Following is an excerpt from a letter sent to clients by Brownstein Zeidman & Lore, a Washington law firm. It was written by partners Kenneth G. Lore and Harold A. Levy.

Major changes to HUD's programs are inevitable during the next session of Congress. What is uncertain is whether the proposal of HUD Secretary Henry Cisneros will be accepted by the Republican-led Congress or whether fiscal conservatives will succeed in enacting more drastic changes, such as converting FHA into a government-sponsored enterprise, or dismantling HUD, as incoming Speaker of the House Newt Gingrich has suggested.

In addition, many of HUD's constituency groups are only now having an opportunity to react to the proposals; as their views are articulated to the administration and to Congress, the policy debate will take on a new dimension.

Secretary Cisneros' proposals to delegate more responsibility and discretion to state and local officials will have strong bipartisan appeal.

His plans dovetail with the growing resentment among state and local government officials against unfunded mandates and the increasing sophistication of state and local governments in administering housing and community development programs.

In addition, his proposals to make FHA more market oriented and to increase free choice by tenants will strike responsive chords among most members of Congress

Many Republicans, however, will find that the Cisneros proposal falls far short in terms of savings - only $800 million over five years. Conservative Republicans will seek to trim far greater amounts from HUD's budget.

Some members of the new Republican leadership of the House and Senate housing committees are expected to be moderate. Sen. Alfonse D'Amato, R- N.Y., who is the new chairman of the Senate housing committee, has in the past shown a strong interest in HUD's programs.

The chairman of the Housing subcommittee has not yet been selected, but will probably be either Lauch Faircloth, R-N.C., or Connie Mack, R-Fla. Both have conservative voting records.

In the House, Rep. Jim Leach, R-Iowa, assumes the chairmanship of the renamed Banking and Financial Services Committee, and Rep. Rick A. Lazio, R-N.Y., who is serving only his second term in Congress, will be the chairman of the subcommittee. Both are regarded as moderates.

However, the debate may be controlled by those who are motivated more by budgetary considerations than by regard for HUD's programs. Consistent with this view, a memorandum issued on Dec. 14 by Congressman Leach to Republican members of his Banking Committee states as follows:

"In view of the November 1994 election, the committee's legislative agenda will be budget driven, with programs under its jurisdiction reduced through direction of the Budget and Appropriations committees.

"Along with deficit reduction proposals, the committee can be expected to . . . develop legislation that could result in a comprehensive restructuring of HUD's programs.

"Using the President's FY 1996 budget as a starting point, the Committee will follow a 'zero-based' approach to thoroughly review the programs under its jurisdiction."

The conditions for radical change are stronger now than at any other time in recent memory. One Republican staff member on the banking and housing subcommittee told us, for example, that the "starting point for discussions" on restructuring FHA will be the proposals put forth last year by Rep. John R. Kasich, R-Ohio, a junior member who will chair the incoming House Budget Committee chairman.

It will be difficult for the President to veto measures that seek to achieve the same objectives as his own proposals and that create the basis for greater tax relief and/or deficit reduction.

In conclusion, though it is difficult to speculate at this stage as to what Congress will do in the coming months in response to the President's proposals, certain assumptions can be made.

HUD will continue the trend of moving away from retail underwriting and toward wholesale risk-sharing, reinsurance, or credit enhancement, and will gradually move away from project-based assistance and toward tenant-based certificates or vouchers.

HUD's preservation programs appear to have little support, and will be terminated or drastically cut back.

Finally, categorical programs will almost undoubtedly be consolidated and converted into block grants.

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