income rental housing. But the DECD-commissioner may grant written approval for the sale, lease, transfer or destruction of a housing project operated by a housing authority that has received state financial assistance after a public hearing, if he finds:

1. the sale, lease, transfer or destruction is in the best interest of the state and the municipality in which the project is located;

2. an adequate supply of low- or moderate-income rental housing exists in the municipality where the project is located;

3. the housing authority has (a) developed a plan for the sale, lease, transfer or destruction of such project in consultation with the residents of such project and representatives of the municipality where the project is situated and (b) has made adequate provision for said residents' and representatives' participation in such plan; and

4. any person who is displaced as a result of the sale, lease, transfer or destruction will be relocated to a comparable dwelling unit of public or subsidized housing in the same municipality or will receive a tenant-based rental subsidy and will receive relocation assistance.

By law, the commissioner must consider the extent to which the housing units which are to be sold, leased, transferred or destroyed will be replaced in ways which may include newly constructed housing, rehabilitation of housing which is abandoned or has been vacant for at least one year, or new federal, state or local tenant-based or project-based rental subsidies.

The commissioner must give the residents of the housing project or portion thereof which is to be sold, leased, transferred or destroyed written notice of said public hearing by first class mail not less than 90 days before hearing. The written approval must contain a statement of facts supporting the commissioner’s findings.

Certain developments are exempt from the above requirements, including phase I of Father Panik Village in Bridgeport, Elm Haven in New Haven, and Pequonock Gardens Project and Evergreen Apartments in Bridgeport. PA 04-2, May Special Session, additionally exempted:

1. Quinnipiac Terrace/Riverview in New Haven, Dutch Point in Hartford, Southfield Village in Stamford and

2. Fairfield Court in Stamford upon HUD approval of a HOPE VI revitalization application and a revitalization plan that includes at least the one-for-one replacement of low and moderate income units.

In 1988, the legislature enacted PA 88-267 (sHB 6045, favorably reported from the Housing and Planning and Development committees), which prohibited state-financed housing authorities from conveying or destroying a housing project for one-year if the action would remove the project from the low- and moderate-income rental market, among other things. The bill was amended on the floor of the Senate to exempt two federally funded projects and passed as amended on consent, April 27, 1988. It passed the House on April 30, 1988, 144-0. There was no substantive debate in either chamber.

A year later, PA 89-113 (sSB 421, favorably reported by the Planning and Development Committee) removed the one-year limitation and added specific findings that the DECD commissioner had to make before

approving an action that would eliminate affordable units. After some debate about tenant management of public housing developments, the Senate passed the bill 35 to 1 on April 19, 1989. The House passed the bill 144 to 1 on April 26, 1989 with no debate.

In 1996, PA 96-194 deleted a provision requiring one-for-one replacement of housing units if an action was taken that eliminated affordable units. The following year, PA 97-299 required the DECD commissioner to find, in addition to other required findings, that the PHA has a plan (1) for removing the units in consultation with the project's residents and municipal representatives and (2) made provisions for their participation before giving approval to a PHA to remove units from availability for low- or moderate-income rental housing. The act also modified the finding concerning tenant displacement.


August 25, 2004		2004-R-0652
FEDERAL AND STATE HOUSING

By: Joseph Holstead, Research Analyst