As reported last week (see Memo 5/20), the Office of Affordable Housing Programs (OAHP) in HUD’s Office of Community Planning and Development (CPD) announced on May 15 the availability of a preview version of proposed regulation changes to the HOME Investment Partnerships (HOME) program. Formal publication is anticipated in the Federal Register later this month, at which time advocates will have 60 days to submit comments. NLIHC will offer a sample comment letter for advocates to consider using. Significant regulation changes were last made in 2013. Last week’s Memo provided an initial summary of key tenant rights and protections as described in the preamble and as presented in the text of the proposed rule. This week’s Memo summarizes key provisions pertaining to Community Housing Development Organizations (CHDOs).
Basic Introduction to CHDOs
The HOME statute requires participating jurisdictions (PJs) to set aside at least 15% of their annual HOME fund allocation to be spent on housing that is developed, sponsored, or owned by CHDOs. (HOME funds are allocated by formula each year to each state and to approximately 650 jurisdictions and cooperating smaller jurisdictions that form a consortium. These are HOME PJs.) In addition, up to 5% of a PJ’s HOME funds can be awarded to CHDOs for operating expenses; this amount is separate from the minimum 15% CHDO set-aside and does not count against a PJ’s 10% cap on using HOME for program administrative activities.
The HOME statute requires a CHDO to be accountable to low-income community residents through significant representation on its governing board. However, the regulations merely require one-third of a CHDO’s board members be elected representatives of low-income neighborhood organizations, residents of low-income neighborhoods, or other low-income community residents. Because the regulations allow “community” to be defined as broadly as an entire city, county, or metropolitan area, it is possible to construct a CHDO that is not accountable to low-income residents in a HOME project’s neighborhood.
Any nonprofit can receive a HOME grant or loan to carry out any eligible activity, but not every nonprofit is a CHDO. The 2013 regulation changes stated that in order to be considered a CHDO, a nonprofit developer or sponsor must have staff with housing development experience. However, nonprofits seeking to keep or obtain CHDO status can do so while allowing those that own rental housing to operate it even if the nonprofit does not have development expertise. The 2013 HOME regulation amendments introduced other changes that might make it more difficult for existing small and rural CHDOs to continue.
More information about CHDOs is on page 5-1 of NLIHC’s 2024 Advocates’ Guide.
Key Proposed Changes to the CHDO Regulations
The CHDO Definition
The CHDO definition is in the HOME program’s regulations at 24 CFR part 92.2
Paragraph (5) – Government Entity
(page 11 of preamble; page 142 of regulation text)
The regulations have always stated that a CHDO may not be a government entity or be controlled by one. However, the regulations have allowed an organization created by a government entity to qualify as a CHDO; but the government entity cannot appoint more than one-third of a CHDO’s board members and no more than one-third of a CHDO’s board members can be “public officials or employees of [a] government entity.”
The preamble (introduction) to the proposed rule explains that the one-third limitation on any public officials being on the board had the effect of preventing officials of other units of local government, public school teachers, public university professors, and others from being on a CHDO created by a government entity. Therefore, for a government-created CHDO, the proposed rule would change the one-third “public official” board member limit to officials and employees of the PJ or government entity (for example a public housing agency) that created the CHDO.
The proposed rule also makes subtle word changes to make it clear that no governmental entity (not just the one creating the CHDO) may appoint more than one-third of a CHDO’s board members. In addition, the board members appointed by a government entity may not appoint any of the remaining two-thirds of a CHDO’s board members, and the final rule adds that board members who are officials or employees of the PJ or governmental entity that created the CHDO may not appoint any of the remaining two-thirds.
Paragraph (8) – CHDO Maintains Accountability to Low-Income Community Residents
(pages 11&12 preamble; 143 text)
To be considered a CHDO, according to the current rule, at least one-third of its board must be:
- Residents of low-income neighborhoods,
- Other low-income community residents, or
- Elected representatives of low-income neighborhood organizations
The proposed rule deletes “Elected representatives of low-income neighborhood organizations” and replaces it with what the preamble calls broader options:
- People designated by low-income neighborhood organizations (OHAP has previously interpreted “elected representatives” to mean only elected leadership from an organization’s board); or
- “Authorized representatives of nonprofit organizations in the community that address the housing or supportive services needs of residents of low-income neighborhoods, including homeless providers, Fair Housing initiatives Program providers, Legal Aid, disability rights organizations, and victim service providers.”
The preamble does not hint at who would “authorize” the nonprofit representatives; NLIHC recommend the final rule clarify that the CHDO board be the authorizing body. For urban areas, the regulation has long defined “community,” as used in the “other low-income community residents” option, to mean a neighborhood or neighborhoods, city, county, or metropolitan area. NLIHC will urge OAHP to narrow the definition of “community” because as defined, low- income residents living miles or counties far removed from a CHDO’s service area may not necessarily be “accountable” to the residents of the CHDO’s service area.
For rural areas, the current definition of “community” has long been “a neighborhood or neighborhoods, town, village, county, or multi-county area (but not the entire state).” The proposed rule would delete “but not the entire state” because meeting the governing board requirement and the development “capacity” requirement (discussed below) are often difficult for rural organizations. The proposed change would allow low-income representatives from anywhere in a state to be counted; the effect is to allow statewide organizations to be a CHDO for state PJs. The proposed change would also apply to paragraph (10) of the CHDO definition, which requires a CHDO to have at least a one-year history of serving the community within which housing to be assisted with HOME funds is to be located. (12;143)
Paragraph (9) – Organization Has a Demonstrated Capacity
(13;143)
The HOME statute requires a CHDO to have a demonstrated capacity for carrying out HOME activities. OAHP proposes to broaden the range of housing activity beyond the HOME program to include carrying out housing projects assisted with any federal housing funds, the Low Income Housing Tax Credit (LIHTC), or local and state affordable housing funds.
Also, the current rule does not allow a nonprofit organization to meet the demonstrated capacity test based on volunteers or on people whose services are donated by another organization. The proposed rule would allow PJs to consider the capacity and experience of volunteers who are board members or officers of the organization, provided the volunteer is not paid or their services are not donated.
24 CFR part 92.300 – CHDO Must Either Own, Develop, or Sponsor Housing
(105-107;205-207)
The HOME statute requires PJs to set aside at least 15% of each year’s HOME allocation for housing that is to be “owned, developed, or sponsored” by a CHDO. The current regulations at §300 provide detailed provisions regarding “owned by,” “developed by,” and “sponsored by.”
The proposed rule [at §300(a)(2)] pertaining rental housing “owned” by a CHDO makes two very subtle word changes that the preamble indicates clarifies that hiring or contracting with an experienced project manager is the minimum standard for an organization to meet the requirement that a CHDO “oversee” all aspects of the development. (105;205)
The proposed rule [at §300(a)(3)] pertaining rental housing “developed” by a CHDO is intended to make it easier for many community-based nonprofits to access the 15% CHDO set-aside as “developers.” (NLIHC reminds Memo readers that any nonprofit may seek any HOME funds from their PJ.) The current rule requires the organization to be in solecharge of all aspects of the development process. The proposed rule would delete the word “sole” and allow the CHDO to “share developer responsibilities with another entity,” but the CHDO must still be in charge of all aspects of the development process. (106;206)
The proposed rule also deletes the requirement that rental housing undertaken by a “developer” CHDO continue to be owned by the CHDO throughout the HOME affordability period. (The preamble indicates that this also pertains to housing “sponsored” by a CHDO; however, NLIHC cannot find the “ownership throughout the affordability period” language in the current rule.) The preamble explains that the current rule’s requirement has created difficulties when a CHDO’s status has changed (for example if a CHDO experiences bankruptcy, decreased capacity, etc.) and another CHDO is needed to acquire the project in order to preserve affordability. Although the preamble states that the intent is to enable ownership transfers necessary to sustain CHDO projects, simply deleting the requirement that a CHDO continue to own a project does not provide guidance regarding how to make a needed transfer or how to preserve affordability if another CHDO cannot take on the project. (107;206)
The proposed rule [at §300(a)(4)] pertaining rental housing “sponsored” by a CHDO also seeks to make it easier for nonprofits by deleting “sole” twice and adding “managing” once. Therefore, a CHDO meets the “sponsored” criterion if the rental housing is either “owned” or “developed” by a CHDO subsidiary, a limited partnership of which the CHDO or its subsidiary is the [sole] managing general partner, or a limited liability company of which the CHDO or its subsidiary is the [sole] managing member. (106;206)
24 CFR part 92.208 – CHDO Operating Expenses and Capacity Building Costs
(27;152)
The HOME statute and current regulations allow a PJ to provide up to 5% of its annual HOME fund allocation to CHDOs for operating expenses; this amount is separate from the minimum 15% CHDO set-aside and does not count against a PJ’s 10% cap on using its HOME allocation for program administration activities. The proposed rule would correct a drafting error in the current rule that posed an unintended barrier to using CHDO operating expense for capacity building. That error had the effect of limiting the use of this funding to organizations that already met the definition of a CHDO. Therefore, the proposed rule adds a new paragraph (c) stating that an organization that meets the CHDO definition – except for the demonstrated capacity provision – may receive HOME capacity building funds so that it can develop a demonstrated capacity to carry out HOME activities.
OAHP plans to add a fact sheet and Frequently Asked Questions (FAQs) to its new HOME Proposed Rule webpage. OAHP also plans to conduct virtual listening sessions. Check OAHP’s HOME Proposed Rule webpage for upcoming listening sessions.
Read the preview version of the proposed HOME regulation changes at: https://tinyurl.com/4cvc3nxb
Read the HUD media announcement at: https://tinyurl.com/yzz9pjwr
Read OAHP’s HOME Proposed Rule webpage at: https://tinyurl.com/2axxrzb9
OAHP’s HOME Program website is at: https://tinyurl.com/mssk9w6h and the HUD Exchange HOME webpage is at:https://tinyurl.com/mr3stys2
Read more about the HOME program on page 5-1 of NLIHC’s 2024 Advocates’ Guide.