01/22/2020

HUD Guidance Forthcoming on PRAC Rent Increases

LeadingAge Ohio has learned that, given the number of Section 202 communities with Project Rental Assistance Contracts (PRACs) that requested larger rent increases to prepare for recapitalization in fiscal year 2019 (FY19), HUD plans to develop new guidance for HUD staff to evaluate these requests and prioritize those properties with the greatest need. According to HUD, many Section 202 PRAC owners have been requesting increases even for younger PRACs, and even with a final fiscal year 2020 (FY20) HUD appropriations bill in place HUD cannot fully fund every request. 

If all goes as planned, HUD will have the new guidance out to field staff shortly, followed by information to LeadingAge and other stakeholders on how rent increase requests will be handled going forward. In the meantime, HUD has made clear it is not capping rent increases at 5%, but HUD is requiring more extensive reviews before such requests are approved. 

As LeadingAge shared with members at the time, HUD informed LeadingAge in July 2019 that its Section 202 PRAC renewal funds were extremely limited for the final three months of FY19. 

HUD’s resources for PRAC renewals were so limited, in fact, that HUD had to impose temporary policies to ensure there would be enough funding to renew contracts from July through September 2019. Those temporary policies were to freeze Reserve for Replacements at current levels and to implement a new HUD headquarters review of any requested rent adjustment over 5%. 

During FY19, HUD experienced a predictable swell in requests for budget-based rent increases and request to increase deposits to replacement reserves as Section 202 PRAC owners positioned themselves to take advantage of the new RAD for PRAC housing preservation program. Completely within program guidelines, and at the urging of HUD officials themselves, Section 202 PRAC owners worked hard in fiscal year 2019 to get their HUD rents to where they should be and be able, if it made sense for them, to take advantage of converting their PRAC contract to a Section 8 project-based rental assistance contract or project-based vouchers as the Rental Assistance Demonstration (RAD) allows. 

With three months to go in FY19, it was clear to HUD that owner requests for increased rents and deposits to replacement reserves exceeded HUD’s resources. It was at that point, in July 2019, that HUD informed LeadingAge it would have to impose those temporary measures to ensure that, at least, the critical function of contract renewals could occur. 

On December 20, 2019, President Trump signed into law the FY20 HUD appropriations bill. The FY20 HUD appropriations bill includes $593 million for PRAC renewals and amendments, far more than the $576 million HUD anticipated was needed at the start of negotiations to develop the FY20 funding bill in early 2019.