Vice Chairman Santorum, and members of the Senate Housing and Transportation Subcommittee, thank you for inviting me to testify at today’s important hearing on S. 2733, the Affordable Housing for Seniors and Families Act.
I am Laverne Joseph, President and Chief Executive Officer of the Retirement Housing Foundation.1 I am honored to be here today representing the American Association of Homes and Services for the Aging (AAHSA)2 where I chair the Housing Committee and serve on the Board of Directors and the House of Delegates. I also serve as Chair of the Board of the California Association of Homes and Services for the Aging.
AAHSA is the largest organization representing not-for-profit sponsors of senior housing. Our members own and manage over 300,000 units of elderly housing including the largest number of sponsors of Section 202 elderly housing facilities. As working professionals, we know that prompt enactment of this legislation will help improve the lives of many low-income seniors who have an increasingly urgent need for affordable supportive housing.
Senator Santorum, when you, Senator Kerry, and Senator Sarbanes introduced S. 2733, you captured the urgent need for this legislation very well when you said, "Even as our national economy flourishes, many Americans are struggling to find safe, decent, sanitary, affordable housing. HUD estimates that 5.4 million families are either paying over half of their incomes for rent or living in substandard housing. Of these households, 1.4 million, or 26%, are elderly or disabled. The scarcity of affordable housing is particularly troubling for seniors and the disabled who may require special structural accommodations in their homes."
AAHSA strongly supports S. 2733. We believe the timing and momentum of this legislation offers an especially valuable opportunity to provide critically needed affordable housing and services for the elderly. Specifically, this bill
AAHSA strongly supports all sections of S. 2733, including (1) provisions to improve the Section 811 program for persons with disabilities; (2) reforms for refinancing nursing homes, hospitals and other integrated service facilities; and (3) adaptation of public housing for assisted living. I will, however, focus my comments on those matters with which not-for-profit elderly housing professionals are most experienced.
Need to Develop Elderly Housing as Part of an Affordable Continuum of Care
An unprecedented growth in our nation’s elderly population is driving a quiet but powerful revolution in elder care. The most momentous increase is in the soaring numbers of Americans aged 85 and over – those who are most likely to need special housing and services to maintain their independence. As reported by the Washington Post last week,4 not-for-profit sponsors of elderly housing and local communities are seeking more effective ways to respond to supportive service needs of older persons as they age.
This revolution in elder care has dramatic implications for government as well as for providers of elderly housing and supportive services. It will require a more effective collaboration among federal departments - particularly HUD and HHS - on federal assistance to seniors. Improvements in that assistance are vital to the millions of older Americans who are not among the affluent few who can afford alternatives created by the market alone.
A recent Harvard University study5 finds that, in 1998, renter households headed by persons aged 65 or older (one fifth of the elderly population), had a median net wealth of only $6,220, underscoring the fact that a large percentage of the elderly have limited access to the housing options and services that are most appropriate for them.
In addition, out of concern for special housing and service needs of older Americans, the Senate Appropriations Committee requested a major HUD study on the state of elderly housing. The resulting report6, which was updated at the end of last year, identified serious challenges in each of four key dimensions of elderly housing: the physical adequacy of housing conditions in which seniors are living, the affordability of suitable housing to older Americans, the accessibility of available housing to elderly persons with physical limitations, and the appropriateness of housing options to elders who have a diversity of needs. The report found severe housing needs especially among low income, frail seniors.
We are pleased that some of the report’s recommendations were incorporated in the House passed bill, H.R. 202,7 and enacted as part of HUD’s fiscal year 2000 Appropriations Act. We are pleased that other important recommendations from that report are included in S. 2733.
Importance of S. 2733 Enactment This Year
We believe the enactment of S. 2733 and the accompanying appropriations are the most important housing bills this Congress can pass for low-income seniors before it adjourns sine die. We believe this legislation would improve the quality of life for older residents as they age in our facilities, as well as elders with "worst case" housing needs, and others on long waiting lists who lack suitable and affordable housing.
We recognize that this bill does not include all of the meritorious improvements that remain to be addressed. However, given the short time frame of this Congress, passage of S. 2733 will provide a strong foundation for refinement and action by the next Congress.
Flexible Financing with Section 202 to Serve More Seniors
The Section 202 Elderly Housing program is widely recognized to be one of the federal government’s most successful housing programs. It is the "crown jewel" of HUD assistance to elderly Americans. It has well served the elderly, local communities and our nation for over four decades. It continues to prove its value.
Despite AAHSA’s strong support for the Section 202 program, we are not willing to allow the program to rest on its laurels. Section 202 is a good program, but it can be made better. With the appropriate attention, reform and resources, it can continue as one of the nation’s best means for delivering high quality housing and appropriate supportive services at affordable rents to present and future low-income seniors. S. 2733 would make urgently needed improvements to the Section 202 program.
AAHSA appreciates that Congress has shown steady support for the Section 202 program through a period of unusually tight budget constraints. Nevertheless, the funding level of $700 million for FY 2001 in relationship to the critical need is very low. In real terms that take inflation into account, the proposed funding is only about 48 percent of the 1995 level of $1.3 billion.
Given these limitations, it is crucial that Congress provide maximum flexibility in the use of federal assistance that is available so that sponsors can respond to local market requirements. We believe that S. 2733 recognizes that need and offers prudent reforms to facilitate capital improvements and supportive services suitable for elderly residents.
AAHSA especially supports the important provisions in Title III of this bill, including:
Matching grants (Sec 301) There is a critical need to expand the supply of affordable elderly housing – as clearly evidenced by long waiting lists, projected increases in the elderly population, and the key role of elderly housing in long-term care strategies. AAHSA and other elderly housing organizations have long advocated more flexibility in the use of Section 202 capital grants to leverage other public and private funds. Section 301 of the pending bill adds a new category of matching grants under the Section 202 program and requires project sponsors to obtain 15 percent of their matching grant funds from other sources. AAHSA supports the provisions in Section 301(c) to enable flexibility in the ratio of very low-income occupants in proportion to the non-federal portion of the total project, and to enable use of in-kind contributions. We believe these provisions will help "stretch" Section 202 funds and to facilitate mixed-income housing.
While AAHSA supports flexibility and mixed financing, we would prefer a leveraged grant program without a specific matching requirement, such as the proposed fifty percent limitation on non-federal matching funds. For some sponsors and local communities, the proposed matching requirements may pose only a minor difficulty; however, for others, it may pose a severe barrier to new development. We urge that the option remain for the use of Section 202 program funds without the matching requirement. We give a qualified support to the matching requirements in this bill so as to give sponsors and local communities an opportunity to gain experience with mixed financing. Based upon sponsors and local communities experience with the matching requirements, it may be necessary to make future modifications so that statutory matching requirements are compatible with effective elderly housing development in all localities where it is needed.
Eligibility of for-profit limited partnerships. (Sec.302) As not-for-profit entities, some Section 202 sponsors have faced technical difficulties that effectively prevent them from using low-income tax credit financing in conjunction with Section 202 funds. Section 302 of the bill would permit not-for-profit elderly housing sponsors to form limited partnerships with qualified for-profit organizations for the purpose of overcoming technical hurdles and including low-income tax credit financing along with Section 202 funds in a mixed financing plan. We believe this refinement corrects a source of inequity in current law.
Mixed funding sources. (Sec 303) In the past, regulatory rigidities in the use of Section 202 funding have often made it excessively difficult for sponsors to respond to the evolving requirements of their local markets. Section 303 of the bill would further the elderly housing mission by permitting not-for-profit housing providers to use various sources of financing, including federal funds for appropriate design features and construction of affordable housing for seniors.
Authority to acquire structures. (Sec 304) The bill would remove limitations in current law so that Section 202 housing providers can acquire not only RTC-held properties but also other suitable properties for use as affordable elderly housing. While the Section 202 program has been very successful for new construction of senior housing, technical language in the existing program has effectively precluded the use of Section 202 funds to acquire existing facilities.
This constraint precludes some cost-effective solutions.
For example, in recent years, a number of private investors overestimated the profit-making opportunities in the development of housing designed for seniors. While that private market enthusiasm produced some buildings well-designed for elderly housing, many of these properties were financed on the basis of overly optimistic expectations of demand from relatively wealthy elders. Moreover, some private owners now find themselves struggling to operate elderly housing (1) with a debt burden that their local market cannot support and (2) without the special dedication and management skills required to provide frail elderly residents with quality housing and services. In many cases, these properties can be cost-effectively transferred to not-for-profit owners who can serve low-income persons the current for-profit owner could not serve. AAHSA supports provisions in Sec 304 that would enable expansion of the supply of affordable housing through acquisition. We believe this is a practical, "win-win" remedy that is clearly in the public interest.
Mixed-income occupancy. (Sec 305) AAHSA members have a mission to serve low-income elders who cannot afford decent housing and services appropriate to their needs. We are firmly committed to that mission. Through long experience with federally-assisted housing, however, we have come to recognize that, in some cases, our low-income mission can be fulfilled most effectively in a mixed-income residential setting. In some circumstances, a mixed-income facility could not only stretch federal assistance to low-income residents but also serve other very needy and near-poor seniors who would otherwise be left without acceptable alternatives. We support Section 305 of the bill because it makes a prudent adjustment to current law to extend Section 202 eligibility to elders with incomes between 50% and 80% of area median income in designated "high vacancy" areas.
More flexible use of project reserves. (Sec 306) Many Section 202 properties built in the 1980’s were forced to comply with "cost-containment" regulations that have proven detrimental to the kind of elderly housing and services that older persons really require. For example, some projects were required to contain very small apartments or an excessive number of efficiency units. In addition, some of these facilities have inadequate community space to facilitate supportive services. In many communities, the rents or facilities are inappropriate for the local market. Loss of those facilities would be a tragic waste of elderly housing assets. We support Section 306 of the bill because it would permit the use of project reserves to retrofit housing that would otherwise become obsolete or unmarketable.
Mixed use and co-location of relevant activities. (Sec 307) The principal mission of supportive elderly housing is to enable aging seniors to maximize their dignity, independence and participation in their community. Supportive housing must therefore offer seniors access to commercial activities and a variety of services. An elderly housing facility cannot do that in isolation. It must be an interactive part of a network of activities, community services, and organizations.
One way to provide this interaction is through co-location of appropriate commercial and service facilities within or in conjunction with an elderly housing structure. The value of this approach has been proven in many places. In some instances, a multi-service senior center – operated by a separate government agency or private organization – has been located next to senior housing. The senior center can serve as a hub of services for residents of the elderly housing facility as well as seniors in the surrounding community. In other cases, the senior housing may provide space for various public or private agencies that serve residents of the facility as well as other seniors. Such agencies may offer adult or child day care, health clinics, intergenerational learning and computer centers.
While these examples result from creative leadership in many localities, attempts to replicate those models in Section 202 projects have been thwarted by regulatory constraints and fragmented administrative requirements. AAHSA supports section 307 of the bill which would clarify that commercial facilities benefiting residents and the surrounding community may be located and operated in Section 202 projects.
Mixed financing, mixed use. (Sec 308) The reasons for co-location also make it clear that it may sometimes be appropriate to develop and manage Section 202 units within the same facilities as privately-financed housing, including market rate housing. Some believe HUD already has the authority to provide Section 202 assistance in such a setting; however, regulations have effectively precluded these alternatives. AAHSA supports Section 308 of the bill to enable elderly housing providers and HUD to explore mixed financing opportunities through a limited pilot program in five Section 202 projects.
Developing Affordable Assisted Living
The average age of residents in elderly housing is increasing dramatically as residents age in place. Most residents do not want to move out of their homes even when they need a higher level of care and services. An estimated 30 percent of people living in federally assisted housing for the elderly are at risk of moving to a nursing home or other costly institutional setting to obtain the higher level of assistance they need. In response, some elderly housing facilities have begun to provide residents with increased access to supportive services and health care as they age in place, including personal care that is sometimes identified as "assisted living."
In the past, many federally assisted elderly housing facilities were designed only for "independent living." That is, they were structured to provide housing, but not to accommodate the supportive services that are now known to be needed by increasing numbers of frail elderly residents. As a result, these older housing facilities are themselves "aging in place" with an urgent need for retrofitting, repair and/or modernization, but they lack the resources within their operating budgets, reserve accounts, or through rent increases to accommodate these needs.
To serve current residents, these facilities need to be structurally updated to accommodate an increased level of services for the frail elderly, including conversion of units to "assisted living." In some instances, a facility may not need or desire to convert to a full "assisted living" model; instead, the facility may only require structural changes to accommodate supportive services at a higher level than is now possible.
AAHSA supports provisions in Section 309 of the bill that would authorize competitive grants for capital repair, as well as for conversion of dwelling units to assisted living. This would be a highly cost-effective way to serve some of our most frail seniors and to greatly extend the useful life of existing elderly housing facilities.
Last year, Congress enacted language to enable the conversion of federally funded housing units to assisted living. That was limited to Section 202 projects in fiscal year 2001. On March 17, HUD issued a Notice of Funds Availability (NOFA)9 for competitive grants to enable Section 202 facilities to convert units to assisted living. The deadline for application was yesterday, July 17. Based upon experiences with the NOFA, as well as other sponsors seeking to provide affordable assisted living, we ask the Committee to make a few important refinements to the language in Section 309.
An "assisted living facility," as defined by Section 232(b)(6) of the National Housing Act, must provide a separate full-scale dwelling unit for each resident, common rooms and other facilities appropriate for the provision of the supportive services that will be made available to the residents. When calculating the rent for a dwelling unit in an assisted living facility (not including charges attributable to services related to assisted living), federal assistance must take into account the additional cost of capital investment and operation of those facilities, such as maintenance, management and other overhead-related costs.
We recommend that HUD be required to establish a fair market rent for dwelling units in an assisted living facility that is higher than the fair market rent established for units of comparable size located in the same market area but in a non-assisted living facility.
We recommend that the bill either (1) allow for a total minimum remaining use restriction of 20 years, which could incorporate existing restrictive use or (2) authorize long term rental assistance contracts of the period of the use restriction -- under generally similar terms and contingent on the availability of annual appropriations.
We recommend that the bill give the HUD Secretary authority to grant waivers, as needed, to overcome these and other unforeseen obstacles.
Construction of Affordable Assisted Living
In addition to provisions noted above, AAHSA also strongly supports provisions to expand the construction of affordable assisted living facilities where they are urgently needed.
As a good step in this direction, AAHSA supports the Administration’s proposed $50 million in five-year operating subsidies to be used in conjunction with Section 232 insurance to construct new affordable assisted living facilities to serve 1,500 low-income elderly. The funding linked with the FHA insurance program would directly subsidize no more than 20 percent of the units in any given facility, thereby creating as many as 7,500 new assisted living units. Under the HUD proposal, funding would go to states and localities offering the most innovative plans for combining their service funds with HUD funds, and awarding both to qualified local developers.
AAHSA enthusiastically supports this proposal. We agree that linking operating subsidies with FHA insurance can do much to encourage banks and developers, who are now familiar only with the higher-income assisted living market, to support production of affordable assisted living.
We recommend that Congress provide sufficient flexibility in the Section 202 program to give not-for-profit sponsors an option to use Section 202, including mixed financing, for construction of affordable assisted living facilities. We urge you, however, to establish a separate Continuum of Care for the Elderly account to fund the proposed affordable assisting living production program at $50 million in operating subsidies, separate from the Section 202 program, as proposed.
Service Coordinator Funding and Outreach
AAHSA supports the $50 million authorization for (1) service coordinator grants, (2) renewal of expiring service coordinator contracts and (3) the Congregate Housing Services Program.
Service coordinators serve as the lynchpin for linking community services to the elderly. As an emerging and important profession, service coordinators are gaining recognition for making vital contributions to an affordable continuum of care in elderly housing facilities. They provide indispensable assistance to many older persons who have difficulty gaining access to supportive services in their communities.
AAHSA recognizes that funding for service coordinators is an extremely cost effective way to improve the life quality of frail elderly residents. Until recently, however, only a few service coordinators were funded in federally assisted elderly housing facilities. We believe this funding should be expanded and provided through a predictable, regularized process. While it is our understanding that service coordinators may be funded as a part of a project’s routine operating expense, many elderly housing facilities are presently unable to use this procedure because (1) current operating budgets won’t permit it and (2) doing so would require a rent increase that exceeds cost limits under the Section 8 rent subsidy.
AAHSA recommends that:
AAHSA supports provisions in S. 2733 that expand the ability of service coordinators in federally assisted housing to serve other low-income elderly living in the vicinity of the project. We believe, however, that Section 341(b)(3) in the bill is too restrictive, limiting coordinators to serve only low-income elderly persons in the vicinity.
AAHSA recommends that this provision be made more practical by explicitly enabling service coordinators to serve as a resource for all of the needy elderly persons in the nearby community – both the poor and the near poor.
Preserving the Supply of Affordable Housing
Last year, as part of HR 202, Congress enacted legislation to address concerns with the potential loss of the existing supply of affordable housing as owners with expiring Section 8 contracts threatened to opt out of federally assisted housing. AAHSA supported this aspect of the bill, particularly provisions to protect low-income elderly residents in buildings that were converted to market rate housing. Unfortunately, Congress did not simultaneously enact a related proposal for matching grants to state and local governments to develop preservation programs. We are therefore pleased that S. 2733 includes this important program to help preserve and replace affordable housing. AAHSA particularly supports Section 402 of this bill, which establishes a competitive grant program for not-for-profits to acquire eligible projects and ensure they will remain affordable for low-income persons, including the elderly.
AAHSA recommends that – in addition to these measures – Congress authorize a pilot program to demonstrate the benefits of developing alternative sites in the community for projects that are lost through opt outs. Local market forces may actually dictate the opt-out choice where there are insufficient incentives to make it cost-effective to preserve affordability for low-income residents. The demonstration program should (1) allow the current for-profit owner to opt out and (2) shift available resources to an alternative site in the same community. Through a partnership between the local government and not-for-profits, an alternative site for affordable housing could be developed, including the reallocation of Section 8 contracts intended for the existing site (the incentive value of the 5 year contract renewal). To protect existing residents, vouchers could be used to provide sufficient time to develop a suitable alternative site. Existing residents could be given a preference to move to the alternative site.
Local governments should have the flexibility to (1) pool the Section 8 contracts from several existing facilities whose owners choose to opt out and (2) reallocate the Section 8 assistance to one or more not-for-profit sponsors to acquire or develop an alternative site in the community.
AAHSA also recommends that Congress authorize a study of the financial impact of providing for-profit elderly housing owners with tax incentives to encourage sale to not-for-profits of properties suitable for affordable elderly housing.
Assistance to Section 236 Projects
AAHSA strongly supports Section 403 of the bill, which would enable owners of uninsured Section 236 projects to retain excess income. During a 5-year moratorium on the Section 202 program -- from 1969 to 1974 -- many not-for-profits had access only to Section 236 assistance to develop affordable elderly housing.
AAHSA recommends that Congress authorize a study of the special needs of not-for-profit sponsors of elderly housing facilities funded under the Section 236 program. The study should consider options for converting these properties to the Section 202 capital advance program with a PRAC.
Clarification on Section 202 Refinancing
AAHSA is pleased that S. 2733 codifies the refinancing policies for the Section 202 program. Under Title I of the bill, HUD would approve prepayment of any Section 202 indebtedness at the request of project sponsors. The criteria established for projects require the owner to operate the project until the maturity date of the original loan under terms that are at least as advantageous to existing and future residents as the terms required by the original loan agreement. We agree with the criteria established for options to prepay, and we believe this approach is sound public policy. We support provisions in 101(b) that permit any third party to serve as a source of refinancing, and make available for the benefit of the project 50% of any savings resulting from refinancing, such as reduced Section 8 or other rental housing assistance.
AAHSA is concerned, however, that the legislation does not clearly address those project sponsors who simply want to prepay their loan without refinancing. For example, the legislative language may not cover Section 202 projects built before 1974 with a three percent interest rate. The project sponsor may simply want to prepay the remaining debt on the loan without assuming new debt.
AAHSA recommends the legislation allow Section 202 project sponsors to prepay without requiring them to refinance the project as long as they adhere to previously established affordability restrictions.
Financial Restructuring and Conversion Options
AAHSA has for several years pressed for a prudent, long-term solution to the financial and administrative pressures on our older elderly housing stock. Our first efforts pre-dated and anticipated the "crisis" with expiring Section 8 contracts. At the time, we focused on various alternative approaches to preserve affordable housing for very low-income older persons. We addressed the resource needs of aging residents and aging buildings in light of changing government capacity and uncertainty over future funding.
Our work demonstrated the need for the financial restructuring of existing Section 202 mortgages. We determined that the most workable solution is to give sponsors of pre-1990 Section 202 projects the option to convert to the modern Section 202 Capital Advance with its accompanying Project Rental Assistance Contract (PRAC). Under this approach, HUD would forgive the mortgage and shift the source of operating assistance from Section 8 to a PRAC. An explanation and justification for this conversion process, is highlighted in an AAHSA white paper.10 Included in this document are some facility examples, including RHF projects and projects in states represented by members of this important Committee.
AAHSA is pleased that HR 202, as passed by the House, provided an option for pre-1990 Section 202 projects to be converted to the post-1990 Capital Advance with Project Rental Assistance Contract (PRAC). However, when Congress enacted the HUD appropriations for fiscal year 2000, this provision was deferred and Congress instead required HUD to study the net impact on the federal budget of (1) forgiving certain Section 202 mortgages and (2) the need for future appropriations for Section 8 rental assistance if debt forgiveness does not take place.
HUD’s report11 was sent to the House and Senate Appropriations Committees in May, 2000. HUD’s study used two methods to analyze the budget impact: (1) a nominal cash flow analysis, and (2) an analysis of budget scoring implications of the current Credit Reform Act and rules pursuant to the Budget and Enforcement Act (BEA).
The report, points out that the cost and benefits associated with forgiving the loans owed to HUD are affected by the current rules governing debt forgiveness. If actual cash flows are considered, any cost of debt forgiveness will be fully offset by the reduced need for future appropriations and the recision of the current account balance. According to the report, "there is no inherent cost to the government of forgiving the outstanding Section 202 loans if all current score rules, under the BEA, are assumed not applicable." The report recognized that HUD would forego $19.3 billion in future principal and interest payments on the forgiven loans but, by the same token, HUD would save the cost of Section 8 subsidies that would otherwise go to make those principal and interest payments. The report notes, however, that if the analysis is made with current budget scoring rules, the budget would have to accommodate the present value of the foregone mortgage payments, of $3.2 billion in both budget authority and outlays. That full amount would be "scored" in the year in which the debt is forgiven – most of the resulting savings would not be shown until later years.
Furthermore, the actual scoring of the loan obligation or debt forgiveness would be dependent on which Congressional committee takes action. As stated in the report, "Under the current budget scoring convention and pay-as-you-go (PAYGO) rules, if the Authorizing Committee acts on the modification, it would be considered on the mandatory side of the budget and the scoring will not impact the VA-HUD Appropriations Subcommittee. It will however, score as a PAYGO cost. If the Appropriations Committee acts on the modification, then the action would be considered discretionary spending and the amounts would be scored against the VA-HUD-IA Appropriations Subcommittee bill."
In essence, the cost and benefits associated with forgiving the loan owed to HUD are different depending on the rules which govern the debt forgiveness. While S. 2733 does not include provisions for debt conversion, we believe that this HUD study helps make a compelling case for the feasibility and prudence of debt conversion. We believe that including a provision for financial conversion of Section 202 facilities in S. 2733 could set the stage for appropriate modification of the scoring rules to reflect the real economic and cash flow effects of conversion.
AAHSA is thankful for the leadership this committee has provided in national elderly housing policies and for this opportunity to testify. We are pleased to be able to contribute to the committee’s deliberations on these critical issues, and we urge your support for the recommendations outlined in our testimony.
S. 2733 would make Section 202 more cost-effective and easier to administer – for both project sponsors and the government.
We believe that passage of the bill will provide a strong foundation for future actions vital to making elderly housing an integral part of an affordable continuum of care for the elderly and persons with disabilities.
AAHSA respectfully urges prompt enactment of this important legislation.
NOTE: Pursuant to clause 2(g)(4) of Rule XI of the Rules of the House of Representatives, the organization of the individual testifying has received a federal grant or contract during the current fiscal year or either of the two previous fiscal years, however the organization that he is representing, the American Association of Homes and Services for the Aging has not received a federal grant or contract during the current fiscal year or either of the two previous fiscal years.
Please direct questions on this AAHSA testimony to:
Director for Housing Policy,
American Association of Homes and Services for the Aging
901 E Street, NW, Suite 500
Washington, D.C. 20004
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