July 18, 1979
Page 18546
RURAL HOUSING AMENDMENTS OF 1979
Mr. MUSKIE,, Mr. President, the legislation before us, S. 1064, provides fiscal year 1980 authorizations for rural housing grant programs and extends for 1 year the various rural housing loan authorizations of the Farmers Home Administration. In addition, the bill increases significantly the limitation applicable to housing assistance payment which could be made under the recently authorized, but thus far unfunded, rural home ownership assistance program.
I ask unanimous consent to have( printed at this point in the RECORD 1 table setting forth the potential on-budget cost of the various elements of S. 1064.
There being no objection, the table( was ordered to be printed in the RECORD as follows:
[Table omitted]
Mr. MUSKIE. Mr. President, this table shows that full funding of S. 1064 would result in budget authority of over $1.1 billion per year beginning in fiscal year 1980. The resulting budget outlays would amount to about $0.1 billion in fiscal year1980, but would increase steadily thereafter as contractual long term housing obligations came due.
The table further shows that the lion's share of these budget impacts would be accounted for by one program, the new home ownership assistance program, or HOAP as it is called. Funding of this program would fall in function 370, commerce and housing credit, where it would result in new budget authority of $985 million per year, and in new outlays that would begin at $30 million in fiscal year 1980 but would increase by an additional $30 million each year thereafter.
Mr. President, in the first budget resolution for fiscal year 1980 the Congress has approved function 370 spending targets of $6.9. billion in budget authority and $3.2 billion in outlays. As I explained to the Senate when the budget resolution was under consideration, these targets are such that they could accommodate continued funding of existing commerce and housing credit programs. However, unless the Congress determines to eliminate or significantly reduce funding for one or more of the major existing programs in this function, the targets clearly are inadequate to accommodate funding for any major new initiatives, such as HOAP.
Mr. President, based on the action of Congress to date with regard to programs falling in function 370 of the budget, I can now report that it does not appear that the Congress will this year eliminate or significantly reduce its funding of any major existing program in this function. Therefore, I must conclude that any funding for this new program would seem certain to cause the Congress to exceed its function 370 targets. Further, full funding would cause the budget authority target to be breached by nearly $1 billion.
Mr. President, in view of this, I feel I have a duty to alert the Senate to the fact that although the Congress may enact this new authorization for HOAP, it appears highly probable that budgetary constraints will preclude funding of the program.
This possible result was recognized and discussed at length in both the committee markup and conference on the budget resolution. The clear consensus opinion appeared to be that that result would not be without merit.
Given the budgetary pressures that are now apparent, and which make funding for HOAP an issue, I feel it is appropriate to repeat for my Senate colleagues the crux of the concerns that have been voiced about the program.
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 authorized then, and as now proposed in S. 1064, HOAP would serve as a supplement to the existing section 502 interest credit program.
The section 502 program subsidizes down to 1 percent the mortgage interest paid by participating low income rural homeowners. For rural dwellers whose incomes are too low to enable them to use the section 502 program, HOAP would provide supplementary grants.
Eligible rural families would pay 25 percent of their adjusted incomes toward mortgage principal and interest payments, taxes, insurance, utilities, and maintenance, with the Federal Government paying the remainder. Commitments would run for up to 33 years.
Under existing law, were HOAP funding to be appropriated, the aggregate principal amount of underlying mortgages that could be supported with HOAP assistance could not exceed $440 million. S. 1064 would change this limitation to $440 million per year. Using Farmers Home Administration's projections of an average mortgage of approximately $27,500; an annual activity level of approximately 16,000 additional units assisted, and average annual HOAP payments of approximately $1,875 per assisted unit, $440 million in mortgages would require $985 million in current year budget authority and result in outlays of $30 million per year over the 33-year maximum life of the loans. This is the potential cost of S. 1054's HOAP authorization, as I have previously described.
Mr. President, part of the rationale for HOAP is that it is consistent with the Farmers Home Administration's efforts to target housing aid more efficiently on those most In need. This is a commendable and desirable goal and one which I support in housing and in other program areas.
There are a number of questions that have been raised about HOAP, however, which cause me to question the desirability of increasing the authorization as S. 1064 does.
First, we must all remember that this is a tight budget year, and if HOAP were implemented at the level authorized by this bill, it would be an enormously expensive program. I have already noted the $985 million per year cost of HOAP itself. However, since the HOAP subsidy would be an add-on to the section 502 interest credit subsidy, 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 cost $860 million in budget authority and $26 million in outlays.
Therefore, the total fiscal year 1980 cost of section 502 and HOAP together would be $1.8 billion in budget authority and $56 million in outlays. Further, for each year in which the programs were funded at this level, outlays would increase by $56 million.
Mr. President, 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 additional units would be expected to cost an average of $2.6 billion per year, or 40 percent more than the $1.8 billion estimated by the administration.
Mr. President, initial appropriations for HOAP should not be provided until its budgetary implications are understood and appreciated, and until something is done to reduce its expected cost. Unfortunately, there are other problems with HOAP in addition to these.
To begin with, it appears that the HOAP program would be extremely expensive and complex to administer. For each housing unit 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 FmHAwould 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 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 202 and 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 subsidies to all low income individuals. The potential cost and budgetary impact of such an extension, which would undermine our efforts to balance the Federal budget, should 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. I, therefore, oppose increasing its authorization because if HOAP were to be implemented 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.
This is not an easy statement for me to make, Mr. President, for there is a great deal of pressure being exerted to fund and expand the HOAP program. It would be easier either to remain silent or to simply endorse the program. However, because I feel 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, I must say that I am opposed to the proposed HOAP authorization.
Were S. 1064 a bill intended solely to authorize HOAP, I would feel compelled to vote against it.
However, S. 1064 also provides important authorizations for the rural housing grant programs, and it extends for 1 year the various rural housing loan authorizations of the Farmers Home Administration. The section 502 rural housing building and repair loans, the section 515 rural rental housing program, and the section 504 very low income housing repair grants each provide very valuable and necessary assistance to all rural States. I know this to be a fact from the favorable evaluations of these programs in my own State of Maine. A good part of Maine is rural and the large number of low income rural people and the extent of substandard rural housing has brought about a great reliance on these important programs.
Because these programs are so important to the social and economic health of rural America, I intend to vote for the bill in spite of my opposition to the HOAP provision. However, I would note that I am doing so with the expectation that, as was the case last year, the HOAP authorization will not be appropriated. Yesterday, by a 14-to-13 vote, the Senate Appropriations Committee approved $200 million for a pilot HOAP program. In light of this razor-thin margin, in light of the House's refusal to appropriate any money for HOAP, and because of the serious defects in this program which I have just discussed, I expect that the Senate will want to take a very close look at this recommendation when the agriculture appropriations bill comes to the Senate floor.