Subcommittee on Housing and Transportation

Hearing on the HUD Section-8 Opt-out Crisis

Prepared Testimony of the Honorable Christopher S. Bond (R-MO)
United States Senator

9:30a.m., Thursday, July 1, 1999

Mr. Chairman, Senator Kerry, Members of the Subcommittee, I thank you for inviting me to testify today on the severe problems facing our nation because of HUD's failure over the last several years to establish an effective program for renewal of section 8 project-based contracts. This has become a housing crisis. In my state of Missouri alone, section 8 contracts on over 23,000 units will expire over the next 5 years. Nationwide, section 8 contracts on over 14,000 multifamily housing projects with over I million units will expire over the same period of time.

Moreover, according to the National Housing Trust, during 1998 alone, owners of 219 properties with some 25,488 units section 8 units voluntarily opted out of receiving federal rental subsidies under the section 8 project-based program. It also has been estimated that we are losing another 3,000 section 8 units a month because of HUD's inaction. I wish we had better numbers - it is important that we have better and accurate numbers - and I am waiting for HUD to provide this information.

This section 8 opt-out problem has become a housing crisis, in large part, because HUD has, until recently, refused to renew section 8 project-based contracts at market levels. This has been HUD's policy, as stated in HUD Directive Number: 98-34 (October 169 1998) for FY 1999. In response to this policy of underfunding section 8 contracts, many owners of section 8 housing have refused to renew their section 8 contracts and the housing has been converted to market rate housing and lost as affordable, low-income housing inventory. This means that the assisted low-income families in this housing often have to move because the new rents will be too high for replacement section 8 vouchers. This is particularly troublesome for the elderly and for persons with disabilities who have come to view this housing as their homes and where the housing often comes with needed services.

I also want to be clear about the parameters of the section 8 opt-out crisis. HUD has the legal authority to renew expiring section 8 contracts at the market rent, but has failed to implement this authority. Congress in the Multifamily Assisted Housing Reform and Affordability Act of 1997, as enacted on October 27, 1997 in the VA/HUD FY 1998 Appropriations Bill, provided HUD with the authority to renew section 8 contracts up to the rental market level. This was almost 2 years ago, and HUD has only announced recently a renewal policy for section 8 market-based rents that it has not yet been able to implement. And despite press releases to the contrary, I am not convinced that HUD intends to renew these contracts except with an additional push from the Congress.

I also want to be clear about funding. HUD has enough funds to pay for section 8 contract renewals, even though HUD would have you believe otherwise. In particular, HUD has significant carryover funds in the Housing Certificate fund in excess of what is needed for renewing all expiring section 8 contracts this year. Instead of committing any of these funds for the renewal of section 8 project-based contracts, HUD has dedicated these funds as part of its FY 2000 budget for general section 8 contract renewals. Nevertheless, this money is available now and can be used to renew these expiring section 8 contracts. The real problem is that HUD does not have the "will" or " commitment" to fund these contracts. In fact, the biggest problem is commitment because you cannot legislate commitment. We need to find a way to make HUD want to join with us on this policy issue and commit to renew these section 8 project-based contracts.

HUD's lack of commitment to section 8 project-based housing has been a problem throughout this Administration. From the start, both HUD and the Administration have had a stated policy of opposing section 8 project-based assistance in favor of vouchers. And this is true whether we are talking about elderly housing, housing for persons with disabilities, or housing that is located in very low vacancy areas, such as rural areas where there is no available housing or high-cost urban areas like Boston and San Francisco. This also has been a problem and issue in the past with the Section 202 Elderly Housing program and with the Section 8 Mark-to-Market inventory.

Mr. Chairman, I also plan today to introduce the Save My Home Act of 1999. This legislation will restate and reemphasize the need for HUD to use its best efforts to renew all expiring section 8 project-based contracts. The bill also provides new authority for section 8 enhanced or "sticky" vouchers to ensure that families in housing for which owners do not renew their section 8 contracts will be able to continue to live in their housing with the Federal government picking up the additional rental costs of the units. The use of sticky vouchers is intended as a last resort. HUD first must push for the renewal of the section 8 project-based contracts.

The Save My Home Act of 1999 also focuses on appraisals so that the cost of this housing reflects the true market value of the rental units. This has been a huge problem and will continue to be a problem until HUD develops the capacity and expertise to appraise adequately the market-based value of the units in these multifamily housing projects. I am hopeful that HUD will use this legislation as a blueprint for addressing the section 8 opt-out crisis.

One final point is that I know there is interest in both the House and Senate in funding a grant program to assist in the sale of section 8 projects to nonprofits and tenant groups. While I support the concept of selling section 8 projects to nonprofits and tenant groups, I am troubled by the thought of buying projects that the Federal government has already paid for several times over through the use of section 8 assistance. This program sounds like another reiteration of the preservation program which we misguidedly funded over several years through the VA/HUD Appropriations Subcommittee, resulting in fraud and abuse as we significantly overpaid the value of these projects when we could have been using those funds for more fiscally responsible, affordable housing purposes. The Save My Home Act of 1999 does include a provision that requires HUD to establish procedures to facilitate the voluntary sale or transfer of section 8 properties with a preference for nonprofits, tenant groups and public agencies.

I look forward to working with interested Members of this Subcommittee and the Secretary of Housing and Urban Development on these very important issues. I know that we all want to find the right solution.

Thank you, Mr. Chairman.

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