HBA-GUM C.S.H.B. 3607 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 3607 By: Burnam Urban Affairs 4/26/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Currently, thousands of units of affordable housing developed with federal assistance through loans insured by the federal Department of Housing and Urban Development (HUD) and/or project-based Section 8 contracts are now expiring. In 1996, Congress removed restrictions which discouraged owners from prepaying their low-interest HUD-insured loans. Once a loan is paid off, the owner no longer has a regulatory agreement with HUD, which means the owner is no longer required to rent the apartments at rates affordable to low and moderate income people. As a result, rent increases after prepayment have been dramatic. Similarly, other units are lost as Section 8 contracts expire and are not renewed, either because the owner chooses to opt out or because HUD chooses not to renew due to housing quality violations or other owner mismanagement. C.S.H.B. 3607 authorizes property owners of multifamily developments that are insured or assisted by certain HUD programs to sell, lease, dispose of, or otherwise take action involving the affordable units if the property owner notifies tenants and local officials of the intended action. The substitute requires the Texas Department of Housing and Community Affairs (department) to develop a demonstration program to preserve low income housing, described under Subchapter EE using existing funds that are not targeted for such purposes. C.S.H.B. 3607 also requires the department to emphasize the development of programs and policies to maximize federal matching grants to preserve long-term affordability for low income housing under HUD programs. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 2306, Government Code, by adding Subchapter EE, as follows: SUBCHAPTER EE. AFFORDABLE HOUSING PRESERVATION Sec. 2306.801. APPLICATION. (a) Provides that this subchapter applies to a property owner of a multifamily housing development that is insured or assisted under a specified housing program. (b) Provides that this subchapter does not apply to a property owner of a multifamily housing development that is insured or assisted under a specified program under Subsection (a) unless the development is financed by a mortgage that is eligible for prepayment at the option of the property owner. (c) Provides that this subchapter does not apply to the disposal of property due to a governmental taking under this subsection, foreclosure, a transfer by gift, devise, or operation of law, or a sale to a person entitled to an interest in the property under certain specified conditions. (d) Provides that this subchapter does not apply to property included in a restructuring program with a participating administrative entity designated by the federal Department of Housing and Urban Development. Sec. 2306.802. PROPERTY OWNER RESTRICTION. Prohibits a property owner under this subchapter, except as provided by this subchapter, from selling, leasing, disposing of, or taking any other action involving a multifamily housing development under this subchapter if that action will cause the disruption or discontinuance of the federal insurance or assistance or of low income housing assistance to residents of the development. Sec. 2306.803. NOTICE OF INTENT. (a) Authorizes a property owner of a multifamily housing development subject to the restriction under Section 2306.802, as added by this Act, to sell, lease, or otherwise dispose of the development if the property owner provides notice by mail of the intent to sell, lease, or otherwise dispose of the development to the residents of the development and the residents of the association of the development, the local housing authority with jurisdiction over the territory in which the development is located, the governing body of the municipality, and the Texas Department of Housing and Community Affairs (department). (b) Requires the property owner to provide the notice required by Subsection (a) at the time notice is required under federal law that the property owner intends to prepay a mortgage under a specified housing program, or that a contract concluded under a program under Section 8, United States Housing Act of 1937 (42 U.S.C. Section 1437f) will expire. Sec. 2306.804. Requires the department to develop a demonstration program to preserve housing described in this subchapter in accordance with Section 2306.251 (Property Ownership Program). Authorizes the department to use existing funds that are not targeted for other purposes to preserve such housing. SECTION 2. Amends Subchapter A, Chapter 2306, Government Code, by adding Section 2306.008, as follows: Sec. 2306.008. FEDERAL MATCHING GRANTS. Requires the department to emphasize the development of programs and policies under this chapter in a manner that maximizes federal matching grants to preserve long-term affordability for low-income housing under federal programs, including certain specified programs. SECTION 3. (a) Effective date: September 1, 1999. Provides that this Act applies to a multifamily housing development described by Section 2306.801, as added by this Act, that a property owner intends to sell, lease, or otherwise dispose of on or after January 1, 2000. SECTION 4. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The substitute modifies the original in SECTION 1 (proposed Section 2306.801) by deleting language specifying that the program under which a multifamily housing development is insured or assisted under proposed Subchapter EE (Affordable Housing Preservation) is a federal program. The substitute adds new Subsection (b) to provide that Subchapter EE does not apply to a property owner of a multifamily housing development that is insured or assisted under a specified program unless the development is financed by a mortgage that is eligible for prepayment at the option of the property owner. The substitute redesignates Subsection (b) of the original to Subsection (c). The substitute also adds Subsection (d) to provide that this subchapter does not apply to property included in a restructuring program with a participating administrative entity designated by the federal Department of Housing and Urban Development. The substitute further modifies SECTION 1 of the original by adding language to proposed Section 2306.802 to prohibit a property owner from selling, leasing, disposing of, or taking any other action involving, rather than selling, leasing, or other wise disposing of, a multifamily housing development under Subchapter EE. The substitute modifies proposed Section 2306.803 in SECTION 1 to authorize a property owner of a housing development under Subchapter EE to sell, lease, or otherwise dispose of the development, if the property owner provides notice by mail of the intent to sell, lease, or otherwise dispose of the development to certain specified persons. The original bill required the property owner who intends to take such action on the housing development to provide notice of the intended action to certain specified persons. The substitute deletes proposed Subsection (b) and adds new Subsection (b) to require the property owner to provide the notice at the time notice is required under federal law that the property owner intends to prepay a mortgage under a specified housing program, or that a contract concluded under a program under Section 8, United States Housing Act of 1937 (42 U.S.C. Section 1437f) will expire. The substitute deletes proposed Section 2306.804 (Right of First Refusal) and adds new Section 2306.804 to require the Texas Department of Housing and Community Affairs (department) to develop a demonstration program to preserve housing described in Subchapter EE in accordance with Section 2306.251 (Property Ownership Program) and authorizes the department to use existing funds that are not targeted for other purposes to preserve such housing. Proposed Section 2306.805 (Priority of Right of First Refusal) is deleted by the substitute. The substitute also modifies proposed Section 2306.008 in SECTION 2 to add that the department is required to emphasize the development of policies, as well as programs, in the manner described by that section. In addition, the substitute deletes proposed Subsection (b) in SECTION 3 of the original which required the department to prepare a required statement no later than January 1, 2000.