Guide to Financing Supportive Housing:
Department of Housing and Urban Development-Section 8 Moderate Rehabilitation Single Room Occupancy (SRO) Program

INTRODUCTION
PROGRAM DESCRIPTION
REGULATIONS/GUIDELINES
ADMINISTRATIVE AGENCIES
ELIGIBILITY INFORMATION
GRANT/LOAN TERMS
APPLICATION PROCESS
CDFA CODE
AUTHORIZING LEGISLATION/STATUTE
ADDITIONAL RESOURCES

The Section 8 Moderate Rehabilitation SRO Program provides rental subsidies for homeless persons in SRO projects that have undergone moderate rehabilitation (at least $3,000 per unit).  An SRO unit is a one-room unit intended for occupancy by a single individual.  It is distinct from a studio or efficiency unit, in that a studio is a one-room unit that must contain a kitchen and bathroom.  An SRO unit is not required to have either one, although many may have one or the other.

Unlike Shelter Plus Care (S+C), the tenant does not have to have a chronic disability, and the subsidies are tied to the project, not the tenant.

This rental assistance program has a term of 10 years, so it is attractive for supportive housing, and combines well with tax credits (given the longer term of contract).  The fair market rent (FMR) is based on 75% of the FMR for a studio (0 bedroom) apartment.  Administrative responsibility lies with the local public agency operating the Section 8 Program, usually the public housing authority (PHA).

This program is an excellent source of rental subsidies for permanent supportive housing, given its relatively long term, stability (since it’s project-based) and its flexibility.  However, it is less attractive than other Section 8 programs or S+C for studio (self-contained) apartments, since is uses the lower FMR for SROs. 

This is a competitive grant program that functions within a formula allocation.

The Section 8 Moderate Rehabilitation Single Room Occupancy (SRO) Program is one of three sources collectively known as Continuum of Care funding (the other two are the Shelter Plus Care and Supportive Housing Programs).  These programs are also often referred to as HUD McKinney funding or Targeted Homeless Assistance Programs.

HUD awards funding to Local Housing Authorities (LHAs), who enter into contract with the owners of SRO properties.  The owner rehabilitates the units, and Housing Authority makes Section 8 rental assistance payments on behalf of homeless individuals who rent the rehabilitated dwellings. The rental assistance payments cover the difference between the tenant’s share of the rent (30% of their income) and the Fair Market Rent for the unit as established by HUD.   The rental assistance also pays for any debt service for any funds borrowed by the owner to rehabilitate the units. 

24 CFR Part 882
http://www.access.gpo.gov/nara/cfr/waisidx_04/24cfr882_04.html

Program guide:  http://www.hud.gov/offices/cpd/homeless/library/sro/finalguidepdf.pdf 

Department of Housing and Urban Development, Office of Community Planning and Development, Office of Special Needs Assistance Program (SNAPS)  (202) 708-4300  http://www.hud.gov/offices/cpd/homeless/programs/sro/index.cfm

State/Local:

For local Continuum of Care contact information, go to: http://www.hud.gov/offices/cpd/homeless/programs/cont/coc/index.cfm 

ELIGIBILITY INFORMATION

Eligible Target Populations:

Only homeless persons may receive assistance in Section 8 Moderate Rehabilitation SRO projects.  The definition of homelessness that applies to this funding source may be found here: http://www.hud.gov/offices/cpd/homeless/library/sro/understandingsro/eligibleparticipants.cfm

Eligible Projects/Programs:

• The structure may be of any type, but when rehabilitation is completed, the unit must meet the definition of SRO housing.   SRO housing is defined as a residential property that includes multiple single room dwelling units. Each unit is for occupancy by a single eligible individual. The unit need not, but may, contain food preparation or sanitary facilities, or both.
• Studios (efficiency units) are also eligible unit types, but the owner does not receive any additional rent than if the units were SROs.  In other words, HUD will still base the amount of the rental subsidy on the fair market rent for an SRO unit, which is only 75% of the fair market rent for a studio unit.  One-bedroom units are not eligible for assistance.
• Each assisted unit in the structure must require a minimum of $3,000 of rehabilitation, including its prorated share of work to be accomplished on common areas or systems, to meet HUD’s Housing Quality Standards (HQS).  The maximum cost of rehabilitation is $19,000 per unit.
• At least 25% of the units must be vacant at the time of application so that a significant number of the units are immediately available for homeless individuals.  This requirement presents a significant barrier for many supportive housing sponsors, as it is difficult to locate existing SRO buildings that have such high vacancy rates.
• No project may contain more than 100 assisted units.

Eligible Use of Funds/Activities/Types of Assistance:

The only eligible use of funds under this program is for rental assistance.  Sponsor/owners must secure funding to cover rehabilitation costs from other sources.   However, owners receive an additional amount of rental assistance to cover the any debt service associated with the rehabilitation.

Eligible Applicants/Sponsors:

Only a locally constituted Continuum of Care may apply to HUD for CoC funding, which includes requests for SRO, S+C and SHP funds.  (Technically, HUD does allow an individual organization to submit a “solo” application for SHP funding, but such proposals, since they are not submitted as part of an overall Continuum of Care plan, will rarely, if ever, receive funding.)   Please see the general introduction for further information about CoC plans and CoC funding.

Applicants eligible to request SRO funds through the local CoC process and receive an award from HUD include:

• Housing Authorities.
• Non-profit organizations, which must contract with the local Housing Authority for administration of the SRO rental assistance.

GRANT/LOAN TERMS

Minimum/Maximum Awards:

The grant amount is based on the number of units in the project and the HUD determined Fair Market Rent for SRO units, which is 75% of HUD Fair Market Rent for a studio unit.  Owners receive an additional increment of rental assistance above the Fair Market Rent to cover the costs of debt service for eligible rehabilitation costs.

Average Awards:  Award info for years starting 2002 available here.

Term of Awards:

The contract between the LHA and the owner allows one year for completion of the rehabilitation and provides 10 years of rental assistance.   The contracts are renewable at the end of the 11-year term. 

Matching Requirements:

• There are no set matching requirements for individual SRO projects, but the sponsor must secure funding for the rehabilitation from sources other than the SRO Program.
•  Use of leveraged resources is among the criteria used to score the overall CoC plan.  CoCs are strongly encouraged to seek out mainstream resources to support activities within their housing and service system.

Formula:

HUD allocates for each CoC a certain “pro rata need” funding amount.  The pro rata need is calculated based on a formula that uses the same indices of need as are used in the CDBG program (including such factors as poverty and poor housing conditions).  The pro rata need is adjusted to help communities meet the burden of renewing existing SHP and SRO grants.  In past years, HUD has also incentivized the creation of permanent supportive housing by giving an additional pro rata need adjustment to communities who place a new permanent housing project first on their ranked list of projects.

While SRO grantees ultimately receive their awards directly from HUD, they must apply for funding through their local Continuum of Care process.  Each year, as part of the SuperNOFA, HUD issues a NOFA announcing the availability of Continuum of Care funding.  CoCs are required to conduct a community-based planning process to determine goals and strategies for addressing homelessness and priorities for funding for the coming year.  The CoC also is required to conduct a broadly publicized application process whereby individual project sponsors submit proposals to the CoC, which rates and ranks all applications received.  The CoC then submits its CoC Plan along with a ranked set of funding applications to HUD.  HUD awards funding to projects in the order they have been ranked by the CoC, up to the community’s adjusted pro rata need amount.

CoCs have the option of electing to have all CoC funding granted to a unit of local government (such as a County Department of Human Services), which then enters into subcontracts with the individual project sponsor.  Very few communities employ this option, as sponsors typically prefer to receive funds directly from HUD and counties generally prefer not to take on the burden of administering the grant funds. 

McKinney-Vento Homeless Assistance Act of 1987, Title IV, as amended, see section 441. http://www.hud.gov/offices/cpd/homeless/rulesandregs/laws/title4/sec11401.cfm 

HUD Guidebook on Section 8 Moderate Rehabilitation SRO Program (also noted above)

Continuum of Care NOFA: http://www.hud.gov/offices/adm/grants/fundsavail.cfm

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