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106278 1 (1978-06-27)

handle is hein.gao/gaobacxre0001 and id is 1 raw text is: RELEASED STATES GENERAL ACCOUNTING OFFICE WASHINGTON, D.C. 20548 COMMUNITY AND ECONOMIC VCVLCLOPMrNT DIVISION 2 7 1978 The Honorable Lawrence B. Simons Assistant Secretary for Housing- Federal Housing Commissioner LM106278 Department of Housing and Urban Development - Dear Mr. Simons: In connection with our on-going work in the housing and community development areas, we have noted that one of the procedures followed in relation to the new construction and substantial rehabilitation portions of the secticn 8 lower- income rcnta. program may result in higher assistance payments than are necessary. Specifically, we are referring to the practice of allowing contract rents to be adjusted downward -in those instances where a project sponsor benefits from tax-exempt financing, but not doing so in those instances in which the sponsor secures a below market interest rate loan or a real property tax abatement. The effects of the two situations on sponsor costs are identical, yet their treatment . in establishing contract rents is quite different. We believe that the two situations should be handled consistently and that, in fact, there are savings to the Federal Government which would result if contract rents were adjusted downward * for favorable financing and real property tax abatements as well as for tax-exempt financing. BACKGROUND Under the new construction and substantial rehabilitation portions of the section 8 program, rents must be approved individually for each proposed unit based on rents for com- parable units in the area. The contract rent (the total rent payable to the owner including the portion payable by the family) must be determined by the Department of Housing and Urban Development to be reasonable in relation to the quality, location, amenities, and management and maintenance services of the project. In most cases, the contract rents plus any allowance for utilities and other services may not exceed the fair market rents established by the Department for each markot area in the country. RELEASED . * . * I .

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