Abrams v. Hills

Citation547 F.2d 1062
Decision Date01 December 1976
Docket NumberNo. 76-2095,76-2095
PartiesHilda ABRAMS et al., Plaintiffs-Appellees, v. Carla A. HILLS, as Secretary of the United States Department of Housing and Urban Development, et al., Defendants-Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Robert S. Greenspan, Atty. (argued), Dept. of Justice, Washington, D. C., for defendants-appellants.

Catherine M. Bishop (argued), of National Housing and Economic Development Law Project, Berkeley, Cal., for plaintiffs-appellees.

Before BARNES, ELY and WRIGHT, Circuit Judges.

ELY, Circuit Judge:

This suit was instituted by residents of a multi-family housing project, Meyler Park, constructed with assistance provided under the National Housing Act, 12 U.S.C. § 1715z-1 (1970) (Supp. IV). The provision of that Act at issue in the present appeal established the "operating subsidy" program, a program that we shall explain. The Secretary of Housing and Urban Development (hereinafter the Secretary) refused to implement the "operating subsidy" program on various grounds, and in September, 1975, the plaintiffs, here the appellees, sued, 1 alleging that the failure of the Secretary to establish an initial operating expense level 2 for Meyler Park and to pay an "operating subsidy" was unlawful.

The District Court held that it had jurisdiction under 28 U.S.C. § 1361, and certified the suit as a class action on behalf of the named plaintiffs and all tenants of Meyler Park who paid "basic rent," as defined in 12 U.S.C. § 1715z-1, in excess of 25 percent of their adjusted family income. The court then held that the Secretary was required to provide an "operating subsidy" to Meyler Park and ordered the Secretary to: (a) establish an initial operating expense level for Meyler Park; (b) to pay a subsidy to Meyler Park, retroactive to February 18, 1975, equivalent to the difference between the initial operating expense level and the cost of present reasonable and comparable property taxes and utilities.

The Secretary appeals, contending that the court erred in requiring her to establish an initial operating expense level and to pay an operating subsidy to Meyler Park and that, in any event, the court erred in requiring that such payments be made retroactive to February 18, 1975.

STATUTORY BACKGROUND

The national housing goal, as expressed in the Housing Act of 1949 is "the realization as soon as feasible of . . . a decent home and suitable living environment for every American family." 42 U.S.C. § 1441 (1949). That act provides that the agency of Housing and Urban Development ("HUD") "shall exercise (its) powers, functions and duties under this or any other law, consistently with the national housing policy declared by this act and in such manner as will facilitate sustained progress in attaining the national housing objective hereby established. . . ." 42 U.S.C. § 1441.

In furtherance of that goal, and in realization that the national housing objectives were not being achieved, Congress, in 1968 As the program was initially designed, tenants in Section 236 housing projects would pay the greater of 25 percent of their adjusted income (as defined in 24 C.F.R. § 236.2) or "basic rent" calculated on the basis of operating the project under a mortgage bearing interest at one percent per annum. 3 12 U.S.C. § 1715z-1(f)(1)(A). But no tenant would pay more than the "fair market rent," which is computed upon the project's operating cost under the existing mortgage at the commercial interest rate. 12 U.S.C. § 1715z-1(f)(1)(B).

enacted the Section 236 federally-subsidized housing program, 12 U.S.C. § 1715z-1, which was designed "to assist families with incomes so low that they could not otherwise decently house themselves." In particular, the Section 236 program was enacted "(f)or the purpose of reducing rentals for lower income families," 12 U.S.C. § 1715z-1(a), by providing for federal mortgage insurance and interest reduction payments to project owners so that rental rates to the tenants could be lowered accordingly. By this means, Section 236 encouraged private enterprise to develop low-cost housing, and, in exchange for these benefits, project owners agreed to maintain low rentals for tenants, and to be regulated by HUD with regard to leases, rent raises, and other operational activities.

Consistent with this scheme, direct financial assistance 4 is provided to project owners in the form of periodic interest reduction payments, which is the sum necessary to reduce the effective interest rate to one percent per year. 12 U.S.C. § 1715z-1(c). The interest reduction subsidy payment is made directly to the mortgagee on behalf of the project owner. The benefit of the interest reduction subsidy is passed on to the tenants in reduced rents. 12 U.S.C. § 1715z-1(f).

Pursuant to the statute, the Secretary is granted broad authority to promulgate regulations, 5 12 U.S.C. § 1715z-1(e), and to enter into such agreements as she deems necessary or desirable in order to administer the program. 12 U.S.C. § 1715z-1(h). Pursuant to this latter authority, the Secretary's agreement with the mortgagor in this case provides that no change will be made in the basic rental or fair market rental unless approved by HUD. If the owner wishes to increase the rental charge above the maximum permitted by HUD, as a result of increases in taxes or maintenance costs, it must submit a written request properly supported by substantiating evidence.

Funds for the Section 236 program are provided by means of "contract authority," a process by which the Secretary enters into a commitment for the payment of federal funds both immediately and in the future, up to a stated limit, prior to an appropriation of funds for the liquidation of such commitments.

The expenditure of funds through the use of "contract authority" involves four steps. First, the basic statute establishing the program authorizes the use of contract authority. Second, the Congress, in a separate appropriation statute, releases this contract authority by authorizing the Secretary to utilize the contract authority up to a specified amount. The Secretary then may enter into contracts to make annual payments for the Section 236 program up to the limit established in the appropriation act. Finally, Congress appropriates a specific amount from the Treasury to make payments to liquidate the contracts which the Secretary has made.

The 1974 Amendments. By means of Section 212 of the Housing and Community At issue here is another amendment contained in Section 212 of the 1974 Act. The amendment established the "operating subsidy" program and authorized the Secretary "to make and to contract to make" assistance payments to a Section 236 project owner, in addition to the interest-reduction payment, in an amount up to the amount by which the sum of the cost of utilities and local property taxes for the project exceeds the project's "initial operating expense level." These operating subsidies may be made to a Section 236 project owner only to the extent that there are tenants residing in the project who pay more than 30 percent of their income for rent, 7 and the maximum amount of the operating subsidy payment authorized is the amount necessary to reduce the rental charges of those tenants who pay more than 30 percent of their gross income. Finally, no payment may be made unless the Secretary determines that the increased costs are reasonable and comparable to cost increases affecting other rental projects in the community. 12 U.S.C. § 1715z-1(f)(3). 8

Development Act of 1974, P.L. No. 93-383, 88 Stat. 672, the Congress amended the National Housing Act in several respects. One of these amendments to Section 236 established the so-called "deep subsidy" program. The amendment provided that, as to 20 percent of the dwelling units in any Section 236 project constructed pursuant to a contract entered into after the effective date of the Act, the Secretary "shall make and contract to make" additional assistance payments to the project on behalf of tenants whose incomes are too low to enable them to afford the basic rental with 25 percent of their income. 12 U.S.C. § 1715z-1(f)(2). The Secretary has implemented this program, and has estimated that it will require $29 million in contract authority to fund the program for fiscal year 1976 and the transition quarter. 6

The amendment further provided for the establishment of an initial operating expense level for each project; for any project assisted under a contract entered into prior to the date of the enactment of the Housing and Community Development Act of 1974, the Secretary was directed to establish the level not later than 180 days after the effective date of the Act. 12 U.S.C. § 1715z-1(g). Because Meyler Park was an existing project at the time of the enactment of the 1974 amendments, the initial operating expense level should have been established not later than February 18, 1975.

Congress also created a specific reserve fund for the Secretary's use in making "operating subsidy" payments. Prior to the 1974 amendments, a project owner was required to pay to the Secretary all rental charges collected in excess of basic rental charges. 12 U.S.C. § 1715z-1(g). These funds were deposited in a special revolving fund which could be utilized by the Secretary for the liquidation of contracts to make interest reduction payments subject to the limitation contained in any appropriation act. Under the 1974 amendment, the amount contained in the reserve fund could be used by the Secretary to make "operating subsidy" payments only. 9 The conditions under which the Secretary could spend the reserve's funds, as of February 18, 1975, constitutes the major aspect of the controversy before us now.

MOOTNESS

Initially, the Secretary argues that the controversy became moot on July 1, 1976. On that date, 89 of the 99 units of Meyler Park became recipients of a Section 8 assistance contract from HUD....

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