During this excruciating period of fiscal cliff brinkmanship, the public debate is mostly over whether budget cuts or tax increases should play the biggest role in reducing our deficit. Largely ignored are the instances of budget cutting that make the deficit worse. In our industry, the threatened reductions actually drive up taxpayer spending while undercutting small business.
The National Housing Trust represents private and nonprofit landlords who provide affordable housing to 1.2 million low-income tenants, more than 60 percent of whom are elderly or people with disabilities. These landlords operate through what’s known as Project-Based Section 8, which now faces an across-the-board scalping without regard to national priorities.
Here’s the problem: There is a severe shortage of affordable housing in this country. As it is today, we’re providing decent housing for only about a quarter of the low-income households who qualify for them. So, if you cut Section 8, the option for low-income elderly becomes Medicaid-funded nursing homes, which cost four to six times the expense of these rent subsidies, or homeless shelters. In addition, these properties are owned and maintained by private businesses, which face the real possibility of default on their mortgages if Congress and the administration break their contracts.
Congress started Project-Based Section 8 more than 35 years ago when it passed the Housing and Community Development of 1974. At the time, legislators concluded the biggest housing issue for low-income Americans was not substandard housing, but the percentage of income they were spending on housing. So, under Section 8, tenants pay 30 percent of their income for rent. Over the decades, Section 8 programs have been phased out and new ones created, but Congress has always renewed existing subsidies.
Here’s how it works today. Both for-profit and nonprofit companies agree to provide affordable apartments for low-income elderly, disabled and vulnerable residents in return for a federal contract to pay a portion of their rent.
The federal contract allows the landlord to line up the lenders and investors necessary to build or rehabilitate and then operate these properties. If Congress goes ahead with sequestration, several bad things happen.
First, landlords try to hang on by reducing maintenance and the support services they provide that allow tenants to live independently. Residents certainly can’t pay market rents and, eventually, the money is not there to pay the mortgage. The apartment owners then face default and loss of their properties even as they try to find alternative housing for their tenants. Many of the tenants — even though they’re independent today — will be forced to seek refuge at nursing homes funded through Medicaid at $50,000 per year (compared to $8,000 for rental assistance). And any effort to “fix” the problem later with new funding may be hopeless, since lenders and investors will have run for the exits when they realized the federal government wouldn’t stand behind its word.
Sound like the sky is falling? We hope Congress doesn’t see it that way. At the National Housing Trust, we not only advocate for Project-Based Section 8; we also own and operate 14 housing communities in six states and the District of Columbia. We already are trying to figure out how long we could keep our properties open. And the sad answer is, not long. While we have operating reserves more than sufficient for ordinary concerns, they were never intended to cover deep cuts.
Owners around the country are struggling with the same problem; there are Project-Based Section 8 properties in every state.
We cannot believe that Congress — in putting sequestration in place to force action on the budget — intended to create a greater taxpayer burden. Moreover, if you want to consider additional pressing fiscal concerns, consider these:
• Nationwide, these apartment complexes annually support 100,000 jobs and generate $460 million in local property taxes.
• The Federal Housing Administration insures more than half of all Project-Based Section 8 properties. If owners default on their mortgages, the FHA will need to foreclose. The total amount insured by FHA is $13.5 billion.
These proposed cuts to Section 8 truly are penny-wise and pound-foolish. They cost the taxpayer money, drastically reduce affordable housing, hurt small business and ultimately lead down a path unfit for a caring nation.
Congress and the administration need to find some way to preserve this housing. Any fiscal cliff deal must give the appropriations committees enough flexibility and resources that they can fully fund investments that save money like Project-Based Section 8.
Michael Bodaken is president of the National Housing Trust.