Cut In Federal Rent Subsidies Proposed, With Tax Incentive

The Clinton administration proposed legislation Wednesday that would cut federal rent subsidies for a half-million apartments but would offer landlords tax incentives to preserve the low-income housing.

The apartments make up about a third of the nation’s privately owned low-income housing stock and are targeted because existing contracts between the government and the landlords pay subsidies that exceed market rents.

For example, in Atlanta, landlords of these apartments receive an average of $529. The market rate is $393, the Department of Housing and Urban Development (HUD) said.

The proposal is the latest administration effort to contain huge cost increases in its Section 8 subsidized housing program. The Clinton budget asks for an additional $5.6 billion just to renew expiring contracts between landlords and the government.

The legislation laid out Wednesday by HUD Secretary Andrew Cuomo and Treasury Secretary Robert Rubin would allow the administration to reduce government-insured mortgages by $5.5 billion to $6 billion and offer landlords up to 10 years to pay taxes that result from their restructured mortgages.

Since the smaller mortgages would require lower payments, HUD could reduce the monthly rents that service those loans, Cuomo said.

Participating landlords would have to keep the rents affordable to low-income tenants on 40 percent of their apartments for 15 years.

Taxpayers would save $1.4 billion over five years under the proposal, Cuomo said.

Cutting the rent subsidies without also renegotiating the mortgages would send many landlords into bankruptcy, he said.

Cuomo said the budget dilemma is a result of contracts signed in the 1970s and 1980s that offered automatic rent increases to offset then-rapid inflation.

The legislation also would give HUD more tools to deal with negligent landlords or those who seek bankruptcy protection to avoid maintaining their properties.