July 18, 1979
Page 19190
UP AMENDMENT NO. 377
(Purpose: To delete $200 million in FY 1980 funding for the special home ownership assistance program)
Mr. BELLMON. Mr. President, I have an amendment at the desk offered on behalf of Mr. MUSKIE, Mr. PROXMIRE, Mr. GARN, Mr. CHILES, and myself, and I ask for its immediate consideration.
The PRESIDING OFFICER. The amendment will be stated.
The second assistant legislative clerk read as follows:
The Senator from Oklahoma (Mr. BELLMON) for himself, Mr. MUSKIE, Mr. PROXMIRE, Mr. GARN, and Mr. CHILES proposes an unprinted amendment numbered 377.
Mr. BELLMON. Mr. President, I ask unanimous consent that further reading of the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
On page 26, lines 9-10, strike "additional amounts" and insert "an additional amount".
On page 26, lines 12-13, strike "and a special home ownership assistance program".
On page 26, line 13, strike "sections 521 (a) (1) (c) and insert "section".
On. page 26, strike lines 15 through 20.
The PRESIDING OFFICER. The Chair wishes to know whether this is the amendment on which there is a 2-hour time limitation.
Mr. BELLMON. This is the amendment, Mr. President. I yield myself 5 minutes.
Mr. President, I offer this amendment because I feel at a time when fiscal restraint is so clearly needed, it is inconceivable for the Senate and for the Congress to initiate funding for a costly new and totally untested program.
There is no question in my mind — and I am not critical of those who support HOAP, that HOAP has attractive goals — attempting to provide home ownership to very low income families in rural areas where alternate forms of housing, such as rental housing, is limited.
But let us look at the cost: Even though the Appropriations Committee describes the program as only a pilot demonstration program, the first year appropriations level is $200 million. But this is merely the tip of the iceberg. Since the HOAP subsidy would be an add-on to the existing section 502 mortgage interest subsidy program, we must add the two together to measure the total budget impact. Thus the total fiscal year 1980 cost for a "pilot program" would be $370 million. Had the program been fully funded at the administration request of $1.0 billion, the total cost of the program would have been a whopping $1.8 billion the first year.
The outyear costs of the program are especially disturbing. The $370 million is understated because there was no adjustment for inflation in the original cost estimate. Because the contracts run for 33 years, future inflation will drive costs considerably higher. I am sorry to say we will have inflation in the future. The true cost of HOAP may be 40–50 percent, or even more, higher than. the original $370 million for initial funding. This is a tremendously high cost for a program to assist 3,000 families. Three thousand families is, frankly, a drop in the bucket. If we add 3,000 more families a year, the costs will grow proportionately. And,. if the program is ever expanded to serve a significant percentage of the people eligible for it, the costs will literally be astronomical.
I think we have to face the fact that there are some things Government simply cannot afford to do in times like these, and trying to meet the total housing needs of this segment of our population I consider to be one of those things.
There are still more costs. Because of the complexity of administering the program, a bureaucracy of FmHA personnel would be needed to check eligibility, to monitor the necessary separate reserve accounts for maintenance, insurance and taxes, and to administer the recapture provision. The recapture provision is touted as a selling point of HOAP, but it will operate only if the property is sold to a noneligible, unsubsidized buyer.
This, of course, would leave fewer housing units available to low income people.
Furthermore, I do not believe that the proposed initiation of HOAP adequately takes into account the efforts already being made under other Federal programs on the housing problems of low income people living in rural areas. For example, FmHA's section 504 very low income housing repair grant and loan program provides grants and loans to low income people to make essential repairs to homes to correct health and safety hazards. The self-help housing program assists groups of families in building homes through so-called "sweat equity."
Although this program originally was targeted to families with incomes of less than $5,000, it is now primarily assisting families with incomes ranging from $7,000 to $11,000. We probably need to rework this program so that it assists the people for whom it was originally targeted, although $7,000 to $11,000 is certainly low income by most standards.. FmHA also administers a portion of the section 8 rental assistance program. Under that authority, FmHA will make commitments next year for 10,000 units of newly constructed housing which will cost $1.5 billion or more over the next 40 years.
Modification or expansion of these ongoing programs would be a preferable way of assisting additional lower income people without producing the budgetary nightmare that HOAP will bring. In addition, various welfare programs provide substantial amounts of money which
help low income people pay housing and other living costs. So it simply is inaccurate to suggest that the Federal Government is not doing anything to help house the rural poor.
I believe that even the pilot program as conceived by the Appropriations Committee threatens fiscal trouble. The authorization in the housing act is for a fully operational program of $1 billion per year and I fear it would only be matter of time before the, program reached an even higher level.
This year's pilot program will inevitably become next year's full-fledged ongoing program. Moreover, this year rural homeownership program will evitably become next year's urban home ownership program.
So what we are starting here, President, is a vastly expensive new approach to housing which I feel the country can ill afford.
We have already witnessed the disaster of HUD's section 236 program which had to be suspended after only 5 years of operation in 1973. Even though section 235 was later reactivated, the program was substantially revised and subsidies are not nearly as deep as HOAP. We simply cannot allow ourselves to repeat our past mistakes.
If FmHA is allowed to start the HOAP program, Mr. President, I think it is safe to predict that we will soon have costs of $5 billion per year, or even more. Even at that spending level, the program would still reach only a small fraction of those who would qualify. The program would also undoubtedly cause resentment and bitterness on the part of people just above the income limitations. We would have very low income people living in housing substantially better than people with higher incomes can afford.
Congress is simply going to have to accept the fact that there are limitations on how much money we can spend — on how many new programs we can start — and on how many good things we can try to do. It is to this end that I am joining in offering this amendment to the agriculture appropriations bill to delete appropriations for HOAP. I trust that the Senate will join us in defeating funding for this program, and not launch us into this expensive new endeavor.
Mr. President, I reserve the remainder of my time.
The PRESIDING OFFICER. Who yields time?
Mr. MUSKIE. Mr. President, will the Senator yield?
Mr. BELLMON. Mr. President, I yield whatever time the Senator may require to the distinguished Senator from Maine.
Mr. MUSKIE. I thank my friend from Oklahoma. Mr. President, I join my good friend and colleague, the ranking minority member of the Committee on the Budget, in support of his amendment. The bill that we have before us, the Agriculture, Rural Development, and related agencies appropriations bill for fiscal 1980, in its present form, is such that I must oppose it as reported and support the Bellmon amendment, which I believe will improve its budgetary impact.
Before I discuss the amendment, however, I should like to comment briefly on the relationship of the bill to the overall budget targets.
To begin with, the bill as reported provides $16.8 billion in new budget authority. Outlays associated with the bill total $13 billion.
Under section 302(b) of the Budget Act, the Appropriations Committee divides among its subcommittees the total budget authority and outlays allocated to the committee under the first budget resolution. Technically, H.R. 4387 is within this allocation. However, this is of little consequence at this point, for it is now clear that pressures for increased spending are projected to force the full Appropriations Committee well above its total budget allocation.
Mr. President, we confront a very difficult and dangerous situation. On May 23, when the Senate passed the first budget resolution by a vote of 72 to 17, I took this as a sign that the Senate was prepared to meet the two major fiscal challenges of controlling inflation and balancing the budget. Yet today, I must report to the Senate that the total of regular and supplemental appropriation bills expected to be reported exceed the targets of the first budget resolution by more than $5 billion.
If enacted, these appropriations will result in the fiscal year 1980 deficit rising to a level higher than the fiscal year 1979 deficit. Clearly such an outcome — coming at a time when the Congress is attempting to shrink and eventually eliminate the Federal budget deficit — is unacceptable.
In this situation, I feel I have no alternative but to support those who seek reductions in appropriations which are not of compelling necessity. Therefore, I shall vote for the Bellmon amendment to eliminate from H.R. 4387 $196 million in startup appropriations for a new home ownership assistance program — commonly referred to by its acronym as HOAP.
By way of background, it should be recalled that this new program was first authorized in the Housing and Community Development Amendments of 1978 as a supplement to the existing section 502 interest credit program of the Farmers Home Administration.
The section 502 program subsidizes down to 1 percent the mortgage interestrates paid by participating low-income rural homeowners. For rural dwellers whose incomes are too low to enable then to use the section 502 program, HOAP would provide_ supplementary grants. Eligible rural families would pay25 percent of their adjusted incomes toward mortgage principal and interest payments, taxes, insurance, utilities andmaintenance, with the Federal Government paying the remainder. Commitments would run for up to 33 years.
Mr. President, although H.R. 4387 provides appropriations of only $196 million to begin funding for HOAP, once begun,the program is expected to require continuing appropriations of nearly $1 billion per year. Thus this appropriation now before us represents only the opening wedge. Make no mistake about it, once funded, HOAP will become a permanent and enormously expensive addition to the Federal budget.
Mr. President, as I have just noted, the projected cost of HOAP itself is nearly $1 billion per year. However, since the HOAP subsidy would be an add-on to the section 502 interest creditsubsidy, it is necessary to add the two together in order to measure the total budget impact involved.
According to FmHA figures, the section 502 subsidy would be expected to require appropriations of $860 million. Therefore, the total fiscal year 1980 costof section 502 and HOAP together would be $1.8 billion.
Mr. President, it appears likely that even this does not state the true long-term cost of the two programs. Analysis by Senate Budget Committee staff indicates that even this $1.8 billion per year cost projection seriously understates the Government's financial exposure at the 16,000 units per year program level intended. This is because these projections do not make any allowance for inflation.Since contracts will run for up to 33 years, inflation must be factored into cost calculations if those calculations are to have any meaning.
Using very conservative assumptions — that both incomes and the variable cost, non-mortgage components of the HOAP subsidy grow at an average annual rate of 6 percent over the next 33 years — it turns out that assistance for 16,000 additonal units per year would be expected to cost an average of $2.6 billion per year, or 40 percent more than the $1.8 billion which has been estimated.
Mr. President, even if there were no other problems with HOAP, initial appropriations should not be provided until the program's budgetary implications are fully understood and appreciated, and until something is done to reduce its expected cost. Unfortunately, however, there are other problems with HOAP in addition to those I have already mentioned.
To begin with, it appears that HOAP would be extremely expensive and complex to administer. For each housing until assisted, FmHA personnel could be required to establish and monitor income levels, set up and run separate reserve accounts for maintenance and for insurance and taxes, calculate and make periodic payments of utility allowances, and make sure that the property is well maintained. Because the program is so labor-intensive, staff increases could be required, further adding to the cost.
In addition, one of the major selling points of the program is its so-called recapture provision, under which FmHA would be expected to recover a portion of its subsidy payments from the appreciation in any assisted property's value when that property is sold. However, for the recapture provision to work, the property must be sold to an unsubsidized buyer. Such a sale Mr. President, would reduce the number of housing units available to low income people, and force the Government to subsidize additional low income housing units.
Questions have also been raised, Mr. President, about the need for this expensive new program, when we already have so many existing programs providing for various rural housing needs. For example, according to Administration figures, 44 percent of rural people living in substandard housing units are over 60 years of age. Both the section 202and public housing programs provide subsidized housing for elderly people. In many other cases, substandard rural housing can be brought up to code with the assistance of the section 504 program that makes loans and grants to repair or construct additions to existing housing. And for people whose incomes are so low that costs must be reduced still further if they are to be able to afford decent, safe, and sanitary housing, creative use can be made of a combination of the section 502 interest credit program, the section 504 program providing grants and loans to repair or construct additions to houses, and the mutual and self-help housing program under which groups of 6 to 10 families build their own homes by mutually exchanging labor.
Finally, Mr. President, if the Government begins a major program subsidizing mortgage principal, interest, taxes, insurance, utilities, and maintenance payments for low income rural people, it will be difficult if not impossible to resist extension of such subsidiesto all low income individuals. The potential cost and budgetary impact of suchan extension, which would undermine our efforts to balance the Federal budget, must be considered in deciding whether to fund this new program.
We do have real and significant rural housing needs in this country, Mr. President, and I have always supported efforts to meet those needs through sound well-planned programs.
Unfortunately, HOAP does not appear to be such a program, and therefore I oppose its funding.
If it is funded, I fear that its enormous cost, combined with the other problems I have cited, would make it that much more difficult for rural housing supporters to convince the Executive and the Congress to give rural housing its fair share of funds. Thus, I believe that in the long run such a poorly designed program would harm, rather than help in the battle to provide decent housing in rural areas.
In conclusion, Mr. President, I would say simply to my colleagues that we face a very serious problem. If we are not careful, at a time when we are seeking to shrink the deficit, we are going to enlarge it instead. Surely we must all find this an extraordinarily unattractive prospect.
We knew at the time we enacted the first budget resolution that there was no room for starting an expensive new program such as this. And since that time the budget targets have become much tighter, not looser. We cannot preach budget balance and inflation fighting when that is good politics — at budget resolution time — and then practice profligate spending when that appears to offer some momentary advantage — at appropriations time — as though the budget and appropriations processes bear no relation to one another.
Mr. President, we just cannot conduct the Nation's fiscal business in that fashion. Rather, we must begin today to demonstrate restraint, or there will be no balanced budget in the foreseeable future, and there will be no fiscal restraint against inflation.
Mr. President, I yield back the remainder of my time.
(During the preceding remarks, Senator MORGAN assumed the chair.)
Mr. PROXMIRE. Will the Senator from Oklahoma yield 3 minutes?
Mr. BELLMON. I will be happy to yield to the distinguished chairman of the Committee on Banking, Housing, and Urban Affairs.
But before that, Mr. President, I ask unanimous consent that a "Dear Colleague" letter signed by the distinguished Senator from Wisconsin, the distinguished Senator from Maine, the distinguished Senator from Utah, and myself, be printed in the RECORD.
There being no objection, the letter was ordered to be printed in the RECORD, as follows:
U. S. SENATE,
Washington, D.C.,
July 17, 1979.
DEAR COLLEAGUE: We confront a very difficult situation. At the present rate — when all the regular and foreseeable supplemental appropriation bills are taken into account — the Appropriations Committee may exceed the funds allocated to it under the Budget Resolution by as much as $5.6 billion in budget authority and $4.7 billion in outlays, contributing to a deficit for 1980 which may actually be higher than the deficit for 1979. Clearly such an outcome — coming at a time when the Congress is attempting to shrink and eventually eliminate the Federal budget deficit — is unacceptable.
In this situation, we feel we have no alternative but to seek reductions in appropriations which are not of compelling necessity at this time. Therefore, we are requesting your support for an amendment that we shall offer to H.R. 4387, the Agriculture Appropriations Bill, to eliminate funding for a new Home Ownership Assistance Program (HOAP).
H.R. 4387 contains a $196 million appropriation to provide startup funding for HOAP. Once begun, this new program is projected to require continuing appropriations of $1 billion per year.
Under HOAP, eligible low income homeowners would pay 25% of their adjusted incomes toward mortgage principal and interest payments, taxes, insurance, utilities and maintenance, with the Government paying the remainder.
As was made clear during Senate consideration of the First Budget Resolution, and again last week during debate on the Rural Housing Amendments (S. 1064), the Congressionally approved budget assumes no funding for this program. Further, the House Agriculture Appropriations Bill provides no funding for the program, and it was included in the Senate bill only on the basis of a razor thin, 14 to 13 vote.
We believe funding for HOAP to be undesirable for the following reasons:
In this tight budget year, there is no room for this expensive and unnecessary new program. Our scarce resources should be allocated to higher priority uses.
Existing Federal programs already provide for the entire range of rural housing needs, at a cost of well over $5 billion per year.
The $196 million included in the Agriculture Appropriations Bill is merely a foot in the door. Once begun, HOAP itself would cost at least $1 billion per year, and together with the additional costs of the "Section 502" program it supplements, would result in total program housing subsidies of $2.6 billion per year.
Even this estimate in all likelihood understates the effects of inflation since HOAP costs include utilities, which are likely to increase much faster than the average rate of inflation. The subsidy for utility payments, therefore, could become a runaway cost element.
The program would be extremely expensive and complex to administer.
A major selling point of the program, the recapture provision, would require units to be sold to unsubsidized purchasers. This would reduce the number of units occupied by low income families, and force the government to build additional low income housing units merely to stay even.
Before the Government begins a major new program subsidizing home ownership costs, the potential costs and budgetary impact, which could undermine our efforts to balance the Federal budget, should be considered in deciding whether to fund this new program.
We agree that there are real and significant rural housing needs, and we support efforts to meet those needs through sound, well-planned programs. Unfortunately, HOAP is not such a program.
If funded, its enormous cost, combined with the numerous other problems we have cited could make it more difficult in the future for rural housing supporters to secure a fair share of funds for rural housing.
We ask you to join with us in voting to eliminate the proposed appropriation to begin funding for this expensive and ill-conceived program.
Sincerely,
HENRY BELLMON,
Ranking Minority Member, Committee on the Budget.
JAKE GARN,
Ranking Minority Member, Committee on Banking, Housing, and Urban Affairs.
EDMUND S. MUSKIE,
Chairman, Committee on the Budget,
WILLIAM PROXMIRE,
Chairman, Committee on Banking, Housing, and Urban Affairs.