The phone rang at the home of Rep. Harold S. Sawyer (R-Mich.) at about 11 p.m. Sept. 30, the last day of the federal fiscal year 1982. It was Samuel R. Pierce Jr., secretary of housing and urban development, calling to tell Sawyer that a subsidized housing project planned for his district would be funded after all.
Sawyer wasn't the only politician to get good news from HUD in the waning hours of the fiscal year. Although the Reagan administration had halted new commitments under the Section 8 low-income housing program over the summer, HUD resurrected the program just long enough to fund low-income housing projects from Massachusetts to California, including a number of projects in congressional districts where Republican incumbents face difficult reelection battles.
The timing of the funding and the mechanism employed to distribute the money has raised cries of "politics" from Democrats around the country.
Evan Zeppos, a spokesman for the Democratic Congressional Campaign Committee, charged, "President Reagan is doing exactly what he criticized President Carter for. And that's playing Santa Claus with federal grants as the election comes closer."
HUD has denied that politics played a part in the pre-election generosity. But Democrats complain that an administration that has argued strenuously -- and successfully -- that the Section 8 program should be shut down has suddenly in a flurry of activity a month before the elections, parceled out millions of dollars for it. And they claim the department handed out much of the money through state housing finance agencies, allowing it to channel the money to well-connected projects rather than those for which Congress intended the money.
In Massachusetts, HUD approved funding for 12 projects with a total of 640 subsidized apartments as the fiscal year came to a close, according to state officials. Five of the projects, with a total of 398 subsidized units, are to be built in the redistricted fourth congressional district where Republican Rep. Margaret M. Heckler, faces a strong reelection challenge from Rep. Barney Frank, a freshman Democrat who has been a thorn in the administration's side.
In Michigan, three new projects were funded at the last minute, according to state housing officials. All three projects were in Republican districts, including the 135-unit project in Grand Rapids that Sawyer and Pierce announced.
HUD also came up with money for a project in th Georgetown Township, in the western Michigan district of House Republican Campaign Committee Chairman Guy Vander Jagt.
"I think a lot of factors went into it," said Richard K. Helmbrecht, executive director of the Michigan State Housing Development Authority, conceding, "Probably a political rationale goes into a lot of the reasoning."
In Illinois, HUD scraped together funding for a 50-unit project in Peoria that benefits two political allies who helped kill the program that subsidizes the project -- House Minority Leader Robert H. Michel and Mayor Richard Carver. As the key member of the President's Commission on Housing, Carver helped justify the administration's decision to shut down the program.
Assistant Secretary of Housing Philip Abrams would not comment on HUD's end-of-the-year funding decisions. But R. Carter Sanders Jr., a deputy to Abrams, said the funding decisions were consistent with directives from the Office of Management and Budget and the intent of Congress. He said HUD could not and did not approve new funding commitments for political reasons or other purposes.
"As far as we know, we amended projects," Sanders said, referring to increases to cover higher financing or construction costs on projects which already have an initial funding commitment. "What the state agencies do after that you will have to ask them."
Under the Section 8 program, which was first authorized in 1974, HUD pays rent for privately owned apartments of behalf of low-income families. Under the new construction and rehabilitation components of the program, HUD makes funding commitments, or reservations, for individual projects through its own field offices or by providing set-asides to state housing agencies.
Early this year, the administration asked Congress to end the Section 8 program by rescinding a total of $9.4 billion. Congress complied in the fiscal 1982 supplemental appropriations bill. That bill killed funding for Section 8 new construction and substantial rehabilitation projects. The legislation left intact subsidies to be used with the Section 202 loan program for housing for the elderly and funds which had already been reserved for several thousand units.
With the approval of the supplemental appropriations, there was little support in Congress to reauthorize the Section 8 program for fiscal year 1983, which began Oct. 1. House Democrats wanted to replace it with a new rental housing production program, but the administration objected. The authorization for Section 8 and other low-income housing programs was allowed to expire. That made Sept. 30 the last day of the Section 8 program.
But HUD still had to contend with projects for which funding had already been reserved. Construction could not begin on many of the projects because of increased financing and construction costs. As of Aug. 31, about 1,100 projects with a total of roughly 65,000 units were in that category.
HUD made it possible for those projects to proceed by increasing the amounts of their subsidy reservations to cover increased construction costs. These increases in the original reservations are called cost amendments. HUD also increased reservations to accommodate higher mortgage interest rates through a regulatory mechanism known as the financing adjustment factor (FAF). These increases are called FAF amendments.
Under fiscal 1982 supplemental appropriations legislation, OMB authorized $5.5 billion in long-term budget authority for HUD to provide cost and FAF amendments for outstanding projects reservations. No funds were provided for new projects or to increase the number of units in projects which already had reservations.
The amendments process started slowly. But as the fiscal year drew to a close, it accelerated because of an Oct. 1 deadline for projects using the FAF to start construction. (The deadline was later extended to Jan. 1.) Fearing they might lose their projects, state agencies beseiged HUD with requests for amendment funds in order to start construction by Oct. 1.
As the end of fiscal 1982 approached, HUD officials kept in touch with the agencies by phone, attempting the meet demands for amendment funds before the Oct. 1 FAF deadline. The amount of amendment funds earmarked for projects being developed by state agencies was increased several times as that date neared.
"I don't think any of us really understood the scope of the demand that was there," Sanders said, explaining that the demand increased as developers and state agency administrators realized the FAF deadline might not be extended.
On Sept. 30, Sanders said, HUD realized still more amendment funds were needed. Assistant Secretary Abrams went to OMB in person to ask for the additional monies. Late in the afternoon, OMB agreed to Abrams' request and released another $390 million in long-term budget authority for amendments to state agency projects.
Abrams' staff immediately began allocating the funds to state agencies, earmarking millions of dollars in amendment funds for what were essentially new project commitments, some state officials contend. HUD officials began giving Sawyer and other congressmen the good news the same day, telling them projects that had appeared dead a few weeks ago had been funded after all.
State housing officials in Michigan, Massachusetts and California said they used essentially the same technique to make new funding commitments with allocations intended for amendments. They used surplus funds or money originally intended for other projects to attach token funding reservations to projects which had been pending for as long as a year or more without getting Section 8 status.
Walter Farr, executive director of the California Housing Finance Agency said HUD asked his agency to use funding left over from other projects to provide a token level of financing for several projects which had not been funded until then.
"We created some new ones and then got a substantial amount of amendment money to make those projects feasible," Farr said.
Although the original reservations were too small to make projects financially feasible, they made it possible to use amendment funds to bring the funding reservation to feasible levels. The agencies then asked HUD to provide enough amendment funds to make it possible to build the projects.
"We, in effect, assigned a certain number of units to each of 17 applications so there were a token number of units assigned to the jobs," said Richard K. Helmbrecht, executive director of the Michigan State Housing Development Authority.
Sanders said if funds were being usded for new projects he did not know it.
"Our objective was to fund FAF and cost amendments against the surveys we were running," he said. "The regulations provide state agencies may do certain things with their funding. It they created new projects, I don't know how they did it. You would have to ask them."
Some state agency officials, however, described a different scenario. They said HUD approved the provision of amendment funds on a project-by-project basis, preventing the agencies from making their own decisions about which projects to fund. In addition, the amendments granted to create new projects were for significantly larger amounts than legitimate amendments.
Sanders denied that political considerations played a part in the end-of-the-year funding decisions. But state agency directors were candid about the politics involved. A Republican congressional committee staff member added that HUD was under pressure from top administration officials, including OMB Director David A. Stockman, to fund the additional projects in areas with endangered Republican incumbents.
"They had an interest in jobs in certain areas," said John Blake Jr., executive director of the Massachusetts Housing Finance Agency. "We had an interest in jobs in some areas and we negotiated it out." Blake said the negotiations were handled through phone calls between his agency, HUD field offices and HUD's central office in Washington.
In deciding which projects to submit for funding, Blake said, his agency considered whether potential projects were in districts whose representatives were "friendly to the administration."
In Massachusetts, the big winner in the deliberations over which projects to fund was Heckler, an eight-term Republican representative from the state's former 10th District. She faces a strong reelection challenge from. Frank, who represents the old 4th District. They are running in the new 4th District, which was created during redistricting when the two districts were merged.
HUD used amendment funds to provide new subsidy commitments for 12 projects with 640 subsidized units in Massachusetts. Four of the projects with a total of 362 subsidized units are in Heckler's old and new districts, including two projects in Fall River and one each in Natick and Attleboro. A fifth project with 36 subsidized units is planned for Newton, which is also in the new 10th District. The town was in Frank's current district, but Heckler announced approval of the funding.
It is unclear how much money earmarked for amendments was used to create new projects, but a HUD official said the department allocated $300 million more than its own surveys showed was needed cost and FAF increases. Sanders said they are not yet sure how much money was spent for amendments or how that figure compares with the need for increases in reservation amounts.
If amendment funds were used as unhappy Democrats and some state officials say they were, the intent of Congress as stated in the report on the supplemental fiscal 1982 appropriations bill may have been violated, according to a Senate appropriations committee staffer.
An OMB official said Section 8 funding allocations from OMB "clearly precluded" use of amendment funds for new commitments. "HUD can't provide a state agency with additional funds for an increase of that magnitude," he said.
However, the official also said 1982 appropriations legislation did not outlaw the use of amendment funds for new projects. But, he added, "that clearly could have been interpreted as the intent of Congress. It certainly was the intent of the administration."