LeadingAge Task Force Recommends 202 PRAC Preservation Strategies

Members | January 01, 2017

LeadingAge convened in February 2015 a group of housing providers and advocates interested in developing a preservation strategy to address the rehab needs of aging Section 202 project rental assistance contract (PRAC) properties. In February 2016, the task force put forth a three-pronged recommendation for addressing the diverse needs of the aging PRAC portfolio. Complete details of the LeadingAge task force recommendations can be found in the PRAC Preservation Needs and Options report.

These recommendations are:

  • to facilitate the ability of older PRACs with current shortfalls and/or looming capital needs to recapitalize, such as by expanding the existing Rental Assistance Demonstration (RAD) program to include PRACs*;
     
  • to ensure that PRAC budgeting processes will be improved such that, going forward, if funding R4R adequately, newer PRACs will have time to build up reserve funds able to sustain the properties for the long-term;  and 
  • to address critical repair needs of properties lacking the time and/or ability to recapitalize by ensuring funds  are made available through the existing Section 202 line item for emergency capital repairs.

*Read more about the RAD for PRAC component as incorporated into LeadingAge's goals for preservation of service enriched affordable living options for seniors as articulated in our housing policy "Campaign_for_Healthy_Aging_Through_Housing."

Expansion of RAD to Include PRAC 

Over the last several years, LeadingAge has raised this PRAC preservation problem with the U.S. Department of Housing and Urban Development (HUD).  Successful engagement of HUD and support of the President is evidenced by proposals made this February as part of the administration's budget request for FY 17 to expand the Rental Assistance Demonstration (RAD) to include the PRAC program!

Under a broadened RAD initiative, PRACs could seek to convert their subsidy to Section 8, and thereafter take on debt or leverage external financing to meet capital needs like other HUD portfolios can and have. This could solve problems for many PRACs.    

The President's budget proposal includes up to $50 million to enable PRACs to participate. However, any legislation that would involve increased federal expenditures will be difficult, given how reluctant Congress is to do anything that costs the federal government money. 

Steps are being taken as well to alternatively address the needs of other PRAC properties that might not be able to participate in RAD or other forms or recapitalization efforts.

Design Challenges of the Section 202/PRAC Program 

The 202 PRAC program began in 1991 and provided capital grants for the new development of senior housing. This was a wonderful model in that government-funded rental assistance subsidies could be reduced, instead of having to include debt-service costs and be used to help pay back the government’s own direct loans.  But it did have a significant flaw:  It did not include a mechanism for property owners to recapitalize the property to make crucial repairs and upgrades.  

Additionally, there have been inconsistent practices on the part of owners/agents and HUD staff in the field about PRAC budgeting and whether or not proactive measures are being taken to adequately ensure the build-up over time for long-term capital replacements or sustainable reserves.

The earliest 202 PRAC projects are already more than 20 years old, and members have indicated that there are many properties with current critical physical needs that cannot be met by reserves. And many more members indicate that current levels of deposits to project reserve accounts will be insufficient to address the accruing capital needs of the property in the coming 5 to 10 years.  

Participation in RAD could present a solution for certain PRAC properties.

Other Project Needs and Options 

Financial models show how challenging it would be to attract and secure funding from the private markets to the small size of the typical stand-alone PRAC property. These models also show how, without substantial increases to the current break-even budgets, it will be very difficult to make it financially feasible to recapitalize or leverage new funds, even if the owners are allowed take on debt.

Additionally, when a property has imminent extensive and/or sudden emergency needs, and when it lacks sufficient resources, there typically is not enough time to complete a full recapitalization process. To address this issue, advocacy is needed to provide funds for emergency capital repairs, a Congressionally-authorized program which has not received funding in recent years.

For newer PRACs and/or those single-site or smaller portfolio sponsors that need not or perhaps cannot participate in a portfolio consolidation, it is critical to establish policies regarding PRAC budgeting to address the adequacy of the reserve for replacement accounts for long-term sustainability, as well as reasonable and appropriate daily operations. Conversations are already underway with HUD on this front.

Task Force Activity to Date

A preliminary conference call was held in late October of 2014 to ask willing members to help identify the major issues to be addressed in any legislative or regulatory proposal to preserve 202 PRACs. 

Around that time, HUD’s recent release of a proposed rule for implementing changes to the Section 202/811 programs provided some hope that PRAC projects might be allowed to incur debt to increase energy efficiency, and that existing PRAC levels could be maintained and allow properties to pay debt where there would be cost savings created by the modifications.  (This is still only a proposed rule, nothing has been finalized yet.)

In the winter and spring of 2015, an informal member workgroup met frequently by phone and helped LeadingAge staff to develop a survey of Section 202 PRAC portfolio needs.  LeadingAge sent out information to all 2,875 202/PRAC properties nationwide, directing them to the online survey.  Approximately 300 individual sites participated in the survey, and the results greatly informed the future direction of the workgroup.  Shortly afterward the survey, LeadingAge elevated the workgroup to become a task force, led by Cheryl Wickersham, Vice President for Housing Service at United Church Homes ( an Ohio-based, national affordable housing, healthcare and senior living provider organization and LeadingAge member), and financial specialists began to do modeling of refinancing examples put forward by task force members.   

The task force met for the first-time in person during the LeadingAge 2015 annual meeting in Boston, and there they worked on a concept paper reflecting the concerns of providers, the findings from the survey, and recommendations on how to address the needs of the PRAC portfolio.  Along the way, key findings and preliminary ideas were shared with HUD staff, who engaged proactively in the discussion and provided feedback to the task force.  

LeadingAge staff have started visits with key congressional offices to educate them on this issue to build support. 

Next Steps  

Moving from task force recommendations, and administrative budget proposals, to necessary opportunities legislatively, and more concrete guidance and consistency in budgeting, will take some time.   This requires the support of members too.  We’ll keep you posted on next steps and hope you’ll keep us posted on continuing efforts to address capital needs concerns and budgeting, too.