Congress Questions HUD Aid to Laguna

Members of the House and Senate are moving to correct a glitch in a formula that permits some wealthy communities, including Laguna Beach and Beverly Hills, to apply for low-income housing rehabilitation money while excluding many poorer areas such as Santa Ana.

Aides to Rep. Robert K. Dornan (R-Garden Grove) and other lawmakers said Congress is likely to require the U.S. Department of Housing and Urban Development to revise the formula in September, when the Senate takes up the 1990 HUD appropriations bill.

‘A Lot of Questions’

A quirk in the formula, which appears to give disproportionate help to areas with high rents, has piqued municipal officials throughout the nation, said one HUD official who asked not to be named. “There were a lot of questions,” the official said.

The formula determines which communities are eligible to apply for rent subsidies that support the rehabilitation of rental housing for the poor under HUD’s troubled Section 8 program for moderate rehabilitation.

The agency has yet to allocate about $220 million of the subsidy funds for moderate rehabilitation approved for fiscal 1989, which ends Sept. 30.

A spokesman for Sen. Barbara A. Mikulski (D-Maryland), the powerful chairwoman of the Senate Appropriations subcommittee on HUD, said the panel “is taking a serious look at making modifications in the moderate rehab formula.”

Mikulski and the subcommittee want to “ensure that funding goes to those (communities) for which the program was originally created,” said Garth Neuffer of Mikulski’s office.

In the House, Dornan has written to the chairman of the House Appropriations subcommittee on HUD, asking the panel’s “help in correcting a very serious inequity.”

Dornan noted that under the eligibility formula, Laguna Beach, which boasted an estimated per capita income of $28,109 last year, is the only city in Orange County permitted to apply. In Santa Ana, which was excluded from the program, 1988 per capita income was only $11,558.

The issue is important to Mikulski, several sources said, because her home town of Baltimore is among the communities barred from applying for rent subsidies under the revised program. The per capita income in Baltimore is $10,509.

Mikulski’s subcommittee in September is scheduled to consider HUD’s budget request of $12.9 billion for the 1990 fiscal year, which begins Oct. 1. A source close to the subcommittee said the panel is likely to order HUD to revise the moderate rehabilitation eligibility formula when it appropriates next year’s HUD funding.

Santa Ana city officials have written to Mikulski, requesting a change in the formula.

The House, which has already considered the fiscal 1990 HUD funding bill, included no new money for the moderate rehabilitation program. But Dornan aide Brian O. Bennett said Dornan has asked the House subcommittee to intervene “in anticipation of having Barbara Mikulski fully fund (the program) in the Senate, and change the regulations.”

The question of funding the program in 1990 would then be resolved in a House-Senate conference committee. Regardless of the outcome, HUD would have to allocate the remainder of its 1989 money under a revised formula.

“I think there will be something included in the HUD appropriations bill,” said Patricia Jordan of The Ferguson Co., which represents Santa Ana in Washington.

HUD Secretary Jack Kemp suspended the moderate-rehabilitation program on April 26, after the agency’s inspector general reported widespread favoritism and abuse in the awarding of rent subsidies.

Under the program, HUD grants 15-year rent-subsidy commitments to local housing agencies. The agencies select developers who wish to renovate apartment buildings and commit the subsidies to the developers. The subsidies pay much of the rent for low-income tenants. Developers use the long-term financial commitment of HUD rent subsidies to secure private financing to pay for their building repairs.

When Kemp reinstated the moderate rehabilitation program on June 2, he included a new eligibility formula intended to create an environment in which objective criteria, rather than the personal judgment of local and regional HUD officials, would determine which communities are permitted to apply for subsidies.

One HUD official, who spoke on the condition of anonymity, explained that in order to establish objective criteria, HUD housing officials used a formula originally devised to allocate money to cities under a separate program that provides direct grants for the repair of rental housing.

That program is administered by the assistant HUD secretary for community planning and development. The moderate rehabilitation program comes under the assistant secretary for housing.

“We’re in the same building, but we don’t often use each other’s data this way,” said the official, who is involved with the moderate rehabilitation program. “It’s not data that we in housing are familiar with.”

The new formula determines whether a community may apply for subsidy money by weighing several factors.

A weight of 25% is given to the number of rental units in which the head of the household is at or below the poverty level. An additional 25% weight is assigned to the number of housing units built before 1940 in which the household head is at or below the poverty level. The remaining 50% weight is assigned to any of four factors: neighborhood overcrowding, incomplete kitchen facilities, poor plumbing or excessively high local market rents.

The high-rent factor is probably what permitted Beverly Hills and Laguna Beach to qualify for subsidy applications, while less wealthy cities did not, officials have speculated.

“It seems that in the haste to get a reform package out of the department . . . they were perhaps a little too quick to move on it and accept these (new) criteria,” a knowledgeable congressional aide said.