Section 202 Legislative Discussion Draft

Information by State  Print version   Features   Section 202 Reform Bill   Section 202 Reform - Analysis We invite your feedback on these discussion drafts in order to assist HUD and the Administration in developing a formal proposal. Please email your comments to Benjamin T. Metcalf.

The Section 202 program has provided 400,000 affordable homes over the last fifty years to the elderly, including many with extremely low-incomes or significant health concerns. The need, however, is still great. For example, The Seniors Commission Report shows that by 2020, there will be 2.6 million elderly who require assistance with activities of daily living or have cognitive or mental disabilities and are at 150% of poverty or lower. It is critical that the Section 202 program be restructured in a way that enables it to respond most effectively to this need. We must also take this opportunity to align Section 202 with other federal rental subsidy programs as part of HUD's Preserving, Enhancing and Transforming Rental Assistance (PETRA) effort to further increase administrative efficiency.

Overview of HUD's Legislative Proposal to Reform Section 202

	Guiding Principles - 1) The proposal only applies for new Section 202 projects. 2) It creates and sustains more affordable units at a lower initial cost than under the status quo. 3) It streamlines and modernizes the program to reduce administrative processing and increase the likelihood of units successfully being completed under a shorter timeframe. 4) And it ensures that new housing serves as a platform for the elderly to access key services required to age in place.
	Converts the PRAC to Project Based Rental Assistance - By bringing newly funded Section 202 projects over to project-based rental assistance, HUD can align with PETRA, better check operating cost escalation, and better leverage private investment.
	Converts Up Front Capital to a Gap Financing Source - Affordable housing today is routinely financed with a combination of tax credits, commercial construction loans, and/or assistance from the local or state government. A gap financing role allows for fewer HUD funds per unit while achieving a similar or greater policy reach. In addition, as a gap funder, HUD can reduce its regulatory oversight by relying in part on the other parties (investor, commercial lender, or local jurisdiction) that also support a project's success.
	Uses Planning Grants to Ensure that Applicants are Ready to Go When Funded - Converting the existing 202 predevelopment grant to a planning grant will enable non-profits without access to capital to increase their capacity for the initial project planning, design and financing, to help them better compete for section 202 gap financing and operating subsidy
	Better Serves the Frail Elderly Who Wish to Live Independently - The proposed legislation would prioritize projects whose sponsors set aside a number of units in each project for frail elderly relying on PACE or Medicare/Medicaid Home and Community Based Services waiver and/or through co-locating Section 202 projects with community based health care facilities.
	Increases Flexibility to Allocate and Award Funds - The proposed legislation would allow additional qualified tax-exempt entities such as local governments and public housing authorities to participate in the program. In addition, HUD has traditionally interpreted the current statute to necessitate allocation of funds out to the 51 field offices. This legislation makes clear that HUD can allocate funds over larger geographies (such as the ten federal regions), and as warranted by actual housing need (e.g. removing the 15% non-metropolitan allocation in favor of a percentage that is set every year based on non-metropolitan low-income elderly with worst case housing needs), to ensure that projects of an adequate size and scope go to the communities and households that most need this housing.