Low-Income Rural Tenants Face Displacement as Rental Assistance Funds Run Out

November 8, 2015; North Kitsap Herald

Low-income tenants at Woodcreek Apartments in Poulsbo, Washington are facing displacement from their formerly subsidized homes as a new owner undertakes renovations and increases rents. From the story:

Kim Kinslow was among the first Woodcreek tenants to receive a letter notifying her that her tenancy had been terminated. She’d lived there for 15 years. Kinslow, 47, is on a fixed income. She had to move back in with her parents on Bainbridge Island. “I’m being forced to move in with my parents,” Kinslow said. “But still it’s humiliating.”

An earlier story in the North Kitsap Herald also provides stories of tenants being forced to move. It’s a little hard to tell from these two articles exactly what is going on, but the basic outline is clear. Woodcreek Apartments was created with a federally subsidized mortgage from the United States Department of Agriculture Rural Development Service (USDA-RDS). Owners of the property also received Rental Assistance payments from USDA-RDS to reduce the rent owed by the tenants to a level that was 30 percent of household income. When the mortgage was paid off (although it’s not clear if it was prepaid or fully amortized), the property was sold, and the new owners began to make improvements and increased the rent to unaffordable levels. Woodcreek Apartments is the latest example of how low-income tenants at USDA-RDS properties are facing involuntary displacement from their homes.

Since last covered in Nonprofit Quarterly, the story of Rental Assistance shortfalls has evolved. In the most recent Continuing Resolution, Congress authorized USDA-RDS to accelerate payments to owners to make up for the funding shortfalls that began in August, when USDA-RDS ran out money. Despite that intervention, the short funding issue continues. In a congressional hearing last month, Tony Chrisman, president of Chrisman Development, Inc., in Oregon, testified that his company was owed three months of interrupted RA payments. Mr. Chrisman told Congress he fully understands that raising the tenants’ rents won’t solve the problem and in fact would only lead to evictions and homelessness for most of these households. (Senator Merkley’s introduction and Mr. Chrisman’s testimony begins at 1:41:28 of the Committee hearing recording.) As of last week, Mr. Chrisman’s company still has not been paid, despite Congressional efforts to address the need.

This week, there is new hope of a resolution for the short funding problem. Gideon Anders of the National Housing Law Project reports (via private communication) that the chairs and ranking members of the House and Senate Agriculture Appropriations sub committees met with USDA Secretary Vilsack and “the Secretary advised the Senators and Representatives that the agency (USDA-RDS) needs about $200 million dollars to deal with the RA shortfalls this year. The Senators and Reps agreed that the committees on the House and Senate would come up with the funding.”

Stories like that of the Woodcreek Apartments underscore a bigger problem. Unlike in HUD assisted housing, when a USDA mortgage loan is paid off, there is no subsidy offered to the tenants at the property. Advocates have been working with Representative Ann Kuster (D-NH) to put the final touches on a bill that would permit “decoupling” the mortgage from the rent subsidy. One obvious problem with this approach will be that extending Rental Assistance past mortgage maturity could be costly at a time when Congress and USDA continue to struggle over funding levels. At the moment, it is not entirely clear that USDA even knows the actual amount of funding needed for current operations. In agreeing to “full funding” for Rental Assistance in FY 16, the Congressional chairs and ranking members told Secretary Vilsack that those increases will need to be offset by cuts in other USDA funding levels.

Advocates for low-income housing who attended the National Preservation Working Group quarterly meeting last week decided to call upon Congress to conduct oversight hearings of USDA-RDS operations. There are two pressing concerns: Solving the chronic shortfall problem and coming up with a plan to preserve RA when mortgages on these subsidized developments mature. USDA estimates that 75 percent of their mortgage portfolio will mature in the next 10 years. Here’s a chart of USDA projected mortgage maturities provided by USDA to a Congressional staffer late in 2014.

—Spencer Wells

Thanks to Rob Prasch, Network for Oregon Affordable Housing, and Laurence Anderson, retired Director of MFH Preservation for Rural Development, for providing background for this story.