With federal officials at an impasse on a funding deal, a government shutdown is looking more and more likely starting Oct. 1.
During prior shutdowns, the Department of Housing and Urban Development (HUD) operated with a skeleton staff to handle duties that were deemed essential, while other important work ceased.
“Our hope is if a shutdown happens it will be short,” says Rebecca Simon, a partner at the Nixon Peabody law firm. “Every extra day that a shutdown goes on, you start to see more and more impact across the affordable housing space.”
Section 8 project-based rental assistance will be one of the key programs affected by a prolonged shutdown.
“We expect funding for those contracts to start to be impacted likely a month or two into a shutdown if it were to go that long,” says Simon, noting that contracts for October are funded.
HUD will likely continue to make payments on previously obligated funds until those monies are exhausted. The Nixon Peabody team notes that during a 2019 shutdown, which lasted 35 days, more than 1,000 housing assistance payment contracts expired in the first month of the closure and were not renewed until the government reopened.
Simon and her colleagues prepared a thorough alert on the potential impact of a shutdown. HUD has also released a contingency plan.
A lengthy government closure would also be a hit to affordable housing developers who have HUD loans in progress.
“Unfortunately, there will be real-world impacts to development deals in the pipeline very quickly,” says Simon. “All processing will be halted from the HUD perspective. A very small number of deals that are significantly close to closing may be able to proceed, but the vast majority of development and preservation deals will be put on hold until the government opens back up.”
Transactions acquiring HUD approvals, such as renewals of housing assistance payment contracts and applications for Federal Housing Administration insurance, would likely be on hold until the government returns to its regular operations.
Looking forward, owners would be well served to think about a contingency plan if the shutdown goes on for an extended period of time.
“In past shutdowns, that has meant accessing sources of funding to cover any shortfalls, for example a reserve account,” reports Simon. “We’re encouraging owners and operators to think about what that will look like in the coming weeks.”