C. Project Rental Subsidies

The housing subsidies described below are paid to owners on behalf of tenants to keep the amount that tenants pay for rent affordable. This assistance is tied to the property and differs in that respect from tenant-based rental assistance programs (e.g., Housing Choice Vouchers) where the subsidy follows the tenant when a tenant moves to another property.

1. Rental Assistance Payment (RAP) Contracts. The RAP program was established by the Housing and Community Development Act of 1974 to provide additional rental assistance subsidy to property owners on behalf of very low-income tenants. RAP was available only to Section 236 properties and was the predecessor of the project-based Section 8 program.

2. Rent Supplement Contracts. The Rent Supplement Program was established by the Housing and Urban Development Act of 1965 and was the first project-based assistance program for mortgages insured by the Office of Housing. These contracts were available to Section 221(d)(3) BMIR, Section 231, Section 236 (insured and noninsured), and Section 202 properties for the life of the mortgage. The program was suspended under the housing subsidy moratorium of January 5, 1973. Owners of properties with Rent Supplement contracts were allowed to convert to project-based Section 8 assistance.

3. Section 8 Housing Assistance Payments (HAP) Contracts.

   • a. New Construction and Substantial Rehabilitation Contracts. Under this program, repealed by Congress in 1983, HUD provided (upon application) Section 8 project-based assistance to public housing authorities (PHAs) or private owners for up to 20 or 40 years after completion of the construction or substantial rehabilitation of rental housing. The Section 8 financial assistance provided a subsidy that helped bridge the gap between the rents needed to make a project feasible and the rents affordable to the tenants. Financing was provided by commercial lending

institutions and often insured by HUD through the Federal Housing Administration (FHA) or a State Housing Finance Agency. HUD has not approved any new projects since 1983, but projects approved prior to that time may still receive subsidy.

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• b. Rural Housing Section 515 Properties with Section 8 Contracts (RHS Section 515/8). The USDA Rural Housing Service Section 515 Rural Rental Housing program provides direct, below-market interest rate loans for the construction or acquisition and rehabilitation of rental housing for low- and moderate-income families (including the elderly and disabled) in rural areas. Some properties developed through this program received Section 8 rental assistance contracts to make the rental units more affordable to eligible families. New Section 515 properties are still being developed, however these new projects are no longer combined with Section 8 contracts.

• c. Loan Management Set-Aside (LMSA) Contracts. This Section 8 program was developed to provide assistance to insured projects experiencing immediate or potentially serious financial difficulties. The assistance helped minimize defaults and reduce insurance fund claims by providing rental assistance to tenants and thereby making the project affordable to low-income families. The contracts were available for projects insured under the Section 236, Section 221(d)(4), and Section 221(d)(3) and 221 (d) (3) BMIR programs, as well as Section 202 projects.

• d. Property Disposition Set-Aside (PDSA) Contracts. This Section 8 program was used in connection with the sale of HUD-owned properties and/or foreclosure of HUD-held mortgages for properties formerly insured under the Section 236 and Section 221(d)(3) BMIR programs or other low-income housing programs. Like LMSA contracts, this program helped ensure that the units in these properties would remain affordable to low-and moderateincome households and minimize displacement.

4. Project Assistance Contracts (PACs). Created for Section 202 properties for persons with disabilities, Section 162 provided subsidies in the form of Project Assistance Contracts to nonprofit sponsors to help make rents affordable in Section 202 projects developed for persons with disabilities. The PAC covered the difference between the HUD approved operating costs of the property and the tenant’s contributions toward rent plus the debt service on the loan. HUD awarded PACs to Section 202 projects for persons with disabilities funded in fiscal years 1989 and 1990 .

Project Rental Assistance Contracts (PRACs). Beginning in 1991, HUD replaced the Section 202/8 and Section 202 PAC programs with assistance through PRACs for projects developed with Section 202 or Section 811 Capital Advances. The PRAC provides a rental subsidy on behalf of tenants in these properties that covers the difference between the HUD approved operating costs of the project and the tenant’s contribution toward the rent.

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