June 30, 2024

Senate Appropriations Committee Approves FY25 HUD Appropriations Bill

On July 25, the Senate Appropriations Committee held a full committee markup of three Fiscal Year 2025 (FY25) appropriations bills, including the Transportation, Housing and Urban Development (THUD) proposal. This bill provide crucial resources for HUD housing and community development programs. It was favorably voted out of committee with a 28-1 vote.

The committee proposed a substantial $78.2 billion in programmatic funding for HUD, marking a notable increase compared to their House Committee counterpart. Key allocations in the bill include $16.654 billion for Project-Based Rental Assistance (PBRA), reflecting an increase of $690 million above FY24. This includes a policy provision titled “Improving Properties with Health, Safety, or Operational Deficiencies,” which allocates $10 million for HUD to provide budget-based rent adjustments to PBRA contracts renewed through the mark-to-market (M2M) program. These funds are aimed at assisting distressed PBRA properties that are already at market rate rents but require additional capital for rehabilitation or replacement. To further support these properties, the committee provided $25 million for HUD to make direct loans to owners of such PBRA properties.

The Section 202 program, which supports housing for the elderly, is allocated $1.046 billion, an increase of $133.4 million above FY24. This amount includes $115 million for new capital advances and Project Rental Assistance Contracts (PRACs), alongside $115 million to fund the renewal of existing service coordinators. The Section 811 program, aimed at housing for persons with disabilities, receives $256.7 million, marking an increase of $48.7 million above FY24.

Additionally, the bill allocates $35.260 billion for Tenant-Based Rental Assistance, which is $2.9 billion more than FY24. The HOME Investment Partnership program is set to receive $1.425 billion, a $175 million increase from FY24. The Community Development Block Grant is maintained at $3.3 billion, consistent with FY24 levels.

NAHMA will continue advocating for the highest possible levels of federal funding for rental assistance, affordable housing, and community development programs across several federal agencies, including HUD, USDA, and Treasury/IRS. For a detailed breakdown of the Senate’s proposed funding levels for these programs, stakeholders are encouraged to review the Committee Report, specifically pages 97-192 for HUD programs. Congress is expected funding negotiations after the August Recess.

Financial Services Committee Examines AI Applications in Financial Services and Housing

On Tuesday, July 23^rd , the Committee on Financial Services held a hearing titled “AI Innovation Explored: Insights into AI Applications in Financial Services and Housing.” Witnesses included John Zecca of NASDAQ, Ondrej Linda of Zillow, Elizabeth Osborne of Great Lakes Credit Union, Frederick Reynolds of FIS Global, Vijay Karunamurthy of Scale AI, and Lisa Rice of the National Fair Housing Alliance. The hearing aimed to delve into the impacts, benefits, and risks associated with AI in these sectors.

Since 2022, the public has witnessed AI’s potential to transform individual lives and revolutionize various economic sectors. One key development is Generative AI (Gen AI), which has garnered significant attention. The U.S. House Committee on Financial Services had previously studied AI in the 116th and 117th Congresses through ten hearings by the Task Force on Artificial Intelligence. These sessions explored AI’s use in financial services and housing, highlighting how it enhances operational efficiency and impacts consumers globally.

The emergence of Gen AI, coupled with substantial investments in the technology, necessitated a thorough examination of its implications. The Committee scrutinized the existing statutory and regulatory frameworks to ensure they adequately protect financial and housing markets. In response, Chair Patrick McHenry and Ranking Member Waters established a bipartisan AI Working Group in January 2024. The Working Group, comprising 12 members—six Republicans and six Democrats—conducted six roundtables focusing on AI applications across the financial services industry.

Federal regulators addressed concerns about AI’s potential to introduce bias and discrimination, emphasizing that AI usage does not exempt entities from complying with anti-discrimination laws. Regulators insisted that entities must adhere to all laws, including consumer protection laws, in a tech-neutral manner.

In capital markets, participants adopted a cautious approach to implementing AI, primarily using machine learning (ML) models for data analysis over the past decade. They are now exploring new AI capabilities to create innovative use cases.

In the housing and insurance sectors, AI has significantly shifted product and service delivery, enhancing consumer experience but also posing fair housing and consumer protection challenges. Businesses use AI for underwriting mortgages and insurance policies, tenant screening, and data analytics to improve customer interactions and manage risks.

Financial institutions and nonbank firms discussed AI’s role in loan underwriting, customer service, fraud detection, and debt collection. The discussions also covered the AI lifecycle, from technology acquisition to development and integration. Panelists highlighted the importance of compliance with anti-discrimination laws, cybersecurity, and privacy safeguards.

National security sessions focused on how AI could be exploited by bad actors to compromise financial institutions. Conversely, AI is also used to enhance defenses and comply with Bank Secrecy Act/Anti-Money Laundering (BSA/AML) responsibilities.

The six roundtables, supplemented by an off-site visit to the Massachusetts Institute of Technology (MIT), provided the Working Group with a comprehensive understanding of AI adoption across the financial services and housing industries. Key takeaways for the Committee included:

1. The Committee should oversee AI adoption in financial services and housing, given their critical roles.
2. Ensuring regulators apply and enforce existing laws, including anti-discrimination laws, is essential as AI technology is adopted.
3. The Committee should ensure financial regulators have the appropriate focus and tools to oversee new AI-driven products and services.
4. Data privacy laws need reform, given the importance of consumer data in AI applications.
5. Understanding AI’s impact on the workforce is crucial, and the Committee should work with financial regulators on this matter.
6. Ensuring U.S. global leadership in AI development and use is vital.

The Working Group’s establishment and processes were bipartisan, reflecting a collaborative effort to understand AI’s benefits and risks. Members can view the full hearing HERE and a Committee Report is available with additional details on AI.

House Subcommittee Hearing Highlights Regulatory Streamlining to Spur Housing Development

On July 24, 2024, the Subcommittee on Housing and Insurance of the Committee on Financial Services convened a hearing titled “Housing Solutions: Cutting Through Government Red Tape.” The panel included Carl Harris, Co-Founder and President of Carl Harris Co., James H. Schloemer, CEO of Continental Properties Company, Paul Compton, Managing Partner of Compton Jones and Dresher LLP, and Linda Couch, Senior Vice President of Policy and Advocacy at LeadingAge. The hearing focused on addressing the impacts of governmental regulations on housing affordability and availability.

Background and Issues

Housing affordability is a pressing concern for both homebuyers and renters across the United States. Government regulations, often termed “red tape,” can significantly increase the cost of housing by causing delays and adding financial burdens at various levels—federal, state, and local. These regulations can include zoning requirements, environmental mandates, and economic policies that cumulatively raise construction costs and exacerbate labor shortages.

A recent study by the National Association of Home Builders highlighted that regulations account for $93,870, or 23.8%, of the average sales price ($397,300) of a new single-family home. These costs ultimately impact consumers through higher rents and more expensive homes, with the average U.S. rent now at $2,054 and home prices significantly outpacing median household incomes.

Key Testimonies

Carl Harris emphasized the burden of regulatory costs on homebuilders, which hinder the ability to meet housing demand. James H. Schloemer discussed how multifamily housing developments face delays and additional expenses due to stringent government policies. Paul Compton addressed the legal implications of these regulations, and Linda Couch highlighted the impact on affordable housing for seniors and low-income populations.

Conclusion

The hearing underscored the necessity of balancing regulatory benefits with the economic realities of housing development. Reducing unnecessary regulatory burdens could lower housing costs and increase supply, making housing more affordable for Americans. The testimonies highlighted the need for a nuanced approach to regulation—one that supports health and safety without imposing undue financial burdens on housing developers and consumers. The full hearing can be viewed HERE.

Senate Finance Committee Examines Tax Policy for Local Economic Development

Today, the Senate Finance Committee held a hearing titled “Tax Tools for Local Economic Development” to discuss various tax policies that Congress could endorse to accelerate economic development, particularly in lower-income and underserved communities. The hearing featured witnesses and Senators from both parties, who expressed strong support for several programs aimed at fostering local economic growth. Witness testifying included: C. LaShea Lofton, Deputy City Manager, City of Dayton; Julia Nelmark, President & CEO, Midwest Minnesota Community Development Corporation; Michael J. Novogradac, Managing Partner, Novogradac; Shay Hawkins, President, Opportunity Funds Association

A key focus of the discussion was the New Markets Tax Credit (NMTC), which has been instrumental in driving private investment into low-income communities across all 50 states. The NMTC has supported a wide range of projects, including healthcare facilities, childcare centers, schools, retail developments, and affordable housing units. Senators and witnesses advocated for making the NMTC a permanent fixture in the tax code to provide predictability during the planning process and ensure continued investment in underserved areas. Sen. Cardin’s bill, which seeks to make the NMTC permanent and expand its value, received support for its potential to drive further investment. Another major topic was the Rural Jobs Act, which proposes allocating an additional $2 billion in NMTC to rural areas where development costs are higher. This act aims to address the unique challenges faced by rural communities in attracting investment and development.

The hearing also covered several affordable housing programs and legislative proposals supported by NAHMA, including the Neighborhood Homes Investment Act, the Affordable Housing Credit Improvement Act (AHCIA), and the Tax Relief for American Families and Workers Act. All aim to increase the supply of affordable housing.

Senate Finance Committee Chairman Wyden highlighted the current strength of the U.S. economy, with low inflation, rising wages, and record-low unemployment. Despite this positive outlook, he emphasized the need for continued efforts to support local communities struggling to get ahead. Wyden cited the success of past initiatives like Build America Bonds and underscored the importance of proven tax policies like the NMTC. He also criticized the Opportunity Zones program, created under the 2017 Trump tax law, for its lax eligibility rules and lack of safeguards, which have led to significant investments in areas that may not need the assistance. He noted that a disproportionate amount of funding has gone to a small percentage of eligible areas, often benefiting high-wealth individuals rather than the intended distressed communities.

Ranking Member Crapo defended the Opportunity Zones program, highlighting its success in driving investment into distressed areas, including significant investments in rural Idaho. He acknowledged that while the program has shown promise, there is room for improvement and greater accountability. Crapo also supported extending and enhancing the NMTC, the historic tax credit, tax-exempt bonds, and LIHTC, citing tangible results in communities across the country.

Witnesses and Senators emphasized the importance of tax-exempt bonds and private activity bonds, which help local governments finance critical infrastructure and utility projects. They also discussed the need to protect these tools from potential cuts that could arise during the extension of the 2017 tax law.

In conclusion, the hearing underscored a bipartisan commitment to leveraging tax policies to support local economic development. Senators and witnesses called for making successful programs like the NMTC permanent, improving oversight and effectiveness of the Opportunity Zones program, and ensuring that tax incentives continue to drive investment into communities that need it most. Members can view the full hearing HERE.