House Rejects Farm Bill, Rural Definition in Limbo

For the past few years, rural designation for Department of Agriculture (USDA) programs was determined using population data from the 2000 census. Beginning on Oct. 1 of this year, current law would require the USDA to start using the 2010 census. This means that approximately 900 communities considered rural using the 2000 census would no longer qualify using 2010 data unless legislation is passed to extend a “grandfathering” clause that allows previously qualified areas to retain their rural status. The loss of a rural designation would affect future development of low-income housing tax credit sites and could affect access to loans and other sources of funding for new and existing properties.

Rural Designations

Since its creation in 1949, the USDA has been assisting the development of housing in rural areas by providing access to credit, mortgage loans, and other capital to rural projects. When determining if an area is rural, the USDA relies on the census population figures to determine which communities are eligible for its Rural Development (RD) programs. Generally, communities with populations of less than 20,000 are designated as “rural” if they meet other qualitative factors. In 1983, Congress amended the Housing Act of 1949 to protect communities where the population has grown since the previous census, known as “grandfathering.”

The grandfather clause has gone through various iterations since 1983. The most recent methodology allows communities with populations up to 25,000 to retain eligibility if they were previously eligible under the 1990 or 2000 census. The most recent grandfather clause expired on Sept. 30, 2012. And with the release of the 2010 census, any area that cannot meet the rural definition based on the 2010 census will no longer be eligible for rural funding.

Income Data

The USDA uses the income data from the census to determine program eligibility, prioritize projects and regions, and distribute allocations. The U.S. Census Bureau didn’t collect income data in 2010 and has said that it won’t do so going forward. The USDA said in a September 2012 memorandum that it plans to use American Community Survey income and poverty data to determine median household income and state nonmetropolitan median household income.

The USDA uses the population data to determine which communities are “rural” and the income data to award grants and loans. The USDA estimates that 921 areas are affected by RD’s use of the 2010 data. Because some areas fall into more than one category, the total is more than 921.

The majority of the areas are affected for at least one of three reasons:

·         Their population increased by more than the allowed amount (364 areas);

·         The grandfather clause has expired and the areas can no longer qualify based on previous census data (485 areas); and

·         Previously rural areas have been incorporated into metropolitan areas (78 areas).

For existing properties to avoid losing their designations, Congress would need to pass a bill to extend the safe harbor for formerly rural communities whose populations now exceed the USDA limit. Lawmakers would also have to pass a bill updating a 1974 definition of “rural” that excludes communities located within a metropolitan statistical area (MSA) for those communities to retain their rural designation.

Effect on LIHTC Sites

The loss of rural designations has implications for tax credit sites in those communities. For a household to qualify as low income at a tax credit site, its members must earn no more than 50 percent or 60 percent of the area median gross income (AMGI), depending on the site’s minimum set-aside. And the maximum rent the site can charge these low-income households is set at 30 percent of this income limit. This means that in rural counties and other areas with very low AMGI, tax credit sites can’t generate much rent revenue. So it’s difficult or impossible for tax credit sites in these areas to stay afloat financially.

Section 3004 of the Housing and Economic Recovery Act (HERA) allows developers of 9 percent LIHTC properties in rural areas to use the maximum of either the national nonmetropolitan median income (NNMI) or the AMGI to determine income limits. The ability to use the NNMI has helped spur development in rural areas by increasing rent limits to help cover property expenses and increasing the number of people who can qualify to live at the sites. Using a higher income limit increases the percentage of people who can qualify for the site, therefore helping units rent faster and decreasing vacancy loss.

Current Legislative Status

On June 10, the Senate passed the Agriculture Reform, Food and Jobs Act of 2013 (S. 954), also known as the Farm Bill, with a vote of 66 to 27. Included in the bill was language that rural communities currently eligible for USDA housing programs will retain their eligibility through 2020. To maintain rural eligibility, communities still need to be rural in character and have a serious lack of mortgage credit for lower and moderate-income families. Additionally, the bill raises the definition of “rural” from 25,000 to 35,000 in population. The Senate bill was sent to the House.

The House version of the Farm Bill has an amendment introduced by Representative Jeff Fortenberry (R-NE), called the Rural Housing Preservation Act of 2013 (H.R. 858), which would allow any area currently considered rural to continue to be considered rural until 2020. Additionally, on June 13, 2013, the House Appropriations Committee approved the Fiscal Year 2014 Agriculture Appropriations Bill that included an amendment by Representative Fortenberry to extend the current definition of “rural” communities to 2020.

On June 20, the House rejected its version of the Farm Bill. The vote against the bill was 234 to 195. The measure called for more significant cuts to the food stamp program than the Senate’s version of the Farm Bill, but it still didn’t go far enough to get a majority in the House to support an overhaul of the nation’s food and farm programs. Sixty-two Republicans, or more than a quarter of the caucus, voted with Democrats to defeat the bill. As for the Agriculture Spending Bill, it has been pulled from the House calendar in the wake of the Farm Bill’s defeat. House GOP leaders released a schedule on June 21 that didn’t include consideration of the 2014 agriculture spending bill for the following week. The bill may be considered by the House soon after the July 4 week.