WASHINGTON - With authority to issue mortgage revenue bonds suspended for at least several more months, many state and local housing officials say they are worried they will be unable to finance their loan programs after their reserves dry up next spring.
President Bush's veto on Wedneday of the urban aid tax bill that contained an extension for the authority to issue mortgage bonds "will disrupt our planning for a spring bond issue," said Marvin Siflinger, the executive director of the Massachusetts Housing Finance Agency. "We have some money available, but we don't feel it would be anywhere near sufficient to cover the demand we expect in the spring."
The problem is even more severe for authorities that have relied on small-issue industrial development bonds, which expired along with mortgage bonds on June 30. Unlike with mortgage revenue bonds, the law does not permit an issuer to sell IDBs in advance and gradually draw down reserves as projects are identified.
"Under the current hiatus, not only can bonds not be issued, but not a single manufacturing project in the country can benefit from the tax break IDBs provide," said Guy Land, a lobbyist for the Council of Development Finance Agencies. "There are no unused IDB funds available."
The tax bill rejected by Bush would have made the mortgage bond exemption permanent and extended the IDB exemption through Sept. 30. Although some bond proponents are hoping for passage of a tax bill early next year under newly elected President Bill Clinton, others are concerned that the tax-writing process may drag on through the summer, leaving the bond exemptions suspended for more than a year.
Several housing agency officials said they have enough money to fund their mortgage finance programs for the next few months. In some cases, bonds were issued before June 30 and the proceeds were escrowed, with remarketings expected to occur early next year.
The Georgia Housing and Finance Authority, for example, took that action in June with a $130 million issue because officials were concerned that a extension of mortgage bond authority would not be enacted this year.
"With everything the way it was, I was betting there was a good chance" for a long suspension of mortgage bond authority," said David Pinson, housing development director for the authority. But he added that the $130 million is likely to last the authority only six to eight months.
It also will not be enough to cover the enormous demand for a program under which the authority has been buying loans guaranteed by the Farmers Home Administration that were made to first-time home buyers in rural areas.
The program was "going gang-busters," Pinson said. But now that the mortgage bond exemption is in limbo, "we're not buying these loans, and construction isn't occurring."
Steven Leeper, the director of housing for the Pittsburgh Urban Redevelopment Authority, said his agency "is a little more fortunate than most" because it escrowed $45 million of bonds issued in June that the agency will use over the next year for its first-time home-buyer and home-improvement programs.
"You had to assume, particularly in an election year, that there was not going to be an affirmative action on the tax bill," Leeper said.
But despite Leeper's foresight, he said being forced to escrow bonds because of the uncertainties in Washington is not a good way to do business. "The inefficiencies there are just overwhelming," Leeper said. He added the money would have been wasted if Bush had signed the bill and the exemption had been renewed.
Siflinger, meanwhile, said the suspension of mortgage bond authority has made him especially concerned about the future of a loan program offered by his Massachusetts agency that involves lenders with financially troubled condominium properties. Under the program, a lender lowers the purchase price of the condominium and in return the authority finances a mortgage loan to the home buyer that carries a 6% interest rate for the first five years.
"I'm concerned this program will come to a screeching halt if we run out of money," Siflinger said.
Scores of IDB projects already have come to a screeching halt, according to Land, the lobbyist for the development agencies council. Under the tax law, an IDB may not be issued unless the project has been identified and is ready to use the funds.
"We have reports from our members all over the country of projects ready to go, that were sitting on hold in the hope that the President might change his mind and sign the bill," Land said. Now that Bush has vetoed the measure, "those projects simply cannot go forward."
Waiting several more months for industrial development bond authority to be renewed may kill some of those projects, IDB proponents said.
The Minneapolis Community Development Agency for example, has "lost a couple of companies because of it," said Jay Jensen, the authority's executive director.
The agency will not be able to go back to those companies after the IDB exemption is revived because they already "have chosen to go elsewhere," Jensen said.
"You try to develop these programs, but when they keep going in fits and starts, you can't really develop efficient and effective programs," he added.