Rural Development Hearing Highlights Rental Assistance Contract Challenges

WASHINGTON, D.C. – October 27, 2015 – (RealEstateRama) — The Senate Appropriations Subcommittee on Agriculture, Rural Development, Food and Drug Administration and Related Agencies held a hearing titled “Review of Rural Development in 21st Century America” on October 21. Witnesses in the two-panel hearing included US Department of Agriculture (USDA) Rural Development (RD) officials and industry stakeholders. The hearing focused on RD programs including Rural Utilities Service and Rural Housing Services (RHS).

During the first panel, Subcommittee Chairman Jerry Moran (R-KS) asked RD Undersecretary Lisa Mensah if USDA had underestimated its rental assistance renewal needs for Section 515 rural rental housing and Sections 514 and 516 farm labor housing, as laid out in its Fiscal Year (FY) 2016 budget request. Mensah acknowledged that funding rental assistance was an ongoing challenge and testified that requirements forcing USDA to submit budget requests two years in advance are partly to blame for the discrepancy. Chairman Moran urged Mensah to work with the Subcommittee to provide more accurate forecasts, explaining that appropriations bills have a fixed amount of funding to work from and this would affect other USDA programs.

Ranking Member Jeff Merkley (D-OR) used his time to delve further into the issue of rental assistance renewal funding. According to his estimates, Merkley said that USDA had already short-funded rental assistance contracts by $101.5 million in FY 2015, and due to its latest underestimation, was poised to short-fund rental assistance contracts by $120 million in FY 2016. Ranking Member Merkley stressed how devastating this is to affordable housing owners and operators, tenants, and future participation in the USDA rental assistance programs. During the second panel, Tony Chrisman, Vice President and Owner of Chrisman Development Inc., testified that his portfolio of affordable housing properties in Oregon already has been negatively impacted by the FY 2015 shortfalls. Chrisman said that FY 2015 rental assistance ran out in August and he has stopped receiving payments, leading to a $365,000 shortfall in his portfolio alone. Chrisman added that USDA-approved rental agreements allow owners to raise rents on tenants in the absence of RHS funding, although many tenants would not be able to afford such increases. Chrisman has not acted on this authority, since he hoped the problem would be resolved quickly.

RHS Administrator Tony Hernandez testified that RHS was working to address this funding issue but did not yet have the authority to backfill these contracts. Chairman Moran and Ranking Member Merkley both argued that the Continuing Resolution passed on September 30 included language to do just that– allowing RHS to backfill rental assistance contracts for properties that had previously exhausted their funding under contracts entered into or renewed in FY 2015. Chairman Moran added that it was his understanding that USDA General Counsel was currently examining this issue but that it was the full intention of the Committee to provide this authority. Both Moran and Merkley urged ongoing dialogue with USDA on this and suggested that they would be willing to work on further legislation if necessary to correct this matter.