Policy Points: Outlook for Housing and Community Development in the 2012 Presidential Election Year

Published by Peter Lawrence on Sunday, January 1, 2012
Journal thumb January 2012

Happy New Year! Well, I thought I’d try to start the year on a more positive note after a rather sobering year-end 2011 column.

As that column went to press, the resolution of the Super Committee’s efforts was up in the air and, as many readers no doubt already know, it failed to come to an agreement on any deficit reduction plan before its Thanksgiving deadline. Although the Super Committee’s failure represented a new low in the lack of congressional cooperation on such a high profile issue and for which there was a fair amount of pressure for Congress to act, it is worth noting that there was no immediate consequence to this failure. This is in contrast to the debt limit negotiations in August when the U.S. government faced a potentially calamitous default on its obligations, or the fiscal year (FY) 2011 budget negotiations in March, during which Congress narrowly averted a government shutdown.

Instead, the consequence of the Super Committee’s failure is now 12 months away: budget “sequestration” in January 2013, where both domestic and defense spending face across-the-board cuts, save for a few select entitlement programs benefitting low-income people, such as Social Security, Medicaid, food stamps and Medicare benefits. And even that consequence could be changed substantially. Immediately after the Super Committee’s admitted failure, some in Congress vowed to rewrite the deal in 2012, to soften the blow of sequestration on defense spending. However, President Obama also vowed to veto any efforts to reduce sequestration. What these conflicting view points portend more than anything right now is yet more dysfunction and political gridlock in 2012, especially on budget issues. This leads us to believe that Congress will end up leaving the sequestration process alone, at least until after the 2012 election “lame-duck” session, depending on the outcome of the election.

Such dysfunction and gridlock also did not bode well for the other headline events – the December 16 expiration of the temporary stop gap funding resolution to keep the lights on for most of the federal government and the December 31 expiration of various measures that included extended unemployment benefits, a two percentage-point reduction in the employee portion of Social Security payroll taxes, increased Medicare doctor reimbursement rates, and dozens of expiring tax provisions — including the new markets tax credit (NMTC) — traditionally extended by Congress en bloc for an additional year.

As this column was going to press, the resolution of these items was also up in the air. On the stop gap measure, there appeared to be an emerging consensus in Congress for a “megabus” spending bill that would cover the remaining parts of the federal government without enacting full FY 2012 appropriations, but it was being held up as leverage to get agreement on the year-end expirations.

The lack of agreement on those items was not whether to extend the payroll tax cut, the expanded unemployment benefits, or the increased Medicare doctor reimbursement rates, but on the perennial challenge of how to pay for the expirations. Many in Congress resist enacting permanent tax increases to pay for temporary tax cuts. Senate Democrats have repeatedly pushed for increased taxes on millionaires as the pay-for, while Republicans typically prefer spending cuts.

Once again, the end game on those items was in sight. It appeared likely that using the account to pay for the wars in Iraq and Afghanistan as a pay-for would eventually receive bipartisan support, and serve as the key to getting agreement on the extensions.

However, there was no resolution evident for the fate of the traditional tax extenders, which include – of particular interest to the affordable housing and community development industry – the NMTC. I hope that by the time you are reading this column, we will be able to count on yet another year of NMTC authority to do our important work, but I am afraid that might not be the case.

It is worth noting that Treasury’s CDFI Fund has announced publicly that even if Congress does not extend the NMTC it intends to release a new application and accept completed applications in 2012, pending congressional reauthorization, just as it did in 2010. This unorthodox move will provide some form of certainty and stability for the NMTC industry as it continues to grapple with tremendous demand for private investment in urban and rural low-income communities nationwide.

So there is some positive news to look forward to 2012. What else is on the horizon for housing and community development?

In early February, the Obama Administration will release its FY 2013 budget request, and the housing community will be holding its breath because the early prognosis for the HUD budget is not good. Congress used a number of accounting maneuvers to enact FY 2012 HUD appropriations that will leave HUD starting in the hole by several billion dollars. And the Washington Post recently continued its investigative series on HOME with yet another critical story, keeping the pressure on that program so crucial for the affordable housing community.

Furthermore, overall HUD budget dynamics through which Congress protects rental and homeless assistance programs at the expense of other programs and priorities is likely to continue to remove HUD even further from a role of providing capital subsidies for development.

Also expected in mid-February is an update to the Administration’s housing finance reform proposal, timed for the anniversary of the initial release. Congress spent a fair amount of time in 2011 with hearings on housing finance reform and several bills have been introduced and some piecemeal legislation has advanced modestly. Still, the parties remain far apart on what to do. I’ll focus next month’s column on what to expect on housing finance reform and the year to come.

A third development expected in February is the advancement of voucher reform legislation. Much of the Section Eight Savings Act (SESA) is based on proposals developed several years ago under the title of the Section Eight Voucher Reform Act (SEVRA), and many elements have been approved by previous Congresses. The House Financial Services Committee appears poised to act on the legislation in February, including an expansion of the Moving to Work (MTW) demonstration program through which public housing agencies (PHAs) are given waiver of rules and regulations in their public housing and voucher programs. Many housing advocates are opposed to expanding MTW, but it doesn’t appear likely such concerns will derail the bill in the House.

A newer element to the legislation is the potential inclusion of authorization of the Rental Assistance Demonstration (RAD) program. Congress provided pilot authority in the FY 2012 HUD Appropriations Act to convert as many as 60,000 units of public housing into project-based Section 8 or project-based voucher contracts, but with no additional funding. This limits the effectiveness of the conversion authority, especially for high-cost markets.

However, the approval of the RAD pilot did give some political momentum to the concept, and it is possible that additional funding for RAD conversion might be provided in 2012. Such funding would help bring in desperately needed private capital to rehabilitate public housing, and finally allow the work to truly begin to address the capital needs of the nation’s underfunded public housing stock.

But the main event for 2012 will no doubt be the presidential election. Congress tends to stop advancing major legislation in the summer in anticipation of the election, and many major decisions are likely to be postponed until after the election, including what to do about the 2001 and 2003 tax rate cuts and sequestration.

We in the affordable housing industry will need to press our case with both major presidential candidates to make sure we will continue to have the resources to do our important work. Now that’s a resolution we all should make.