Issue link: https://read.dmtmag.com/i/562838
SEPTEMBER 2015 14 THE JOURNAL For nearly a month before this edition of the MHARR Viewpoint went to press, it appeared that a plan was afoot at HUD that would have trans- formed the HUD manufactured housing program from the federal-state partnership conceived by Congress in the original National Manufactured Housing Construction and Safety Standards Act of 1974, to a contractor-dominated, contractor-dri- ven and (effectively) contractor-administered top- down federal program with little or no connection to the state and local governments that regulate land use, zoning, placement, and a wide range of other issues for all types of housing. This plan, as proposed, had all the earmarks of an impending disaster for the program, the industry and con- sumers – and still could be. A 1999 report to the National Governors' As- sociation, "25 Years of Federal-State Partnership to Fulfill the Public's Trust," documented the na- ture of the federal-state partnership established by the 1974 law, stating: "Although Congress invoked the Interstate Commerce Clause to establish the Federal Manufactured Housing Construction and Safety Standards program, it was recognized from the beginning that the states were to be full partners in the development and implementation of a na- tional uniform regulatory system for the [manufac- tured] home industry." (Emphasis added). Under this partnership (in a structure continued and en- hanced by the Manufactured Housing Improvement Act of 2000) the federal government, i.e. , HUD, has primary authority over production of the home itself. The states, however, can choose to exer- cise primary authority over post-production en- forcement – if they wish -- by becoming a State Administrative Agency (SAA). While the program functions best when the states are involved – and it would be ideal if all states were approved SAAs – a number of states with lower production and shipment levels have never taken SAA status (or have let their SAA status drop), effectively leaving post-production enforcement in those states up to HUD. The prob- lem, however, is that SAA functions in so-called "default" states are not performed by "HUD." In- stead, SAA functions end-up being performed by HUD's revenue-driven "monitoring" contractor, meaning that every time a state drops out of SAA status, HUD's entrenched contractor moves in, with the same sort of redundant, arbitrary and costly "make-work" reviews, reports, red-tape and other useless paperwork that already plagues the production side of the HUD program -- and has only gotten worse under the current program Ad- ministrator. A massive SAA exodus from the HUD program would, therefore, throw a large portion of the in- dustry's post-production sector under the de facto control of the monitoring contractor, where the post-production segment would have the opportu- nity to experience – without the benefit of an inde- pendent national association – what life has been like for HUD Code manufacturers for nearly forty years, and how its specific interests are being di- rectly threatened in Washington, D.C. And such an exodus – based on direct SAA feedback to MHARR – would be likely under a pro- posal outlined in a July 21, 2015 memorandum to the SAAs from the Program Administrator. Under that proposal, per floor payments to SAAs (with no further distinction between fully-approved and conditionally-approved states) would be increased from $2.50 per floor for each unit manufactured in an SAA's home state and $9.00 per floor for each unit shipped into a recipient state, to $20.00 per floor and $10.00 per floor respectively. But , total payments to each SAA would be based on current industry production (e.g., 64,331 HUD Code homes in 2014) rather than the significantly higher production levels at the time of enactment of the 2000 reform law (e.g., the 250,366 HUD Code homes produced in 2000), as is the case now. In addition, so-called "supplemental" payments by HUD to the SAAs to make up that major baseline difference, under HUD's July 21, 2015 proposal, would be "discontinued." As a result, although per-unit payments under this plan would increase, total funding levels for many SAAs would drop sub- stantially, with many SAAs indicating that they would leave the program as a result. The 2000 reform law, however, was specifically designed to protect the program's federal-state partnership by prohibiting any such "revenue-star- vation" of the SAAs by HUD. Section 620 (e) (3) of the 2000 reform law thus states that: "On and after the effective date of the Manufactured Housing Improvement Act of 2000, the [HUD] Secretary shall continue to fund the states having approved State plans in the amounts which are not less than the allocated amounts, based on the fee distribution system in effect on the day before the effective date." (Emphasis added). This language, on its face, sets a "floor" for SAA compensation, requiring HUD to continue funding the SAAs in amounts not lower than they were receiving at the time the 2000 reform law went into effect on December 27, 2000. And HUD, to its credit, has complied with this provision – as it is written -- until now, by providing "supplemental" payments to SAAs based on 2000 production lev- els. Indeed, in the first SAA fee rule under this provision, adopted in 2002, HUD stated: "In ac- cordance with section 620 (e) (3) of the Act … this rule also provides … that HUD will continue to fund States that have approved State plans in amounts not less than the allocated amounts, based on the fee distribution system in effect on Decem- ber 26, 2000. The yearly payment to a State would be set by this rule as not less than the amount paid to that State for the 12 months ending on De- cember 26, 2000." (Emphasis added). As has become par for the course, though, (and has been the case with many other aspects of the law and the program, e.g. , attached garages, multi-family designs, needless "monthly" Subpart I record reviews and others), program management initially sought to change this established practice based on an "interpretation" from HUD's Office of General Counsel (OGC) to the effect that a change in SAA compensation complies with section 620 (e) (3) so long as the per unit amount is not de- creased below year-2000 levels, even if total pay- ments to the SAAs are decreased by basing payments on today's lower overall production vol- ume. An "interpretation," though, cannot change es- tablished law, and aside from the fact that there is nothing in the plain language of the statute to sup- port such a tortured construction, actual HUD practice for nearly 15 years confirms that the law establishes a floor for total SAA an- nual compensation. This floor is de- signed to provide a guaranteed base funding level for SAAs and thereby promote con- Is HUD Reversing an Unacceptable Bait and Switch on SAA Funding? MHARR VIEWPOINT BY MARK WEISS \ 18