WASHINGTON - As part of a plan pledged in the State of the Union address, the Clinton administration might kill or consolidate a program that provided $100 million in financing for pension funds to create or rehabilitate multifamily housing.
In his address, President Clinton promised to consolidate 60 programs from the Department of Housing and Urban Development into three block grants. No one is sure which programs will be consolidated or cut, but on the chopping block is a program, started last year, in which HUD teamed up with six pension fund investors to create affordable housing.
The administration hopes to cut $13 billion from HUD's budget over five years through the program consolidation, and an additional $800 million through administrative costs. The administrative reduction would also wipe out 4,400 jobs.
Overall, President Clinton proposed in his address to cut $130 billion in spending by shrinking federal departments, extending a freeze on domestic spending and reducing - in addition to HUD's 60 housing programs - more than 100 other non-essential programs.
The HUD Section 8 Community Investment Demonstration program provided six pension fund investor groups $100 million in financing to create and/or rehabilitate existing HUD properties for affordable housing in 1994. A spokeswoman said the department is expected to make $251 million available to pension funds for fiscal year 1995.
Under the program, pension funds make or purchase loans - in the form federally backed securities - to finance the construction and/or rehabilitation, and HUD provides rental certificates to pay part of the rent on units occupied by lower-income families.
Through the certificates, the program provides each project a steady income stream. That income stream allows the loans to be securitized by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corp., or other housing agencies, making them an attractive investment for the pension funds.
The Housing Department wins by stipulating that 50% of the Section 8 certificates get used for existing HUD-owned properties, or properties with HUD-held mortgages.
Half of the $100 million in HUD certificates issued last year went to the AFL-CIO Housing Investment Trust, Washington. The AFL-CIO, barraged with more than 200 proposals for the program, has committed the HUD certificates to 10 projects that will help provide financing to either construct or rehabilitate 1,158 units throughout the United States.
Under Housing Secretary Henry Cisneros' "Reinvention Blueprint" for the Housing Department, the program consolidation would start in fiscal year 1996 and 60 programs would be reduced to eight. By fiscal year 1998, the programs would be reduced again to three: Housing Certificates for Families and Individuals; Community Opportunity Fund; and Affordable Housing Fund, under which the pension fund certificate program would fall.
The consolidation should pull the Affordable Housing Fund off the federal budget and down to the state level. While this would reduce the role of the federal government, which is what the Clinton administration wants to do, it will also reduce the federal force that has been needed to launch the program, observers said.
"The federal government took a leadership role here that others responded to," said Amy Anthony, president of the Fund for Affordable Housing, Boston. HUD "has given a boost to the whole project."
Ms. Anthony, whose fund is using $10 million of the HUD certificates, said sending the program down to the state level may hurt it overall because it would no longer get pushed by a federal initiative.
No one at HUD has determined the fate of the pension certificate program because, even at $251 million, it is small, compared to other housing programs, sources said. Nonetheless, some observers said this program typifies the public-private partnership President Clinton has been talking about.
"Public money leveraging greater amounts of private investment dollars fits exactly into the model of what the new HUD would look like," said Richard Ferlauto, associate director of the Center for Policy Alternatives, Washington.
Kirsten S. Moy, vice president for the community investments division for Equitable Real Estate Investment Management Inc., New York, said the program has created affordable housing for lower-income people, at a minimal cost to the government, while still providing a good investment for institutional investors. Equitable received $10 million in HUD certificates last year, which is expected to help create and rehabilitate between 273 and 400 units.
"While some pension funds have been involved in affordable housing all along, this program has gotten the attention of a larger number of investors in the pension community," said Ms. Moy. "Maybe this (program) is something that is needed."