Affordable housing advocates are on high alert as they predict the federal funding that covers the rent for thousands of New York City residents will dry up this autumn, but property managers and federal officials, while concerned, are more confident that affected tenants will be able to keep their apartments.

The looming problem is a $2.4 billion shortfall at the Department of Housing and Urban Development (HUD), endangering rent payments for low-income renters in the project-based Section 8 program, who pay 30 percent of their adjusted monthly income to landlords and have the balance provided by the federal government. But poor fiscal management by HUD, advocates assert, has left the agency in such straits that it sent letters to some Section 8 landlords telling them payments could end by Sept. 30, 2008, the end of the current fiscal year. They say landlords in turn informed some tenants that they’ll soon have to pay regular market rate for their apartments, as much as five or six times their current rent portion.

Michael Kane, executive director of the Boston-based National Alliance of HUD Tenants, sounds a clear note of alarm. “People will be out in the street, and that could be as early as this summer,” Kane said.

Representatives of the landlords said to be threatened – while distressed about what they see as HUD’s persistent underfunding – anticipate less dire outcomes. The head of an organization of affordable housing owners and agencies says the she’s more worried that the apparently insecure funding stream from HUD will cause banks not to back the investments Section 8 building owners want to make in building preservation.

“It’s going to have an impact on how long we can keep these properties in the inventory,” says Denise Muha, executive director of the National Leased Housing Association (which joined in testimony on the issue before the U.S. Senate Banking Committee this month). Meanwhile Susan Camerata, chief financial officer of the local affordable housing company Wavecrest Management, says she’s aware of just one Section 8 building owner in uptown Manhattan who’s said she’s leaving the program since the HUD letters went out.

Tenants, activists and elected officials spoke out in Greenwich Village last week – in tandem with similar events around the country – to fight for federal funding to fill the gap. At a rally at Judson Memorial Church on Wednesday, residents were joined by local U.S. Reps. Jerrold Nadler, Nydia Velazquez and Yvette Clarke, who voiced frustration with the Bush administration’s handling of the budget. Nadler and Velazquez co-authored a letter, signed by 36 House members, urging the Transportation, Housing and Urban Development subcommittee of the House Appropriations Committee to advocate for full funding of the program in fiscal year 2009, which begins Oct. 1, 2008. Sent last week to subcommittee chairman John Olver, a Massachusetts Democrat, and ranking member Joe Knollenberg, a Michigan Republican, the letter calls for an advanced appropriation and increased discretionary funding to cover the missing $2.4 billion.

“Bush is saying, ‘subsidized housing, that’s socialism,’” Velázquez told the ralliers, who nearly filled the main sanctuary at Judson. “People are working two, three, four jobs, and still they can not afford to pay rent in New York City. It is okay to go out and rescue Bear Stearns, but not working people.”

In addition to Wall Street’s meltdown, the officials referenced the costs of the Iraq War—the five-year anniversary of which was the same day, March 19. Nadler elicited a loud response from the crowd when he said the $2.4 billion budget shortfall is the equivalent of less than one week of war expenses. Clarke also blamed Bush administration priorities. “We face a heartless, a very cold administration that has been … putting people with no sense in charge of these big administrative agencies,” she said.

According to a study released this month by the Center on Budget and Policy Priorities in Washington, the project-based rental assistance program “has been enveloped in a funding crisis since 2007,” a year in which HUD’s fiscal 2008 request was $2.6 billion shy of what was needed for Section 8 contract renewals. Through its project-based program, HUD contracts with more than 18,000 private owners of multi-family buildings across the country. For 80 percent of these contracts – serving more than 900,000 tenants nationwide – HUD’s payments to landlords come out of the agency’s annual appropriations from Congress as requested in the president’s budget (whereas 20 percent come from multi-year appropriations, a separate matter). The “project-based” – or building-based – program is administered by HUD in addition to its tenant-based Section 8 program. In the project-based version, HUD contracts directly with property owners to make the subsidy available to any eligible family residing in the building, whereas in the tenant-based program, a family can use a voucher to apply the subsidy wherever they find housing.

At a Congressional hearing in Oct. 2007, a top HUD official acknowledged the agency’s budget request for fiscal year 2008 was not sufficient to pay contracts for a full 12 months. Testifying before the Housing and Community Opportunity subcommittee of the House Committee on Financial Services, HUD Chief Financial Officer John W. Cox said the agency anticipated making up the difference using an account of excess funds recaptured from expired, but already budgeted, contracts. But the recaptured funds only allowed the agency to pay landlords through the end of the fiscal year, rather than the full 12 months of the contract. Landlords were notified that the contracts would be “short-funded” and that payments beyond the end of the fiscal year were contingent on the next fiscal year’s appropriations. The uncertainty over funding at HUD resulted in late payments to landlords, meaning that some building owners were unable to cover operating costs.

Where advocates predict catastrophe, HUD remains confident that it will be able to pay the contracts. “We have sufficient funding for this program through this fiscal year, and we’ve sought sufficient funding for fiscal year 2009 from Congress to make good on all our contract obligations,” HUD spokesman Brian Sullivan said last week. Sullivan attributed the perception of budgeting error to a misunderstanding of the government budgeting process. “This is a budget debate, and it all comes down to fiscal calendars versus normal, everyday calendar-year calendars. Washington runs on the fiscal year.”

Congressional staffers say the accounting issues are disappointing and frustrating, but they also do not see tenants losing their homes.

Landlords might not wait to find out what comes of budget hearings and negotiations, however. Some landlords may point to the uncertain funding and late payments from HUD as a reason to shortchange building maintenance and upkeep, housing advocates say, while others may want to opt out of the program altogether. According to Dina Levy, organizing director at the Urban Homesteading Assistance Board, eight New York City landlords, providing homes for over 700 families on Section 8, opted out of the program in the weeks after receiving the initial letter from HUD. The CBPP report estimates that a total of 9,500 families, or 10 percent of all project-based Section 8 recipients in New York City, are at “high risk” of displacement because they’re in gentrifying neighborhoods where landlords will be particularly eager to capitalize on a hot market Recipient families have a median income of $11,664, and 82 percent of them are people of color, according to the housing advocacy group Tenants and Neighbors. The crowd at last week’s rally reflected the diversity of New York’s Section 8 tenants, with nearly as many participants speaking Chinese as Spanish.

Though displaced families are guaranteed a Section 8 voucher to use elsewhere, Levy said, it is unlikely they’ll be able to afford to stay in their current locations.

Tenants’ fate should become clearer when Appropriations, the House committee that will ultimately decide the House’s funding for the program, holds its budget hearings next month. “We are confident this will be resolved,” says Brian Sullivan of HUD. “It will require that Congress approves the budget in a timely manner, or if not possible at least acts promptly with a continuing resolution to keep government operating. We’ve made commitments to landlords and we respect those commitments.”

But Kane of the HUD tenants’ group says, “Unless there’s an emergency appropriation of $2.4 billion this year, we’re afraid HUD’s going to run out of money again.” Although landlords received the HUD letters over the summer, and the Congressional hearing was held last fall, Kane said the complexity of the issue is one reason the nationwide protests just took place last week. “Part of it is, it’s a very difficult thing to explain,” he said.

Many ralliers seemed to draw strength from the crowd and showed that they were ready for the upcoming struggle. “We have to keep fighting, fighting, fighting. I am,” said Mattie Mercer, a 37-year Section 8 resident of a Harlem apartment building that has announced plans to go market-rate. “You know how hard it was on these knees of mine to get up and down those stairs? But they did. You just have to keep fighting.”

– Matt Schwarzfeld

Additional reporting contributed by Karen Loew.

Disclosure: City Limits is a sub-tenant of the Urban Homesteading Assistance Board, mentioned above.