WASHINGTON -- Upcoming Housing and Urban Development Department regulations are expected to put a crimp in Congress's plans to allow state and local governments to avoid kicking in their own money to the new HOME housing affordability program in 1992.

Legislation passed earlier this month and signed into law by President Bush yesterday that gives the program $1.5 billion in federal funding in 1992 also includes a provision waiving for one year a requirement that state and local governments contribute funds to be eligible for the federal dollars.

But a HUD spokesman last week confirmed that the regulations implementing the program will stipulate that the waiver does not apply to all HOME funds state and local governments receive next year -- only to the portion of those funds actually spent in 1992.

Housing lobbyists said they would strongly oppose such an interpretation of the law, because they believe Congress intended to apply the waiver to any HOME money received in 1992, regardless of whether it was spent during the year.

Applying the waiver only to money spent could make the waiver meaningless, because it will take state and local governments months to get to the point to beginning to spend program money, the lobbyists said. Alternatively, it could encourage states and localities to throw money at projects indiscriminately to make sure it was spent by the end of 1992, they said.

When Congress created the HOME program in 1990, it was designed as one in which the federal government and state and local governments would contribute financing for low-income housing. Congress, however, inserted a provision in this year's HUD appropriations bill that puts those matching provisions on hold for one year and allows states and localities to receive federal funds without making their own contributions. The waiver was designed to help many state and local governments strapped for funds as a result of the recession.

If HUD goes ahead with its plan for the HOME regulations, "we would be outraged," said John T. McEvoy, executive director of the National Council of State Housing Agencies. "It would represent a serious poisoning of the well."

Mr. McEvoy predicted state housing agencies "will sue the federal government if they have to" to make sure that restriction is not placed on the HOME funds they receive next year.

John C. Murphy, executive director of the Association of Local Housing Finance Agencies, said applying the waiver only to money spent in 1992 would have the effect of pushing funds toward projects that provide rent subsidies for tenants in existing units -- an approach favored by the Bush administration. Money can be disbursed in that type of program much more quickly than in one where new units are being built or existing units are being rehabilitated, Mr. Murphy said.

Restricting the waiver "has the effect of perverting the program away from a constructive tool to address the needs as they exist -- be they new construction, substantial rehabilitation, etc. -- into one that virtually forces communities to do tenant assistance," Mr. Murphy said.

Housing lobbyists said they expect Congress to pass legislation soon to stop HUD from trying to interpret the law in this way. Congressional aides who helped draft the waiver provision could not be reached for comment.

But one municipal lobbyist said Congress is running out of time, and may not able to block HUD before adjourning for the year. He pointed out that HUD could easily avoid any confrontation with Capitol Hill simply by delaying its regulations until lawmakers have left town for the year. The HUD spokesman said there is yet no firm date for publishing the regulations, though they may be out in mid-November.

The waiver controversy aside, housing lobbyists said they would be eagerly awaiting the department's regulations because their publication will allow state and local housing agencies to begin applying for HOME funds.

Once the regulations are published, it will take several months for the housing agencies to complete the paperwork and get the go-ahead from HUD to begin receiving money and start their housing projects, said Dave DeSantis, a lobbyist for the National Council of State Housing Agencies.

He estimated that it would be March before the first disbursements under the program are made.

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